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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: Twitter: Dereklowe

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« Together At Last | Main | Chemical Supplier Question »

February 9, 2010

More On Pharma's Ugly Finances

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Posted by Derek

Friday's post has brought in a lot of comments, and they're still piling up. I wanted to address a few of the more frequent ones, though, out here on the front page.

First off, the idea that a bunch of stock analysts could have a useful opinion on a pharma company's return on investment doesn't seem to strike many people as plausible. Variations on "What do they know about this business?" and "Aren't these the same geniuses that wiped out the mortgage bond market?" have come up numerous times. My answer to the latter is no, they aren't. The stock and industry analysts are a different bunch entirely. That's not to say that they can't be stupid, or make mistakes (they do!) But these aren't the people who thought that they had all the risks figured for interest-rate swaps and collateralized debt obligations. If you have disagreements with industry analysts, then you should fight in their territory.

There's more substance to the "What do they know" objection, but still (in my view) not enough. What they know is what's been made public, of course, and as we in the industry know, that's not everything. But that doesn't make Wall Street's case any weaker this time, as far as I can tell. Morgan Stanley and their ilk are not missing any of the successful projects from inside big pharma - those all get aired out thoroughly. If they're short on data, it's on how many projects fail, and how much they cost, and those numbers aren't going to make the ROI look any better. Meanwhile, most all the inlicensed compounds actually get announced, since they're material transactions for someone, so far fewer of those escape notice. I don't like the Morgan Stanley point of view, not at all, but dislike is not a refutation.

Another thing to remember is that the people with the best figures on ROI are the upper management of the companies involved, and these are the people who are slashing head count and outsourcing wherever they can. And we have to make a distinction here, between diagnosis and treatment. We can disagree on whether this is the proper response (although I'm kind of stuck for alternatives), but is it still possible to argue that these CEOs and the like are reacting to something that isn't there? Something is precipitating a lot of large, painful, and nasty decisions, and I think that it's probably the very concerns about cost that we've been talking about. We need to separate the argument about whether those figures are real from the argument about what's been done in response.

Comments (74) + TrackBacks (0) | Category: Business and Markets | Drug Industry History


1. azetidine on February 9, 2010 9:20 AM writes...

I've been thinking for a long time about what the real issue here is regarding all the cutbacks, and I think it is this: The pharmaceutical industry has simply run out of blockbuster targets. For example, here are targets that never need be worked on again:

Cholesterol - nothing will beat Lipitor.

Cardiovascular - there are enough blood pressure drugs among the ACE inhibitors, diuretics, and A2 antagonists to control well over 90% of the population.

Acid reflux - the proton pump inhibitors and H2 antagonists are going to do the job essentially forever.

Antimicrobial - OK, there's always room for one more, but nothing will be a blockbuster, and the vast majority of the population does well on the current set.

I could go on, and others feel free to offer their opinions. Certainly cancer and Alzheimer's are areas where new drugs could be found, but general cytotoxics are not going to be blockbusters, kinase inhibitors are so done, and I think you are dreaming if you think there is a small molecule cure for AD.

Pain is the one area where I think blockbusters can still possibly be found, as long as something can be invented that looks like neither aspirin nor morphine (P2X7 antagonists, anyone? That's where I'd look).

So from my viewpoint, the pharmaceutical industry has largely run its course, and we medicinal chemists are going to have to find a way to reinvent ourselves if we want to stay employed.

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2. PJ Hansen on February 9, 2010 9:39 AM writes...

It seems like many projects are successful in terms of finding a drug, but do to the degree of efficacy or side-effects the drug’s utility would be limited to a market that is too small for big pharma commercial groups to be interested going forward. These assets are rarely out-licensed successfully and even more rarely resurrected in-house. The drugs might be extremely helpful for many thousands of patients, just not millions. While the projects obviously have to be able to make money, it does not seem like an all-or-nothing approach is reasonable. Could the love of blockbuster drugs be at the root of this accounting imbalance?

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3. alig on February 9, 2010 9:42 AM writes...

Give it up Derek. This is not about past ROI. This is about cutting costs now. Do you really think Pfizer looked to see which labs had the highest ROI before shutting them? This is about management trying to cut costs to keep the high profit margin now. Management are not incentivised to look at the long term because in the long term they will be gone.

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4. Jose on February 9, 2010 10:03 AM writes...

I am just shocked by the rapidity that this has developed. This would seem to imply a spastic industry response to a single company (who went first?) deciding to make to the massive shift to an "outsource everything" paradigm. It's not as if there has been some big announcement about patent changes, or FDA filings, or what-have-you to precipitate this right now. The patent cliffs have been looming for years, and now maybe some "smart feller" crunched some SPSS sheets and pointed *way* East, and now everyone else's BD unit is scrambling as to not be left behind?

The big mistake I see is that someone somewhere is drawing analogies with other "high tech" research orgs like google or MS. For engineering, essentially all problems are solvable (although not always in elegant ways) if you just throw enough persons-hours or -years at them. The fact that this isn't true for DD is lost in translation to "MBAese."

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5. Kent G. Budge on February 9, 2010 10:05 AM writes...

My personal interest is in Type 2 diabetes. If lifestyle changes are made but are still not sufficient for tight control of plasma glucose, it's hard to beat metformin all around, the sufonylureas make a nice backup, and the glitazones seem to come as close to directly attacking the underlying insulin resistance as one could hope for. It's fine-tuning from here, and I'm guessing that fine-tuning does not a blockbuster drug make.

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6. anchor on February 9, 2010 10:12 AM writes...

#1- right on the money. Even if you come out with blockbuster drugs (assuming that FDA approves it in this climate), you will have run in with the insurance companies. So, why bother making or better outsource it (back burner). I am still looking for the light at the end of the tunnel, for the current business model for pharma.

