Objectives: The authors explore how large pharmaceutical corporations may integrate emerging decentralized technologies-such as blockchain and decentralized autonomous organizations (DAOs)-within their merger, acquisition and partnership frameworks, and how these strategies intersect with broader innovation and external sourcing models. In this context, blockchain is considered primarily as an enabling infrastructure for decentralized governance and programmable coordination-supporting mechanisms such as tokenized incentives, auditable decision trails, and new forms of intellectual property (IP) and collaboration structures. Methods: This study employed a qualitative case study methodology, combining document analysis and semi-structured interviews with internal stakeholders from a leading large-cap pharmaceutical company (herein after "Company"). Participants included executives and professionals from corporate development, scientific research, external innovation, and digital strategy units.The analysis examined how a large-cap "Company" approaches mergers, acquisitions, and partnerships, and how emerging technologies may influence these frameworks. The study focused on strategy alignment, organisational attitudes towards decentralisation, integration constraints, and perceptions of innovation value along the external sourcing continuum. Results: Acquisition and innovation strategy by the "Company" is driven by long-term alignment between external opportunities and internal priorities. Over time, the "Company" increasingly turned to external sources of innovation, leveraging technologies to improve innovation scouting, target identification, and operational forecasting. While decentralisation technologies such as DAOs are viewed as promising for early-stage innovation and collaboration, their integration is hindered by legal ambiguity, internal governance rigidity, and unfamiliarity with token-based economics. The "Company" views mergers and acquisitions (M&As) and licensing as critical to sustaining its pipeline, and sees potential for emerging technologies to accelerate preclinical decision-making and improve visibility into academic and biotech ecosystems. Conclusions: This study contributes insights into how large-cap pharmaceutical firms might adapt their innovation models in response to technological change and external pressures. While established mechanisms such as M&A and partnerships remain dominant, digital and decentralized technologies offer complementary tools for scouting, collaboration, and portfolio expansion.
The rising cost of drug development and the monopolization of pharmaceutical intellectual property have contributed to opaque pricing and limited access to life-saving therapeutics. This paper introduces VitaDAO, a novel decentralized autonomous organization (DAO) designed to address critical inefficiencies in early-stage biopharmaceutical research and drug pricing. By leveraging blockchain technology, token-based governance, and IP tokenization through NFTs, VitaDAO democratizes the funding and ownership of longevity-focused therapeutics. The model aligns incentives across patients, researchers, and investors, fostering open science and equitable commercialization pathways. It proposes a new framework for holding, funding, and managing pharmaceutical IP and research data that seeks to reduce drug prices, enhance transparency, and accelerate access to innovative therapies. This work sits at the intersection of health economics, pharmaceutical RD, and decentralized governance, offering a disruptive alternative to traditional pharma business models.
This article examines how artificial intelligence and decentralized technologies can transform healthcare supply chains to enhance national biosecurity. A comprehensive framework integrating predictive analytics, autonomous logistics, and distributed manufacturing is presented to create resilient healthcare ecosystems capable of withstanding pandemics, geopolitical conflicts, and cyber threats. Long Short-Term Memory networks and reinforcement learning algorithms offer unprecedented capabilities for demand forecasting and resource allocation, while Graph Neural Networks optimize medical distribution routes with improved efficiency. Blockchain technology provides tamper-proof transparency throughout pharmaceutical supply chains, and additive manufacturing enables localized production of critical supplies during disruptions. Digital twin simulations allow healthcare organizations to anticipate potential shortages before they materialize. Implementation challenges include data interoperability barriers, infrastructure limitations in developing regions, algorithmic bias risks, and data privacy concerns, all of which can be addressed through standardized exchange formats, coordinated investment strategies, formal fairness assessments, and federated learning approaches.
