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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

« What Pfizer Will Look Like in a Year | Main | Pfizer's People »

October 21, 2009

O Brave New World! That Has Such Companies In't!

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Posted by Derek

Steve Usdin at BioCentury sent along a reprint of the newsletter's annual "Back to School" issue from last month (available for open access here) in response to my note about "micropharma" the other day. And it's clear that he's been thinking along the same lines. Whether or not this model is going to work is another question, but that looks like something that we're going to be finding out.

As the issue notes, in a pithy quote from Mike Powell of Sofinnova, the key problem is "how to restructure an industry where it costs $100 million to answer a question but people are only willing to pay you $50 million for the answer." Since the amount of money being handed out is probably not going to increase any time soon, the only way out of that dilemma is to find some way for that first figure to go down.

One of the groups that won't be happy about that process are academic centers that are used to seeing their intellectual property as a potentially lucrative source of funds. The strike-it-rich days do not look to be coming back any time soon. Instead, BioCentury advises universities to get ready to adopt a "non-ROI" approach to developing their ideas, by use of grants, public-private consortia, and help from foundations and other nonprofits. (Perhaps a name like "delayed ROI" or, if you're being especially weasely about it, "enhanced ROI", might help that concept go down a bit smoother).

CRO firms are almost certainly going to have to be part of that process, since there are plenty of skills needed to push a drug target or molecule along that are not found in most universities. That, to me, would indicate a real market for a low-cost CRO outfit targeting academia. I'm not sure if anyone is serving that market, or trying to, but it would seem to have some potential in it. Anyone who can help to run should-we-kill-this experiments, without spending too much money getting the answer, will have something that looks to be in demand.

In general, this landscape would mean that ideas will go longer before companies are formed around them, with the idea that they can be tested out a bit without having to build new corporations to do it. (As another quote from the article had it, "The unmet need in the industry is drugs, not companies".) Payoffs will be slower, and they won't be as large when they come, either. Venture capital investors will be asked to have more patience under this model, and that's not something that they're necessarily noted for. And someone's going to have to have the money (and nerve) to form mid-sized organizations that will pick up the best of the things coming out of academia, since many of them still won't be quite ready to go right into a big organization. The non-humungous companies that have survived to this point might step up and fill this role, and BioCentury also suggests that Japanese and Indian companies might fill this space as well.

The big question is: will people be able to put up with this, or not? After all, no one's envisioning failure rates going down, they're just hoping that the failures will happen sooner and cost less money. Will they? It's not like "fail quickly" hasn't been a goal of companies in the business for years now. But sometimes it's hard to fail any other way than slowly (and expensively).

Well, the common theme to all this (and to most of the other crystal-ball reading going on these days) is that the industry isn't going to be able to go on in the way it's been accustomed to. If you ask a hundred people in this business what it's going to look like ten or fifteen years from now, the only thing you could probably get them to agree on is "Not like it does today". We'll just have to wait to see if they're all playing "Cheat the Prophet" or not. . .

Comments (14) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History


COMMENTS

1. NYSpursFan on October 21, 2009 8:42 AM writes...

We're in a real dilemma, industry-wide. We want to fail faster, which takes money. But we will have to develop more data (which costs money) before we can build a company around an asset (the usual mechanism for raising money in the first place). We can turn to the CROs all we want, but they're not free either, nor can they accept a lot of early-stage risk. Do universities even understand how to work with CROs, let alone hire them to perform early stage work? It's all a muddle. I have no answers; only frustrations.

I think what we need are:

1. Much more work being pushed towards low cost centers around the world (which means more lost jobs in the US).

2. The VC of tomorrow is not a finance person, but a pharma person. That VC becomes the active "manager" of a few assets moving through clinical development. Forget financing a management team in the hopes of a company sale or IPO. Focus on the assets themselves. If I were a pension fund, I would invest in a JV with an established CRO to acquire assets and develop them abroad. Forget paying VCs their 2% management fees and forget hiring bloated management teams to build companies. Those days are fading fast.

At this rate, we're all going to be baristas at Starbucks in Mumbai.

Permalink to Comment

2. MTK on October 21, 2009 8:55 AM writes...

The part about universities' ROI is funny/sad.

Most of this research is funded by the government, which essentially pays the researcher and the institute to conduct the research, so the university is worried about ROI?

For those that don't know, the grants cover direct costs plus a % on top of that to cover indirect costs. Theoretically then, the grant covers nearly all of the university's costs, so the I part of ROI on the research is near zero for the university.

Now I realize that incentivizing the researcher, and the institute to support that researcher, is an important component of making sure that the government gets good return on it's investment. At some point, however, we (or the academic institutions) need to ask, "What are our goals and intentions?"

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3. Lucifer on October 21, 2009 11:43 AM writes...

It is possible to be far more innovative if one is not bound by ROI and other pedantic concerns.

The biggest leaps in technology, including new classes of drugs, never came from people who 'knew' how to innovate.

Business cannot see pharma research as anything other than an established process that can be optimized.

The problem with pharma is that it's direction is set by short term thinkers who have delusions of knowledge.

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4. CaffeinatedChemist on October 21, 2009 2:33 PM writes...

