Why SMEs are vital for healthcare innovation | CPI

Why SMEs are vital for healthcare innovation

John Sandles

By John Sandles

18 Jan 2016

Martin Shkreli, the 32-year-old hedge fund founder and CEO of Turing Pharmaceuticals, made the news recently for acquiring the aforementioned company and increasing the price of a drug called Daraprim by more than 5000%. This solitary statement attracted the wrath of patients, industry commentators and even US Presidential candidates which put the young CEO in very hot media waters. Shkreli’s counter argument was that additional profits were to be reinvested into further research of the disease area, of which Daraprim had monopoly.

Whilst Shkreli has since plunged himself into even deeper and hotter waters, it raises an interesting question regarding the general route to market for drug developers and wider technologies being developed by healthcare SMEs. Why was there the need to raise the drug price by 5000% in order to, as Shkreli says, fund future research? There are many answers which spring to mind, but one is the high cost and risk associated with the innovation phase of drug or technology commercialisation. This is often referred to as the valley of death’ across a wide range of industries and is the most risky stage on the critical path of any new technology reaching its desired market.

In order to cross the valley of death’ safely there needs to a good risk mitigation strategy within SMEs and larger companies to ensure that new drugs or healthcare technologies are successfully commercialised. Often, various uncontrollable pressures on companies will incentivise them to undertake an incremental innovation approach with minimised risk but also a much reduced chance of an industry or world-changing breakthrough. This is where companies, such as CPI, are crucial in maintaining an innovation ethos within the healthcare industry and the multiple other industries it caters for. It gives large companies a platform to test disruptive ideas and technologies before they invest significant resources for commercialisation activities. An innovation partnership is the cost-effective method for large pharma to create substantial value through disruptive innovation.

The pharmaceutical and healthcare industry has always been notorious for merger and acquisition activities usually through a need to swell pipelines or technology enhancement. In terms of technology enhancement there are whole departments within large healthcare companies dedicated to identifying and strategically partnering, licensing with or acquiring SMEs. This SME acquisition model has become a popular source of innovation for some larger companies, who pick the SME from the free market tree once the technology is ripe. CPI assists in nurturing the technology by working in collaboration with SMEs and providing access to technology, finance, consultation and more. Making their technology investment ready’ in shorter timescales. 

What’s more, most SMEs are angel or venture capitalist backed and shorter development timescales provide an attractive environment for investment. Ideally, partnering occurs with healthcare SMEs when safety and efficacy of the new drug or technology has been proven. Of course, any acquisition is taken on a case-by-case basis and there’s no general formula, but some larger companies are moving towards being the eventual commercialisation centre for healthcare technologies and letting SMEs develop disruptive innovations before any partnering activities. This plays well with the SMEs as it dramatically enhances their chances of commercialisation success. Furthermore successfully selling a drug or technology to the healthcare industry is a different proposition compared to drug or technology development and navigating clinical trials; an area where the healthcare SME founders are stereotypically strong. Fostering complementary assets to sell their drugs or technologies will take years and time is not a luxury in the healthcare business with a relatively short patent protection window after approval.

A generalisation would say SMEs base their business model around new ideas which are innovative to their target audience and larger shareholder-owned companies are driven by commercial product success and increasing market share. Whilst risk should not be carefree, you equally cannot create new value without novel innovation. There are two main options for the healthcare industry; large companies can pursue partnerships for innovation activities and secondly SMEs can become investment ready in a shorter timescale, less expensive manner than being non-collaborative. CPI can cater for both these options and works across the healthcare industry to bring value adding innovation for both companies and patients.

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