Blockchain is a relatively new technology, and its implementation in the life sciences industry is no different. Some of these cases are still in the piloting program stages, but others have already been adopted by life sciences organizations, justifying the emerging need in the field, which is still in its infancy. Blockchain is becoming more important in many different fields and organizations, with a growing influence on pharmaceuticals, biotechnology, and medical device companies. Through this chapter, we will gain a greater understanding of the current applications, future trends, investment areas, and key characteristics of existing life sciences use cases, as well as existing models and platforms of blockchain. About 1524 industry professionals and leaders from relevant functions participated in the survey, 68 which was designed as a global survey. Whether companies already run processes using blockchain technology or not, the chapter examines the impact of these changes on companies with or without blockchain strategies. A study supported by an online survey analyzing the current adoption and application of blockchain will provide key conclusions on how the technology is becoming more prevalent in many life sciences fields despite the challenges it faces. Using the data collected to support the conclusions of this study, the analysis found that a substantial percentage of life sciences leaders and professionals are already aware of blockchain and considering implementing it in the next years. Furthermore, it allowed us to understand that the industry is already comfortable with blockchain, and the mentioned use cases and opportunities gave us very reliable research regarding the most relevant application areas and key considerations for the future. By analyzing the survey results and understanding all the connections and relationships collected from respondents, the interconnectedness between blockchain and the industry is revealed.
Ronny Hauf, Robert Miehe, Oliver Schöllhammer, Thomas Bauernhansl
Biological transformation represents one of the most promising optimization strategies for a sustainable economy. The rapid convergence of biotechnology, information technology and production technology provides a vast area of innovation. From an economic and innovation policy perspective, cooperation structures and value creation systems will change significantly in a biointelligent transformation process. In the future, many industries will produce personalized products in a much more decentralized manner based on locally provided, renewable resources using autonomous non-expert systems. Such a profound change affects not only products and processes but also the organization of companies and how innovations are evaluated and implemented. In this paper, we thus discuss the need for a reorientation of innovation management in companies in the context of biological transformation. This article focused the central question of how the innovation management can change in the context of biointelligence so that companies can be helped to invest strategically in biointelligent innovations. We then outline the basic elements of a framework and discuss key challenges for future research and development. In this paper, we present initial thoughts on a framework for the management of biointelligent innovation that aims to solve the complex requirements of BioIntelligence. Our approach is based on a holistic view of different methods and techniques to provide a comprehensive solution to the challenges. We discuss the basic concepts and goals of this framework as well as potential application areas and challenges. Furthermore, we present first approaches for implementation and evaluation.
The authors review the literature surrounding the economics of rare disease drug development and access before advancing the case for novel approaches to funding treatments. To fund the next stage of rare disease drugs, which will likely center on gene therapies and molecular medicine, they discuss value frameworks as well as patient-led models of finance, and how these may fit into the existing frameworks in the US to incentivize rare disease drug development and access. âRare Diseasesâ, sometimes called âOrphan Diseasesâ, are those with low prevalence; a systematic review comparing definitions of Rare Disease found the prevalence definition averages around one case per 1700 people, although a common US definition often cites fewer than 200,000 people must be affected by a disease for it to be considered rare.1 Despite low prevalence of each disease fitting this definition, about 1 in 10 Americans, or 30 million, are thought to have been diagnosed with a rare disease, compared to the overall prevalence of much more common diagnoses such as diabetes which affects 10.5% of the US population. Striking in contrast, though, is the consideration that within the ârare diseaseâ population exist 7000 or more distinct diagnoses. From a drug development perspective, the primary challenge to this market remains the balance of funding R&D while market opportunities on the commercialization end remain constrained by small patient populations (i.e., small market sizes). Financial incentives for rare drug development in the US were codified in the 1983 Orphan Drug Act (ODA), which includes tax credits, waives Food and Drug Administration (FDA) user fees, and increases marketing exclusivity for rare indications. A mosaic of programs now exists in the US to de-risk and incentivize rare disease drug development, including voucher programs (e.g., for