Chris Viehbacher has seen plenty of ideas come and go from people trying to shake up the pharma R&D model. No matter how much people have tried to fix things, it still takes a notorious amount of time, money, and risk to create new drugs.
Now, as the CEO of Paris-based Sanofi (NYSE: SNY), Viehbacher is blowing up the traditional R&D model at a huge, 110,000-employee company. Last year’s big strategic move was the acquisition of Cambridge, MA-based Genzyme, which gave Sanofi a lot more biotech products and expertise. Since then, Sanofi has done what a lot of other pharma companies have done—made cutbacks on its own internal research. And now the company is setting aside an increasing percentage of its $6.5 billion-a-year R&D budget for bets on collaborators doing edgy scientific work in universities and at biotech companies.
I sat down to interview Viehbacher last week at the JP Morgan Healthcare Conference in San Francisco, where we talked about the Sanofi R&D plan, and how the company can help support biomedical innovation more broadly outside its corporate walls. Here are excerpts from the interview, edited for length and clarity.
On Sanofi’s outreach strategy with U.S. researchers, particularly in the Boston area following the Genzyme acquisition:
One of the main rationales for doing the Genzyme deal was to have a strong presence in research in the U.S., and clearly the first choice is Cambridge. Our vision for research is one of open collaboration. How companies do research is evolving, and certainly we are evolving. Traditionally, we’ve had big research centers, and we are trying to get a lot more balance between internal research and external research. Right now, it’s about a 70/30 ratio between internal to external. My objective is to bring that to about a 50/50 balance.
That fits with a number of trends in research. First, there’s a lot of funding for new ideas drying up as venture capital is leaving biotech. Second, is that as we look for innovation, we look for where people are doing basic science experiments that are defining causes of diseases. What you are seeing is that a number of people in the value chain of research are specializing. Not everybody is trying to do everything.
In Cambridge, you’ve got all those things. Being the No. 1 life sciences employer in Boston is great, but we didn’t want to just do the same thing we did everywhere else, having everybody inside our walls. So we created this concept of a hub. There’s a core, with a lot of competencies that a big organization can bring, but the idea of a hub is that we can manage the relationships we have with everybody from Dana-Farber Cancer Institute to Harvard to MIT to the Joslin Diabetes Center to some of the biotechs we work with. And we put our own oncology research team in Cambridge. There’s a whole ecosystem in Boston, and we feel integrated and at the center of it.
On joining Third Rock Ventures and Greylock Partners in a $125 million financing of a new startup called Warp Drive Bio:
The Warp Drive Bio project is interesting because it demonstrates where we want to go. It was certainly an unusual deal for Sanofi, because essentially what we’ve done is jointly fund a startup biotech company. It was very much on the basis of saying we want to work with (Harvard University chemical biologist) Greg Verdine. Someone like that isn’t going to come work for Big Pharma, but we liked the science he was doing. We have a strong interest and expertise in natural products, and he had a genomics screening tool.
We will contribute expertise. I don’t want to be a venture capitalist, or have a venture fund, like some other companies do. But I want to actually partner, where we bring some of what we know, and combine it with what Warp Drive has. The fact that we are trying to bring people from Sanofi into the collaboration, at such an early stage of research, is unusual. The single factor for success will be whether you can take a company like Warp Drive, with a handful of people, and make it work with an organization of 110,000 people without smothering it.
On how Sanofi hopes to change traditional university/industry collaboration templates:
We have some interesting partnerships with UCSF, in diabetes, brain trauma, and oncology. When you look at UCSF, we are trying to do true collaborations. Sometimes you look at academic collaborations and it’s essentially outsourcing a true piece of the research. That’s not what we want to do. We want to have a true partnership. They are actually managing the development of a compound, in collaboration with us. You can’t have 100 of those, which is why we’ve done just three with UCSF.
On concerns about the innovation ecosystem, and how he thinks it should adapt in a period where federal research and venture capital budgets are being cut:
I think the ecosystem has to be actively managed. What you find is that people like pieces of it, but don’t realize the whole thing has to be there. It has to start from an early commitment in public policy to education, and in deciding what types of people you are graduating. You have to have the right venture capital, you have to have an environment that favors the right kind of public/private partnerships. You have to have a regulatory environment that provides some predictability, and you have to have predictability in how customers will value your innovation. We clearly have a hurdle to deal with on reimbursement.
There is considerable concern about the regulatory piece, and both PHRMA and BIO (the Pharmaceutical Research and Manufacturers of America and the Biotechnology Industry Organization) have been working to make sure the FDA has the resources to evolve their regulatory science. If you think about it, the science has evolved enormously. The way we do science has not. Can we do adaptive clinical trials? How will we use biomarkers? We need a lot more precision around risk/benefit models.
We also need a strong public research facility—it’s absolutely essential that the NIH be appropriately funded. That’s the way the West keeps the strength in its universities. I believe that those countries which keep the strength in their universities will continue to have an advantage in innovation going forward.
