It’s not easy being a life sciences firm today. Companies in the sector have seen rising research and development (R&D) costs, in exchange for flat, or even diminishing, innovation returns. Many are staring over the edge of a patent cliff, the loss of intellectual property protection on drugs that are currently bringing tens of billions of dollars in sales and that subsidise expensive R&D efforts. This concern is greatest for the biopharmaceutical sector, but other life sciences firms are suffering as well: medical device firms, for example, are also experiencing difficulties with their innovation programmes.
How severe is this problem? And what can be done to ease these pressures and reinvigorate innovation efforts within the life sciences industry? These are the questions that this Economist Intelligence Unit study examines, based on a wide-ranging survey and in-depth interviews with senior executives at global firms across the life sciences sector. Its key findings include:
- Executives in the industry are ambivalent about the quality of their existing innovation programmes. Industry experts and other analysts have been harsh about the ability of the life sciences companies, especially biopharma, to innovate. Thomas Lönngren, former head of the European Medicines Agency, estimates that a staggering US$60bn of the industry’s US$85bn annual global R&D spending is wasted. Surveyed executives are not as critical, but give a tepid endorsement of their own innovation programme. Less than one-half (47%) say that their R&D model is capable of meeting their company’s needs, while a similar proportion of respondents (49%) rank their overall innovation strategy as just moderately effective at best. More worrying, just 42% say that this strategy is more than moderately successful at restocking the product pipeline as biopharma in particular goes over the patent cliff.
- Companies often are not rising to the challenge. Although almost every company is trying something to improve innovation, only 54% of respondents overall—including those who admit that their companies have poor or ineffective innovation strategies—say their companies consider change to innovation processes a leading priority. Moreover, for those who plan such changes, survival rather than growth may be the guiding rationale. “Right now the industry is very much driven by fear rather than by ambition,” says Dr Wolfgang Soehngen, CEO of Paion, a biopharmaceutical firm.
- Culture is the primary barrier to improved innovation among the most laggard firms. The life sciences industry faces several impediments to innovation that are less common in other fields. The leading ones cited by survey respondents are costs (especially for smaller companies), R&D time scales and regulation. But among companies with the worst innovation record, cultural attachment to existing practices is cited as their leading problem. Dr Philip Gerbino, president of Philadelphia-based University of the Sciences, believes that improvement in how companies innovate “has been slow because there is a great amount of entropy in the ideology of what the industry must do with research programmes”.
- Leading life sciences innovators create the right culture, are more engaged in open innovation and make better use of data. The one in five companies surveyed who call their innovation programmes “very effective” typically produce about twice as many new products as others. They also act differently than the rest in several key ways. One is that they work hard to create the right environment, by finding appropriate ways to recognise and reward efforts, without penalizing failure. A second is that they are more engaged in open innovation, with a more flexible perspective on intellectual property (IP), embracing a wider range of new ideas and ways to benefit from their discoveries. A third is that they make better use of data, both internally and externally, to support their efforts, thereby helping to improve research, development and use of existing IP.
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