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7. chemist on February 9, 2010 10:25 AM writes...

Nice to see so many chemists here.

Any idea whether total synthesis of FOSMIDOMYCIN (natural antibiotic) is reported. I could only find the synthesis of various analogues but not this drug.


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8. Londonlad on February 9, 2010 10:37 AM writes...

#1 you are, unfortunately, correct.

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9. Hap on February 9, 2010 10:46 AM writes...

It's possible though that Morgan Stanley's incentives are different than what is in the best long-term interests of pharma companies (just like Icahn's interests and those of the companies he takes over are not well-aligned). I don't think the people running companies and setting the financial incentives for themselves are stupid, but they are likely to act for their interests (and those the boards of directors designed for them) over what might be (since the future is uncertain) in the long-term interests of their companies.

It's hard for me to see how outsourcing helps anything other than the short term - if your problems are 1) you (or perhaps God, or a deity of your choice) can't deliver what people want at a price they can pay, 2) you can't come up with enough products, and 3) the products you do come up with fail expensively because you don't know enough about them without spending oodles of money, outsourcing only helps with 1) and doesn't touch 2) and 3) (and even with outsourcing, it still isn't clear that pharma would compete on price, anyway, and that even if they did, that they could make their product cheap enough to satisfy everyone). Outsourcing isn't going to help you make products (and since the same people are leading the outsourcing workers that were leading the internal efforts, it's hard to see why anyone would think that it could), and it doesn't help you to make trials cheaper or find knowledge you don't have but need to reduce trial costs (since you'll have to do trials in the US, anyway), so it doesn't seem to attack the roots of pharma problems.

No one makes enough money, and the job of a company is mainly to make money. It just seems that the cures that financial people advocate to increase profits do so now but at the cost of guaranteeing failure later.

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10. RB Woodweird on February 9, 2010 10:48 AM writes...

Pharma industry analysts who work for the big money houses are generally chemists with industry experience, aren't they? Some of them must read this blog. How about one of them unlurk, either anonymously or not, and answer some of these questions?

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11. CMCguy on February 9, 2010 10:48 AM writes...

As similarly suggested by #2 the over focus on blockbusters has lead to the current decline in productivity as many potential drugs did not pass the "marketing" test, so is partly why in-house looks relatively poor when compared to broader targets elsewhere. Again it may appear to be simplistic math with the costs of development being so high there is going better return on the larger market. Unfortunately most of the marketing analysis is flawed and the wide variation of individual development costs and the ultimate unpredictability of what will be a success adds up to an overly complex situation. I agree mostly short-term thinking involved and as likewise pointed out the current execs probably will have cashed out before the impacts of R&D cuts are realized.

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12. MTK on February 9, 2010 10:56 AM writes...

This isn't just some knee-jerk response to one or two companies doing. The trend toward more and more external research or at least access/acquisition to the results of external research have been going on for a long time. Pfizer basically got to #1 on the backs of drugs that were not discovered within their labs. If you look at the top 100 drugs, you'll find over a third of these are marketed by companies that did not discover them. Couple that with the fact that 6 of the forecasted top selling drugs in 2014 are biotech in origin, and as Derek notes, management has all the data they need.

The real turmoil and stress this causes to individuals notwithstanding, in some ways, we should welcome this. Everyone believes that these Big Pharma guys can't manage scientific research anyway, so why are we bemoaning it when they realize it too and want to get out? It's basically a tacit admission that they're incompetent at this part of it and are better off letting others do it. No one is saying the work isn't important or shouldn't get done. It'll just get done elsewhere and by people who can manage it better.

As long as there's a need, people will pay for it. And as long as people will pay for it, there will be a business model that comes out, so the financing bit of it doesn't worry me either. In the long run, at least. Now if there isn't a need, well...nothing management is doing now or in the future will make one bit of difference.

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13. okemist on February 9, 2010 10:58 AM writes...

a former director of mine and a collegue of Derek's went to Wall street as an analyst. So no these prognosticators are not the same that gave you Enron and sub prime mortgage, but after 15 yrs of mediocre med chem is he now a Super-Analyst? I have my doubts.
I agree with Derek that this is a viable model that gives execs an out. This is a tough bussiness It is easier to dump piles of money on another company, because with that investment you can get someone else to blame for science failure. It is much harder to take resposibility for your own project that is going to have a >90% overall failure rate.

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14. D. on February 9, 2010 11:00 AM writes...

Drug development is a clearly cyclical enterprise.
If you have a lucrative business line with high fixed costs and unpredictable year-on-year earnings there are only two choices to cover the shortfall: bank profits or diversify into non-cyclical business lines.

The problem with banking profits is it needs much higher R&D investment (eg. 25% of revenue at Servier) to get the same level of risk mitigation, and doesn't scale well.

Large drug companies thus managed this risk just like large financial firms, using a strong brand name to add value to low-risk, undifferentiated consumer products.

Any other strategy can probably be blamed on artificially low cost-of-capital and short-term planning. Executives should probably be getting a modest salary and dividends delayed 5-10 years, rather than bonuses vesting every year.
This is how the large family-controlled companies are run in Japan and Korea.

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15. RB Woodweird on February 9, 2010 11:02 AM writes...

@chemist: Fosmidomycin is 3-[Formyl(hydroxy)amino]propoylphosphonic acid, C4H10NO5P.

The Merck says to look at Synthesis 1995(5): 539-543

Regioselective Palladium(0) Catalyzed Amination of Carbonates of Allylic α-Hydroxyphosphonates with Hydroxylamine Derivatives: A Convenient Route to Phosphonic Acids Related to the Antibiotic Fosmidomycin

Elisabeth Öhler*, Silvia Kanzler

The abstract claims that precursors to Fosmidomycin are prepared therein. And if they are not, well, syntheses of compounds with only four carbons are left as an exercise for the reader.