rare pediatric diseases), grant programs (e.g., enabled under the Rare Disease Act of 2002), Small Business Innovation grants/contracts, targeted research efforts (e.g., Rare Cancer Moonshot) and others mentioned below, and regulatory pathways (e.g., Accelerated Approval). Outside of the US, incentives for development, as well as patient access to resulting treatments, vary widely by country and region. To explore economics and value in rare disease drug development, the authors consider the historical context, current trends, present-day landscape, including insurance coverage and reimbursement trends and âvalue frameworksâ as well as patient-led models of finance, and examine novel methods for rare disease funding and access as well as the âpatientâeconomistâ perspective given that both authors are economists and rare disease patients. The current trend of patient-led activism in rare disease financing and discovery is not new, and continues the work led by the National Organization for Rare Disorders (NORD) in the 1980s that resulted in passage of the ODA in 1983. Key ODA provisions include 7-year market exclusivity for orphan drugs, tax credits, development grants, fast-track approval, and waivers of PDUFA fees (a category of FDA user fees for drug developers). Some debate exists regarding whether increased development and discovery in rare disease over the past several decades, particularly with regards to repurposed molecules, is due chiefly to the ODA or to other market and landscape forces. While some researchers have argued that the ODA has not significantly impacted market exclusivity for drugs that would have patent protection regardless of the legislation, others have shown the increase of rare disease approvals as an indicator of the ODAâs relative success.2, 3 Meanwhile, as the rise of âprecision medicineâ based on molecular diagnostics and next-generation sequencing technologies influences clinical decision-making and patient population definition, potentially more and more diseases, including subindications of more prevalent conditions, can be categorized as âorphanâ; as an example, nearly half of requested orphan designations are for rare cancers.4 Rare disease products are comparably more available to US patients than to patients in other countries (primarily due to broad FDA labeling), yet US patients still face a number of barriers, financial and otherwise, as detailed in a 2020 report commissioned by NORD. Given the rising volume of rare disease designations of drug candidates, with 753 in 2020, pressure for market and patient access to rare disease drugs is likely to accelerate in the coming years, along with significant debate as to what constitutes âvalueâ in a rare disease drug. Haendel et al. state that there are approximately 7000 rare diseases according to common classification procedures, but the authors estimate the actual number is closer to 10,000.5 The sheer number of rare diseases, not to mention the paucity of research available on many of these illnesses, creates enormous challenges in drug development. Since much pharmacological research is undertaken by for-profit entities, a large number of rare diseases are never investigated for treatment simply because they afflict so few people. Investing millions of dollars into research to target a disorder affecting 50 people across the globe is unlikely to provide the return on investment sought by the biopharmaceutical industry. Shareholders of public biopharma firms represent another hurdle to pursuing rare disease drug development as such investors are often focused solely on financial returns. Much rare disease drug development resides within smaller biotechnology companies. These firms, often privately held, face fewer demands for immediate earnings and have lower overhead costs than global pharmaceutical companies. After developing a promising drug candidate, such a biotech may be acquired or choose to go public to access the resources necessary to complete clinical trials. Typically, though, we see rare disease treatments marketed by major pharmaceutical companies only after the acquisition of an original developer. This process is certainly unique and frequently suboptimal overall. A recent trend is in patient groups, or in some cases individual patient advocates, seeking to create their own collaborations, funds, and research networks to address rare diseases. In some cases, these patient-led models are blending âtraditionalâ venture-backed biotech approaches with philanthropic funding, cooperatives, and other models to create new and innovative means to accelerate discovery and approval, simultaneously seeking to prioritize the patient perspective. The Rare As One Network, for example, funded by the Chan Zuckerberg Science Initiative, backs 30 grantee patient organizations that are taking on activities usually left to venture-backed biotech, such as pharma partnership development, launching and maintaining clinical registries, building biobanks and tissue repositories, and starting clinical trials. Often, these novel approaches to early-stage development financing are paired with innovations in the development pathway, including âdecentralizedâ or âjust in timeâ clinical trials that allow trials to be opened on a one-off basis across a network of satellite sites so that patients can be accrued without having to travel to a central location, which previously limited trial access and accrual to large research hospitals. Other patient-led innovations include networks for data sharing and analysis, including