Published August 2008

A new report from the Drug Discovery series...

Innovative Strategies and Models for R&D Success The evolving networked pharma company

Identify new and emerging R&D strategies to cost-effectively expand product portfolios and secure future shareholder value

Evaluate the benefits of offshoring and determine which countries and companies are best suited for preclinical and clinical outsourcing

Examine the role of public and private partnerships in technology transfer and assess potential investment opportunities

Understand how the virtual pharma R&D model can improve productivity and become a useful source of late-stage products Innovative Strategies and Models for R&D Success The evolving networked pharma company

Report overview Many pharma companies are currently engaged in wide-scale R&D restructuring, adopting a biotechnological approach to drug development by establishing disease-focused R&D units, R&D spin-offs, strategic partnerships and joint ventures. This trend has been reinforced by the emergence of public/private partnerships, co-operatives and open-source research initiatives that have encouraged companies to target previously neglected disease areas such as biotherapeutics and vaccines. Emerging markets are also driving change throughout R&D, with companies increasingly internationalizing their processes to take advantage of tax incentives, government investment, cheap labor and technology specialists.

‘Innovative Strategies and Models for R&D Success’ is a new report published by Business Insights that explores how the latest pharma R&D strategies are improving productivity and containing costs. The effectiveness of new and emerging approaches to drug discovery and development are assessed, with over 40 detailed case studies of partnerships, alliances, collaborations, outsourcing and in-licensing opportunities. This report also explores the potential benefits and disadvantages of key offshore markets including China, India and Russia and examines the recent internal restructurings of major companies such as AstraZeneca, GlaxoSmithKline, and Roche.

Use over 40 detailed case studies to assess new R&D approaches, and identify which strategies are most effective for different company sizes, therapeutic area focus, product portfolios and geographical locations...

Key findings... R&D Models: The PPP approach • The pharma industry is migrating towards fully-integrated networked pharmaceutical companies (FINPCos) that can improve productivity and effectively exploit the cost-savings associated with R&D internationalization. This model maximizes investment returns through the use of innovative partnerships and strategic alliances.

• Major companies including AstraZeneca, GSK, Roche and Pfizer have recenty undertaken major R&D restructuring. Changes have typically involved strategic risk-sharing partnerships, collaborations, joint ventures, spin-offs and contract agreements.

• Big Pharma are increasingly engaging in a range of risk-sharing Business Insights partnerships with academics, federal agencies, contract providers, biotechs and other pharma players . Such alliances “PPPs (Public-private partnerships) can facilitate alleviate the risks of drug discovery and can improve R&D efficiency. technology transfer from research labs to the market, and any discoveries made through the open-source • Up to 30% of clinical studies are currently outsourced, and this model are freely available to the contributors. This figure will rise to 50% by 2010. This growth will be driven by has been recognized by the pharma industry as a companies consolidating their focus upon core competencies while useful source of information. In companies such as contracting out secondary R&D programs to specialists. Bayer, Bristol-Myers Squibb, Eli Lilly, GSK, Novartis, and Ranbaxy, employees are actively encouraged • Virtual pharma models can reduce drug development costs by at to participate...” least 25% and development times by up to 50%. Niche pharma companies have emerged to add value through strategic outsourced clinical developments that are out-licensed to established players. Innovative Strategies and Models for R&D Success The evolving networked pharma company

Key questions answered... Virtual Pharma Inter-relationships

• What are public private partnerships and how can they be used to expand R&D programs?

• How will private federal partnerships improve technology transfer to the industry?

• To what extent can R&D outsourcing reduce development times and contain costs?

• Who are the key contract service providers in the emerging Business Insights markets and what R&D related services do they offer? “The key to success for a Virtual Pharma model is the • Which alternative R&D strategies are being used to attract inter-relationships it establishes in the pharmaceutical investment and drive product development? enterprise to ensure access to quality proof of concept products – academia, biotechs or large • How can pharma companies most effectively ensure shareholder pharma – and the contracting service it uses...” value in the future?

Key issues examined by this report... Indexed clinical trial costs by country compared to the US, per patient, • Benefits of R&D restructuring. The redesign of pharma R&D by region models within large companies is creating an entrepreneurial environment that enhances the flow of information and facilitates faster decision-making during product development. Strategic networking is also helping companies to expand their portfolios and develop a new generation of progressive blockbusters.

• New R&D approaches reduce consolidation. Innovative R&D strategies such as risk-sharing partnerships and strategic/tactical outsourcing are helping to combat the declining levels of productivity that are driving industrial consolidation. Business Insights • Role of ‘R&D spin-offs’. R&D spin-offs enable pharma “Competition within emerging markets has intensified companies to streamline their portfolios and reduce overheads, and multi-national contractors have become more whilst retaining the option to license back successful candidates innovative in order to attract investment and tap into at a future date. The speed of product development can also be knowledge of the industry. Many companies within significantly improved away from internal pharma processes. the emerging markets have already begun to plough back money from profitable generics, manufacturing • Influence of emerging markets. Offshore R&D investments in and formulation programs into internal R&D projects emerging countires are becoming increasingly attractive following and some are in a position to license out early stage products to the industry...” the lifting of WTO restrictions, tightened IP protections, infrastructure improvements and tax exemptions. India, China and Russia offer the most significant cost advatages. Innovative Strategies and Models for R&D Success Innovative Strategies and Models for R&D Success The evolving networked pharma company The evolving networked pharma company