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16. RB Woodweird on February 9, 2010 11:06 AM writes...

@chemist: Fosmidomycin is 3-[Formyl(hydroxy)amino]propoylphosphonic acid, C4H10NO5P.

The Merck says to look at Synthesis 1995(5): 539-543

Regioselective Palladium(0) Catalyzed Amination of Carbonates of Allylic α-Hydroxyphosphonates with Hydroxylamine Derivatives: A Convenient Route to Phosphonic Acids Related to the Antibiotic Fosmidomycin

Elisabeth Öhler*, Silvia Kanzler

The abstract claims that precursors to Fosmidomycin are prepared therein. And if they are not, well, syntheses of compounds with only four carbons are left as an exercise for the reader.

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17. Wavefunction on February 9, 2010 11:10 AM writes...

I think #1 has hit it. The traditional "small-molecule-inhibits-protein" paradigm may be on the wane because of very few remaining targets. The shift, as is already apparent, may be to areas like systems biology and protein-protein interactions including biologics and antibodies. It's hard to see how medicinal chemists could be as successful in these areas, and will have to reinvent themselves to see how they can be of use.

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18. RB Woodweird on February 9, 2010 11:17 AM writes...

The claim that the blockbusters have all been harvested got me thinking. What is the total post-preparation cost of bringing a drug to the pharmacy counter? This is the nut that has to be recouped. Given a blockbuster, yeah, one doesn't even have to worry about that, but where is the line? What is the minimum return a drug would have to have to get a green light, given perfect foresight?

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19. Hap on February 9, 2010 11:19 AM writes...

#12: Probably because the way they're doing it seems like Richard Speck taking care of his bird in prison: when the guards told him he couldn't keep it, he threw it into a fan, saying "If I can't have it, no one can." (from one of the John Douglas books).

Other management was able to do drug discovery (though maybe not? - Munoz), just not the ones you have now. The assumption that current managers can't manage drug discovery, therefore it can't be done seems illogical. While I think my reasons for disliking this method are rather too linked to my self-interest, I don't that makes this methodology make any more sense. Eventually wages will equilibrate (because small companies will have to get paid for their risk, and people will shift careers away if the pay is too low, but how much of a drug industry will be left when it does is unknown.

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20. David P on February 9, 2010 11:32 AM writes...

Did folks read the Independent piece linked to in the other thread? A link here:

The point of that article is that moving to "all in-licensing" will have unexpected consequences that upset the MS analysis. In other words, if BP suddenly want to mostly buy their products from smaller entities, they may find the prices go up and the ROI goes rapidly down. And end up wishing they still had that in-house talent.

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21. Ed on February 9, 2010 12:09 PM writes...

To what extent does everyone think that reducing regulatory issues would help? I find it odd that although North American and europeans are similar in many ways, we insist on having two entirely separate drug regulatory authorities.

"Niche" indications in the combined populace might become a lot more commercially attractive if there was only one "Is it safe? Is it effective?" hoop to jump through, given that all things being equal the patient population would double. Add in Russia, Israel (and anyone else that wanted to join) to the New World Order, and things might not seem so bad.

I think the world (governments, payors, citizens) need to approach these issues or we risk stagnation.

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22. chemist on February 9, 2010 12:13 PM writes...

@ RB Woodweird

Thanks alot

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23. MTK on February 9, 2010 12:26 PM writes...


I would agree with you if some of the current BP managers were really successful and others were not. That's not what we're seeing, however. We're seeing an industry-wide malaise, which points to an outdated model, IMO.

As for the future state of the drug industry, if the need is there the jobs will be there. However, nothing says these jobs won't go the way of the travel agent, the newspaper boy, or floppy disk manufacturer. If that's the case, we're all better off getting on with different things now than later.

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24. MedInformaticsMD on February 9, 2010 12:27 PM writes...

but is it still possible to argue that these CEOs and the like are reacting to something that isn't there?

Well, considering other corporate scandals, it's certainly possible but your point is well taken.

However, I believe the most critical issue is the root causes of why the "something" is there.

Sr. execs may likely be reacting to real facts and figures being generated by their financial folds, but the stronger issue is the why the "there" is there at all.

It's there due to mismanagement.

When you mismanage an industry (such as due to lack of domain expertise, lack of ethics, intellectual vapidity, etc.), you then create the need for such "reactions" as mass layoffs.

You're reacting to a "something" you yourself created.

When a drug addict reacts by going to an Emergency Room to the fact that they have unrelenting fevers from the act of injecting their heroin using water from a public toilet, and they now have roaring endocarditis, that reaction (itself quite justified and rational) does not excuse them from the root cause of their malady. [I am not making this case up, either.]

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25. MedInformaticsMD on February 9, 2010 12:32 PM writes...

And by the way, how can we know there are "few remaining targets" under discovery conditions such as this, where discovery scientists were denied access to basic tools such as SciFinder and Crossfire Beilstein?

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26. David formerly known as a chemist on February 9, 2010 1:11 PM writes...

Andrew Witty, CEO of GSK, told investors last week that "between 1998 and 2007 the £3 billion spent on research each year delivered no new molecular entities to the market".

Now think about that. £30 billion (that's $47.1 billion, folks) spent and NO NEW PRODUCTS. It really doesn't take an MBA-type to see that's a pretty bad return. Wouldn't you be shaking up your strategy? I don't think that shifting the labor to Asia is the answer, but the returns on small-molecule drug discovery are clearly diminishing. The glory days of creating new blockbusters are waning.

#1's comments are right on track. There are major indications that can be managed with existing medicines. The ones that can't (Alzheimers, most cancers, small-market indications and genetic diseases) are either damn difficult or economically unattractive. What should the industry do? This is clearly a significant inflection point for the pharma industry, and the days of small molecule drugs ruling the market appear to be coming to an end.