RARE-X, NORD IAMRARE, and Genetic Alliance PEER, that enable patients to share personal health data with researchers and industry. Few academic publications have thoroughly addressed US insurance coverage and reimbursement trends for rare disease, although the topic is a frequent area of focus for private-sector research and publication. A 2020 study from University of Michigan found that while spending on rare disease therapies increased from 2013 to 2018, patient out-of-pocket costs did as well, nearly doubling from $486 to $866 per year.6 However, coverage across plans is highly variable, with restriction frequency for orphan drugs ranging from 11% to 65% in a 2019 study.7 An earlier study found that 93% of orphan drug approvals are covered by payers, but formulary management and utilization management may lead to restrictions, high cost shares, and similar mechanisms that impact access to such products.8 Assessing the âvalueâ of rare disease treatments presents numerous challenges and is a topic of debate not only in the US but in countries with more formalized Health Technology Assessment (HTA) programs that determine insurance coverage or approval for new therapies. Small population sizes in clinical trials, limited experience with the best outcomes or endpoints to measure in such trials, the lack of existing treatments for many rare diseases, limited validated quality-of-life measurement instruments for rare disease populations, and challenges to project forward how new treatments will impact health utilization and other costs make HTA particularly difficult. The rare disease community has been vocal in criticizing use of measures such as cost-per-QALY (quality-adjusted life year), a perspective that has been supported by research demonstrating the insufficiency of such metrics in rare disease and the risk that applying them will lead to unjust policies for rare disease patients.9 Health economists have encouraged the use of broader elements beyond those typically included in cost-per-QALY assessments when evaluating the value of rare disease therapeutics. Alongside innovation coming from patient-led research and development groups, a number of academic and nongovernmental organizations have proposed or pioneered innovative funding models for rare disease drug development as well as business models that reduce risk and channel financing more efficiently. As a real-world case study, academics and venture capitalists alike have pointed to BridgeBio, a rare disease drug company with a portfolio model that reduces risk of developing only one molecule as traditional biotech companies often do. Other novel methods include crowdfunding, âventure philanthropyâ that blends venture capitalâs search for returns with a philanthropic and social-impact mindset, incentive prizes, disease-specific venture funds, and social impact bonds (SIBs). From the pricing perspective, researchers have proposed a number of mechanisms to allow for risk sharing, including value-based or outcomes-based contracts or cost-based yardstick pricing.10 While the high price of rare disease therapies can create âsticker shockâ among the public and politicians, the authors believe it is important to consider the relevant context, emphasizing previous health economic research that has cautioned against applying an overly utilitarian view to rare disease drug development and patient access. The long-term economics and value of rare disease treatments are particularly critical to understand as they evolve over time and not be measurable (although they are possible to model) at the time of drug approval. For example, the cost of a single dose of Zolgensma (onasemnogene abeparvovec-xioi) is over $2.1 million. The uproar following the approval of this drug was immediate, ferocious, and focused singularly on the price. A more comprehensive analysis, however, reveals important details about the economics of the treatment. While onasemnogene abeparvovec-xioi is a one-time treatment, the alternatives require continued doses for life. Evrysdi (risdiplam) costs $3.4 million for one decade of treatment, and Spinraza (nusinersen) costs over $4.1 million for 10 years of therapy, plus the cost of spinal injections. The full scope and cost of all available drugs to treat a disease, as well as the secondary costs and benefits such as avoiding additional hospital stays or reducing other therapies, should be fully assessed before declaring a treatment âunaffordableâ in the court of public opinion. Ultimately, the authors would agree to prioritize the development of rare disease drugs that cure or significantly alter the trajectory for the most serious and debilitating conditions affecting humanity, regardless of the size of population affected. We should always value patients by putting them at the center of development, approval, and treatment decisions. On a macro level, drugs that dramatically reduce the lifetime cost of treating rare diseases are also worthwhile to pursue, as doing so could free up capital for investment in other areas of drug discovery and improve sustainability of treating rare diseases in global markets. A two-tiered system whereby some people have access to rare disease drugs and others suffer without treatment is not ethical, but the solution is not to shortsightedly restrict development/approval of expensive medications. Instead, we should focus on economic solutions and innovative outcome-based frameworks that enhance access for all while maintaining strong incentives for research, development, and commercialization of products