After a prior era of failed collaborations, industry and academia are increasingly joining forces in ways that better accommodate each others’ capabilities and goals – and, they hope, will create more value and ultimately greater improvements to human health.

These new approaches, born of necessity on each side, have generated considerable excitement about an area of business development traditionally characterized by missteps and suspicions. Prior attitudes, as well as current ambitions, confusions, and conflicts, all came to the forefront in a panel discussion on the topic at Elsevier’s Pharmaceutical Strategic Alliances conference in New York on Sept. 22.

Consensus outweighed disagreement, with panelists broadly endorsing the view that pharma fills an important translational role in identifying and taking new drug candidates from discovery into the clinic. Industry’s role has become particularly important in the absence of venture capital investment. Both sides of the collaboration now better understand the capabilities and resources that each brings, the rewards that will be necessary to motivate researchers, and what’s necessary to maintain pharma’s interest.

Nonetheless, lingering wariness of each other surfaced, as participants indicated that for all the fine talk, when it comes to execution, the devil is in the details.

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Panelists delved into transactional and operational models, impacts on the innovation ecosystem, and the best way to align the disparate cultures and incentives of the corporate and academic life science worlds (Also see "Back To School: Big Pharmas Test New Models For Tapping Academia " - In Vivo, 1 February, 2011.).

The backdrop against which this new era in academic/pharma collaborations is taking place consists of a 10-year drought in productivity, sharp retrenchment of VC investment in early-stage research, and the potential impact of the larger economic malaise on the basic research agenda of large universities.

Incentives, Culture Clash, And The Idea Of Collaboration

Jose-Carlos Gutiérrez-Ramos, SVP of R&D Biotherapeutics at Pfizer, kicked off the conversation with an assessment of the problems involved in translating basic research into the clinic, and Pfizer’s approach to solving them.

According to Ramos, the problem is not a lack of discovery research, or even of funding of basic research. Rather, the key hurdle is in translating basic research into the corporate world of applied science. In the context of academic-pharma collaborations, that means instilling a culture of discipline, trust, and joint-ownership of milestones.

Pfizer – which has entered into several five-year partnerships around the U.S., each budgeted at up to $100 million – had “160 applications for grants in the Centers for Therapeutic Innovation network,” according to Ramos, “and each one ended in a small, 15-20 patient experimental study. Of those, we have 16 ongoing.” For now, the company is focusing its CTIs on biologicals, and has set clear goals for its collaborations, only pursuing projects that can feasibly be taken into the clinic in one to three years (Also see "Pfizer Teams With Eight Boston-Area Research Institutions In $100MM Tie-Up" - Pink Sheet, 8 June, 2011.)

Ramos acted the penitent at times, admitting that in earlier alliances Pfizer, and by extension industry, was arrogant, only looking out for its own interests. The theme of industry’s earlier transgressions was picked up by Kathleen Mullinix, director of the Office of Technology and Business Development at Mt. Sinai School of Medicine, who charged both pharma and VCs with striking lopsided alliances with research institutions in which the assets and upstream rewards went to the funding party.

Earlier alliances failed partly because pharma was in fact too generous upfront, argued Chris Haskell, head of science hub, U.S., Bayer Healthcare Pharmaceuticals: “There’s no vested interest by that person to see success.” Bayer, which has made significant investments with the University of California at San Francisco, now takes more of a shared-risk approach to its academic partnering ( Also see "UCSF Chancellor Desmond-Hellmann Talks Academic Partnerships" - Pink Sheet, 1 April, 2011.). And Ramos stressed that Pfizer’s CTI funding is all milestone-based, with no upfronts.

What’s changed is a frank acknowledgement of the cultural differences between a science-based institution and a profit-based institution – of what each side brings to the table, and of what each side wants out of the tie-up, panelists agreed. Mullinix put it succinctly: “We have the front-end and we have the back-end” – by which she meant that universities bring the biological expertise and, at the back-end, the patients. “I don’t mean patients to run clinical trials; I mean patients who, if they are appropriately phenotyped, can provide patient samples. In the middle, we have nothing,” she said, alluding to pharma’s expertise in chemistry, manufacturing, controls (CMC), clinical trials and regulatory compliance.