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27. RKN on February 9, 2010 1:18 PM writes...

The shift, as is already apparent, may be to areas like systems biology and protein-protein interactions including biologics and antibodies. It's hard to see how medicinal chemists could be as successful in these areas, and will have to reinvent themselves to see how they can be of use.

Largely agree, but it's unclear to me why, in principle, MedChems can't be as successful inhibiting p-p interactions as they were at inhibiting single proteins. Granted, the approaches will be different, and success more difficult to achieve, but this is the future of systems (and personalized) medicine - interfering with networks of proteins rather than individual targets. So the low hanging fruit is gone; learn to climb trees!

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28. Anonymous on February 9, 2010 1:24 PM writes...

#1 (azetidine) and all those who agreed with him/her are so wrong it's embarrassing. The industry has not run out of blockbuster targets or disease areas! The industry continued to work on disease areas where the unmet medical need was minimal, like the ones you mentioned.

WHY? Because some marketing nincompoop looked at sales in those disease areas and saw big numbers never once asking themselves if the market was already served. They would look at disease areas which didn't have any drugs and conclude that there wasn't any money to make there. I'd like to think it was more complicated than that but I know from personal experience it is not.

The problem with our industry was that 10 years ago we never worked on diseases like lupus, RA, multiple sclerosis, Sjogren's syndrome, myasthenias gravis, Parkinson's, Bechet's, ect. No, there are not megamillions of people with these diseases (like obesity if you want to call it a disease) but all of them seriously screw up your life a lot more than your inability to get an erection after stuffing your fat, (type-II)diabetic face with three big macs. And that is what we worked on 10 years ago! We looked at kinase inhibitors for non terminal diseases like obesity & asthma, nuclear receptors for autoimmunity and other retarded projects of that ilk. And why did we do that? Because it furthered some research execs' ability to quickly deliver a "candidate" that would die two weeks after he got his bonus for the year. We behaved like children on a soccer field chasing the ball off into the parking lot. Well, if Merck or Pfizer or AZ is doing it then we better do it too. Pathetic - exactly what the CEOs are doing with our jobs now. No vision whatsoever.

And I'll ask again, what's wrong with privatizing this industry? Also, I'd like to see research executives appointed from the staff underneath them rather than above. Perhaps, we might have had people in charge that could have contributed more than parroting the maxims dictated by the MBAs back to us. (Sadly, psychophants have a "skill" that translates to other professions, unlike chemistry.)

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29. Anon on February 9, 2010 1:28 PM writes...

Now think about that. £30 billion (that's $47.1 billion, folks) spent and NO NEW PRODUCTS. It really doesn't take an MBA-type to see that's a pretty bad return. Wouldn't you be shaking up your strategy?

I might, after a candid root cause analysis. The latter has not been done. The approach to establishing why science in the past ~decade or two has not yielded results as in the past has itself been nonscientific.

Senior pharma leaders lack candor that might place the root causes on themselves, lack domain knowledge and creativity, and instead reflexively resort to the only thing they do know: layoffs.

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30. alig on February 9, 2010 1:39 PM writes...

#26 Witty actually said no NCEs not no new products. A lot of R&D money was spent reformulating and combining drugs during that time resulting in products such as Advair (>$5 billion pounds in 2009), not bad ROI on that R&D, eh? He also seemed to forget about Avodart (an NCE launched in 2003). Also he metioned that ten NCEs have been launched since 2007 and expects six more over the next 18 months. If we remember that it takes ~10 years to go from concept to market, I would say GSK R&D has been efficient over the last decade. Delivering 16 NCEs from 2007-2011. I would invest heavily in an organization that is able to do that. Oh well, too late now, GSK has already eliminated the scientists who accomplished that.

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31. Bob on February 9, 2010 1:44 PM writes...

alig said- 'Give it up Derek. This is not about past ROI. This is about cutting costs now. Do you really think Pfizer looked to see which labs had the highest ROI before shutting them? This is about management trying to cut costs to keep the high profit margin now'

You've hit the nail on the head. Just as the bankers on Wall Street destroyed their own industry for short term gains; the same can be said for Pharma executives.

Today's MBA will slash any throat to secure a life times compensation in a few years.

That is the end game. There is no long term thinking or pride in their industry. It is not a kind of thinking most chemists can understand.

The Pharma industry (like most industries today) is a game of musical chairs where the last man managing gets to sit in the hot seat and lose his bonus.

Chemists should unionize then demand 1 million dollar salaries ASAP. This is on par with executive thinking. The industry was leaving the USA anyway, so why not get what you can when the goings good?

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32. Industry Guy on February 9, 2010 1:53 PM writes...


You mean like this large Privately held company?

They do have job openings for those interested.

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33. retread on February 9, 2010 1:54 PM writes...

#1 Interesting comment but I must respectfully disagree with the first two examples given (Cholesterol and Cardiovascular). Studies on the statins have all shown that their beneficial effects are much larger than those of drugs which reduce cholesterol to same extent. Presumably this means that the statins are doing something else. Finding this something else will produce tempting drug targets.

Similarly, hypertension, diabetes, obesity and vascular disease seem to all run with each other. There ought to be an underlying explanation (or explanations) for this (which no one knows at present) and this knowledge should produce interesting drug targets.

Since this group of disorders is the second leading cause of death (after cancer) in developed countries, there is a lot of work left to do and drugs to find. In addition they produce more patient years of morbidity than cancer. Drugs treating them will require long term use which should be lucrative as well as beneficial.

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34. MTK on February 9, 2010 2:15 PM writes...


There's nothing wrong with privatizing the industry. There's also nothing stopping it. All you have to do is put a decent offer on the table for >50% of the shareholders. You got $60-70B or so lying around and GSK is yours.

