This document discusses biotechnology R&D strategies and corporate strategy. It begins with an overview of the biopharmaceutical industry and challenges with early stage funding. The concept of strategy and purposes of a good strategy are then explained. Key elements of R&D performance strategies including architecture, processes, people and portfolio are covered. Case studies of innovation and biosimilar R&D strategies from companies like GSK, Wyeth and Novartis are summarized. The document concludes that different companies pursued different strategies based on their core hypotheses to address R&D productivity issues. Benchmarking capabilities is important for companies looking to enter the biosimilars market during the biologics patent cliff.

1. BIOTECHNOLOGY R&D
AND CORPORATE
STRATEGY
Dr. Bhaswat S. Chakraborty
Sr. VP & Chair, R&D Science Core
Committee
Cadila Pharmaceuticals Ltd.
Presented at the NRDC Industry Seminar, Surya
Palace Hotel, Vadodara, February 9, 2015
1

2. CONTENTS
 The pharmaceutical biotechnology world
 Its R&D
 Business model & early stage funding gap
 The concept of Strategy
 Purposes of a good strategy
 Elements of R&D performance strategies
 Biotech innovators’ strategy case studies
 Biosimilar R&D strategy case studies
 Conclusions
2

3. INNOVATIVE
BIOLOGICALS R&D
3

4. TOP 10 PRODUCTS BY SALES IN
2014
4
Rank Product Company Technology
WW
sales($m)
1 Avastin Roche Monoclonal antibody 9,232
2 Humira Abbott + Eisai Monoclonal antibody 9,134
3 Rituxan Roche Monoclonal antibody 7,815
4 Enbrel Wyeth + Amgen + Takeda Recombinant product 6,583
5 Lantus Sanofi-Aventis Recombinant product 6,386
6 Herceptin Roche Monoclonal antibody 5,796
7 Crestor AstraZeneca
Small molecule
chemistry
5,739
8 Spiriva Boehringer Ingelheim
Small molecule
chemistry
5,552
9 Remicade
SGP + J&J + Mitsubishi
Tanabe
Monoclonal antibody 5,220
10 Gleevec/Glivec Novartis
Small molecule
chemistry
5,136

5. UNDERSTANDING THE
BIOTECH & LIFE SCIENCES
BUSINESS MODEL
5

6. 6

7. 7

8. MANUFACTURING PROCESS FOR
BIOLOGICS
8

9. Strategy = Commitment to winning knowledge and behavior
9

10. PURPOSES OF A GOOD
STRATEGY
 Three purposes
 Consistency
 Coherence
 Alignment
1. Consistency
 Advantage is not the result of a single decision, but rather the
cumulative outcome of a series of decisions, actions, and
behaviors over time
 A good strategy provides a framework for making
consistent decisions over time
 Builds cumulatively toward a desired objective
Pisano G (2012) HBS Working Paper 12-095
10

11. PUPOSES OF A GOOD
STRATEGY..
2. Coherence
 In a complex organization, many decisions are to shape
competitive capabilities (which projects get funded, who gets
hired and promoted..)
 Decisions are often made in far-flung corners of the
organization and, today, in different parts of the globe
 Strategy provides an integrating mechanism to ensure these
tactical decisions are coherent
 Organizations sometimes try to compensate for poor
strategy by creating committees and others communication
mechanisms to ensure decisions are integrated
 Such devices are a poor and inefficient substitute for good,
clear strategy.
11

12. PUPOSES OF A GOOD
STRATEGY…
3. Alignment
 Organizations thrive when their strategies are aligned to
the realities of the environment
 Or with the broader organizational context in which they
operate
 An R&D organization needs to have a strategy that is
aligned with the broader business strategy of the
organization
 A strategy should help driving alignment
12

13. ELEMENTS OF R&D
STRATEGY
13
Pisano G (2012) HBS Working Paper 12-095

14. R&D ELEMENTS
 Architecture
 Centralization vs. Decentralization
 Size and focus of units (by market or by technology?
 Outsourcing vs. Internal
 Better architecture depends organization’s “core
hypotheses” about what it takes to win
 For integration centralized model is better
 For tapping geographically diverse knowledge bases
decentralized model is the choice
14

