John Maraganore, the CEO of Alnylam, argued in a recent essay in the Xconomy that investing in innovation is a no-brainer now more than ever. However, with a few notable exceptions, judging from the actions of Big Pharma over the last two years in drug development in general, and in RNAi Therapeutics in particular, one would think that this must be an illusion. If anything, the mega-mergers and cutting of R&D indicates that Big Pharma apparently believes that the cure for its current ailments is to first of all slash innovation and focus instead on the marketing and distribution of ready-to-market products.
A related worrisome trend is that Big Pharma is shying away from acquiring small biotech companies building cutting-edge drug discovery platforms such as RNAi Therapeutics. Instead, a look-and-see, risk-sharing partnership structure is preferred, adversely affecting both the speed and quality of developing these technologies, ultimately to the detriment of all stakeholders, including Big Pharma.
My thesis is that this model cannot be sustainable. In a normal marketplace, the high margins in the drug business will eventually have to shift to coincide with where the highest technical barriers and value-adds are, and this is clearly in the discovery and initial development of viable drug candidates and the platform technologies on which they are built. In the age of the internet and the free flow of information and goods, I just cannot believe that distribution and very late-stage development can continue to command the premiums they still do.
When this happens, Big Pharma will find itself with nothing much left, and the business dynamics will change as it has completely lost its capacity to innovate from inside. This could be even further exacerbated in an improved economic environment where small biotech is no longer dependent on the typical late-stage deals with unfavorable terms of trade when there is again reasonable access to the capital markets.
One argument often cited for slashing innovation is that for some reason in-house R&D is not productive, and it is cheaper to buy it in. Flawed logic, of course, because prices should eventually go up to reflect the value biotech brings to Big Pharma. Some go even a step further and argue that innovation has just become too costly, full-stop. If that were the case, then Rome is about to become a village again and we are about to enter the Dark Ages II and investing in any part of drug development and also broader economy would be futile anyway.
Certainly, after living through the millennium bubble, one has to admit that small biotech has contributed considerably to the notion that drug discovery and investment in new technologies is wasteful. But then again, as funding has dried up, many of the get-rich-quick schemes have disappeared and biotech has become much more disciplined as a whole.
How then should Big Pharma become involved in RNAi Therapeutics? I agree here that early-stage collaborations are an important part of the process, as the predictability of discovering and developing new breakthrough and enabling technologies is simply too low and will have to typically first come out of academic laboratories and then be dynamically refined in a small biotech environment to a stage where the technology has very reasonable clinical and commercial potential. At this point it becomes important for Big Pharma to have the capability of evaluating what is real and what not, and laboratories within Big Pharma with a good working knowledge of RNAi Therapeutics should be able to accommodate this, as many of them already do. These can also come in the shape of an acquisition of one of the smaller and struggling pure-play RNAi Therapeutics companies.
After promising technologies have been identified, however, it makes sense to integrate them. This is because even if you can bring drug candidates based on these technologies into the clinic through licensing relationships, clinical development is still a dynamic process requiring quick thinking by those intimately familiar with the technology as the results come in. A case in point from the related gene silencing field of antisense is ISIS Pharmaceuticals’ obvious frustration with the speed and quality of some of its licensees so that it has decided to buy back the rights to a number of antisense drug candidates. The ISIS-GSK deal also partly reflects the realization that at least the early stages of development are better left in the hands of those familiar with the core technology.
SNALP technology is another example. There have been quite a few that claimed a few years ago that almost anybody can make liposomal delivery work. At the moment, however, it is only Tekmira Pharmaceuticals that can claim that. Even if you copy what is published in the scientific and patent literature, mass-spec the SNALP composition etc, you may erroneously believe to have caught up with the 10 year head-start that Tekmira had, but as soon as some minor unexpected problem arises, it immediately requires the deep know-how of those innovators intimately familiar with it to solve it. There is definitely more value to be gained from a platform if you understand and own it, especially early in the life of an emerging technology where the clinical learning curve can still be relatively steep. Once a technology is relatively well understood in humans, sure, more hands-off licensing becomes increasingly appropriate and is certainly an option for those in Big Pharma that are satisfied with accessing individual products instead of enjoying the full benefits from having in-house access to prolific new platform technologies for long-term growth.
It is, of course, important that, once acquired, the innovative culture of the target is not suffocated by the bureaucracy of large organizations. Roche Kulmbach appears to be a good example of the Big Pharma model whereby, instead of slashing R&D, innovation is transferred to semi-independent Centers of Excellence where failure and risk-taking is tolerated and encouraged. In my opinion, the reason why Sirna Therapeutics/Merck has not been successful is because they are their own biggest enemy by having soon adopted a Big Pharma mindset, being afraid to take risks with new technologies and instead hide behind inflexible rules (not guidelines) for what characteristics a technology has to fulfill before even being looked at by the company.
Within the next 4 months, possibly set in motion by the upcoming $100M Novartis decision, we should get some revealing insights into the current thinking of Big Pharma on RNAi Therapeutics. My hope, of course, is that the above was an overly pessimistic assessment of the Big Pharma mindset and that they also differentiate between certain areas in drug development that may well be outsourced and others, innovative platform technologies with reasonable clinical visibility, for which outsourcing and even partnerships alone are not optimal.