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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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In the Pipeline: Don't miss Derek Lowe's excellent commentary on drug discovery and the pharma industry in general at In the Pipeline

In the Pipeline

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August 19, 2009

Drug Companies Are Polar Bears? Maybe Not.

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Posted by Derek

There's an interesting article up over at InVivoBlog, and I wanted to see what the readership here thought of its main premise. Subtracting out the cute ecological analogies (Big Pharma as polar bears, for example), you get to this:

. . .For example, AstraZeneca, Novartis, and Bristol-Myers, all operate in the fields of neuroscience, oncology, and cardiovascular health. While some pharmas involve themselves in nutritionals, animal health, infectious disease, and other fields, all of these companies also engage with a mixing pot of therapeutic areas.

The relative strategic uniformity isn’t generally the case with the leading companies in other industries. In the high-tech industry, for example, there is a much higher level of specialization. Google is mainly in the advertising business; Microsoft, software; Research in Motion, in wireless solutions. You aren’t likely to see Facebook manufacturing semiconductors any time soon. (Yes we are aware of Microsoft’s Bing search engine and the new Google Chrome OS, but still.)

It is likely that health care businesses will evolve in a similar fashion. The leaders of the future will be those with unique and complex models which sub-speciate into differentiated forms. Companies will focus nearly all of their efforts on a single therapeutic area, becoming “immunology companies” or “cancer companies”. These companies will also become more integrated across sectors. A cardiology company will sell diagnostics, devices, and therapeutics pertaining to cardiovascular health.

I'm not so sure, myself. I can see reasons for this to happen, but I can also see forces that will pull in other directions. For one thing, I'm not sure if there are enough targets in some of these therapeutic areas to keep even a medium-sized company running. The host-of-smaller-companies model, each of them trying to hit it big, seems like a better fit, as long as they can share an ecosystem (there I go, too) with the larger deep-pocketed multi-area players.

Another problem is that I think the barriers to, say, a cardiovascular drug company becoming also a cardiovascular device company are higher than the ones to it becoming a cardiovascular-and-diabetes drug company. Moving into another drug discovery area at least lets you use some of your existing staff and resources, while heading out into diagnostics or devices will probably take you into territory that you don't know so well.

And besides, I think that the analogy with other industries doesn't hold up very well. The authors list off a few software and hardware companies, but don't Google and Microsoft have their hands in a lot of different areas? And have car makers (domestic or foreign) settled down into making only SUVs, only pickup trucks, or only sedans? Not that I've seen. Know of any movie studios making nothing but adventures or romantic comedies? Or any grocery chains that only sell vegetables, but not fruit?

In all those cases, the existing infrastructure lets such companies expand, at relatively lower cost, into related areas that will diversify their customer base. Medical devices and diagnostics may look like a similar situation, but I really don't think it is.

Comments (24) + TrackBacks (0) | Category: Business and Markets | Drug Industry History


COMMENTS

1. John Harrold on August 19, 2009 9:53 AM writes...

I don't believe it makes sense to consider these disease areas in isolation (or if it's really even possible). Diabetes and cardiovascular disease is a perfect example. If drug companies could ignore the effects of diabetes medication on the cardiovascular system, we'll they would be a lot further up the road on dealing with diabetes. But since the drugs that impact diabetes can have serious cardiovascular side effects, they have to build up an understanding of these interactions. If a company is going to build up this knowledge, hire people who can understand it, etc. It only makes sense that they would try to leverage this information to make better products in the areas they know and understand.

As we improve our understanding of disease progression and mechanisms of action, these interactions are going to be important. We'll then be able to take advantage of this knowledge to, for example, take a drug developed against one disease and used against another seemingly unrelated disease.

Perhaps I'm wrong, but isn't this an important aspect of how Novartis is approaching drug development?

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2. CMCguy on August 19, 2009 10:10 AM writes...