that can have positive life-altering and life-saving impact. While investment in rare disease therapies has increased over the past four decades, both the number of new drug candidates for and the total number of investment dollars in rare diseaseâwhether coming from âtraditionalâ venture capital and private equity sources, or from new philanthropic, patient-led, and social-impact based backersâare likely to continue an upward trajectory. Alongside funding and development emphasis, rare disease patients and their families, with the present authors as an example, are increasingly taking roles in drug research, policy advocacy, biopharmaceutical business, market access, and financing innovation in ways that meaningfully advance the market for rare disease research, drug development, and drug commercialization. While numerous rare diseases remain without current treatment, the past decade has seen advancement for a number of conditions that were previously thought to be âuntreatableâ; these âmoonshotsââambitious efforts to treat rare diseasesâhave paved the way for more economically viable models. There is also a growing consensus that rare disease treatments bring significant value to society, despite the applicability of any one molecule to a relatively small population. With advances in financial innovation and patient-led research, these authors are optimistic that the market for rare disease drugs will continue to attract outside investment, although they acknowledge that market access innovations will increasingly be needed to meet patient demand for global access to the drugs that result from such investment. No funding was received for this work. The authors declared no competing interests for this work.
Open access
Pharmaceutical Economics and Policy
Health Systems, Economic Evaluations, Quality of Life
The unprecedented Covid-19 global pandemic has brought to the forefront many challenges associated with exclusive rights, information sharing, affordability of medical treatment, and innovation. As I wrote for STAT in July1, it has raised questions like how we provide effective diagnostics, treatments and vaccines quickly and safely to the public. More specifically, how do we ensure that sufficient quantities of these health products are produced, that they are affordable, and that they are equitably distributed globally? Trade secrets play an enormous role in vaccine development, as well as the creation of diagnostics and treatments. From information like genomic data, to biologic resources, manufacturing know-how and negative information like research dead-ends, trade secrets pervade the battle against Covid.2 In that sense, finding Covid vaccines is no different from any other innovation schema, with trade secrecy operating alongside and in conjunction with patents, copyrights, and trade marks on the incentive side of the ledger. However, in the Covid space, there are a few significant differences. At their centre is the basic issue of whether the sharing of certain trade secret information would be a net benefit for the world, resulting in more rapid development and expanded supply capacity of and/or more affordable vaccines, treatments, and diagnostics. These are open questions, but there are good reasons to think that the answers would be âyesâ because of three public health priorities: speed, adequacy of supply, and affordability. While the development of a Covid vaccine may be similar in process and methodology to any other vaccine development process, the continual loss of life, scale of economic impact, and general rendering of lives untenable, puts an enormous premium on speed. Speed, however, must not come at the cost of sacrificing oversight, safety, and efficacy. Therefore, in the interest of public health, there may be trade secrets, like discovery of vaccine development process dead-ends, that should be shared with competitors, researchers, and governments in order to speed development by avoiding time-wasting re-invention of the wheel. To be sure, sharing valuable secret information may lead to less overall revenue for an individual manufacturer, but does not automatically mean that the endeavour would be unprofitable. Pooling of resources could lead to safer and more effective vaccines, treatments, and diagnostics, which would create higher demand than a more suspect product. Given the billions of vaccine doses required by a desperate world, not to mention the related diagnostics and treatments, there should be plenty of revenue earned across related industry sectors. Moreover, because this is a global public health crisis, there is a moral and ethical mandate to assure that not only are Covid vaccines and treatments affordable for all, but that nationalism does not render them available first (or only) to wealthy countries and individuals. Unfortunately, nationalism has reared its ugly head in this battle, as governments vie for exclusive deals with pharmaceutical manufacturers, while the manufacturers seek the most lucrative results for their efforts. As Nature recently reported, âWealthy countries have struck deals to buy more than two billion doses of coronavirus vaccine in a scramble that could leave limited supplies in the coming year. Meanwhile, an international effort to acquire vaccines for low- and middle-income countries is struggling to gain traction.