As for your comments regarding the research execs. Look around, most of the R&D heads are from R&D.

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35. darwin on February 9, 2010 2:32 PM writes...

Noodles are obviously the way of the future for GSK. Then they can branch out into shrimp for an endless supply of can barbecue it, boil it, broil it, bake it, saute it, shrimp-kabobs, shrimp creole, shrimp gumbo. Pan fried, deep fried, stir-fried. There's pineapple shrimp, lemon shrimp, coconut shrimp, pepper shrimp, shrimp soup, shrimp stew, shrimp salad, shrimp and potatoes, shrimp burger, shrimp sandwich. That about it.

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36. Anonymous on February 9, 2010 2:38 PM writes...

@ Industry Guy - yes I did mean a company like that one. They don't seem to be axing every last breathing scientist in their shop.

@ MTK - I don't want GSK! I already worked there and they got rid of most of their good scientists. I'd like to count myself in that list. As for execs coming from R&D, they may have come from R&D but it's been decades since I encountered one who got there by hard work, scientific and managerial excellence or integrity. Any one of those qualities would have been most appreciated.

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37. Kent G. Budge on February 9, 2010 3:01 PM writes...

No, there are not megamillions of people with these diseases (like obesity if you want to call it a disease) but all of them seriously screw up your life a lot more than your inability to get an erection after stuffing your fat, (type-II)diabetic face with three big macs.

There is something to be said for tact, #28.

Having an erection is not an issue for me. I do worry about losing my eyesight, and I sometimes wonder which is the worse way to go, kidney failure or cardiovascular disease. Though it's not like I get to choose. I suppose the three toes with neuropathy are not too crippling, but they're darned uncomfortable and they are an unpleasant harbinger.

I presently weigh 168 pounds at 6'1" height, and I am getting at least five hours of exercise a week. Last time I had a hamburger, it was on a high-fiber whole-wheat bun and was served with a large side of beans, and I still mildly spiked my blood glucose, so there will be no more of those.

My point, if it isn't hammered home sufficiently yet, is that type 2 diabetes is not a trivial disease nor is it always easily controlled merely by bringing your calorie consumption below 4000 a day.

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38. errrr on February 9, 2010 3:05 PM writes...

#26: "Now think about that. £30 billion (that's $47.1 billion, folks) spent and NO NEW PRODUCTS. It really doesn't take an MBA-type to see that's a pretty bad return. Wouldn't you be shaking up your strategy?"

Even accepting Witty's stats at face value (which I don't because he's trying to claim his predecessor's success for his own), NO. The problem is too many shake-ups. Every 4-5 years on average, because that's how long it takes for a new CEO to swing in and make exactly the analysis you just did. Let's say it takes 2-3 years to recover and work out how to operate in the new model; that's 1-2 years to do some productive work before the next shake-up. Pity they don't understand that it takes 10 years to make a drug.

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39. biobug on February 9, 2010 3:16 PM writes...

I would argue that the main reason for 'reduced productivity' in research today is not running out of targets or mismanagement. It is computers. Over the last 20 years the internet, computer databases, and vast information analysis has become possible at your desk. Suddenly we are getting more extensive information on drugs and their safety effects, and are able to conduct more rigorous statistical analysis of clinical databases. This tends to cast additional doubt on results.

Suddenly our drugs look a lot less clean, a lot less safe, and somewhat less efficacious. Since the FDA only gets burned when they approve something that hurts people, and gets no real reward for approving things that go on to help people, they are incentivized to be over cautious and it becomes much harder to get drugs approved.

Add in the cost of running these new technologically intense research efforts and trials, and suddenly you have skyrocketing costs with decreased success rates. BAM! Generic entry can no longer be replaced by new products, and the Pharma industry is forced to contract rapidly. Biotech has only become so prominent because of the enormous price tags on their drugs. If you look at actual scripts or patients treated, small molecules continue to own the market and will probably continue to do so for a while.

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40. Anonymous on February 9, 2010 3:17 PM writes...

@ Kent Budge - Given your description, you don't have type-II diabetes, you have LADA - Latent Autoimmune Diabetes in Adults - which constitutes approximately 10-20% of adult Type II diabetics. So you aren't who I was describing. (I'd guess Halle Berry has that as well.) So you most likely have an autoimmune disease not a lifestyle disease. Have your doctor check for the diagnostic antibody levels (e.g. GAD, ect.). And for what it's worth, no one has looked at origins or the possiblity of immunomodulatory or immunsupresive therapy for LADA. It is totally ignored in diabetes research.

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41. errrr on February 9, 2010 3:17 PM writes...

#3: "Give it up Derek. This is not about past ROI. This is about cutting costs now."

Yes. Witty admitted it last week. To paraphrase, "mergers have made other pharma stock look attractive so GSK needs to cut costs now." He even said that 70% of the savings from site closures will go straight back to investors.

In other words, sell off the assets to keep our share price up now, and sod the future.

Hardly suggests Morgan Stanley's "proprietary analysis" was at the front of his mind, does it?

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42. anonymouse on February 9, 2010 3:32 PM writes...

"I could go on, and others feel free to offer their opinions. Certainly cancer and Alzheimer's are areas where new drugs could be found,.."

"Pain is the one area where I think blockbusters can still possibly be found, ..."

I agree with no. 1 that both AD and pain have serious blockbuster potential. Unfortunately the idiots running GSK have now decided to either exit the area completely or ship it out to the amateurs in China (nothing against the Chinese - they will be able to do our job one day but not just yet. At the moment they're just cheap). Also, in agreement with no.1, GSK is now pinning it's future hopes on areas with low unmet need (cardiovascular, asthma, diabetes,...) and areas of wild fantasy (sirtuins and the like). Kind of a mix between trying to preserve the existing pipeline and playing the lotto. Surely somewhere in between makes more sense or am I the only crazy one.