This to me appears to another one of those cyclical aspects of Pharma with getting in or out of therapeutic areas. I have seen several occasions where companies state the intent to focus in particular categories, usually as part of consolidation in post-merger, then turn around and "return" to an area by an acquisition or new merger. There is a certain logic to narrowing efforts as should concentrate expertise and small companies may live/die by such specification. For bigger companies it would be even less sustainable model as increases the risk substantially because non-pursuit of multiple indications and uncertainty that surrounds everything. Likewise IMO not a good long-term strategy as unless come up with a unique MOA or significant advance, both worthwhile goals, companies R&D are going to partly competing against their own or generic drugs, which tends to promote blockbusterism (projected need to do much much better than our last one or is not funded).

The Device and Diagnostics businesses and regulations are quite different from Drugs side. Although some companies can/do get involved in these various areas it can be difficult to blend the mindsets, timelines and capital requirements demanded by those different categories.

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3. NYSpursFan on August 19, 2009 10:25 AM writes...

I also read that post. I thought it was rubbish. Only a consultant would whip out a phrase like "unique and complex models" and call it insightful. Pharma/Biotech will go where the profits are, which means leveraging internal capabilities whenever possible. If it means detailing a diabetes and a cardio medication, then so be it. If a company wants to get into a different area, then it will buy a company. The more things change, the more they stay the same.

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4. Chemjobber on August 19, 2009 10:38 AM writes...

Isn't Novo-Nordisk a diabetes-only company (or at least they advertise as such)? How are they doing?

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5. barry on August 19, 2009 11:08 AM writes...

The InVivoBlog analysis compares Pharma to "the high-tech industry" as if that term had some logical coherence. In fact, the skills and investments needed to be a power in the ad business (like Google) are very different from those needed to compete in wireless solutions (like Research in Motion). While the expertises and investments needed to succeed in Pharma continue to expand, they are alike across disease areas.

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6. D Bodde on August 19, 2009 11:29 AM writes...

All I know is that drug companies should hand over marketing duties to someone else. Commercials for drugs range from bizarre to comical.

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7. Hap on August 19, 2009 11:51 AM writes...

I thought diversification was a means to mitigate risks, particularly unpredictable ones that have the most potential to destroy your business, while you narrow your focus when you have a business model at which you are uncontested and successful. Considering the unknown (in magnitude and particulars) risks of biology and toxicology, patent law, and approval (changes in FDA risk aversity and public opinion), I don't really understand why specialization is a good idea for drug companies.

The problem with drug marketing (other than marketing it at people who are unlikely to be fully aware of its risks and rewards, and thus unlikely to accept the responsibility we expect of people who purchase other products through advertising) is that it works. If it's so dumb and yet works, that says nothing good at all about people.

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8. Jack H. Pincus on August 19, 2009 1:05 PM writes...

Good points!! Pharmaceutical companies tried the approach suggested in the InVivo article in the 1970s when they forayed into diagnostics and devices. Examples included Squibb, Pfizer, and SmithKline. They quickly learned that there aren't many synergies between pharmaceuticals, devices, and diagnositcs despite overlap in therapuetic areas of use and divested their non-pharmaceutical assets.

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9. Henok on August 19, 2009 2:17 PM writes...

The consultants make the point that companies will become "immunology' or 'cancer' companies. I think this kind of division is very artificial in terms of drug development. For example, it is becoming clear that the immune system plays a very important role in the development of cancer. Therefore, a company would need to understand the immune system, and how that affects cancer development in order to develop a cancer drug. This may then lead to drugs that help treat say, rheumatoid arthritis where the immune system is running amok.

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10. milkshake on August 19, 2009 2:26 PM writes...

problems of Big Pharma were created decades ago - they are mostly related to bad management. The bad ideology and bad incentives "work" because the super-slow and expensive business model (based on monopoly, with desperate and not-fully informed customers who do not choose their health coverage) allows all this to go on.

If you are in the consulting business and if you cannot address the causes of the squalor, the easiest thing is to paint strips on a hog and then promise that this will surely turn it into a tiger in five-years time, and the owners will save on feeding it because of a more effective strip alignment.

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11. Big Bad Chem Daddy on August 19, 2009 2:49 PM writes...