Sample Information

Chapter 8: Internal reorganization, market trends and conclusions

AstraZeneca In the past, AstraZeneca has been willing to experiment with new R&D strategies to improve productivity either through outsourcing or restructuring. However, since early 2007 it has restructured its European sales, marketing and R&D cutting around 11% of its work force) and reinvested the money in acquiring companies and licensing in later-stage products. By 2010, AstraZeneca’s Executive Director of Development believes that between 20% to 30% of the company's development portfolio will have been in-licensed.

During the last two years AstraZeneca has refocused its R&D efforts on anti-virals (Arrow Therapeutics) and biologics (e.g. CAT, MedImmune, and Silence Therapeutics). In June 2008 it took the bold move to spin off its gastrointestinal franchise (GI) into a separate company Albireo to enhance the development of GI products with the support of venture capital investment. Meanwhile it has expanded its investment in R&D and manufacturing sites in emerging countries (China, India and Japan) to capitalize on these growth markets and has established strategic collaborations with leading academic institutes and universities.

Figure 8.32: AstraZeneca’s Productivity gains

Business Insights

This R&D overhaul has placed AstraZeneca R&D on a stronger footing following the demise of Iressa, the withdrawal of Exanta and generic erosion of other leading brands. In June 2008, AstraZeneca presented at the Goldman Sachs Healthcare Conference where they discussed improvements in productivity due to restructuring, synergies, and its willingness to establish partnerships and outsourcing. According to the company this approach has lead to improvements in productivity both for small molecules and biologics.

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CHAPTER 1: EVOLUTION OF R&D CHAPTER 4: OUTSOURCING - • Key Issues in China STRATEGIES: A MOVING TARGET WITHIN MATURE MARKETS • Outsourcing services in India • Introduction • Introduction • Contract R&D in India • Trends in R&D • Contract Research Organizations • Contract clinical research in India • The Evolving Network R&D Model • Outsourcing services • Leading R&D players in India • Investment in contract research • Risk sharing agreements case studies CHAPTER 2: PUBLIC-PRIVATE • Balancing Outsourcing Portfolio: Home & - Case Study: Advinus & Merck & Co. PARTNERSHIPS Abroad - Case Study: Aurigene & Merck Serono • What is a PPP? - Shift from North America & Western - Case Study: Dr Reddy Laboratories & - Open-source R&D European Contract Services ClinTec International - Applications to the pharma industry - Shift in customer base - Case Study: Ranbaxy & • Alliance Case Studies - Shift in partnerships GlaxoSmithKline/Merck & Co. - Case Study: GlaxoSmithKline and the • Strategic Partnerships & Risk Sharing - Case Study: Nicholas Piramil India Ltd MMV, MVI and GATB • Strategic partnerships case studies & Eli Lilly and Merck & Co. - Case Study: Bayer and the TB Alliance - Case Study: Accenture & • Research partnership case studies • ‘Crowd’ Sourcing Case Studies - Case Study: Functional service - Case Study: Jubilant Biosys & - Case Study: InnoCentive & Scienteur providers & Pfizer - Case Study: Syngene & Bristol-Myers Corporation • Risk sharing case studies Squibb • Technology Transfer Case Studies - Case Study: NovaQuest & Eli Lilly & - Case Study: GVK Bio & Wyeth - Case Study: Technology transfer PPPs ProStrakan - Case Study: Dr Reddy & RheoSciences with NIH - Case Study: PPD & - Case Study: & • Conclusions Ranbaxy/Takeda/ALZA/Accentia Accenture Biopharmaceuticals • Product in-licensing case studies CHAPTER 3: PRIVATE-FEDERAL • Conclusions - Case Study: Glenmark Pharma & PARTNERSHIPS Eli Lilly • Cooperative Research & Development CHAPTER 5: OFFSHORING - - Case Study: Glenmark Pharma & agreements EMERGING MARKETS Forest Labs - Small Business Innovation Research • Introduction • Key issues in India Programs • Offshore outsourcing • Outsourcing services in Russia - Regulation enabling technology - Investment in offshore contract • Contract R&D in Russia transfer research. • Contract clinical research in Russia - Technology alliances • Outsourcing services in China • Leading R&D players in Russia - The Cooperate Research (CORE) • Contract R&D in China • Research collaboration case studies database (US alliances) • Contract clinical research in China - Case Study: Chembridge & Pfizer - The Cooperate Research (CORE) - Leading R&D players in China - Case Study: ChemDiv & database (International alliances) • R&D Contract Services case study Schering-Plough • Publicly funded medicines - Case Study: WuXi & AstraZeneca • Key issues in Russia - Applications to the pharma industry • Risk Sharing Agreement case studies • Conclusions • Technology transfer case studies - Case Study: Hutchison MediPharma & - Case Study: Taxol technology transfer Eli Lilly, Merck KGaA and Procter & CHAPTER 6: IN-LICENSING - NIH to BMS Gamble VIRTUAL PHARMA & TECHNOLOGY - Case Study: Erythropoietin technology • Research Collaboration case studies AGGREGATORS transfer to Amgen and Johnson & - Case Study: Chemizon & Takeda • Introduction Johnson - Case Study: Sunway Biotech & • Virtual pharma companies and - Case Study: FluMist technology Genzyme technology aggregators transfer NIAID to Aviron - Case Study: Sanofi-Aventis & the • Virtual pharma models - Case Study: Velcade technology Chinese Academy of Medical • Virtual pharma models evolved from the transfer from NIH to Millennium Sciences. pharma industry Pharmaceuticals • Joint venture case studies - Case Study: Fulcrum Pharma plc • Conclusions - Case Study: Charles River Laboratories - Case Study: Chorus & Shanghai BioExplorer - Case Study: TAP Pharmaceuticals - Case Study: Eli-Lilly’s Asian Ventures Innovative Strategies and Models for R&D Success The evolving networked pharma company