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43. WhoDat on February 9, 2010 3:49 PM writes...

#41 errr:

Witty said this was a short-term fix to placate investors, catalyzed in some ways by last years merger mania. Believe it or don't but he also said GSK is well-situated for the medium- and long-term, but in the short term they look bad by comparison with peers. Witty also seems to agree with Munos' analysis that mergers are value-destroying in the long term. I'm sure no one on this board would disagree with that.

I agree that investors should take a long view and forego short term gains for long term success. But this is the world we live in. If GSK does not keep up with the (short term) returns of its competitors, what's going to happen? Either a) the Board (the arm of the investors, i.e. stockholders) will replace management with a team that will have no compunction about slashing and burning or b) GSK will become M&A fodder. I'll take the biannual cost cutting over a merger.

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44. Hap on February 9, 2010 4:16 PM writes...

If cutting in the short term hurts your ability to compete in the long term, though, then haven't you sacrificed long-term shareholders to short-term ones? Once you've made the future less rosy, the shareholder population should shift from long-term to short-term (because no one will want to be around when the buzzards come home to roost, and no one knows exactly when that's going to be).

I have to imagine running a company is like being on the game show "Sale of the Century"(sic?) - trying to get tangible short-term gains without impairing (too much) your ability to get bigger prizes in the long run. If the short term is all that matters, though, then there won't be a long term to speak of.

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45. Cellbio on February 9, 2010 4:19 PM writes...

anon 28 & 40, you oversimplify and misstate to make a complex set of issues easier.

I agree with the sentiment of #1 and others that point to prior successes limiting future opportunity, both from market perspectives and from molecular/physical perspectives. The genome is finite, and so too then the number of targets with a nice pocket to allow potency, with a shape that affords selectivity and whose inhibition is not fraught with significant adverse events that upset the risk/reward balance. I don't think the game is over by any means, but the job is getting tougher.

And really, no one has thought of investigating immune systems origins of diabetes, or possible immunotherapy? Whether in LADA specifically or not, these mechanisms of disease pathophysiology and treatment options would be broadly applicable, and useful in other autoimmune diseases, and continue to be extensively explored. It is just damn tough to inhibit the immune system in subtle or specific ways. Sledge hammers work fine. Do you suggest clinical trials with CsA or Rapamune for LADA? What do you think is an acceptable adverse event profile? Maybe Mtx or azothioprine? How about an anti-CD3 antibody? Or we could try the Treg route, only, of course by different means than Tegenero.

Then, we just need to catch the developing immune reaction at the right time, with no consequence like escape of an endogenous virus or emergence of neoplastic growth. Where is that master time-liner from McKinsey when I need them? It should all chart out in a nice straight line!

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46. Bored on February 9, 2010 4:41 PM writes...

#1 azetidine

I understand your point of view, and in one sense it is valid. We have to be careful, though, when going down the "we've invented all the good stuff" path. It was just one hundred years ago that the Patent Office considered closing, since, to quote some at the time, "Everything useful has already been invented."

We tend to look at our times as the most important, which, of course, they never are.

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47. Anonymous on February 9, 2010 4:47 PM writes...

Similarly, hypertension, diabetes, obesity and vascular disease seem to all run with each other. There ought to be an underlying explanation (or explanations) for this (which no one knows at present) and this knowledge should produce interesting drug targets.

People agree w/you (incl me), and it's beginning to happen. See, for instance:

Or any work by Eric Schadt on GWAS and systems medicine, or drug target networks by Goh, Barabasi, etc..

Yildirim MA, Goh KI, Cusick ME, Barabási AL, Vidal M., Drug Target Network, 2007, Nature Biotechnol.

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48. Anonymous on February 9, 2010 5:01 PM writes...

@Cellbio - I didn't suggest longterm immunosuppression as a treatment option for LADA and don't agree that the immunopathology for that disease is being extensively explored, certainly by the pharmaceutical industry. But diseases of autoimmunity are typically targeted in that fashion. I only worked in diabetes for six months but when I mentioned LADA to those who had spent decades, they knew nothing of it.

Personally, I think there's huge blockbuster potential for a safer immunosuppresives and it would appear if Novartis in-licensed one with fingolimod which has just been filed in the US (and Europe I think) for MS. I think the sledgehammer approach with immunosuppression is not a sustitute for immunomodulation and some of the drugs you mention above are old, antiquated toxic crap. Personally, I feel there has been relatively little effort over the past 10-15 years in immunosuppression research and makes a perfect example for my point above (#28)

If I was in charge of the world, and trust me in that I'm not nor will I ever be in charge of anything, I would look at defining the autoantigen(s) in the various autoimmune diseases, like LADA, and then target immunotolerance therapy. (That is being done with a heat shock protein in newly diagnosed Type I diabetics - before the pancreas is completely destroyed which is very rapid in that disease state - and it appears to be saving residual insulin production.) And just because you asked, I might contemplate a trial with rituxan from disease onset in LADA. I don't pretend to be an expert on that disease though.

The poorly illustrated (yeah, and tactless) point I was trying to make was that the industry has disproportionately targeted lifestyle diseases and disease areas where there are relatively safe effective drugs. Three PDE5 inhibitors is what most people outside the industry see as what we've accomplished over the past decade. I think that is sad, not accurate but also a reflection of the "kids on a soccer field" approach to drug discovery. Quite frankly, the bar is still very low in many life-threatening and/or devastating diseases where there is plenty of targets and where the industry would be flourishing even with substandard drugs if they had bothered to explore. Blockbuster mania deserves much credit for the state of things.

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49. WhoDat on February 9, 2010 5:11 PM writes...


I think I've got it framed in a way that makes sense, although maybe it's a little too cute.

