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May 2014

Innovation, collaboration and support

The many pressures on the product pipelines of pharmaceutical companies have often been remarked upon in recent years: rising research costs, complex regulatory requirements, competition from the generic industry, and many 'blockbuster' drugs coming off patent. Whilst there is little to dispute these factors, there is another explanation which is perhaps more difficult to substantiate. That is, it has simply become more difficult to identify small molecule drug targets, because most of the "low-hanging fruit have been picked". In other words, the suggestion is that the 'easiest' drugs to discover have been found and the process of finding potential targets through research and development in now more complex and lengthy than it has been in the past.

Does it follow from this that the pharmaceuticals industry has had its most productive years? No, quite the opposite, according to the recent book The Second Machine Age. The authors of this book present an alternative to the view that innovation is like growing fruit and that exploiting it is then like eating the fruit. Instead, they suggest that the true work of innovation is not a matter of coming up with something big and new, but recombining technologies that already exist. For this, they say, Kary Mullis's Nobel winning polymerase chain reaction is a prime example: Mullis had the insight to take well-known techniques in biochemistry and to combine them to create a new, and highly valuable, research tool.

Arguably, this kind of recombinant innovation can also be seen in the approach being taken by "super-generics". These are companies originally rooted in a generics model, which are now developing products based on their own research and development aimed at adapting, combining and reformulating off-patent drugs, both for the improved treatment of existing indications and use in new indications. There are also the examples of known research tools, such as phage display and bioinformatics, that can be employed to discover respectively a multitude of new monoclonal antibodies and other biologics.

If the recombinant innovation argument is correct, the more innovations that come into existence, the greater and greater the opportunities created for recombinant technologies –theoretically, an exponential growth becomes possible. For recombinant technology growth to happen in this way, however, there must be collaboration. There must also be another factor present; the limitations of which explain why exponential growth is rarely actually experienced:

In the early stages of development, growth is constrained by a number of potential new ideas, but later on it is constrained only by the ability to process them.¹

Financial support, infrastructure and numerous other supporting services are therefore necessary to see that ideas become manifested as technologies and products. This, as the economist Paul Romer states, means:

...the country that takes the lead in the twenty-first century will be the one that implements an innovation that more effectively supports the production of new ideas in the private sector².

'MedCity'

Perhaps the Mayor of London, Boris Johnson, had read an advanced draft of The Second Machine Age when his concept of a 'MedCity' biotechnology cluster came to mind. This idea places London on the axis of a powerful life sciences innovation network between the heavyweight universities and private research centres of Oxford and Cambridge.

On one level, it is hoped that this will achieve for the life sciences in London what TechCity has achieved for the hi-tech industry: bringing innovators together to combine and recombine innovations – the necessary collaboration identified above. But there is more to it than that. Firstly, in February 2011, in the midst of the financial crisis, the closure of Pfizer's research site in Sandwich, Kent, seemed to signal a crisis in the life sciences sector in the UK. The MedCity initiative is in part a reaction to that. But, secondly, the concern has arisen that whilst the UK is very good at coming up with ideas and discoveries, it is not providing sufficient infrastructure and commercial investment for these to be brought to fruition. To put it another way, there is a concern that the UK has not been sufficiently observing Paul Romer's advice where it concerns the life sciences.

However, the initiative does come at a time when there is growing confidence that the UK is emerging strongly from the economic crisis, and that the life sciences is a key part of a remodelled, innovation based, economy that will support the UK into the future – the "Jewel in the crown" of the UK economy, as the Prime Minister has described it. And there are recent reasons for optimism to support this, from different ends of the sector: at the relatively junior end of the corporate scale, companies such as Circassia and Horizon Discovery have recently had notably successful listings. At the mature end of the sector, AstraZeneca intends to establish a new global R&D site and corporate headquarters in Cambridge by 2016.