15. R&D ELEMENTS..
 Processes
 Development & decision making process
 Governance and Metrics
 “Best practice” and highly “structured” R&D processes
with tightly specified procedures, review etc. need to be
examined
 May be a more “flexible” process would deliver R&D
goals (highly novel & uncertain) technologies
 If R&D must be tightly coordinated with other
functions (like manufacturing), tightly specified process
may be necessary to keep everyone on the same page 15

16. R&D ELEMENTS…
 People
 Most important aspect of an R&D system
 Make impactful choice of resources
 Right mix of generalists vs. specialists, technical backgrounds and
training, work styles, career paths, lay off policies
 No one best human resource strategy for R&D
 Comfortable with churn? May be in a technology hot-spot (e.g.,
Boston or Mumbai)
 If the R&D labs are geographically isolated, assurance of job security
to attract & retain talent
 Portfolio
 Desired resource allocation across different types of R&D projects
 Criteria used to sort, prioritize, and select projects (should reflect the
priorities of the R&D strategy
 e.g., innovative biotech company wants to win by discovering its own first-
in-class drugs vs. biosimilar developers.
16

17. A FEW BASIC QUESTIONS TO
FORMULATE A GOOD STRATEGY
 Have we been absolutely clear about how we intend to win?
 Everyone should understand what the priorities are and what
they mean for them
 Are the choices we are making about architecture,
processes, people, and portfolio coherent?
 Are there any major conflicts between our policies?
 Third, do all our choices form an integrated “system” focused
on the key priorities (how we intend to win)?
 Finally, because a strategy is a “hypothesis”, we need to
evaluate our R&D strategy against performance data
 when the time has come to reject our initial hypothesis &
change strategies, do so 17

18. INNOVATION R&D STRATEGY:
CASE STUDY 1 – GSK
 Key strategy: Breaking R&D up into smaller units
 In 2000 GSK restructured its R&D focused on therapeutic area units, cancer,
neurology, etc., called Centers of Excellence in Drug Discovery (CEDD)
 Each CEDD was responsible for the development of molecules in its designated
therapeutic realm, from discovery through PoC
 Early discovery (target identification and molecule discovery) and late stage
development (Phase III trials, registration, etc.) was still centralized
 CEDDs had complete autonomy over their own portfolio management
 After PoC, the CEDD would present programs to a centralized senior
management from R&D, business units, and corporate headquarters) for a
“go/no-go” decision for full development.
 Core Hypothesis (Architectural): Smaller, focused, autonomous,
and more accountable units would make more efficient decisions
regarding portfolio advancement
 An attempt to create “biotech-like” organizations inside the larger
corporate framework 18
Based on Harvard Business School Case Study #9-605-074.

19. INNOVATION R&D STRATEGY:
CASE STUDY 2 – WYETH
 Key strategy: Metrics based centralized approach
 Wyeth senior management saw poor R&D productivity rooted in poor
decision-making and misaligned incentives
 Solution: standardized development process, metrics and performance
 Precise numerical targets (12 new clinical candidates /year), financial
rewards tied to to them, structured development process, specified
milestones and reviews for every program
 All projects would follow the same process
 Core Hypothesis (Processes): Make R&D process more predictable
by a more “repeatable” process, setting clear performance
objectives, and by clarifying decision-making
 Project advancement governed centrally
19
Based on Harvard Business School Case Study #9-607-008.

20. INNOVATION R&D STRATEGY:
CASE STUDY 3 – NOVARTIS
 Key strategy: Science first; decentralized
 In 2002, Novartis opened a research laboratory in Cambridge, MA to be
close to a thriving ecosystem of biotechnology Cos & leading academic
institutes
 Under the auspices of the Novartis Institutes of Biomedical Research (NIBR),
headquartered in Boston
 NIBR, an autonomous organization, reports to Novartis CEO, has 6 sites
 Focus areas determined by NIBR are based on two basic criteria: large unmet medical
need and an opportunity to develop deep biological insight
 Aalysis of market size and net present value were explicitly rejected as criteria for
project selection at the research phase!
 Core Hypothesis (All elemnts): improved scientific
knowledge of the disease & MoA would allow better decision-making about
drug candidates to advance, and this would ultimately reduce attrition
 Strategy addressed architecture (separate NIBR), people (locate
where the talent is), process (establish proof of mechanism in well-
defined patient populations first), & portfolio (select projects based
on scientific attributes)
20
Based on Harvard Business School Case Study #9-608-136