I think the whole thing needs to be more jazz-band like, instead of just having a bunch of soloists.
On how pharma can change its ways to become more efficient at developing new drugs:
Science has traditionally been done in a linear fashion, where you get an idea, you get funding, you take it a little further, you get some more funding, and ultimately you start partnering with Big Pharma. But by the time you get to Big Pharma, 7-8 years have passed. And the interesting thing is that today, doing a deal with Big Pharma is a pretty critical step, because the IPO window is closed, and therefore, pharma is to a degree the gatekeeper for what gets to the market. There’s a sense that pharma does a good job, because we have the depth of resources to be able to decide what’s good science, and what makes a good medical proposition.
But why wait 7-8 years? Why don’t we try to bring this multidisciplinary approach to earlier stages of science? I think that will be critical to increasing the quality of research, the rigor. Somewhere along the line, we need to chuck out things that aren’t going to work at an earlier stage.
On whether big companies like Sanofi are going to have to sacrifice some ownership of drugs if they lean more heavily on partners:
We do. When we say the word collaboration, it’s not a benign term. You have to recognize you need someone else’s help and expertise, and therefore you have to give up something. It will require a certain amount of trust and confidence among the players in the ecosystem that hasn’t necessarily existed before. But I think it could make the ecosystem stronger.
On Sanofi’s approach to diversification of revenue streams, and R&D, as it loses patent protection on aging blockbusters:
You’ve got two different camps in this industry. There is the camp that says ‘We’re R&D based, it’s all we do, we’re sticking to our knitting, let’s bet the ranch on this.’ I’m not prepared to do that.
I want to have a company that has a sustainable growth profile, and that’s why we’ve invested in growth platforms like vaccines, consumer health, animal health. These are areas that don’t have a lot of patent expiry. That provides the sustainability we need to get better P/E ratios, and more investor confidence.
R&D is still a core part of the business, but I’m not betting the future of the company on whether a molecule comes out tomorrow or comes out a year later or two years later. That does two things for us. It allows us to get off the treadmill of having to have a certain number of projects. This whole need of “I need so many blockbusters to launch this year, and that means I need so many in Phase 3, and so many in Phase 2, and so many in Phase 1, and so many candidates.’ After a while, that becomes an industrial process, and that’s where people have started to make compromised decisions, because they need those numbers. We can focus on really strong, quality assets. And we can afford to invest in earlier stage projects.
I don’t need anything more in my pipeline to achieve our growth rate of 5 percent a year between now and 2015, which will put us close to the top of the industry. I don’t need to do later-stage deals. We can now invest in really strong science. We can figure out, who do we want to work with, who’s really good, what are the structures to do that?
We’re still spending 5 billion euros, or about $6.5 billion in R&D. We are reducing our fixed costs, closing research facilities in Bridgewater, NJ, and proposing to downsize European facilities. It’s not about getting out of R&D, it’s about how to invest differently. Our belief is that you want to invest with the right people. How can you say the right people are always going to be working for you? With a lot of the right people today, their dream isn’t to work for Big Pharma.
The model has been that we have these big research facilities, which we augment by some outside collaborations. Now we are saying that outside collaborations are a fundamental way that we want to gain access to innovation.
On the quality of the science Sanofi is seeing is seeing in the early stages of new drug development:
I have been a skeptic of R&D for at least 15 years. I’ve had so many projects you just fall in love with that fail. You can become pretty skeptical. I’m actually feeling more excited about R&D now than at any other point in my career. I think it’s because of where the science is going. We are increasingly getting biomarkers. The understanding of genomic data, the causes of disease, the number of targets out there keep growing. And companies are being more choosy about what they will invest in.
What’s been in the pipeline to date has been stuff we were doing in 2000-2001. Now the things we started doing in 2007-2008 have had to meet much more rigorous criteria to advance. Plus, the marketplace requires medicines now to be clearly better than anything else that’s already out there. So we have cleaned out all the ‘me-toos’.
On whether the FDA is serious about changing its processes, and putting more emphasis on speeding up the path to regulatory approval of new medicines:
I believe [FDA commissioner] Margaret Hamburg feels very passionate about it. It still has to actually occur, but the intent is there. And there’s an openness to working with both BIO and PHRMA, as well as other stakeholders, to make it happen. The FDA is actually acknowledging that their role is clearly to monitor safety, but also to make sure patients have access to innovative new medicines. That’s not something you heard for a few years—it had swung completely toward safety. So I think that’s been extremely important.
The new rule on combination approvals for oncology—in which a combination can be approved even if the individual components on their own don’t demonstrate efficacy—opens up whole new areas of research. There’s still some room to move on adaptive clinical trial design, but I think Margaret Hamburg wants to make sure the agency is doing its part to protect public health but also ensure that innovation is going to bring new cures.
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