Being a knowledge-based industry that relies on patents to protect its products, the pharmaceutical market has always had to innovate. Patents tend to last for around 20 years, but the clock begins ticking from the moment a patent is awarded – even if the medicine takes another 10 years to develop before marketing and achieving any return. Consequently, a breakthrough medicine might only have eight to 10 years of patent cover on the market before any company can copy the innovation.
Against this high-pressure backdrop, the power and influence of branding has declined over the years. This trend can be seen especially clearly in Europe, where pressure continues to mount. In order to survive and succeed in the pharmaceutical industry, companies must continually innovate to introduce new and more effective medicines to patients. Naturally, doing so is no easy task. European CEO spoke with Dr Huw Jones, CEO of Chronos Therapeutics, a UK-based biotech outfit, about the importance of innovation in the industry and how to succeed amid such sizeable challenges.
What have been the most important recent innovations from Big Pharma?
The routes to innovation are broadening constantly. Classically, Big Pharma has acquired drug technologies and whole companies to bolster internal innovation. More recent innovations include innovation centres, where large companies invite smaller biotech firms to collaborate, and even host them in their own facilities. In addition, most Big Pharma companies have a strategic investment fund where they can invest in SMEs that have promising early technologies which may be of interest down the line.
Positive pressure for innovation creates a considerable opportunity for SMEs, as they are in a position to take more risk and act quickly
Other models include licensing out earlier stage projects or those outside of a company’s scope to smaller firms. A recent example of this collaborative approach to external innovation is the acquisition by Chronos Therapeutics of three programmes from a subsidiary of Shire, where Shire also became an equity investor in Chronos. Under certain circumstances, Shire can re-acquire the programmes on commercial terms. Thus, they benefit in two ways from this collaboration – as an equity investor and as a potential buy-back partner.
How do such innovations impact SMEs in the industry?
Positive pressure for innovation creates a considerable opportunity for SMEs, as they are in a position to take more risk and act quickly, and they have ready customers in the form of Big Pharma companies. Generally, SMEs can act in this way, taking an idea, from a university for example, as Chronos did for its first homegrown programme, Chroneuro (RDC5). Chronos developed it quickly and prepared it for collaboration with larger partners with an efficiency and speed that cannot usually be matched by larger organisations. Currently, Chroneuro is being researched for treatment of the devastating and fatal motor neurone disease ALS, and is now being readied for clinical trials. Chronos is in frequent contact with several Big Pharma companies that may wish to collaborate on Chroneuro when the research is at the right stage.
SMEs can also benefit from equity investment from Big Pharma if the business plan is attractive, and they can even share facilities with their larger potential partners. In some circumstances there is a tie-in, and in others the SME may also be free to collaborate with other companies.
New partnerships between Big Pharma groups and biotech companies are emerging. What is the reason for this?
Attitudes have changed dramatically from the ‘not invented here’ syndrome of a decade or so ago, to ‘let’s create some open innovation in partnership’. This has largely come from the top, with leadership teams recognising that a collaborative model can bring substantial rewards. The growth of the publicly listed biotech sector, especially in the US, to a level that rivals Big Pharma has also been a wake-up call. Pharma needs speed, innovation and a different approach to risk. It can achieve these through novel partnerships with biotech companies.
What benefits do such partnerships entail?
They bring opportunities for new technologies to Big Pharma, as well as removing non-core or more speculative R&D projects from pressurised profit and loss accounts. Partnerships also bring an efficiency not seen in internal projects. For biotech, SME partnerships bring much-needed cash, potential facilities and – in certain deals – assets from large companies that are well researched up to the point of divestment. In some cases, exchange of expertise and staff between partners can also benefit both parties.
In terms of funding, what options are currently available for SMEs that are engaged in high-risk R&D?
In the biotech sector, these range from plain equity investment from angels, venture capital and other investment funds, loans or royalty loan arrangements, through to government grants providing non-dilutive funding. In the case of the latter, Innovate UK has been particularly effective in supporting high-risk projects through the ‘valley of death’ funding gap, with initiatives such as the Biomedical Catalyst scheme. In France, the SATT system of externalisation of university research seems to be a well-thought-out scheme, although it is smaller in financial scale for individual projects. Horizon 2020 grants from the EU can also help with non-dilutive funding, although larger projects need a substantial multi-country consortium approach that can cause an extra administrative burden. So far, Chronos has received six non-dilutive grants for developing its high risk R&D, including an EU Horizon 2020 consortium grant that is about to start.
What effect could Brexit have on grant funding from the UK and the EU?
The answer today is that Brexit creates considerable uncertainty over the potential flow of non-dilutive capital in the future. Existing grants are safe, but the position on new grant money over the next three years is largely unknown. Both EU and UK bodies need to preserve the positive R&D partnerships that exist across the continent, since R&D is a multinational, and even global, activity. After Brexit, the UK Government in particular has to maintain research funding in both universities and SMEs in order to preserve our position as a world leader in healthcare R&D. Potential freedom from EU state aid rules may help create a more flexible grants environment, but it all depends on the terms agreed in the Brexit negotiations.
What impact is Brexit having on Chronos?
We recruit talented scientists from all over the world to work in our Oxford laboratories, and we hope that Brexit does not create higher hurdles to bringing in the talent we need to succeed. At a practical level, the currency movements after Brexit mean that our shares are cheaper for overseas investors to buy, but our costs, if we undertake external contract research activities abroad, will increase.
What was the motivation behind Chronos’ recent acquisitions?
As a board we took the decision to broaden our research portfolio over a year ago. We have a very clear strategy. In brain research, a ‘multiple shots at goal’ approach is needed, where a major success in any one of four or five programmes can produce a major medical advance and a return for our shareholders. We evaluated over 200 opportunities from universities, biotech companies and Big Pharma, and at the end of that exhaustive process we completed the transaction with Shire. We are still evaluating and have capacity for more acquisitions and, of course, conversations are always ongoing with pharmaceutical and biotech companies.
How does this play into Chronos’ long-term strategy?
In the longer term, we aim to have four clinical-stage programmes in various brain diseases and, at the right point, we will consider listing on the stock market. The timing of this will depend on our research success, both in the laboratory and in clinical trials. Whatever happens, we believe in a high concentration of expertise in the diseases we are studying. We also believe in a highly capital-efficient approach, where the majority of functions are contracted out in a virtual company model, and there is constant collaboration and discussion with current and potential partners.