Perhaps some of this specialization is built in to pharma, but not based on DA. How likely is Genzyme or Biogen Idec to throw their hat in with a small molecule versus a chimeric antibody against a target? It's not unheard of, but anyone who looks at their pipeline and portfolio can see where the priorities of each company go. What people are slightly overlooking is that not all bigpharma is created equal: there are the companies that dominate in the small molecule arena but now dabble in biologics, there are the biologics companies that dabble in biopolymers, etc.

IMO while most of BigPharma spends the majority their money in a certain manner deeply seated in its roots, the branching out into previously unfamiliar territory becomes exponentially more likely with the size of the company. This trend seems to become more pronounced as time goes on, just as scientists are increasingly expected to diversify their skill sets in fear of their job being outsourced. If a company can find more than one road to the same solution, especially when the road is as likely to be a dead end as it is in drug discovery, it will take both roads to a financially reasonable endpoint. The more finances, the further the endpoint on each road.

To tie in some other ideas, IMO pharmas have to worry about their discovery efforts becoming OBE with another company's product (whether the competition be small molecule against small molecule or biologic against small molecule, or any other permutation) just as much as we have to worry about our jobs being outsourced, and not for dissimilar reasons. If one does not adapt to make use of all available opportunities and skill sets, then it hints at a managerial oversight that will likely end in some denoument, possibly a spectacular one. As far as I understand, no investor likes the possibility that the money train will end because you didn't innovate enough.

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12. Morten G on August 19, 2009 3:55 PM writes...

@ 4 Chemjobber
Novo Nordisk is a biologics pharma. They axed their small molecule department a few years ago. And since they aren't doing antibodies like most biologics they end up with diabetes, haemophilia, and hGH. They are doing quite well as I understand it - and they are owned by a foundation so they can't be bought up and cannibalized (well they are publicly traded but the foundation is charged with holding a majority stake as I understand it - same as Lundbeck).
Actually Novo is quite specialized and so is Lundbeck. Hmm...

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13. Pfizerite on August 19, 2009 4:56 PM writes...

The consultant forgets that the initial R and D, the picking of a target, high throughput screen against the target, lead optimization and testing leading to a Phase 1 clinical trial is dirt cheap (at least for pharma) the real cost is at clinical trials and being specialized will not reduce these costs or derisk a project in the clinic.

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14. Rajesh on August 19, 2009 7:17 PM writes...

I am in alignment with the prevailing consensus on this subject in that I very much doubt the industry is trending towards smaller, more highly focussed companies. The driver behind how well a company is able to diversify is based on its existing infrastructure. That infrastructure could be its existing IP estate, accumulated know-how of the organization, sales and marketing force, compound library, geographic location, etc. How well an organisation can retool or exploit its advantages will have a significant impact on whether it succeeds. When you then consider that drug development presents the greatest of the costs incurred in getting a drug to market. You arrive at the question of how much of the permanent infrastructure is specialised towards a single disease state or DA within pharma development. The answer, I am sure, is that it can be made to be quite small, especially as the trend continues towards greater outsourcing within the industry.

The other aspect is one of risk. Any of Bernie Madoff's victims will tell you not to put all your eggs in one basket.

For the record, I am a pharma consultant (of the managerial kind) and I can confirm all the rumours are true. We are trying to kill industry which is effectively also our employer too for our own evil and insane reasons, we do eat children when the moon is full and we all support the Red Sox except on Thursday mornings when we eat cabbage.

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15. Cellbio on August 19, 2009 7:51 PM writes...

Support the Red SOX? Well you are evil indeed!

What doesn't make sense to me about a focused approach, or what doesn't scale, is the nasty way targets impact biology outside of your org chart. Look at almost any SM target and the same protein, or close family member your lead touches, drives biology unrelated to your neat and clean focus. How do you do effective, opportunistic chemistry with a focus like immunology alone? Can you extract value out of a project like PI3Ks? With really good delta selectivity, you've got a clinical candidate. However, less selective compounds can't be explored for oncology applications. My strong preference is for mechanism based drug discovery with greater indifference toward clinical indication.

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16. milkshake on August 20, 2009 12:21 PM writes...

no I don't think pharma consultants are evil - they are just parasites and poseurs. They pretend to help while making things worse.

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17. Ty on August 20, 2009 2:57 PM writes...

