Outsourcing and staying small the right formula according to one well-placed scientist, writes CLAIRE O'CONNNELL

IS BIG pharma too big to innovate? The model of building up massive corporations and spending multiple billions of dollars on developing new drugs is not sustainable, but by thinking smaller – and even going a bit Hollywood in their outsourcing approach – pharma companies could help boost innovation and reduce their risk of going the way of the dinosaurs.

That was the stark message delivered by US scientist, entrepreneur and venture capitalist Dr Corey Goodman at Science Foundation Ireland’s annual summit in Athlone last week.

“The innovation system is broken,” he says. “Every time there is a new revolution – genetics, genomics, proteomics – we think now things are going to go up, and it doesn’t go up. There ought to be incredible breakthroughs and drugs coming along, but that is not happening. The venture capital, biotech and pharma worlds are in trouble – all three legs of the stool that are supposed to keep us going are broken.”

Goodman has a good vantage point. As a neuroscientist and professor at Stanford University and University of California Berkeley, he and his team have made breakthroughs in understanding brain wiring, and last week in Dublin he was awarded the Trinity College Dawson Prize in Genetics.

An entrepreneur, Goodman has also co-founded three successful start-ups since the late 1990s, and he was on the executive team of Pfizer as head of innovation and biotherapeutics between 2007 and 2009.

Today he is chairman of several companies and cites his day job as managing partner of private equity firm venBio, which describes itself as a “next-generation investment firm”.

So what is ailing the sector?

Goodman contends that while the figures on pharma costs and returns on biotech investments are publicly available, they are not feeding into the perceptions of the industry.

“People are having wishful thinking, they are trying to make it seem like it is okay and they are coming up with Band-Aid solutions, but Band-Aids aren’t going to solve the problem,” he tells The Irish Times. “It’s a crisis.”

One of the biggest myths he shatters is the cost of developing a new drug.

“Most of us guess the cost per new drug is $1.5 billion,” he says, but he describes how the reality could be $5 billion or more. “The cost per new molecular entity is going up and up – some are greater than $10 billion dollars.”

Those skyrocketing numbers spell big trouble: “When any of the pharma companies are up to spending $10 billion all in to have made that drug – including all the failures along the way – it’s no longer sustainable,” he says. “They are going to go extinct, they are going to become dinosaurs that way.”

A fundamental problem is scale, according to Goodman.

“Any time a company gets to where it has 50,000 or 100,000 employees, how can it possibly be innovative?” he asks, concerned about mergers and acquisitions that can drive down productivity. “They keep gobbling each other up – there’s nothing about that size and scale that is a friend of innovation. We need some brave and courageous CEOs to see that the way to save their companies and their industry is to more quickly realise that no matter how they reorganise and change the labels, the internal RD organisation is inherently not innovative, not nimble, not entrepreneurial by the very nature of its size.”

To address the problem, pharmaceutical companies should outsource research more, and use their “battleship” scale in areas where it could be of advantage, such as manufacturing and marketing, says Goodman.

In some ways, Hollywood exemplifies the route that pharma should take, he argues. Hollywood?

“The initial ideas for movies and the pilots and initial productions are often from other people – the innovation and creativity is no longer coming from big studios,” he explains. “The big studios don’t own the actors and actresses like they used to, and yet they are still important for financing and distribution.”

Pharma also needs to start thinking smaller and to move away from seeking the “home-run” blockbuster, according to Goodman. “If you think you are going to make another Lipitor, then lose it, you are going to fail; you have to think smaller indications, focused population groups,” he says. “Start with where you know it is going to work and let it grow over time.”

Biotech companies too are going through hard times, with Goodman describing how thousands are failing or on the point of doing so. Why?

“The pendulum keeps swinging: money was too free and I think too many companies were started that didn’t have good business plans,” he says. “Now we have swung to the other direction – because people were getting such terrible rates of return they were saying we don’t want to invest in therapeutics, so venture money has dried up [somewhat].”

When asked for advice on setting up a company now, Goodman describes the need for capital efficient models. “The companies I am working with today are very small, they are outsourcing in a nimble way,” he says.

And he is a keen proponent of the outside view when investing.

“There’s a big increase in corporate venture – the problem is they are often beholden in their final decisions to the internal RD teams and they are still part of that process,” he says. “My proposal is to break free from internal RD and with fresh eyes be looking at where some of the exciting ideas are coming along.”

And despite the big problems to be faced, Goodman has an upbeat view. “I am an optimist for the future, but you have to be a realist and accept the system is broken,” he says.

“This is an interesting choke point – we have come to a point in history where we have to transform and come out with different models, and the companies that do it are going to be the great successes. Ten years from now who is going to be still standing, who is going to be brave enough – we may see new companies emerge, or some of the smaller biotechs may emerge as the leaders of tomorrow because they embrace the change.”