We Need to Innovate the Innovation Process

All too often, we see innovation as a single event. A genius like Steve Jobs envisions a thousand songs in our pocket and the iPod is born! Or Alexander Fleming notices a mold growing in a petri dish and suddenly penicillin transforms medical science.

Yet the truth is that the road to any significant innovation is a long and twisted path. First, scientific research uncovers important insights. Then, those discoveries must be engineered into useful solutions and finally, new products and processes must be implemented at scale in order to transform a particular field or industry.

Unfortunately, most efforts focus on only one part of the chain. Researchers toil away quietly in their labs, engineers tinker with  improvements and evangelists work to accelerate adoption. Yet at MD Anderson they’re working on a new, more integrated model they hope will revolutionize the pharmaceutical industry. Early signs suggest that it’s working.

How an Insight Becomes a Blockbuster Drug

In 2014, 44 drugs were approved by the FDA. Of those, McKinsey estimates that only one third will be successful in the marketplace. With some luck, a few may eventually become blockbuster drugs, the improbable runaway successes that finance the greater enterprise of drug development.

To understand why blockbuster drugs are so rare, let’s look at Immunotherapy, the miracle cancer cure that the journal Science designated as its breakthrough of the year in 2014. Early results show that it can extend the life of terminally ill cancer patients for years. Many go on to live normal lives, seemingly cancer free. It is nothing less than a miracle drug.

Yet it began not as a drug at all, but as an obscure discovery by some French researchers who, in 1987, found a previously unknown receptor called CTLA-4. An American scientist, James Allison, suspected that the discovery might be useful for fighting cancer and began to study it further. Nine years later he published his first paper, showing strong results with with mice.

Three years after that, in 1999, Medarex, a small biotechnology firm, bought the rights to the antibody, began drug development and was successful enough to be acquired by Bristol Myers Squibb. It still took another 11 years—or nearly a quarter century after the initial discovery—to complete clinical trials.

The FDA approved the new drug, marketed as Yervoy, in 2011. The treatment currently costs $120,000.

The High Cost of Failure

A six-figure price tag, despite the twenty-five year span of development, is shocking, even for a miracle cure. Yet with operating margins at 22%, Bristol Myers Squibb is far from outlandishly profitable (Apple and Microsoft, for example, both maintain margins of around 30%). What really drives the cost is the countless drugs that never make it to market.

Pharmaceutical firms which acquire the rights to a breakthrough idea like James Allison’s, first need to undertake Phase I trials to test for dose and toxicity, which costs about $5 million. From there it goes on to Phase II, which seeks to find whether the drug may be effective. That costs an additional $10-$30 million. About 55% of drugs make it past Phase II.

At this point, if the treatment fails, the company is out tens of millions of dollars with nothing to show for it. Drugs that pass through Phase II get the privilege of investing another $100-$250 million in Phase III, in which it must prove a demonstrable benefit over existing therapies (roughly half of all drugs fail in late stage Phase III).

So the remaining 5% of drugs, like Yervoy, must not only recoup the hundreds of millions of dollars it took to get to market, but also make up for the billions spent on countless failures. And many of the new revolutionary therapies are not for the mass market, but target the relatively small amount of people who have very aggressive, life threatening conditions.

A New Paradigm for Drug Discovery

In 2003, Ron DePinho, then a researcher at the Dana Farber Cancer Institute, started thinking about ways to reduce failure in drug development. It seemed to him that a large part of the problem lay in a lack of integration between biologists who do basic research, disease experts who design and perform clinical trials and drug developers like Bristol Myers Squibb.

As he investigated the problem further, he found that there were two main sources of failure. The first was that not enough research was done in the pre-clinical process before Phase I. The second was that all too often the drugs were targeted at the wrong medical conditions. In both cases, the result was millions of dollars in wasted investment.

When DePinho was hired as President at MD Anderson, he saw an opportunity to create a new paradigm for drug development. He brought in Giulio Draetta, a former Vice President at Merck and a top notch team of genetic and drug discovery researchers to found the Institute for Applied Cancer Science that would apply a cross-disciplinary approach.

The idea was that, rather than have separate teams of specialists pursue their work in peaceful isolation, they would create a true “team of teams” which would interact on a daily basis. That would allow them to perform greater due diligence in the preclinical phase, identify therapies with greater potential and target them at the right conditions.

So far, the results are encouraging. DePinho told me, “We’ve not only reduced the costs of getting to Phase I by about two thirds, but also to refine the concept of drugs already under development and, possibly most importantly, we’re killing off a majority of potential drugs that looked promising before we subjected them to greater scrutiny in the preclinical phase”

The Future of Innovation is Integration

The lack of integration in the pharmaceutical industry is by no means unique. Take, for example, the nearly mythical story about Steve Jobs visiting Xerox PARC in 1979. According to legend, the wily young entrepreneur had finagled an exclusive look at groundbreaking technologies, like the mouse and the graphical user interface, that led to the development of the Macintosh.

The truth is that he could have seen many of the same things in 1968, eleven years earlier, at a public presentation financed by the federal government. Now known as the The Mother of All Demos, it featured Douglas Engelbart’s vision of interactive computing, which led to the technologies that Apple later commercialized and made famous.

In just about every field, there are cloistered communities of researchers making potentially game changing discoveries that end up sitting on the shelf for years—or even decades. Clearly, we need to innovate the innovation process. We need to shift from a disjointed effort that puts researchers on one side of a great divide and industry on another, to a combined, interdisciplinary effort.

Thankfully, it seems like MD Anderson is not alone in seizing this approach. The current JCESR program at Argonne National Laboratory to develop next generation batteries and President Obama’s advanced manufacturing initiative are but two examples of programs that bring government, academia and the private sector together to create innovative solutions.

What these efforts have in common is that they put the problem first and build a collaborative effort around it. While it may be more romantic to believe in lone geniuses and flashes of insight, truly exceptional innovation is a team sport.

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Greg Satell is a US based business consultant. You can find his blog at Digital Tonto and you can follow him on Twitter.