Some pundits used to compare pharma to automobile industry and I thought they were nuts. Now this is even worse! Yeah, GM/Ford should specialize in making trucks. Toyota? Family cars only. Honda, small cars. Chrysler, minivans. What a vision!!

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18. CMCguy on August 20, 2009 3:48 PM writes...

milkshake says relative to consultants "they are just parasites and poseurs" however it seems these days the "bad management" also noted by milkshake can hold this view of R&D. Such is probably correlated to which group tells them what they want to hear verses what really should be done.

If Red Sox fans are Evil as Cellbio suggests what are Yankee fans? The opposite would be "good" which can't be true so perhaps we need to consider Dante type scale. Of course as a Padre's fan we get our on special place.

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19. Hap on August 20, 2009 4:27 PM writes...

If management thinks R+D is parasitic, maybe they should explain where they think drugs come from. Either you pay for R+D yourself, or someone else does, but you pay for it, all the same. In the latter case, you don't pay for the failures, but in the absensce of internal production, the results of successful external research should command more money. If management thinks they can do research more cheaply elsewhere, that's fine, though they are probably also training new competitors for themselves. I don't think I've heard of a manager drawing up a compound on a computer screen and making it into a successful drug - if they could, then the last person can turn out the lights when they leave.

Management is entitled to think of R+D as parasitic so long as they don't expect that their beliefs will indicate anything other than rampant stupidity or some other major defect. Drug companies make drugs - with good drugs, people will ignore an awful lot of crap, and without them, they're just hucksters trying to sell straws to drowning men.

At least the Padres are in SD. What do you say if you're a Reds or Indians fan, exactly? "Yeah, we suck, and we trade away all our good players because we won't/can't pay them, but we'll have a new batch of cannon fodderXXXXXXXXXXXXprospects real soon now." Oh, and they're in Cleveland and Cincinnati - Cincinnati's pretty but nuts, and Cleveland is ... not good. We don't even have barbeque like KC.

How the hell are the Yankees opposite to the Red Sox, anyway? The Sox have gotten good with an actual competent GM and the Yankees' cashflow (most of it, anyway). They buy what they need, and they can buy a lot - but that's the Yankees, in a nutshell. The Yankees are the Emperor to the Red Sox's Darth Vader. Meanwhile, the Reds are that ugly dude in the cantina who tries to kill Skywalker and gets hacked into bloody pieces by Obi-Wan Kenobi.

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20. CMCguy on August 20, 2009 7:39 PM writes...

Hap one would hope that Pharma Execs understand where new drugs come from however as well expressed by Pharmagiles a couple posts ago not sure is as ingrained as once seemed to be. The focus away from science and the demand for quarterly shareholder returns creates situation where expense of Drug Discovery is perceived as an immediate resource drain/quick fix rather than investment in the future.

http://pipeline.corante.com/archives/2009/08/14/spraypainted_for_success.php#405335

As far as the BoSoxes/Yankees you are correct they have many similarities however perhaps as a liberal Republican hater you can appreciate how fans of each view the other as diametric opposites in the way Dems/GOP are more alike then different but get as entrenched in opposing positions (apologies to Derek for political references). Good Star Wars analogies, particularly since Vader was redeemed in the end (so BoSoxes not as evil as Yankees), although unless ugly dude in catina was once rich and powerful Reds have leg up on Padres since they can at least point to past glories.

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21. Hap on August 21, 2009 9:53 AM writes...

I lived in Boston for awhile, so the Red Sox/Yankees thing isn't unknown (at that point, the Red Sox weren't as competent and didn't have or weren't willing to spend the money they are now, and were much more neurotic about it so the similarity was not as clear). Sports is nuts sometimes - at a party I went to, someone dared to bring Pittsburgh Steelers cornhole beanbags and two (of the drunker and more stupid) partygoers decided that that was an insult they could not abide, so they painted the beanbags Cleveland Browns orange. Since the beanbags didn't belong to the person who brought them, that turned out to be a problem. People I knew actually thought this was acceptable, which I can't really figure out.