I'm sure we've all heard the phrase "In the long term we're all dead." I think its a Keynes quote. What I take it to mean is that even when imbalances and misallocations inevitably correct themselves, due to insustainabilities in the system, it is no relevance to the present actors because the correction takes such a long time. They literally won't be around to enjoy the returns.

So it is very human to desire returns in a short time frame. Maybe the root of the problem here is that making drugs just doesn't fit into the human timeframe. We can say that the company would be better off in the long term if it invested in R&D, but the company is just an incorporeal entity. The investors would not be better off, they'd be doddering grandparents by the time their investments paid off. They don't want that.

It makes me wonder how other long term ventures were funded, like building canals or railroads. Maybe privately held really is the way to go for Pharma. We've heard about BI, what other privately held pharma companies are out there? Are they better places to work. More long-sighted? Is working under the capriciousness of blue blood heirs better than working under the cpariciousness of short-sighted stockholders?

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50. Cellbio on February 9, 2010 5:23 PM writes...

Thanks for the reply anon. Agree with the lifestyle comments.

Not sure about Rituxan in that setting, though who knows. B cells are a lot more than just ab producing cells, despite what T cell immunologists have said for years.

Having worked in the field, I think there has been a lot of work in immunosuppression/modulation, but the challenges are finding a drug that is more directed than the old "toxins", but still is effective. In this field, not hard to have an impact, hard to have a tolerable impact, and the animal models are poor predictors of clinical outcome. So, we are left with old drugs, but not for lack of trying.

So, in principle, the opportunity exists here, and in other disease settings (cancer), but I return to my earlier stated belief that the problems not yet solved are the tougher ones, not just those deemed too small from a marketing perspective, though of course this is also an influence.

I guess I also agree that there are still many targets. The problem is not targets in a broad definition, but targets that we can attack with our existing chemical libraries and technologies. I think it is not an arguable point that our current efforts are showing diminishing returns, and we need to retool. I don't think retooling wisely means dropping R from the equation, but neither does it mean we should advocate for doing more of the same. So, we either take a new approach within bigcos, or in small companies. Take your pick. I'll go the smallco route.

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51. Hap on February 9, 2010 5:40 PM writes...

I assume people invest in things to get their money back (and then some). They prefer gains now to (the chance of) gains later because lots of things will happen in the future, and they don't know what they will be, and inflation with diminish their money anyway, so money in the future is worth less than money now (almost always).

Companies are supposed to get investors, though, to sustain their business - if making investors happy kills the business (or harms it), then there isn't a good point to getting them (other than to cash out and run, or because you have no better choice). Investors are supposed to have chosen the company with an awareness of its goals, and some consilience with the company's way of achieving those goals. I also assume that long-term stockholders have a deeper interest in the company's success than the short-term stockholders. I assume that there are reasons to keep the stock price up (both good and bad for the business), but if doing so damages your company's ability to succeed in the future, to appeal to people who have little at stake in your long-term goals and well-being, it seems counterproductive.

I don't know that private is best, but I don't think that caring about short-term fluctuations in stock price (and rewarding executives for affecting such variations) is a good strategy for pharma. That will probably cost some in stock price, but it likely to make the stockholders that do stay around helpful to your ultimate goals rather than obstacles to them, and to make executives more responsible for the company's ability to achieve its ends, rather than to fool stock analysts. I think the patent framework and drug development timeframe fit a long-term investment timeframe, but a human one (most people are saving for retirement, if they can, thirty or forty years down the line). If you want quick, risky investments, there are lots of other ones to choose.

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52. MedInformaticsMD on February 9, 2010 5:57 PM writes...

This new essay on our stunningly inappropriate leadership of pharma, written by a colleague: Green Ketchup for Novartis?

I can only wonder what Faux-Dr. Ketchup means by:

"With consumer packaged goods, 'Decisions have to be made quickly because the market moves quickly,' he says. But pharmaceutical businesses have long development lead times, which 'tends to slow decision-making in areas where it doesn't need to.'"

Which areas might that be?

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53. Jose on February 9, 2010 6:20 PM writes...

"No surprise then that, over time, the faculty and curriculum at the Harvards and Stanfords of the world began to evolve. 'If you look at the distribution of faculty at leading business schools,' says Khurana, '“they’re mostly in finance. … Business schools are responsive to changes in the external environment.' Which meant that, even if a student aspired to become a top operations man (or woman) at a big industrial company, the infrastructure to teach him didn’t really exist."

This adds some serious credence to the "MBAs/CEOs are idiots" side of the debate. Highly recommended reading for everyone.

On Automobile, and Health Care Companies Run by Finance People, at

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54. Anonymous on February 9, 2010 6:29 PM writes...

@ #52 - MedInformaticsMD: Maybe he wants to re-introduce green ketchup with GSK's noodles to convince the guys on Wall Street of the incredible synergies that could be realized if the two were to merge?

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55. Tok on February 9, 2010 8:55 PM writes...

I can't be the only one that realizes the reason most of the drugs on the market were in-licensed or obtained through M&A is because all the successful R&D depts were bought and torn apart. Blockbusters killed our industry folks. They gave a few entities a ton of money who could then run like a bulldozer over any company who showed any signs of having that indescribable ability to discover good drugs.

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56. Anon on February 9, 2010 8:57 PM writes...

#53 the full link to "On Automobile, and Health Care Companies Run by Finance People" is:

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57. Anonymous on February 9, 2010 10:57 PM writes...

@TOk (#55): Let's not forget that some of the (blockbuster) drugs on the market were actually discovered at companies that systematically destroyed their own drug discovery units while merging, aquiring and generally investing in stupidity. Otherwise, your observations stand.

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58. Vader on February 9, 2010 11:03 PM writes...


No, mine is clearly Type 2. It's now reasonably well-controlled with diet, exercise, and a gram a day of Metformin. But I put off seeing my doctor much too long.

