Bayer Cuts Internal R&D, Looking Outside
December 11, 2018 | Company
Bayer’s late November announcement of 12,000 job cuts and a focus on ‘collaborative research models’ and ‘external innovations’ to fuel pharma R&D is not a surprise. Rumors had been swirling for months in the German press. Bayer board member and innovation chief Kemal Malik talked candidly to IN VIVO earlier in 2018 about Big Pharma’s existential challenge. Declining internal R&D productivity, and new sources of innovation scattered widely across companies of all sizes and in all corners of the globe, are forcing change. “We will pivot to a new model for sourcing innovation,” he predicted.
So here it is. Bayer is now taking what is described as an “essential step” to focus on external, not internal, innovation. Most other pharma firms have already done so, to different degrees. The rate of scientific and technological progress means any single pharma, however large, cannot expect to capture more than a tiny part in-house. Collaboration is crucial – for new tools, new approaches and new attitudes.
Collaboration is also cheaper than investing in internal R&D. Paul Stoffels, EVP and Chief Scientific Officer of Johnson & Johnson, reckons that for each dollar it pays into its JLABS biotech incubators – one of the several channels the company uses to access external innovation – other investors fork out $4. These biotechs don’t, of course, deliver ready-made drugs to J&J. But they nevertheless provide a highly-leveraged external innovation engine.
In its bid for “sustainable business success,” Bayer is now moving more aggressively in the same direction. The German conglomerate’s Bayer Leaps program, which got off the ground in 2016, was the start. Bayer Leaps is a series of large, long-term equity investments, alongside other backers, to build new companies working with stem-cells, CRISPR gene-editing, synthetic biology and other cutting edge tools. The aim: to create best-in-category businesses as the foundation for future partnerships – and the future pipeline.
The Bayer Leaps programs were intentionally kept outside the main organization, because, in Malik’s words, “change challenges people, their role, their careers.” As the fresh young seedlings take root, though, the main plant will be cut back to provide space and sunlight.
That said, Bayer’s recent streamlining is not, ostensibly, linked to particular progress within the Bayer Leaps portfolio – these are still early stage ventures. They won’t fill the post-patent-expiry gaps left by heart drug Xarelto and eye treatment Eylea. The move is instead about improving focus, efficiency and agility, generating savings to spend on in-licensing some pipeline. The group is also divesting its animal health business and two non-core consumer product categories.
The head-count cull may also help shift the culture of this 150-year old company. The appetite for change among many of its employees will be virtually zero. A majority may have built their careers around an R&D model that they see little reason to change. Yet the reality today is that “where an innovation comes from is less important than how we turn it into benefit for patients,” as Chairman Werner Baumann put it in his statement accompanying the announcement.
The recent FDA approval of cancer drug Vitrakvi (larotrectinib) is a case in point. The treatment is among the first to target tumors based on their genetic mutations, not their location in the body. Bayer can claim the drug as theirs: they will sell or help sell it. But Bayer did not discover or develop it. That was down to five-year-old Loxo Oncology. The global partnership was signed a year ago.
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