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The drug company GlaxoSmithKline employs 12,687 people in its research and development division to search for and test new drugs. Despite that huge staff, around half of the company’s $6.3 billion R&D budget goes to people who don’t work for Glaxo at all.

The money instead flows to companies like Epizyme, a small biotechnology firm that, since last year, has received $24 million from Glaxo to support research on a novel type of cancer drug. That’s money the biotech firm needs to survive, and if its efforts yield a drug, that would be a success for Glaxo, too.

Drug companies have always kept ties with academics and done deals with biotech firms. But the search for outside ideas has never been as urgent or as wide as it is today, say drug industry officials. The reason is the plummeting productivity of in-house research. Compared to 1980, the drug industry today spends 10 times as much money on R&D (even accounting for inflation), yet the number of novel drugs getting approved by the U.S. Food and Drug Administration has remained flat, at around 23 per year.

Glaxo’s efforts to outsource (or “externalize,” as they say in the industry) its R&D isn’t only a result of its own labs’ waning success in finding drugs. Funding for biotech companies from venture capitalists and IPOs has been drying up as well, and companies like Glaxo now worry that if they don’t do more to support smaller enterprises, they might not have as many promising drugs to bid on.

At Glaxo, the search for outside ideas is led by the Centre of Excellence for External Drug Discovery, a group of about two dozen managers it created in 2005 and whose job is to locate scientists at universities and small companies working on promising drugs. Glaxo then funnels money to them along with some tips on how to turn their ideas into drug candidates.

Glaxo says 60 percent of the candidate drugs it has in late-stage human testing came from other companies, compared to 40 percent three years ago. The number of outside research collaborations it manages has doubled as well. But selling the idea was not easy. “It took a lot of work within R&D to make it really clear that reaching out to a team that we judge to be better than us to prosecute an idea, or because they have a great idea, is just one way of doing R&D in the company,” says Moncef Slaoui, chairman of research and development at GlaxoSmithKline. “It’s one of the tools, in the same way biology, or chemistry, or clinical sciences are tools.”

At Glaxo, the scientist-managers who lead each of the company’s discovery teams—there are 38 of them, each responsible for a different disease or biological process—decide how much of their budgets to spend outside the company. For Dash Dhanak, who leads the research team that focuses on epigenetics, an emerging field of gene regulation science, the magic number is 50 percent. Dhanak recalls how as Glaxo began to focus on this new line of work, “it became clear we didn’t have all the knowledge [we needed].” Among Dhanak’s moves was to arrange the alliance with Epizyme, which had begun developing epigenetics drugs based around basic research discoveries made at MIT and the University of North Carolina.

Having outsiders involved has helped Glaxo adjust to new science. A few years ago, researchers at the company were convinced that the concept of tumor stem cells—a population of cells hypothesized to drive tumor formation—was incorrect. Glaxo’s scientists found many reasons to not pursue the idea, even though it was gaining some traction in academia. “They were very good at finding what could go wrong, and not enthusiastic to see what could go right,” says Slaoui.

Glaxo’s externalization team intervened and inked a partnership with OncoMed Pharmaceuticals, a biotechnology company developing antibodies to attack tumor stem cells. While Slaoui says it is still unclear who was right about cancer stem cells (the program is at an early stage), he’s pleased that Glaxo is involved in the cutting-edge research. Otherwise, he says, “we would never had been exposed enough to the idea to come to a more informed view.”

The innovation deficit in the drug industry is, in part, a by-product of its history. The great corporate labs were masters of chemistry, but many new drug ideas are now coming from biology labs, where research is exploding in size and complexity. “We felt that we could do most of the research ourselves,” says Jose Carlos Gutierrez-Ramos, senior vice president of Pfizer’s biotherapeutics division. When new drug targets or types of medicine arose, Pfizer was certain, with its titanic budgets, it could explore these areas on its own. “We tried to impersonate expertise,” Gutierrez-Ramos admits.

Like Glaxo, Pfizer’s solution has been to shift more and more money away from its central research division, including a decision this year to build innovation centers near four U.S. universities. Pfizer’s employees will now work on campus with their academic collaborators, and even put their names on patents together.

Among other benefits, Gutierrez-Ramos says, outside scientists are likely to bring in fresh ideas and help Pfizer avoid “me-too” drug programs, where multiple companies chase the same idea. He says that of 350 proposals that have came in from academic researchers “only 1 or 2 percent overlapped with projects that we had internally.”

This is a big change for Pfizer, whose corporate identity was always closely linked to the success of its internal research divisions, discoverers of blockbuster products such as Viagra. “I think we are tapping into a very different area of innovation,” says Gutierrez-Ramos. He hopes that, within six years, his division will have a pipeline of drugs that is both unique in the industry and based almost entirely on discoveries made outside the company. That, he says, would be “ultimate success.” 

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Tagged: Business, Business Impact, business, R&D, GlaxoSmithKline, pfizer

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