Why Big Pharma Companies Need to Collaborate

The pharmaceutical industry has historically been very secretive, but collaborating is a key to innovation according to Bernard Munos.

Jan 2, 2014 at 2:41PM

Bristol-Myers Squibb (NYSE:BMY) and AstraZeneca (NYSE:AZN) made waves last month after announcing that their partnership in the diabetes space has come to an end; AstraZeneca is acquiring Bristol's stake for an upfront payment of $2.7 billion and potentially $1.4 billion in milestones tied to regulatory events and sales targets.

While this partnership has been dissolved, it's important for investors to remember that collaboration is far from dead in the big pharma industry. GlaxoSmithKline (NYSE:GSK), for instance, work with Pfizer (NYSE:PFE) on the development of new HIV medications through their company ViiV Healthcare. Pfizer also shares its anticoagulant Eliquis with Bristol-Myers Squibb, and there are many more examples of partnerships in this industry.

The pharmaceutical industry is historically notorious for its secrecy, but collaborations between big pharma companies and biotechs are becoming a more common way to share the high risk of bringing new therapeutics to the market. In the following video, analyst Max Macaluso discusses this topic with Bernard Munos -- innovation expert and founder of the InnoThink Center for Research in Biomedical Innovation -- and explore how working together can be a source of innovation. A transcript follows the video.

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Max Macaluso: We talked a lot about innovation within certain companies, but I'm curious about innovation between companies. You have, for instance, Bristol-Myers Squibb collaborates with AstraZeneca on a number of different drugs. You have Pfizer and GlaxoSmithKline, which do the same. Where do we stand right now, in the industry, with companies seeing each other more as collaborators and not as competitors in certain therapeutic areas?

Bernard Munos: I think it's a good idea, and certainly one that needs to be encouraged. We have an industry that has a very insular culture, that does not lend itself to cooperation. This proprietary culture that pervades the industry is very antagonistic to this concept of sharing, and it's unfortunate because drug R&D is all about solving difficult scientific challenges in order to come up with novel therapies that make a difference.

Some of those challenges can be adequately addressed by the strengths that reside in the R&D division of a given company; I talked about Lilly taking on the translation of the insulin discovery back in the '20s. There are situations, however, where the challenges are just too big for any particular company, and if you do not collaborate you're likely to end up with a collective industry failure.

There is an interesting example, historically, that has interesting application to a current challenge. If you go back to the 1930s and the translation of the discovery of antibiotics, many companies at that time tried to do it -- the Lillys and the Pfizers and the Mercks -- and they failed. They failed because what in retrospect seemed like an easy thing to do, back then was extremely challenging.

Business historians have studied that and shown that, just in the U.S., it took over 1,000 scientists from 39 major labs to join forces and overcome the scientific, technological challenges that needed to be overcome in order to offer antibiotics on a commercial scale. If it hadn't been for World War II and the war effort, when the government said, "Hey, this is a national priority, so you guys join forces and do it," we might have witnessed a case of collective industry failure. But the industry was forced to collaborate, and together they cracked that nut.

There is a parallel with Alzheimer's today. Alzheimer's, as we know, is a very difficult scientific challenge. The industry has spent well over $10 billion trying to crack that challenge, unsuccessfully. We keep throwing compounds at the disease, hoping it's going to work. We've thrown over 200 such treatments at the disease, unsuccessfully.

One thing that we have not, is shared our experience with what works and what doesn't work, so that we can learn from each other's failures. Today, you have this paradoxical situation where a number of companies are pursuing treatments, pursuing targets, that have been abandoned by other companies after spending billions of dollars investigating the same targets. But because we don't have the sharing of that knowledge, we keep repeating our mistakes.

Rather than sharing and succeeding, from a better understanding of the scientific challenges that are involved, we prefer to stay in our own little things, and fail collectively. Again, I think this is a leadership issue. I've sat in front of industry executives who have told me, "There's no way we can share. We cannot afford to share anymore because we're under such pressure that we cannot give an edge to our competition. We've got to patent everything we can possibly patent because we're under too much pressure."

This is the sort of thinking that is bringing the industry down. That has been a major ingredient of the crisis that the industry has experienced in the last 15 years. We need new thinking, and I'm glad to see that, in half of the industry today, you've got this new thinking. You've got CEOs at Roche, at Bayer, at GSK and other companies, that are challenging that thinking and helping lead the transformation of the companies.

Max Macaluso, Ph.D. and Bernard Munos have no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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