People get captured by their beliefs to the point where anything is acceptable in the service of the belief and the idea of not becoming what you hate (or of conscience) becomes ignorable. Power also seems to act like opium for conscience - things you thought were horrid when you were the victim don't seem so bad when you're doing them. Of course, that would be the people's job - to restrain the excesses of their leaders and to hold their leaders to their promises. We haven't done so well at that lately.

Petco's a nice ballpark, and SD has to be nice, but it would probably be nice to have a better team in it. If they lose Gonzalez, they have a pretty good chance of being the Nationals West (though I think their management can't possibly be that bad).

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22. That Guy AGAIN?!? on August 24, 2009 12:38 AM writes...

@13 Pfizerite: I'm seeking a polite way to say this, but a therapeutic area focus is ABSOLUTELY crucial for clinical success in drug development. ClinDev cannot be successful without it -- otherwise one simply has to relearn the lessons learned by all of the previous players in the TA.

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23. Jonadab the Unsightly One on August 24, 2009 6:19 AM writes...

Specialization happens when there is a substantial amount of specialized assets (knowledge, expertise, equipment, existing codebase, a community of ISVs, whatever) that you need to have in order to effectively compete in each subfield.

Facebook simply doesn't have the resources to design, let alone manufacture, microchips. Google might, but it would be a very substantial investment, and there would be huge opportunity costs in terms of other things they would *not* be able to do because of the resources that the semiconductor operation would consume. They *have* been diversifying, e.g., trying to break into the web browser market with Chrome (a product that's very much complementary to their core search engine business), but breaking into a new (sub)field consumes resources, so they can only do so much at once. Databases (competing with Oracle, Microsoft, and to a lesser extent Sun and Postgres) would be an obvious direction for Google to go given their existing expertise in high availability and data management, but breaking into the market in any meaningful way would take a lot of doing.

As you just finished explaining in another thread (Still semaphoring...), there is a heck of a lot of important specialized knowledge that the drug discovery industry just plain doesn't have. That puts new entrants into (a subfield) much closer to being on equal footing with everyone else, not because they *have* the knowledge to compete effectively, but because nobody else has it either. The drug discovery is in its infancy, to an even greater extent than the computer and information technology industry (which is pretty young itself).

If you look at an *old* industry, like manufacturing for instance, the specialization is taken for granted. Nobody wastes breath asking why General Motors doesn't make armchairs, or why Ethan Allen doesn't make cups and plates and bowls, or why Rubbermaid doesn't have a half-ton pickup truck in its product line.

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24. Cellbio on August 24, 2009 12:45 PM writes...

comment by That Guy...."a therapeutic area focus is ABSOLUTELY crucial for clinical success in drug development."

I agree. Also true for sales, so bigcos should have TAs in these areas. Perhaps better tot hink of them as franchises. What manner of clinical study will support the label to effectively compete in the market place. But what about research?

Comment by the Unsightly One..."...there is a heck of a lot of important specialized knowledge that the drug discovery industry just plain doesn't have.....puts new entrants.... on equal footing"

Close to total disagreement. There is a lot that everyone still needs to learn about biology and cell signaling and the myriad ways that molecules can differentially impact the system, but that is fundemental knowledge. Lack of specialized knowledge is what new entrants possess in spades, and this ignorance is not necessarily associated with doing anything really novel, and is largely a recipe for failure.

I'll give you one example in the kinase field, but I know of several others, including PDEs and GPCRs. The general logical falicy is the same: a straw-man argument is presented that too narrowly defines the field, an exception or alternative is noted, and that exception is gaurenteed to solve the fileds pressing issues, when in reality, the advantages offered are just unmeasured attributes. In the kinase field, this comes in the form of "allosteric" inhibitors. A new entrant offers to compete with Industry, decades into the effort by saying, "our molecule does not bind in the ATP pocket, so it will be highly selective". Really? Why? Does the "ATP-mouth" of a kinase have a selective structure without dentures, or does the flat inhibitor that fits into this puckered mess fit comfortably in many kinases? The new entrants claimed superior selectivity until real data showed quite the opposite. Who new? The experienced researchers new.

This is why I believe research needs to be focused on mechanisms and molecules with a TA focus, and perhaps why R does not fit well with D in big pharma.

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