BIOTECHNOLOGY R&D AND CORPORATE STRATEGY

Dr. Bhaswat S. Chakraborty Sr. VP & Chair, R&D Science Core

CommitteeCadila Pharmaceuticals Ltd.

Presented at the NRDC Industry Seminar, Surya Palace Hotel, Vadodara, February 9, 2015

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CONTENTS The pharmaceutical biotechnology world

Its R&D Business model & early stage funding gap

The concept of Strategy Purposes of a good strategy

Elements of R&D performance strategies

Biotech innovators’ strategy case studies

Biosimilar R&D strategy case studies

Conclusions2

INNOVATIVE BIOLOGICALS R&D

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TOP 10 PRODUCTS BY SALES IN 2014

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  Rank  Product  Company  Technology WW sales($m) 

  1 Avastin  Roche  Monoclonal antibody   9,232

  2 Humira  Abbott +  Eisai  Monoclonal antibody   9,134

  3   Rituxan  Roche  Monoclonal antibody   7,815  

  4   Enbrel  Wyeth +  Amgen +  Takeda  Recombinant product   6,583  

  5   Lantus  Sanofi-Aventis  Recombinant product   6,386  

  6   Herceptin  Roche  Monoclonal antibody   5,796  

  7   Crestor  AstraZeneca  Small molecule chemistry   5,739  

  8   Spiriva  Boehringer Ingelheim  Small molecule chemistry   5,552  

  9   Remicade  SGP + J&J + Mitsubishi Tanabe 

Monoclonal antibody   5,220  

  10   Gleevec/Glivec  Novartis  Small molecule chemistry 

 5,136  

UNDERSTANDING THE BIOTECH & LIFE SCIENCES BUSINESS MODEL

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MANUFACTURING PROCESS FOR BIOLOGICS

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Strategy = Commitment to winning knowledge and behavior

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PURPOSES OF A GOOD STRATEGY Three purposes

Consistency Coherence Alignment

1. Consistency Advantage is not the result of a single decision, but rather the

cumulative outcome of a series of decisions, actions, and behaviors over time

A good strategy provides a framework for making consistent decisions over time

Builds cumulatively toward a desired objective

Pisano G (2012) HBS Working Paper 12-095

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PUPOSES OF A GOOD STRATEGY..2. Coherence

In a complex organization, many decisions are to shape competitive capabilities (which projects get funded, who gets hired and promoted..)

Decisions are often made in far-flung corners of the organization and, today, in different parts of the globe

Strategy provides an integrating mechanism to ensure these tactical decisions are coherent

Organizations sometimes try to compensate for poor strategy by creating committees and others communication mechanisms to ensure decisions are integrated

Such devices are a poor and inefficient substitute for good, clear strategy.

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PUPOSES OF A GOOD STRATEGY…3. Alignment

Organizations thrive when their strategies are aligned to the realities of the environment

Or with the broader organizational context in which they operate

An R&D organization needs to have a strategy that is aligned with the broader business strategy of the organization

A strategy should help driving alignment

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ELEMENTS OF R&D STRATEGY

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Pisano G (2012) HBS Working Paper 12-095

R&D ELEMENTS Architecture

Centralization vs. Decentralization

Size and focus of units (by market or by technology?

Outsourcing vs. Internal

Better architecture depends organization’s “core hypotheses” about what it takes to win

For integration centralized model is better

For tapping geographically diverse knowledge bases decentralized model is the choice

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R&D ELEMENTS.. Processes

Development & decision making process

Governance and Metrics

“Best practice” and highly “structured” R&D processes with tightly specified procedures, review etc. need to be examined

May be a more “flexible” process would deliver R&D goals (highly novel & uncertain) technologies

If R&D must be tightly coordinated with other functions (like manufacturing), tightly specified process may be necessary to keep everyone on the same page 15