Some old stereotypes – scientists are only interested in science, are spontaneously creative, are more driven by publication than by money – are no longer relevant, Mullinix said. Both pharma and academia recognized that a mix of incentives is appropriate, although at differing levels, depending on the institutions and individuals involved. Most scientists want to see their inventions translated into clinical trials, although some are more interested in the potential impact on their careers, others in money.

The biggest change is in the concept of what constitutes collaboration, observed Paul Laikind, CBO and SVP of business development at the Sanford-Burnham Institute ( Also see "Sanford-Burnham Medical Research Institute: Making Sure New Drugs Aren't Lost In Translation" - Scrip, 1 September, 2011. ). Pharma, in his view, has moved beyond “incremental collaboration” and all that implies about selective, opportunistic tie-ups. “Now it’s become much more programmatic,” with closer involvement by both sides in planning and execution. He cited Pfizer’s approach to project proposals. Early on, it’s a non-confidential two-pager that goes to a joint steering committee. If Pfizer expresses interest, “it goes to a 6-10 page proposal that is co-authored by a Pfizer associate along with a faculty member. That’s a big change.”

This notion about both parties reaching a deeper understanding of what it means to collaborate was echoed by other panelists, and seemed to bode well for the enterprise.

Once the matter was settled of what the goal was and how best to achieve it, the question of measurement came up. Metrics and processes for assuring compliance and performance vary by company and university.

Whereas Pfizer’s CTIs are designed to result in discrete drug candidates, Bayer sees its collaborations as yielding drugs, diagnostics, and, particularly when moving into new therapeutic areas, fundamental knowledge. “We are trying to understand how you might create metrics that aren’t specifically pipeline-derived because we recognize that there’s a huge amount of value there,” Haskell said.

Wither The Ecosystem?

With the introduction of Bruce Booth a partner at Atlas Ventures, the conversation took a strategic, and more contentious, turn. On the whole, academic-pharma collaborations were good for the ecosystem, Booth argued. But he also noted that these collaborations are a tiny fraction of the industry R&D spend, or even of the National Institutes of Health’s R&D budget. Furthermore, “there’s a ton of activity in academic labs in early stage that’s not going to be touched by this, at least not directly,” he said.

Booth envisions an ecosystem in which pharma won’t be able to fund all the opportunities coming out of their academic alliances. That leaves an opening for VC. Referring to an earlier presentation at PSA in which Navjot Singh, a partner at McKinsey & Co., showed a plummeting IND rate over the past two years, Booth wondered what will happen when pharma weans itself from the ‘shots-on-goal’ mentality (Also see "McKinsey Partner Talks About R&D Evolution At PSA" - Pink Sheet, 27 September, 2011.). “I think there’s going to be a boom in research productivity, and you’re actually going to see a lot more things getting ready for development but unable to be funded in the current pharma environment. Those projects will be spun out of these academic-pharma alliances through creative out-licensing deals … and the people who are going to fund those are venture capitalists.”

As for academic initiatives that make it into pharma pipelines, Booth is not optimistic for the chances of an academic project competing with hundreds of projects in a big pharma R&D portfolio for resources and management bandwidth. Those projects, he argues, will do better in smaller, standalone units.

Speaking of preclinical candidates coming out of these collaborations that are on the verge of being ready for the clinic, he continued, “at some point, in order to deal with competing priorities, you’re going to see pharma ring fence that step, make it stand alone. It starts to look very much like a biotech company to me, whether it’s funded by corporate capital or venture capital.”

