Innovations in biotech are not a luxury, but a means of survival

Biotech Firms Need Innovation Strategies 

J. Leslie Glick, Ph.D., Genetic Engineering & Biotechnology News

Translation: Abercade 

In the June 2015 issue of Harvard Business Review, Prof. Gary P. Pisano, a professor of business administration in the Harry Figgy Jr. program at Harvard Business School, makes strong arguments in favor of creating innovative strategies, without which, most likely, companies will not be able to implement their innovative initiatives. In addition, if a company strives to maintain its competitiveness, its innovation strategy must constantly evolve. This article is intended to demonstrate the role of well-structured innovation strategies and their contribution to the success of biotech companies.

According to Dr. Pisano's article, four types of innovation strategies can be distinguished.

1. Everyday ("routine") innovation – based on the company's existing business model and the area of technical competence of this company.

2. Breakthrough innovation – based on the company's existing area of technical competence, but includes a new business model.

3. Radical innovation – based on the company's existing business model, but requires a new technical competence.

4. Architectural innovation – requires both a new business model and a new technical competence.

It should be emphasized that the concept of innovation presented in the article is considered only at the company level, and not in the industrial sector, except in cases when the company is among the leaders of its industry in introducing certain innovations.

Let's turn to the following examples.

The biopharmaceutical company has developed and commercialized a line of oncological drugs. Then the company decided to develop and commercialize another anti-cancer drug. (This change corresponds to a "routine" innovation).

A biotech company whose activities are focused on the development of therapeutic agents, in accordance with the business model used, has always provided licenses for its drugs to well-known pharmaceutical companies. Now the company has decided that it will be directly engaged in marketing and selling its products. (This change corresponds to a "breakthrough" innovation).

A company that supplies polyclonal antibodies to the market of biomedical research products has decided to replace its line of polyclonal antibodies obtained from immunized animals with monoclonal antibodies produced by cell lines. (This change corresponds to a "radical" innovation).

The biopharmaceutical company, which is at the stage of development, decided to transform its activities and concentrate it on the development and commercialization of means for personalized diagnostics. (This change corresponds to an "architectural" innovation).

Let's turn to real–life examples – Celgene, Genzyme and Monsanto - the success of these biotech companies was achieved through changes in strategy that led to architectural innovations. However, in Celgene and Genzyme, the initiation of new strategies began at an early stage, and in Monsanto this process took place at a very late stage. 

Detailed information about the transformation process in these companies can be found on the website fundinguniverse.com , as well as in the US Securities and Exchange Commission (SEC) Form 10-K documents. Information about Genzyme can be found by reading the publication of Henri Termeer, former Chief Executive Officer (CEO) of Genzyme in the oral history section of the Life Sciences Foundation oral history.

The newly formed independent firm became an open joint stock company in 1987. At the same time, Celanese, whose activities from the very beginning were focused on research in the field of biorehabilitation and biocatalysis, reported revenues of $2.3 million in a 1992 report.

However, in the same year, Celgene began a transition period with the subsequent transformation into a biopharmaceutical company. Based on the creative ideas of its supervisor, Dr. Sol J. Barer (Ph.D.), Celgene acquired the rights to thalidomide. This drug was initially offered on the market as a means to alleviate the symptoms of early pregnancy toxicosis, but in the 1960s it was banned due to the fact that it caused congenital deformities.

After studying the results of scientific research conducted by other scientists, Dr. Barer expressed interest in commercializing thalidomide for its therapeutic use for various indications, and in 1968 Celgene received permission from the FDA (US Food and Drug Administration) to use thalidomide in the treatment of leprosy. According to the financial statements, in the same year, sales of thalidomide by Celgene amounted to $3.3 million. And two years later, sales of this drug increased to $62 million. Over time, in 2014, Celgene, with a line of drugs aimed at combating oncological and inflammatory diseases, became the fourth largest biopharmaceutical company in the United States with revenue of $7.7 billion. and a net income of $2 billion.

As a result, the implementation of this plan led to the creation of a business for the production of diagnostic enzyme systems with a volume of $ 100 million. However, when Henri Termeer became president of Genzyme in 1983, he was tasked with revising the goals and purpose of Genzyme.

The beginning of the product line, which subsequently took the main place in the company's activities, falls on 1983-84, when a contract was signed with the NIH (National Institutes of Health of the USA) for the supply of a chemically modified enzyme glucocerebrosidase. The idea was to evaluate the prospects for the possible use of Genzyme's drug for the treatment of Gaucher's disease. Clinical trials have not confirmed its effectiveness, however, as it turned out later, the dose of the drug was not high enough.

In 1985, Terminer consulted with his scientific advisers, who came to the conclusion that Genzyme should not engage in enzyme therapy. Contrary to their recommendations, the Trader decided that the company's activities should be focused on this direction. In the same year, Terminer was appointed CEO at Genzyme, and in 1986 made it an open joint stock company. 

And although in 1985 the volume of sales of enzyme diagnostics was about $ 9 million, Genzyme expanded the range of research in the field of enzyme therapy and in 1991 received FDA approval for the production of modified glucocerebrosidase. In the future, Genzyme developed and put into mass production other means for the treatment of genetic diseases and metabolic disorders, and all of them included recombinant human enzymes in their composition. 

Fast forward to 2010, i.e. a year before Genzyme was acquired by Sanofi–Aventis. At that time, Genzyme's total revenue exceeded $4 billion, and net income was more than $400 million. Genzyme continued to build up its innovation strategy with five core business units. The largest of them was the Personalized Genetic Health business unit, which was engaged in enzyme therapy preparations; its share in total revenue was over 40%. At that time, Genzyme was ranked fourth in the list of the largest biopharmaceutical companies in the United States.

By the end of the 1980s, Monsanto's sales reached $8.7 billion.

Also in the 1980s, after Richard Mahoney became CEO at Monsanto in 1983, the company began to pay more attention to research in the field of agricultural biotechnology. After the appointment of Robert Shapiro as CEO in 1995, R&D activities in the agricultural bio sector began to develop at a faster pace, and acquisitions in this area began to play an increasingly prominent role in the overall strategy, and the company abandoned product lines not related to the agricultural industry. 

In 1997, the activity of chemical compounds was transferred to the newly created public company Solutia. In 1999, Monsanto sold NutraSweet, which was previously part of the pharmaceutical company G.D. Searle, acquired by Monsanto in 1985. NutraSweet company was the manufacturer of the artificial sweetener "aspartame". Monsanto then merged with another pharmaceutical company, Pharmacia & Upjohn. In 2000, Monsanto was separated, which became an independent company, with the exception of G.D. Searle, which remained part of Pharmacia.

Now Monsanto is completely different from the chemical company that existed in the old days. In 1996, the agricultural product line accounted for only $2.9 billion. of Monsanto's total sales of $9.3 billion. In fiscal 2014, Monsanto reported total revenues of $15.9 billion. All of them were obtained at the expense of products for the agricultural sector, divided into two groups – the "Seed and Genomics Segment" and the "Agricultural Productivity Segment". 

Pisano, creating an innovative strategy is a necessity. And such a necessity is, in fact, the "cradle" of innovation. In the context of biotechnology, this idea is confirmed by the example of the successes of Celgene, Genzyme and Monsanto.

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12.10.2015