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: 1.A monolithic developer: an large internally focussed company, monopoly skills, economies of scale 2.Very high costs/ risks need very high returns (the $1 billion) 3.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 Reddys 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 devt with academics, an exit strategy … What do established firms want? (Maybe, but not necessarily, the end market…) –Western MNCs: No-profit/ no-loss Its not the money, but if you insist… - the issue of created markets –DCs: The market, cash, tech transfer

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

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 Wn 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 companys 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 buyers 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 products commercial use and build business maturity as an intermediate step to VC-readiness (e.g. Amyris)