â3 In countries like the United States, where the dominant utilitarian theory calls for intellectual property law to create incentives for innovation, there is no corollary that requires intellectual property owners to earn every last dime from their rights. Public health concerns can predominate. However, before one condemns these true statements as too extreme, it is important to note that they may make the point too strongly by overstating the costs of information sharing. Affordability through sharing trade secret information (and thereby driving down research and development costs) does not have to come at the price of profits. As I have explained in the articles cited above, voluntary licensing can be cost-prohibitive, although the possibility exists for less costly licensing and technology transfer through the World Health Organizationâs COVID-19 Technology Access Pool (C-TAP) and the Medicines Patent Pool, if utilized. Additionally, there are no legislatively codified compulsory avenues for requiring non-registration and non-clinical trial trade secrets to be shared with competitors, much less civil society groups, or other âwatchdogâ or advocacy entities. Nonetheless, the gravity of the crisis requires creative thinking, bold measures, and a certain amount of policy risk-taking (which, as Iâve previously explained, is supported by the World Trade Organizationâs Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)). Compulsory trade secret licensing of relevant trade secrets, in which trade secret owners are compensated for their investments and compelled sharing (assuming that the existence of a trade secret is proven, a separate necessary step), should now be considered. Unfortunately, creating a compulsory trade secret licensing mechanism would require legislative action, which would likely be contentious and time-consuming. Therefore, the short-term route to information sharing might have to come from global efforts by civil society groups and like-minded public officials, as well as the public itself, to convince researchers and manufacturers to share necessary information in the interest of global public health and welfare. While it may be true that industry would like to control their trade secrets and maximize profits, public concern and the general policy aversion to monopoly pricing that is baked into intellectual property law theory could be brought to bear in finding an industry consensus around access to and sharing of trade secrets. If adopted for purposes of addressing this unprecedented public health crisis, voluntary trade secret information sharing and/or compulsory trade secret licensing could be extended to any number of other areas where trade secrecy has been a barrier to more rapid information sharing and innovation, from climate change, to energy production, to the next pandemic. Because empirical studies have shown that few blanket modes of behaviour or application apply to trade secrets broadly, and because trade secret law usage is considered on an individualized and sector level, robust trade secret information sharing and/or compulsory trade secret licensing could become a logical advance in open innovation and equitable-access modelling on an individual sector, product, or process basis. The time for considering how to share trade secrets, in the interest of global public health and all of our lives, is now.
GlaxoSmithKline has joined with Verily Life Sciences to set up Galvani Bioelectronics, which will focus on treating chronic illnesses by controlling electrical impulses in the body. GSK and Verily, the former Google Life Sciences business, will initially invest up to $718 million over seven years to support R&D at Galvani. Having made a concerted push into the bioelectronics area in 2012, GSK will now put its in-house efforts into Galvani for a 55% stake. The start-up will be housed at GSKâs Stevenage, England, R&D site with research also conducted in South San Francisco. Kris Famm, GSKâs vice president of bioelectronics R&D, will become Galvaniâs president. Galvani will combine GSKâs capabilities with Verilyâs technical expertise in miniaturizing low-power electronics and in developing implantable devices, data analytics, and software for clinical applications. Galvani will initially employ about 30 scientists, engineers, and clinicians. GSK says it has already seen encouraging proof of principle
Physician entrepreneurs, technologists, investors, service providers, patients and other innovation stakeholders have embraced biomedical and health innovation and entrepreneurship in an effort to provide higher value care and lower the discovery and development costs of drugs, devices and digital health products and services. To that end, traditional brick and mortar cluster innovation models are being supplemented with virtual networks that are online, decentralized and community based. This paper reviews the evolution of these models and their future development and presents examples of virtual organizations that support biomedical and health innovation and entrepreneurship, fundraising, and new product development and clinical trial recruitment using crowd sourcing. Community based innovation and biomedical and health online innovation networks have the potential to speed new product development, offer alternative financing platforms for early stage ventures, provide education, information and support to those with particular diseases and help to lower the costs and speed of clinical trials. However, questions remain about their effectiveness in creating value, security, commercial and clinical validity, legal status and sustainability. Keywords: Bioentrepreneurship, collaborative online networks, crowd funding, crowd sourcing, health innovation, physician entrepreneurs.
