Big Pharma: Reports of Its Demise Have Been Greatly Exaggerated

Open Innovation

The past decade has been tumultuous for the pharmaceutical industry. The news media generally paints “Big Pharma” with a broad brush, an unflattering portrait of corporate greed more concerned with short-term profits than supporting public health through access to better, “smarter” medications. A recent Huffington Post article is a striking example of such caricature: in a list of “10 American Industries That Will Never Recover,” pharmaceuticals is No. 4, flanked by realtors and newspapers.

Chief amongst the reasons for its putative demise are mergers, layoffs, patent expirations with a diminishing pipeline of new drugs and a growing trend toward generic medications. Price controls and increasingly strict regulatory hurdles add to the pressure. Faced with such challenges, I believe this industry will thrive if they are willing to reinvent themselves, bearing in mind a basic principle set forth by George Merck in 1950:

“We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear.”

How can this industry reinvent themselves? I dare not attempt to untie such a Gordian knot myself, recognizing that greater minds than my own are leading these corporations. Several promising approaches that could support new medicines “for the people” are emerging. Here, I will focus on open innovation that offers new opportunities for not only discovering new drugs, but for revealing new applications of medicines already approved by the Food and Drug Administration (FDA).

Open innovation has provided incentives to inventors since the 18th century by offering prizes, not prices, as rewards for new technologies. The Lyon Prize Fund of 1711, in which a portion of tax collected from imported silk supported the invention of textile machines is a model. This fund supported not only the invention itself, but training in the state of the art as well as further refinement of the technologies, and is credited for the rise of the French fashion industry. Could such an approach support discovery of new medicines?

The pharmaceutical industry relies predominately upon patent protection of intellectual property to yield profits that are critical to support research and development, but there are exceptions that demonstrate the value of open innovation. InnoCentive was founded by Eli Lilly in 2001, with recognition that the best ideas are sometimes born in unexpected places. Corporations post challenges on the InnoCentive web site to solve problems or to propose more efficient solutions to existing technologies, leveraging a virtual clearinghouse to recruit consultants. Such an approach is a good value for corporations – many of the prizes are at the $50,000 level – and support innovation regardless of the source. After all, some of our most profitable industries began with humble origins such as Bill Hewlett and Dave Packard’s storied garage that launched the world’s largest IT company.

Prizes need not be financial. The Gilead Access Program provides medications at cost to support clinical trails in regions where current medical treatments are normally inaccessible. Gilead Science’s pre-exposure prophylaxis program led to a breakthrough in HIV treatments: the first promising preventative strategy using a microbicide gel. Preventative approaches have become increasingly important, faced with the alarming 2.7 million new HIV infections per year in the developing world.

Congress is considering legislation proposed by Sen. Bernard Sanders (I-Vermont), S.2210, the “Medical Innovation Prize Act” (2007) that could transform incentives for developing new drugs, although it has been stalled since October 2007. If enacted, a prize-based system would replace market exclusivity. Patent holders would provide the funding source for prizes for new inventions. Importantly, corporations would earn cash awards tied to improved health outcomes, discouraging “me too” medications that add minimal value to public health. There are also provisions in the proposal for neglected diseases, orphan drugs, global health threats and bioterrorism. Interestingly, S.2210 is reminiscent of the Lyon Prize Fund of 1711.

Implementing one of more of these approaches will be a challenge, but maintaining status quo in the pharmaceutical industry could be far more challenging and potentially self destructive. If the current trend continues, a tipping point will be inevitable – one path will lead to increasing challenges and diminishing returns, the other toward a thriving industry connected through open access and profit sharing to provide “medicine for the people.” Leaders in this industry have succeeded in the past by taking prudent risks; embracing open innovation is, at the very least, worthy of a trial.