Innovation Challenges In Pharma Industry

Innovation is the key element in providing aggressive top-line growth and for increasing bottom-line results. Companies cannot grow through cost reduction and reengineering alone. — “Making Innovation Work” Pharmaceutical industry is a highly innovation driven industry and it’s one of the most important industries in the world. According to WHO 2015 report, the global pharmaceutical sector is currently worth US$ 300 billion with a few drug companies called Big Pharma controlling almost one-third of the market and investing in R&D and commercialization of high value “bombshell” drugs. Pharma industry is knowledge-intense, highly globalised and diversified, absorbing huge investments and bringing massive benefits to the public health and to the economy. Sales of new drugs (with a new active ingredients) only from two markets — European and North American — are almost 80% of the total sales in the world and together gain a market share of 68.6% in the global pharmaceutical market which is worth roughly US $850 billion dollars. Global investments of Pharmaceutical and Biotechnological sector are about 15% of the total sales value in R&D. That makes them the number one sector in R&D investment. Nowadays, pharma industry despite being highly innovative, using knowledge, acquisitions and doing big R&D investments, is more complex than any other sector when it comes to doing business and making money. The complexity is mainly driven by the value chain of the pharmaceutical industry which is highly dependent on policies and drug approvals and also by the industry collaboration with smaller players such as small biotech firms, universities, etc. Researching and developing a new drug can cost billions and it’s becoming more difficult. According to PwC report in last years the Big Pharma R&D success rate has been under pressure. Different types of innovation There were many instances where innovation failed due to the fact that it was stopped at the concept stage as there was no link to the business strategy, thus business units fail to implement it. If Pharma industry wants to succeed despite the tough conditions, it must introduce a mix of innovations, build linkages between innovation strategy and business strategy and advocate for management support. That requires strong human and social capital inside and outside pharma organisations since innovation strategy should not be developed in isolation. Innovation can be grouped into three categories which can be implemented simultaneously depending on the needs and/or business and operational strategy: Small changes — used to develop and implement cheaper products and services under average revenue growth, described as better, faster, agile and smart. Breakthrough — providing significant change in technology or/and business model, deal above average revenue growth and creates important competitive advantages. Radical — providing leading changes to technology and business model like new technology platform or cost basis. It can creates new markets and new values. Leading a successful innovation implementation entails being open to what the innovation process actually means i.e. high ambiguity, rampant experimentation and uncertainty. Thus, working on innovations requires a different mentality and management approach from the most other business processes. Achieving success in innovation also calls for a clear strategy and effective and dynamic execution. 8 innovation operating models Pharmaceutical R&Ds are constantly challenged to closely monitor their rising operational costs, upcoming patent expiration dates and to optimise pipelines. This can only be achieved by increasing R&D productivity in the long term. There are eight innovation operating models that have ability to improve, generate innovations and create competitive advantages. Pharma industry should look at implementing a combination of a few of those i.e.: Incubators: Model with dedicated innovation groups (also sometimes called innovation labs). Incubators are related to startups companies but are part of the organization. People employed in incubators are encourage to explore and prototype new business models and/or technology. They act as entrepreneurs inside the bigger organization. Acceletators: Model typically limited to a 3–4 month period of mentoring, small amount of investment in early stage startups. The goal is, largely, to improve startup chances of raising venture capital from a third party entity on the back end. Corporate venture capital: Innovation model that invests in early stage startup companies to acquire intellectual property. This model is efficient when the organisation wants to quickly acquire knowledge about new areas and business opportunities from the startup which has an agile character. Design thinking: This model assume users observations during their engagement with a product or service and rapid prototyping of innovation ideas. Through this approach organisations are able to gain deeper insights. Co-creation: Model that invites customers to be the active part of innovation teams. It stimulates new thinking and generate fresh outcomes. Frugal innovation: Innovation model implementing simple, agile products that are easy to maintain. The philosophy behind this model can be called ‘less is more’. Reverse innovation: Model used in less developed countries to generate innovations rather than adapting the ones from the western world. The goal is to meet local needs by building from scratch and if the innovation is successful, it is scaled and implemented globally. Open innovation: This model sets up a collaboration with outside organisations. Its goal is to develop innovations. In comparison to inside R&D, the result is costs reduction with the access to a broader skills and expertise at the same time. One of the most attractive innovation models which executives view as a growth driver is open innovation. To clarify, open innovation is a process where external and internal people collaborate as one team to generate and commercialize ideas. Open innovation When the sustainability of Big Pharma in the past decade was questioned due to its close, in-house innovation development, the changes to the innovation model became a part of their agenda. It’s started with an open innovation where collaboration can have different forms like joint development of new medicines, licensing agreements, mergers and acquisitions, investing in start-ups exploring new therapeutic ideas and partnering in one healthcare ecosystem. This innovation model has been a phenomenon sinceHenry Chesbrough from Haas School of Business created this term in 2003. There are several open innovation models used in Pharma industry based on different levels of openness of a company. It considers two factors: 1. Externally acquired innovation defined by all the R&D projects along the clinical development phase of the innovation value chain acquired from outside the company (excluding preclinical stages). 2. Choices framework of innovation management assuming that the strategic decision made by the company in managing their innovation can be predominantly internal or predominantly external. There are four different types of open innovation in Pharma sector: the knowledge creators, the knowledge integrators, the knowledge translators and the knowledge leveragers. Four new types of innovation model and examples of each represented by the pharmaceutical industry (Schuhmacher, Germann, Trill, Gassmann).Knowledge creator model showing that the R&D projects are mainly acquired through collaborations or academic partnerships. They are used as a supplement for the open innovation for internally carried out mainstream R&D projects, further developed by the in-house talents and resources. Knowledge integrator model assumes that the most of the R&D projects must be in-licensed or acquired through external sources and in the next step, developed and managed with the expertise of the internal resources. Knowledge translator model is very similar to the knowledge creator model. The difference is the fact that it uses outsourcing and collaboration/partnership as a tool to manage R&D project efficiently. That helps to reduce costs, uses the technical capabilities or specialization of the external sources to take the R&D projects to the next level. Knowledge leverager model still found only in few companies in the Pharma industry. In this model most of the innovation like prototype drugs, technological know-hows, technical skills are acquired from external sources to gain maximum benefit out of the internally available resources. In fact innovation is managed through almost ‘virtual network’ through extensive collaborations. As Shire example shows, the knowledge leveraged model can relate to the lean R&D correlating with relative low R&D costs. There is a need for pharma industry to adopt a more effective approach for their R&D units. Open innovation is a credible concept of high productivity that can impact pharmaceutical R&D productivity through an open, virtual and partnership-oriented activities. To maximise the benefits of open innovation, future researches need to be done with the use of ‘knowledge leverager’ model. For example, Glaxo Smith Kline announced a few days ago that they team up with Alphabet for bioelectronics venture to develop and commercialise bioelectronic medicines. Miniature implants that affect electrical signalling along nerves will be developed under the Galvani Bioelectronics company. That collaboration might qualify as a knowledge leveraged and be a third, smart tech way of treating disease alongside conventional medicines and vaccines. If you like this post, please share it with you’re friends and colleagues and hit the green “Recommend” button below. That might help others to stumble upon this essay. You can also read more on www.futureforward.online, Facebook and Twitter.