Jeff Greene, Dennis Purcell, Brian Edelman, Doug Giordano · 9 authors
In a roundtable published in this journal a year ago, there was a clear consensus that the R&D function in big pharma was inefficient and in need of major restructuring, possibly through increased investments by venture capital and private equity firms. In this discussion, an accomplished group of industry practitioners begins by looking at the prospects for both venture capital and private equity to play meaningful roles in financing earlyâ and midâstage drug development. In so doing, they explore questions like the following: Are there ways for big pharma and biotech to reduce âscience riskâ and make R&D funding more profitable and attractive to venture capital and private equityâand perhaps even hedge funds? What roles do you see for specialty PE firms like Symphony Capital and Paul Capital, which are now bundling midâstage development assets and securitizing royalties? Then the panelists turn to the broader life sciences industry and consider the outlook for leveraged private equity transactions involving marketed products, lateâstage development, and services. Here they consider issues like the following: Will PE be attracted to lessâR&Dâintensive activities like medtech and generics? Have the recent consolidation through mergers and reorganization of big pharma into decentralized business units created opportunities for carveâouts of certain businesses? For big pharma and life sciences companies in general, the answers to such questions point to greater specialization and focus achieved partly through strategic alliances with venture capital, private equity, and even hedge funds, and involving marketed products and services as well as earlyâstage drug development.
Judy Lewent, Joe Fuller, David Scharfstein, Rick Passov · 9 authors
In light of the challenges facing the pharmaceutical industry, a distinguished group of pharma executives and strategic and financial advisers discusses the following corporate decisions: Strategy : What business model is most likely to maximize longâterm shareholder value? For example, is diversification by big pharma into areas like consumer healthcare and generics a reliable way to create sustainable value? Capital allocation : What are the best methods for evaluating investments in pharma R&D, and for deciding which programs should be terminated and which assets divested? If conventional DCF isn't much help in a world where R&D outcomes are so uncertain, what about proposed models like real options? Corporate governance and incentive systems : Should big pharma continue to outsource ever more of its R&D functions to biotech and venture capital? Or can it overcome the problems associated with size by creating more decentralized business units and trying to replicate the accountability and incentives of smaller biotech firms? Capital structure and payout policy : Are the large cash and equity positions and minimal payouts of big pharma, typically justified as cushioning the uncertainties associated with pharma R&D, likely to be the valueâmaximizing capital structure in the future? With many biotechs struggling and venture capital scarce, where are the new sources of capital for the industry? And can future deals be structured in ways that help bring about higher returns for big pharma as well as the R&D providers? Disclosure : What should management tell investors to help ensure that their companies' policies and promising investments are reflected in their stock prices?