I work at a non-profit research institute that very much fills this role. Our business model involves a combination of NIH-funded research, a CRO business and an internal drug discovery pipeline. It is a very strange business model, but we have successfully produce three drugs that have made it all the way to the market. Unfortunately, I would not say that we are a "low-cost CRO", but we do a lot of collaborations with academic groups to help them translate their discoveries towards products. The nice thing about this business model is that it allows us to shift between different funding sources as markets change over time.

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5. Wednesday on October 21, 2009 4:13 PM writes...

^ I'm "guessing" Battelle - what do I win?

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6. cliffintokyo on October 21, 2009 9:06 PM writes...

#5
The altruistic answer:
You win a chance to nominate a talented out-of-work chemist you know to join the Institute team

Permalink to Comment

7. cliffintokyo on October 21, 2009 10:07 PM writes...

Derek:
The Back-to-School article is a really savvy asset, many thanks.
My experience is that people in big pharma who run 'should-we-kill-this-lead' experiments are 'let go' (possibly partly because of peer-pressure from fellow scientists who can't abide 'disloyalty'? We are 'only' human).
That is, except when you are a project/team leader (quasi operational management) and therefore you have learned to have a sure-fire next project in the works and ready-to-go.

Permalink to Comment

8. cliffintokyo on October 21, 2009 10:51 PM writes...

PS: Let's face it, the altruistic and relatively benevolent research scientists and clinicians who used to control (successfully) big pharma R & D have surrendered power to the Monetaristic Bloated Accountants (MBAs, just in case anyone misses it), who are only interested in their next million-dollar bonuses (we all know that pharma pays these out too; we are just not the ones who happen to be in the headlines at present)

Permalink to Comment

9. Jose on October 21, 2009 11:45 PM writes...

"...a talented out-of-work chemist you know to join the Institute team." Whaddaya mean?? There are no out-of-work chemists. The ACS says everything is rosy, so those thousands and thousands must just be a figment of your imagination!

Permalink to Comment

10. Mike G on October 22, 2009 11:33 AM writes...

Lots of bold, provocative thinking in the Back to School article – the authors should be commended. Thanks for posting it. A few reservations:

The “new ecosystem” described in the article is imagined by investors, and is based on their vision of ultra capital efficiency in drug R&D. A fundamental question, which they don’t address, is whether capital efficiency is always compatible with the discovery of medical breakthroughs. For instance, toward the end of the article, the authors endorse “elliptical thinking [as a means] to creating true new value.” This used to be called serendipity, a way of doing drug discovery that is a far cry from the relentlessly linear, metric-driven, accelerated process that is in place at many large and lesser biopharma companies. It is also at odds with the call for “discipline to cap failures early” stated at the beginning of the article. Serendipity is all about staying with a line or research even if it probably won’t result in a viable drug candidate in the hopes that it will yield new avenues of insight to build upon. The endpoint is knowledge; a drug, or a druggable target, is a by-product. It’s a drug discovery culture that is tough to square with capital efficiency.

As for getting academic institutions out of the ROI game – via the propertization and monetization of medical research – I’m doubtful. It would require that many universities forego a significant revenue stream and a means of attracting and paying top talent. The authors also think that CROs will be content “to perform translational services for modest fees and the potential to participate in the future success of an asset.” Depends on what you mean by “modest fees.” That model, in which CROs provide POC services at discounted fees in return for a percent of the asset, is already prevalent among the bigger players. Probably not an option for smaller CROs given the timelines to a payoff. The point is that the large CROs are as predatory (asset hungry) as investors and pharma companies, and will probably compete with them for assets coming out of university labs. Here too, as with the academic sector, how do the authors propose to de-incentivize speculation in early stage science?

Permalink to Comment

11. cliffintokyo on October 22, 2009 9:09 PM writes...

#9
I am a member of ACS but not close to the organizational management, so I hope that someone over there has taken note of your 'wake-up' call.
Chem-0n. (o__o)/

Permalink to Comment

12. beentheredonethat on October 29, 2009 11:34 AM writes...

The reality is, there never really were that many serious going concerns when it comes to "companies". The majority of efforts were nothing more than attempts to "blind them with science" while the fat cats at the "company" became fatter. You have to admit, being able to flip an IPO from nothing more than a phase I trial was a pretty lucrative gig while it lasted. The unfortunate downside to this is that all these "operations" provided a whole lot of jobs for chemists and biologists that didn't exist before, and, it's obvious what the job situation is going to be in the future now that the gig is up. It's funny how the intelligent people that worked in these companies rarely had enough street smarts to see through all the BS.

Permalink to Comment

13. Anonymous BMS Researcher on November 4, 2009 8:08 AM writes...

"...if they're all playing "Cheat the Prophet" or not..."

I note that none of the followup comments to Derek's post mentions G.K. Chesterton, one of the greatest writers and thinkers of the twentieth century -- and one of the most unjustly neglected by school curricula on both sides of the Atlantic. I would urge all readers to follow the link in Derek's post and start becoming familiar with Chesterton.

Permalink to Comment

14. Anonymous BMS Researcher on November 4, 2009 8:12 AM writes...

Even more surprising, none of the followups mention Huxley either, even though Brave New World WAS in the curriculum when I went to high school back in the 1970s.

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