R&D ELEMENTS… People

Most important aspect of an R&D system Make impactful choice of resources

Right mix of generalists vs. specialists, technical backgrounds and training, work styles, career paths, lay off policies

No one best human resource strategy for R&D Comfortable with churn? May be in a technology hot-spot (e.g.,

Boston or Mumbai) If the R&D labs are geographically isolated, assurance of job security

to attract & retain talent

Portfolio Desired resource allocation across different types of R&D projects Criteria used to sort, prioritize, and select projects (should reflect the

priorities of the R&D strategy e.g., innovative biotech company wants to win by discovering its own first-

in-class drugs vs. biosimilar developers.16

A FEW BASIC QUESTIONS TO FORMULATE A GOOD STRATEGY

Have we been absolutely clear about how we intend to win?

Everyone should understand what the priorities are and what they mean for them

Are the choices we are making about architecture, processes, people, and portfolio coherent?

Are there any major conflicts between our policies?

Third, do all our choices form an integrated “system” focused on the key priorities (how we intend to win)?

Finally, because a strategy is a “hypothesis”, we need to evaluate our R&D strategy against performance data

when the time has come to reject our initial hypothesis & change strategies, do so 17

INNOVATION R&D STRATEGY: CASE STUDY 1 – GSK Key strategy: Breaking R&D up into smaller units

In 2000 GSK restructured its R&D focused on therapeutic area units, cancer, neurology, etc., called Centers of Excellence in Drug Discovery (CEDD)

Each CEDD was responsible for the development of molecules in its designated therapeutic realm, from discovery through PoC

Early discovery (target identification and molecule discovery) and late stage development (Phase III trials, registration, etc.) was still centralized

CEDDs had complete autonomy over their own portfolio management After PoC, the CEDD would present programs to a centralized senior

management from R&D, business units, and corporate headquarters) for a “go/no-go” decision for full development.

Core Hypothesis (Architectural): Smaller, focused, autonomous, and more accountable units would make more efficient decisions regarding portfolio advancement

An attempt to create “biotech-like” organizations inside the larger corporate framework 18

Based on Harvard Business School Case Study #9-605-074.

INNOVATION R&D STRATEGY: CASE STUDY 2 – WYETH Key strategy: Metrics based centralized approach

Wyeth senior management saw poor R&D productivity rooted in poor decision-making and misaligned incentives

Solution: standardized development process, metrics and performance

Precise numerical targets (12 new clinical candidates /year), financial rewards tied to to them, structured development process, specified milestones and reviews for every program

All projects would follow the same process

Core Hypothesis (Processes): Make R&D process more predictable by a more “repeatable” process, setting clear performance objectives, and by clarifying decision-making

Project advancement governed centrally19

Based on Harvard Business School Case Study #9-607-008.

INNOVATION R&D STRATEGY: CASE STUDY 3 – NOVARTIS Key strategy: Science first; decentralized

In 2002, Novartis opened a research laboratory in Cambridge, MA to be close to a thriving ecosystem of biotechnology Cos & leading academic institutes

Under the auspices of the Novartis Institutes of Biomedical Research (NIBR), headquartered in Boston

NIBR, an autonomous organization, reports to Novartis CEO, has 6 sites Focus areas determined by NIBR are based on two basic criteria: large unmet medical

need and an opportunity to develop deep biological insight Aalysis of market size and net present value were explicitly rejected as criteria for

project selection at the research phase!