The Federal Trade Commission's 2003 innovation report revealed an interesting fact: the pharmaceutical industry is largely satisfied with today's patent system while the electronics, software and Internet industries are not. This article suggests that a difference in governing law accounts for the difference in satisfaction. The federal Food and Drug Act requires pharmaceutical inventions to be proven safe and effective before they can be sold. It thus requires completion of the entire inventive process for pharmaceuticals. Our patent system, however, has no analogous requirement for the other fields. In them, applicants may stake a claim to rivals' later inventive effort after completing only the very first step - conceptualizing - of a lengthy inventive process. The result is patents on abstractions that hold up real inventors, as in Blackberry, eBay and countless other cases to come. Unfortunately, developments in biotechnology, including patenting gene segments, suggest that the biotech industry may be closing the gap in early-stage patenting. This article suggests two ways to improve our patent system and reduce the difference in industry satisfaction. The first is to abolish the doctrine of constructive reduction to practice. A statutory amendment would require inventors, before receiving a patent, to invest reasonably in making, building, testing or at least simulating something concrete, in order both to demonstrate feasibility and to attract real seed capital. A second amendment would convert Section 103's nonobviousness criterion from an abstract test of cognitive difficulty to an economically meaningful test. The new test would encourage review of concrete economic factors such as investment of risk capital, real progress in bringing an invention to market, the assumption of technological risk, i.e., risk of total failure for nonmarket reasons, and a proven need for protection from free riders. Unlike current Section 103, the new test would consider how the invention was made and would permit hindsight. It would do so on the theory that patents protect not cognitive brilliance, but investment of risk capital in the entire process of invention, in which conceptualization is only a first step. The test would also recognize that investment, concrete progress, and risk are susceptible to proof in retrospect. The article outlines how, if adopted, these changes could help rationalize our patent system economically and eliminate the difference in satisfaction between pharmaceuticals and other fields of industry, whose own participants now see patents as impeding progress as often as promoting it.
We industrial researchers work at a dangerous crossroads, the nexus of science and money. R&D leaders, being more or less senior players, are perhaps most comfortable on the Science Road. This road is storied, long, varied, full of side shows, a wonderful bazaar of curiosity where insight as to What Might Be can advance us from stage to stage. For most of us, it has been and is a road of delight of the mind. Its length, expressed as mental travel, demands that we commit to it for many years, and so we seek patient leadership that knows that the product pipeline-our output-is variable at best. It's a long way between gas stations on this road. The intersecting road, that of money, is essentially discontinuous. Potholes and washouts on that route have terminal consequences, and seasons last three months at a time. Travelers on that road move between famine and feast, traps and snares, events of unexpected bounty and windfall. However, they can't carry it with them, and every three months or so, the gain or loss has to be recognized and surrendered to the toll collectors. Money Road travelers' survival depends on their last balance. In industrial work, the Money Road people deal with abstract statements of success or failure, and are responsible for the currently visible state of the firm. They tend to become our bosses, and they have a fairly short life expectancy. When our bosses come up empty on fuel on the Money Road, the rules under which Science Road folks work change fast. If we want continuity of experience for our people and their work on Science Road, we have to provide that shelter. Many of us have felt the discomfort of the associated career discontinuities, and are inclined to blame the different culture of Money Road, and to demonize the many MBAs traveling there, or even the possession of an MBA degree! Using the MBA as a scapegoat doesn't start at the right place. One might as well blame one's Modern Language teachers for any prompt destructive effects of globalization. This writer has traveled both roads, and survived any number of close calls at the crossroads (yes, some fender-benders, but never quite a total wreck) and looking at the culture clash (and there is one, along with a frequent generation gap) has come to somewhat different conclusions. Let's start with why we have MBAs at all, touching on the first and fairly successful application of their skills, then return to insights on the place of inventive people in our business, and close with comments on the ways in which industrial research managers are now expected to contribute. This is written from the viewpoint of a crossover career in industry and academe, running market-focused research programs of many hundreds of Ph.D.s, training researchers, preparing dozens of MBA candidates, as well as hundreds of scientists and engineers, within various universities. Starting with the joy of bench work, creating new products and processes, this career led to the more abstract world of the planning corporate auditor, then to creation of new jobs and companies, some from scratch and some from corporate discards. What's an MBA All About? The MBA is basically an American invention, and it has served its home well. Its origination is claimed by the University of Chicago, about 100 years ago, thus establishing a permanent claim to mental rigor in quantitative financial analysis. The degree came to popularity in the context of the rise of the giant, functionally managed, globally decentralized manufacturing company, itself a mimic of Roman imperial style. Both are long gone and further evolution has extended the scope to policy and to overall leadership, through consultation and shared learning. What is it now about? In its most concise statement, the MBA experience first teaches a required trust and collaboration between persons of profoundly different backgrounds. It is indeed iconic and formulaic in its emphasis on the language of finance to express purpose and performance, much as the conversations of airline pilots with ground controllers use a subset of natural English. âŠ