Solving The Productivity Puzzle

Ajay Dhankhar poked some holes in Booth’s vision of VC’s seat at the table. Dhankhar, a partner at McKinsey, delivered an elegant analysis of academic-pharma collaborations as a means to greater productivity. He began with a comparison of the value that VCs and pharma companies each bring to an academic partnership: VCs bring “an acute amount of focus.” The focus often leads to bad ideas, but it also functions to discipline and educate scientists, and compels them to justify their continued access to funding.

Pharma can never fill the VC gap because it can never bring that degree of focus to academic scientists. VCs, on the other hand, “have never really been able to deliver the ‘smart money’ to prosecute a lot of these leads.” He called it “the collaboration paradox.”

According to Dhankhar, VCs have a poor record in bringing forth companies with a fully-optimized lead that a pharma company might look at and say “Yep. That’s what we need.” “One of the worst-kept secrets of the venture capital industry is that . . . most of the time big pharma has to go back and redo a lot of the assays, and that takes time. It delays a project. When big pharma acquires biotech companies, there’s a 60%-70% kill rate of the early-stage pipeline.”

Booth countered that the reason for the high kill rate was not poor quality, but rather that the assets “didn’t integrate into the mother ship in the way you might want those organizations to.”

Dhankhar insisted that the reason was shoddy quality, and suggested that this presented an opening for big pharma to address the quality shortfall. “They’ll never get the focus that VC was able to provide, ever, but they can try to get 80% of it, and if they can provide the intelligence that comes from their experience, and the assays, and figure out a way to align the incentives, I think this is a very good model.”

He then turned to an examination of the proper collaborative vehicle for large, disparate organizations. “What is happening here, when you’re trying to co-invent something is very, very similar to what companies have tried to do with joint ventures.” He shared some McKinsey data showing that JVs drive 15%-20% of U.S. GDP. JVs, in Dhankhar’s view, are the right structure when you have two institutions with fundamentally different charters, collaborating on a micro-problem.

JVs won’t fix all the misaligned goals of academic and pharma organizations, but one thing about them stands out: 79% of JVs get renegotiated. This suggests that the partners were flexible and willing to revisit decisions and change the structure in order to better align goals and incentives. In Dhankhar’s view, JVs, with the right degree of trust and attention, are much like a grand adaptive trial with iterative reviews and adjustments along the way.

Stakeholder SmackDown!

As the lone representative of the VC sector, Booth took some knocks from the other panelists, particularly Mullinix. But Dhankhar’s charge that the VC model had failed struck a nerve. Booth denied there was a VC gap, and suggested another way to look at it is “What’s the right number of ideas to be funded?” Booth basically treated the aggregate of start-ups and programs in the biotech space much like a drug portfolio, and saw VCs’ role as adjusting its size and composition to achieve the right degree of risk and return.

He held that over 500 new biotechs were created since 2005, with some 2,000 programs in clinical development. “One could argue that may be over-funded, so I think getting at the right number of companies to be funded, the top quartile of ideas . . . [that] might be the right market clearing rate of company formation. We should be careful what we’re calling a gap.”

Panelists weren’t having any of it, and interestingly, that’s where the big pharma representatives swung into action. Haskell flatly stated that the VC funding gap is particularly affecting early-stage companies. While the gap may be working out to VCs’ benefit, it has opened up a funding gap nonetheless and pharma is simply stepping into the breach. Corporate VCs help fund discovery start-ups, partially filling the gap, he pointed out.

Ramos returned to Dhankhar’s charge of shoddy work from VC backed companies, locating the problem squarely in the VC model: “The problem is that they have to return to you, very fast, a certain amount of returns and that changes the shape of the programs that they can do. Therefore, the quality of the clinical program gets compromised.”

The Way Forward

The general tone was one of broad agreement as to goals, incentives, and operational details. The decision this time around to foster closer working arrangements by co-locating pharma and academic scientists, and to give the latter a greater part in decision-making and downstream rewards, was endorsed by all. Some important matters – sharing of IP, the role of VCs, how best to measure the softer benefits of collaboration – remain to be worked out. But all agreed that the stakes are extraordinarily high and worth it.

By Michael Goodman

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