Core Hypothesis (All elemnts): improved scientific knowledge of the disease & MoA would allow better decision-making about drug candidates to advance, and this would ultimately reduce attrition

Strategy addressed architecture (separate NIBR), people (locate where the talent is), process (establish proof of mechanism in well-defined patient populations first), & portfolio (select projects based on scientific attributes)

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Based on Harvard Business School Case Study #9-608-136

BIOSIMILARS R&D

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RECOMBINANT PROTEIN PRODUCTION: SOURCES OF VARIATION BETWEEN MANUFACTURERS

Mellstedt H et al. Ann Oncol 2007;19:411-419

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OVERVIEW OF USFDA GUIDELINES FOR BIOSIMILARS

Integration of Information to Biosimilarity23

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The 2012–2019 patent cliff is highlighted in yellow

PERIOD OF MARKET EXCLUSIVITY FOR THE TOP TEN SELLING BIOLOGICS

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Calo-Fern´andez B et al (2012) Pharmaceuticals 2012, 5, 1393-1408

A GENERAL STRATEGY DIAGRAM FOR A SUCCESSFUL ENTRANCE INTO BIOSIMILARS MARKET

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Calo-Fern´andez B et al (2012) Pharmaceuticals 2012, 5, 1393-1408

The requirement for key capabilities varies with the market maturity: from brand-driven in short term to price-driven in long term

Global sales for three blockbuster chemical drugs: Effexor, Lipitor and Plavix.The solid coloured lines represent the annual sales of the product until 2011; the dottedlines represent a projection of the sales for the following years based on Effexor’s drop inrevenue drop (see Appendix). The shadowed areas correspond to the patent expiration yearas indicated in the legend (data from: [2,3]).

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Evolution of global sales for the top ten branded biologic drugs from 2004 to 2011.The products below account for 37.6% of the total biologics market value, adding up to 53.4billion USD in 2011 (data from financial statements 2004–2010 and [10–15]).

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Inserted subfigures are Pfizer’s biosimilar capabilities before the acquisition of Wyeth and the contributions of this deal

PFIZER’S BIOSIMILARCAPABILITIES AFTER ESTABLISHING THE STRATEGIC DEALS

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Konde V. (2009) Journal of Commercial Biotechnology Vol. 15, 3, 215–226

INDIAN BIOTECH COMPANIES

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Company Products/technologies/services in the market Business model

  Main sector  Advinus Theraputics, Bangalore and Pune

Metabolic disorders, inflammatory diseases, neglected diseases Hybrid

Avestha, Bangalore Agbiotech and transgenics, biosimilars Vertical

Bharat Biotech International, Hyderabad Recombinant drugs, cardiovascular diseases, vaccines Product

Bhat Bio-Tech India, Bangalore

Recombinant proteins, diagnostic markers Hybrid

Bharat Serums and Vaccines, Mumbai Plasma derivatives, monoclonals, hormones, serums.. Product

Biocon, Bangalore Industrial enzymes, recombinant protein therapeutic products and human growth hormone Vertical

Biological E., Hyderabad Diagnostics, combination vaccines, antitetanus and antisnake venom sera Vertical

Dr Reddy's Laboratories, Hyderabad

Infectious and parasitic diseases, oncology, immune disorders, endocrine, nutritional and metabolic diseases, ..

Vertical

Gennova Biopharmaceuticals, Pune Hi-tech molecules in nephrology, oncology and

cardiology segmentProduct

Indian Immunologicals, Hyderabad Pediatric and childhood vaccines, DNA-based vaccines,

animal- and human-health productsProduct

Indian biotechnology database (http://www.indianbiotech.com/in/db/index.php).

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CONCLUDING REMARKS Strategy entails a systematic approach to make an R&D

organization more competitive and effective Consistent and coherent choices across architecture, processes,

people, and portfolio seem to give a reliable and successful strategy

Different companies pursued different strategies to essentially address the same problem differences were largely rooted in different “core hypotheses” (bets) on the

underlying root cause of non-productivity of R&D Innovative biotech companies have been enjoying bonanza times

since1990s following good R&D strategies Biotech biosimilar companies position themselves to enter

biosimilars market by acquiring or developing R&D, manufacturing, supporting activities, marketing or lobbying ca

Thus capability-benchmarking is the key for any company planning to generate value from the biologics patent cliff

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THANK YOU VERY MUCH

Acknowledgement: Ms. Raji Nair

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