Universities and pharma companies need each other to create world-changing medicines

Academics and pharma executives seemingly live in very different worlds. Yet, these sometimes-different worlds are working towards the same end-result – broad adoption of the treatment in question.

From my perspective as a commercial VC investor buried deep within the university ecosystem, it’s clear that if they interacted more with each other from earlier on in the R&D process, they’d have a much better chance of achieving their collective goals.

Incentive structure: Big pharma versus academia

A lot of biomedical R&D in universities is focused on maximising impact through innovations to increase the efficacy, safety, and deliverability of new treatments. Big pharma, by contrast, is focused on how these treatments maximise profitability.

Crucially, profitability is determined by exactly the same set of factors. Interventions will attract a higher price from reimbursement authorities if they are more efficacious or safer than the current standard of care. Similarly, something that’s cheap and easy to produce will provide better profit margins. Scale of production is vital for delivery, and therefore sales volumes.

It’s when it comes to getting these interventions into the hands of patients, that the incentive structure for academia versus big pharma differs – leading to tensions.

Early, blue-sky research is typically funded by the public purse (largely via academic grants) because supporting innovation not only delivers better healthcare outcomes, but can also help create jobs.

Yet, it’s the profit-motivated private sector that ultimately has the wherewithal to actually deliver these innovations to patients. And it’s their shareholders that reap the rewards.

It could be argued that, since the government funded all the early innovation, it should take more – even all – of the profit vs the shareholders who didn’t. But the reason governments don’t do this is that returns on investment in early-stage biotech innovation are notoriously variable.

Unlike bonds and equities – where performance on average is normally distributed – over half of all biotech projects or companies fail. Only a tiny few biotech innovations will become globally impactful successes. Further, it can take 10-20 years for innovations to pay off.

Taxpayers would be rightly furious if governments spent billions on that sort of gamble, instead of investing their tax take on, for example, desperately needed new hospital infrastructure right here and now.

By contrast, the private sector has the incentive structure – profit – as well as the risk/return appetite to take on such risks and to potentially generate a big return if they get it right. Of course, their shareholders are also taking that risk with them – they may lose some or all of their investment if the pharma companies don’t deliver.

The pharma industry also has the critical mass and infrastructure needed to deliver academic products to market. It has the balance sheets and resources to run large-scale clinical trials. It has the manufacturing scale to produce products in a cost-effective manner, and the distribution to enable the broad adoption which both sides desire. This was evident in the role-out of vaccines during the Covid-19 pandemic.

The place for partnerships

Increasingly, much academic innovation is indeed partnered or licensed with big pharma to take advantage of the route to impact that the sector offers.

If there is a problem, it is that these differing incentives mean that a lot of outstanding academic innovation never makes it to impact because pharma’s needs are not accounted for early enough in the process. Too many projects falter because they’re not taken on by the private sector – they didn’t get the right data or focused on the wrong application.

That’s not to say academics should be more commercially minded, or that big pharma should be buying up innovations even earlier. There are huge benefits from research being carried out in unconstrained university environments, where the desire for impact and knowledge trumps profit.

Instead, it’s about both sides of this symbiotic relationship forging closer partnerships. Together, they need to combine their expertise, while staying in their lanes and maintaining their own strengths and specialisations.

Academics need to understand what’s needed by pharma to enable efficient partnerships, and pharma should give academics a free hand to innovate. Similarly, it wasn’t private companies that came up with the idea of lithium batteries or Wi-Fi, or of CRISPR-based gene editing – but without them these innovations may have remained in the realms of theory.

University of Cambridge was the first university to establish a programme of translational research projects at the Stevenage Bioscience Catalyst, in order to advance drug discovery and the development of new medicines in partnership with GSK and other pharmaceutical and biotech companies. University of Oxford and AstraZeneca partnership saw the development of the COVID-19 vaccine that played a critical role in the global effort to combat the pandemic – one that would not have been possible without deep partnership and meeting of the minds from the outset.

It is not just partnerships, it’s licensing agreements, joint ventures, going to the same conferences, secondments – any method to get each to understand each other is productive. With a better understanding of each other’s incentive structures, we can achieve profits for shareholders – and therefore taxes to government – as well as better health solutions for patients in need all over the world.