21. BIOSIMILARS R&D
21

22. RECOMBINANT PROTEIN PRODUCTION:
SOURCES OF VARIATION BETWEEN MANUFACTURERS
Mellstedt H et al. Ann Oncol 2007;19:411-419
22

23. OVERVIEW OF USFDA
GUIDELINES FOR BIOSIMILARS
Integration of Information to Biosimilarity
23

24. 24

25. The 2012–2019 patent cliff is highlighted in yellow
FOR THE TOP TEN SELLING
BIOLOGICS
25
Calo-Fern´andez B et al (2012) Pharmaceuticals 2012, 5, 1393-1408

26. A GENERAL STRATEGY DIAGRAM FOR A
SUCCESSFUL ENTRANCE INTO
BIOSIMILARS MARKET
26
Calo-Fern´andez B et al (2012) Pharmaceuticals 2012, 5, 1393-1408
The requirement for key capabilities varies
with the market maturity: from brand-driven in
short term to price-driven in long term

27. Global sales for three blockbuster chemical drugs: Effexor, Lipitor and Plavix.
The solid coloured lines represent the annual sales of the product until 2011; the dotted
lines represent a projection of the sales for the following years based on Effexor’s drop in
revenue drop (see Appendix). The shadowed areas correspond to the patent expiration year
as indicated in the legend (data from: [2,3]).
27

28. Evolution of global sales for the top ten branded biologic drugs from 2004 to 2011.
The products below account for 37.6% of the total biologics market value, adding up to 53.4
billion USD in 2011 (data from financial statements 2004–2010 and [10–15]).
28

29. Inserted subfigures are Pfizer’s biosimilar capabilities
before the acquisition of Wyeth and the contributions of this
deal
ESTABLISHING THE STRATEGIC
DEALS
29

30. Konde V. (2009) Journal of Commercial Biotechnology Vol. 15, 3, 215–226
INDIAN BIOTECH
COMPANIES
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31. Company Products/technologies/services in the market
Business
model
Main sector
Advinus Theraputics,
Bangalore and Pune
Metabolic disorders, inflammatory diseases, neglected
diseases
Hybrid
Avestha, Bangalore
Agbiotech and transgenics, biosimilars Vertical
Bharat Biotech International,
Hyderabad Recombinant drugs, cardiovascular diseases, vaccines Product
Bhat Bio-Tech India,
Bangalore
Recombinant proteins, diagnostic markers Hybrid
Bharat Serums and Vaccines,
Mumbai Plasma derivatives, monoclonals, hormones, serums.. Product
Biocon, Bangalore Industrial enzymes, recombinant protein therapeutic
products and human growth hormone
Vertical
Biological E., Hyderabad Diagnostics, combination vaccines, antitetanus and
antisnake venom sera
Vertical
Dr Reddy's Laboratories,
Hyderabad
Infectious and parasitic diseases, oncology, immune
disorders, endocrine, nutritional and metabolic
diseases, ..
Vertical
Gennova Biopharmaceuticals,
Pune
Hi-tech molecules in nephrology, oncology and
cardiology segment
Product
Indian Immunologicals,
Hyderabad
Pediatric and childhood vaccines, DNA-based vaccines,
animal- and human-health products
Product
Indian biotechnology database (http://www.indianbiotech.com/in/db/index.php).
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32. CONCLUDING REMARKS
 Strategy entails a systematic approach to make an R&D
organization more competitive and effective
 Consistent and coherent choices across architecture, processes,
people, and portfolio seem to give a reliable and successful
strategy
 Different companies pursued different strategies to essentially
address the same problem
 differences were largely rooted in different “core hypotheses” (bets) on the
underlying root cause of non-productivity of R&D
 Innovative biotech companies have been enjoying bonanza times
since1990s following good R&D strategies
 Biotech biosimilar companies position themselves to enter
biosimilars market by acquiring or developing R&D,
manufacturing, supporting activities, marketing or lobbying ca
 Thus capability-benchmarking is the key for any company
planning to generate value from the biologics patent cliff
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33. THANK YOU VERY
MUCH
Acknowledgement: Ms. Raji Nair
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