Even if I had LADA, I hope I would still be tactful with those having Type 2.

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59. It's sycophant !!! on February 9, 2010 11:10 PM writes...

The word is sycophant, not psychophant.

sycophant (noun) A servile self-seeker who attempts to win favor by flattering influential people.

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60. fred on February 9, 2010 11:39 PM writes...

It's a "perfect storm"; a systems problem:

1: "CYA" bureaucrats at the FDA, willing to dump on REALLY SAFE stuff, like Vioxx, just to be "on the safe side". These guys also contribute the huge expense of trials.

2: Some "low hanging fruit" targets off the table.

3: Greedy insurance companies that just want the cheapest drug possible.

4: no decent bioequivalence guidelines. Antibodies essentially stay proprietary forever. All of them injectables; an unfortunate consequence for the patient, who won't get an oral drug.

5: No trade protection. Part of the reason those dweebs in China look cheap is because they just dump their waste out the back window-- and then get to trade with civilized countries without paying any compensatory tariff. "Free Trade" my *ss.

6: In a previous place of employment they told us
"the patient is waiting". The patient will be pushing up daisies, I guess. We SHOULD make drugs for smaller diseases and harder diseases. It's the RIGHT thing to do.

I wonder how many Ph.D's you could support if you took away fat-*ss Kindler's salary and private jet? Second question: who'd miss him? His dog?

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61. Aon on February 10, 2010 12:42 AM writes...

I wonder how many Ph.D's you could support if you took away fat-*ss Kindler's salary and private jet? Second question: who'd miss him? His dog?

What these CEO's don't understand is that there probably would be little complaining about their compensation if they showed loyalty to the troops.

The only way to build loyalty is to show it.

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62. UK chemist on February 10, 2010 4:20 AM writes...

28.Spot on. There is still lots of unmet medical need. But I think another way of phrasing the argument is that the time lengths needed for many of these diseases and the returns that might be obtained may not be compatible with being a publically quoted company in todays markets.If you go back to the 70s and early 80s we weren't as profitable as we are today but those profits weren't declining, they were growing.with the size of many trials and the risk of failure increasing, it's hard to imagine this is going to improve any time soon. The only ways to make net present values move from positive to negative would be to either reduce cost , increase price or increase market exculsivity. But our wonderful CEOs have so trashed our reputation , the chances of us getting patent life increased to say 30-35 years is pretty much zero. So we need to get out of the firing line of the capital markets.I'm sure we can remain profitable but our porblem is that we won't be as profitable as we used to be and that's not acceptable today

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63. AR on February 10, 2010 9:03 AM writes...

How much of today's pharma troubles is still fallout from the failure of genomics target hype? By all appearances that was one decade of hundred billion dollar pharma research flushed down the toilet. During that time pharma dismantled the old guard which had developed drugs using pharmaceutical biology to hire scientists that applied bridge-building engineering protocols to drug development.

Aren't today's senior R&D managers mostly from the ranks of those who gained training and experience from a genomics backgrounds and hired staff accordingly? If any of this is all true then these senior managers have cashed in all their chips and are stuck with a failed development method.

When you use manipulated biology to find drugs you find efficacious drugs to manipulated biology. D*mned rude of the human race to be just have normal biology.

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64. Anonymous on February 10, 2010 9:20 AM writes...

@Vader: Point taken, it was insensitive - apology offered.

@59: I will aspire to be a better speller.

No more comments from this peanut gallery....

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65. Jose on February 10, 2010 9:45 AM writes...

I suspect it was an intentional portmanteau of "psychopath" and "sycophant."

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66. MedInformaticsMD on February 10, 2010 10:00 AM writes...

#63 AR - How much of today's pharma troubles is still fallout from the failure of genomics target hype?

You mean this field?

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67. g on February 10, 2010 12:20 PM writes...

Pharma (big, small, biotech, whatever) is simply too big. Pharma and R and D will still exist but in a entirely different form and likely much smaller. #1 brought up some really good points. Pharma is so big that it needs blockbusters. Blockbusters are gone.

I agree that pain and neurodegenerative diseases i.e. alzheimer's, parkinson's, dementias, etc. could produce blockbusters but it seems unlikely. For pain, we've been able to only improve on nature (aspirin and morphine) and we cannot find an effective, non-addictive substitute for opioids. For Alzheimer's, we only think about plaques or tangles, and it may be that they both occur because of the disease and they do not cause it.

In 10-20 years, I foresee big pharma being more involved in care, diagnostics, medical devices, consumer products, and generics with little R and D. While small pharma will have to focus on diseases with no good drugs or have an unmet need. The total headcount in R and D will be much smaller.

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68. AR on February 10, 2010 1:00 PM writes...

#66 - would like to read 'this field', but the link is not active.

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69. RandDChemist on February 10, 2010 1:05 PM writes...

Business ethics:


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71. alex on February 10, 2010 7:17 PM writes...

"Personally, I think there's huge blockbuster potential for a safer immunosuppresives and it would appear if Novartis in-licensed one with fingolimod which has just been filed in the US (and Europe I think) for MS."

Immunosuppression research in academic basic science labs is where the innovation is all occurring. It's uniquely well suited for that because there are plenty of targets and drugs to play with as well as good animal models, it's not the needle-in-the-haystack drug discovery approach.

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72. MIMD on February 11, 2010 11:27 AM writes...


my bad. the link is this.

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73. modern furniture on May 13, 2014 3:43 AM writes...

This is a topic that’s near to my heart… Best wishes! Exactly where are your contact details though?

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74. Wake Up Now on September 18, 2014 4:56 PM writes...

After I initially commented I seem to have clicked on the -Notify me when new comments are added- checkbox and from now on whenever a comment is added I get 4 emails with the exact same comment. Perhaps there is an easy method you are able to remove me from that service? Many thanks!

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