• Developing novel compounds case LIST OF FIGURES • Pfizer’s R&D Timeline studies • Pharma R&D spend and trial costs, • Roche’s Decision Making R&D process - Case Study: Concordia Pharmaceuticals 2004-2009e • Roche’s R&D Timeline - Case Study: Celtic Pharma LCC • Global R&D spending by development • Complexity of the R&D process - Case Study: VDDI Pharmaceuticals phase ($bn), 2007 • Increased collaboration within the industry • Repositioning old compounds case studies • Biotech R&D spend and funding ($bn), • Shift in R&D focus and attrition rates - Case Study: AGI Therapeutics 2004-2009e • Shift in therapeutic focus - Case Study: Arachnova Ltd • Biotech R&D spend and funding ($bn), • Recent biopharma deals • Conclusions 2001-2007 • Fragmentation of the industry • Cost to develop a new biopharmaceutical • The Future of R&D – Fully-Integrated CHAPTER 7: R&D SPIN OFFS (2005 $m) Networked Pharmaceutical Companies • The motivation behind R&D spin offs • Origin of New US drug approvals, 2000- • Pharma R&D spin offs 2006 LIST OF TABLES - Case Study: AstraZeneca & Albireo • Migration from traditional to an externally • PPPs – public and industry partners - Case Study: Pfizer & Esperion driven R&D platform • R&D costs of PPP projects - Case Study: Sanofi-Aventis & Novexel • R&D models A) Traditional approach and • Approved medicines developed through - Case Study: Roche & Basilea B) PPP approach CRADA research • CRO R&D spin offs • PPPs - neglected disease projects • Recent CRADA projects under - Case Study: Ranbaxy Life Science • PPP Developmental timelines development Research Ltd & Daiichi • Portfolio of the MMV • Recent CRADA projects under - Case Study: Sun Pharma Advance • CORE - technology alliances (number of development (continued) Research Company Ltd alliances), 1985-2003 • Advantages & disadvantages of CROs - Case Study: NPIL pharma R&D • Global and US-based technology alliances based on geography de-merger (number of alliances), 1985-2003 • Leading International CROs • Conclusions • Global technology alliances by region • Leading R&D Players in China (number of alliances), 1985-2003 • Leading R&D Players in India CHAPTER 8: INTERNAL • FluMist developmental timelines • Leading R&D Players in Russia REORGANIZATION, MARKET TRENDS • Outsourcing Services • Virtual Pharma & Technology Aggregators AND CONCLUSIONS • Global Expenditure on R&D and Contract • Examples of Therapeutic Switching • Introduction Research • Recent pharma R&D spin offs • Internal Reorganization • Pharma R&D Expenditure and spend on • Recent CRO R&D Spin offs • Large pharma R&D models contract services by Phase, 2007 • AstraZeneca Recent R&D Activities - AstraZeneca • Three Stages of CRO Evolution • GlaxoSmithKline’s recent R&D acquisitions - GlaxoSmithKline • Strategic Outsourcing • GlaxoSmithKline’s recent strategic research - Pfizer • Areas for offshore contracting collaborations - Roche • Average global clinical trial cost by region • Simplified R&D Organization at Pfizer • Emerging Market Trends ($ per patient), 2006 • Pfizer’s Recent R&D Activities • A complex R&D process • Indexed clinical trial costs by country • Roche’s Recent R&D Activities • A shift in R&D focus & attrition rates compared to the US per patient by • A shift in therapeutic focus region, 2006 • Fragmentation of the industry • Therapeutic areas for Russian CRO trials • Geographical alignment of the industry (2006) • Conclusions • Virtual Pharma R&D Model • Index • Virtual Pharma Inter-relationships • Glossary • Chorus Time & Cost Savings to Proof-of- • Bibliography & Endnotes Concept • VDDI Pharmaceutical R&D Model • Benefits of R&D spin offs • Esperion’s rebirth • AstraZeneca’s R&D Timeline • AstraZeneca’s Productivity gains • The Evolution of GSK's R&D Model • Complexity of the R&D process