STRATEGIES FOR PRODUCT INNOVATION (and PDPs)

1. STRATEGIES FOR PRODUCT INNOVATION(and PDPs) Dr Mary Moran George Institute for International Health Oxford Conference on Innovation September 2007

2. The current R&D policy approach Current R&D policy thinking tends to be based on the past not the future: • A monolithic developer: an large internally focussed company, monopoly skills, economies of scale • Very high costs/ risks need very high returns (the $1 billion) • A focus on market value as the key to stimulating innovation The “John Wayne” policy model (big, Western, classical … past)

3. 1. Monolith to modular The “in house” monolithic R&D model has become more modular: • Leads • > 1/3 of company drugs in Phase III trials are now in-licensed or developed in collaboration (higher success rates) • Development • Up to 2/3 of company clinical projects now use CRO outsourcing • Manufacture • Manufacturing is often outsourced to DC companies: • Generic drugs for sale under the multinational company name • Regional brand production through voluntary licensing (Aspen…)

4. The modules • Innovation (a bright idea) • Academia +/- early spin-outs • Commercial application (turning an idea into a prototype/ product) • Start-up companies • Platform technology: vaccine constructs, delivery mechanisms • Large-scale clinical development (securing regulatory approval) • Large Western companies • Increasing role for CROs and DC firms (Dr Reddy’s had lodged 23 NCE patents by 2006) • Large-scale manufacture and distribution (for mass markets) • Large Western companies • DC firms • Drugs +++; first generation vaccines ++ (SII and the 80%) • Second-generation vaccines are coming (recombinant technologies, conjugation technologies) …moving to the specifics of neglected disease R&D

5. 2. Cost/risk are not uniform • Vary along the pathway • Discovery: high scientific risk/ low business risk and cost: (MNC NDs) • Clinical: low scientific risk/ high business risk (trial liability) and cost (PDPs) • Vary by disease • AIDS and malaria completely different to pneumonia and meningitis • Vary between players • Small firms and small markets (lower cost - lower return model) • DC firms and DC markets (high volume – low margin model) • “An opportunity not an opportunity cost” for DC firms • “Soft” companies interested in “bespoke” R&D and hard companies focussed on speculative product development (VC focus)

6. 3. One market or interim/ mini markets? • What do academics want? (Not the end-market …) • Publications, long-term reliable research funding, seeing their discovery used … • What do “soft companies” want (Not the end-market…) • Contract research, proof of concept opportunities, growth opportunities… • What do small start-ups want? (Not the end-market …) • Cashflow, proof of concept, collaborative ideas dev’t with academics, an exit strategy … • What do established firms want? (Maybe, but not necessarily, the end market…) • Western MNCs: No-profit/ no-loss “It’s not the money, but if you insist…” - the issue of created “markets” • DCs: The market, cash, tech transfer

7. Where PDPs come in … • PDP’s have taken more of these lessons on board than most due to necessity • Examining PDP drug projects by end 2004 showed that less than one-half were classical “John Wayne” developments • One in six PDP projects were with small company Western partners • One in four had a DC firm as manufacturing or development partners (no Western partners) • One in three involved CRO outsourcing • “Making the impossible possible” by using a smarter, more flexible model • Novel products for low-value markets (cf. orphan/ companies alone) • MNC involvement

8. Design of current incentives (The malaria vaccine example) EDCTP €600 million AMC $1+ billion Policy, incentives or funding by OECD governments are rarely designed for or supportive of these new approaches Registration Pre- Clinical Phase Ia Phase IIa Phase Ib Phase IIb Phase III Basic Vaccine R&D funding: $79 million Orphan market exclusivity

9. Other approaches: Incentives a la Carte(Modular incentives) • Innovation (academia) • Fund proven innovators • Fill the EU basic/applied funding gap that generates too many, too weak start-ups (premature delivery) • Provide industry skills inputs to academics (cf. the WT initiative/ incubator links) • Open source framework (e.g. Xray crystallography, genomics, SARs) • Commercial application (start-ups hard and soft) • CRO cash business, where relevant (IRFF) • 100% funded R&D cf. SBIR grants in the US (IRFF) • “Ideas” feed via academia-company collaborations/ incubators • IP management/ ringfencing • Exit routes/interim ”markets”: PDP buyout; interim “AMC” for leads/ Phase I products • Clinical development • Provide skilled partners (all) • Provide trial site networks (all) • Provide regulatory assistance (smaller and DC)

10. Other approaches 2: Lower cost/ lower risk Lower the cost • Industry platform initiatives (EC): surrogate markers, predictive models… • Regulatory streamlining: fast-tracking, age de-escalation, parallel W’n trials… • Outsourcing R&D to CROs • Using DC firms (manufacturing and CROs) Lower the risk • The one winner policy approach encourages high risk development strategies • Focus on a company’s area of comparative advantage • Use partners for R&D tasks outside this (public, biotech, MNC, CRO) (More: Biotech incentives report with IAVI)

11. The value of the end product reflects the quality of the initial incentive… (We have many opportunities to be policy-smart)

12. Cost/ risk are not uniform (2) • “Hard” companies • Speculative product development (small biotechs) • High risk, high investment, high ROI potential (scaleable) • Classical US VC-style investment target • “Soft” companies • Bespoke business: provide a company-specific product to full paying customers • Contract research in a specialist field • A core proprietary technology adapted to the buyer’s needs e.g. a vaccine delivery system trialled in TB • Low risk, lower investment, lower ROI potential (not scaleable) • Use bespoke business to define their product’s commercial use and build business maturity as an intermediate step to VC-readiness (e.g. Amyris)