The Francis Crick Institute

But what is MedCity? It is partly a name given to create a sense of unity and focus for collaboration between the world-leading research universities of three English cities: London (Imperial, (University College London) UCL and King's College London), Oxford and Cambridge, as well as those hospitals with which they have research links. It is also, importantly, about encouraging yet closer networks between those institutions and the financial, legal and other business services that London already excels in. But, perhaps the real story behind MedCity is the new Francis Crick Institute. This Institute promises to be a world-leading centre of biomedical research and innovation in the heart of London and is very much the centerpiece of the MedCity concept. Opening as early as next year, on a prime site in the Euston Road area, the Institute will be developed by a consortium of the three London Universities above and three of the UK's most successful scientific organisations: the Medical Research Council, Cancer Research UK and the Wellcome Trust. In addition to the £650 million reported as being invested by a consortium to establish the institute, it will employ 1,500 staff, including 1,250 scientists, and have an operating budget of over £100 million a year. Providing  a wealth of research, office and meeting space, just by virtue of its size alone, the Institute can be expected to provide a very active, practical and physical focus for MedCity.

London and the life sciences division of the UPC

There is another aspect to London's emergence at the centre of the life sciences sector, which has nothing to do with MedCity, but is just as much a part of the Government's designs for London to be a global city for the life sciences. This is the Unified Patents Court (UPC).

Patents provide the vital market exclusivity necessary to protect the investment made when developing innovations in the life sciences sector. Patents are therefore the fundamental assets around which the business models of the life sciences sector are built, whether they belong to a company or a third party competitor.  Hence, it is a fact of life in this sector, given its value and competitiveness, that disputes frequently happen between companies who need to challenge and / or enforce those patents. This is, in a sense, the reverse side of the collaborative business environment described above. It is therefore highly significant that, in the negotiations that led to the UK signing the agreement for the UPC in February 2013, the Prime Minister secured for London the "human necessities" section (covering biotech, pharmaceuticals and other health products) of the central division of the UPC.

When the UPC opens³, any revocation action filed against a European patent or one of the new Unitary Patents (which will be introduced at the same time as the Court), must be filed in the London branch of the central division. Because of the pan-European jurisdiction of this court, a revocation of a patent here will have effect across most of the Member States of Europe⁴ (unlike the present system where a revocation in a national court only has effect in the Member State for which the patent is registered). London, Oxford and Cambridge therefore have on their doorstep the convenience of the most important forum for the resolution of life sciences patent disputes in Europe.

Furthermore, if the UPC is successful in deciding cases as quickly as is intended (a year at first instance), the London section of the UPC would be a quicker alternative for pan-European patent revocation actions than the opposition procedure currently available in the European Patent Office (EPO)*. This represents a potentially significant number of actions. The EPO granted some 66,700 patents in 2013, of which over a quarter were for medical, pharmaceutical and biotechnology related subject matter. Given that in the region of 5 to 6% of those patents which grant in the EPO are usually opposed at the EPO, there is the potential for many pan-European revocation actions to be filed in London. Whether a company is bringing such an action or defending it, patent dispute resolution is generally a long and costly process. Hence, proximity to the court and legal services in London could represent huge savings in costs and logistical difficulties for a business.

A global hub for life sciences

When these developments are put together, it can be seen that London is poised to become a global hub for the life sciences. Years of innovation in London and its adjacent cities of Oxford and Cambridge, will now have a focal point on Euston Road, to enable collaboration, on the one hand, and a new, dedicated court, for resolving disputes on the other.

The Mayor of London and the UK Government appear to be taking the message to heart that the country that takes the lead in the twenty-first century will be the one that implements an innovation that more effectively supports the production of new ideas in the private sector. They and the life sciences business alike will be hoping this is the tipping point towards rapid growth in the sector.

As the Mayor of London put it on 9 April 2014, "this is one of the fastest growing sectors of the economy and we would be utterly mad not to demonstrate to the rest of the world what we are doing."

*Note: Opposition in the EPO, if successful at first and second instance, also has a pan-European effect, applying to all countries in which the European patent is designated. This may include European Patent Convention countries that are not contracted to the UPC. An opposition and appeal in the EPO can take as long as five years. However, oppositions to patents in the EPO must be filed within 9 months of grant. There is no such time limitation in the UPC.

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