On the FT’s homepage today is news of a record $3bn fine that US regulators have dealt GSK (here). The fine is due to the companies ‘selective use of clinical data’ as well as the ‘aggressive marketing’ of drugs. Pharmaceuticals have often been accused of being less than honourable with the results of their clinical trials as well as using monetary reward to ‘encourage’ powerful medical advisors to use their sometimes dubious products. I have direct experience of the former. When quitting smoking I was prescribed Champix, a nicotine replacement therapy developed by Pfizer. I was told that I might experience some side effects such as nightmares and if I were ever feeling depressed that I should go an see the doctor immediately. I experienced the severe nightmares throughout the course of treatment but never thought anything of the depression comment. That was until I did a bit of research that suggested Pfizer, upon submitting the drug, had withheld some information from US Regulatory authority that authorises drugs for commercial sale. It turned out that there had been a number of suicides directly related to the drug that they had forgot to mention. Fortunately I never experienced anything like this but it shows why I was not at all surprised to see this article today.

The pharmaceutical industry is going through a somewhat transitional period. The era of the ‘blockbuster drug’ is over and big pharmaceuticals are unable to rely on the profits generated from these blockbusters to keep them afloat as they have done in the past. Is it then not a surprise that these companies are perhaps resorting to less than ethical methods to create profits? As many pharmaceuticals try to avoid falling off the ‘patent cliff’ they are desperate for new ideas in the development of drugs. After all, these companies have been a staple for many dividend investors in the last few decades (Pfizer 10yr). So what does the future hold for this very secretive and sometimes shadowy industry?

Whilst at uni I had to compile a presentation on the benefits of Open Innovation for an industry of my choice. I decided to look at big pharma as the methods of Open Innovation are in quite a contrast to the way the companies are currently run. Open Innovation is all about sharing information, both internally and externally to aid collective advancement. I won’t go into too much about how Open Innovation works, there is lots of information available on it (such as here), I will however highlight one success story given by Henry Chesbrough, the professor who first coined the term.

A biofuel firm called Amyris developed an advanced method of programming organisms to secrete chemical compounds whilst working on their core competence; creating bio fuels. In turned out that this process could be hugely useful to pharmaceutical firms particularly Sanofi-Aventis. Amyris licensed the method to Sanofi so they could use it to create artmesinan (a malarial treatment). By licensing this technique Amyris were able to lower the costs (through licensing revenue) of their core research and Sanofi were able to access an already developed and tested technique, cutting down on the development time they endured. The sharing of this knowledge gave benefits to both firms and it is this principle of sharing (whilst safeguarding intellectual property) that Open Innovation is built on.

For me I think the future of the suffering pharmaceutical industry relies on adopting such techniques. The article in the FT today only reinforces the difficulties that the industry is facing. I for one won’t be investing in any pharmaceuticals until it becomes apparent that the business model has changed and the lessons that Open Innovation teaches have been adopted.

My uni presentation on Open Innovation and the pharmaceutical industry can be found here.

A PowerPoint version of the presentation that includes presentation notes can be downloaded here - click the download link in the top right.

Disclaimer: I have been unable to find the article that cites that Pfizer had withheld information about Champix from the US regulator. This should therefore be taken as opinion and not as fact. This drug has been fully authorised for prescription use by NICE (National Institute for Health and Clinical Excellence) and is therefore considered safe to use