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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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« Avastin and Medicare | Main | Fakery, As Revealed By Figures »

July 2, 2011

Innovation and Return (Europe vs. the US)

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Posted by Derek

Here's another look at the productivity problems in drug R&D. The authors are looking at attrition rates, development timelines, targets and therapeutic areas, and trying to find some trends to explain (or at least illuminate) what's been going on.

Their take? Attrition rates have been rising at all phases of drug development, and most steeply in Phase III. (This sounds right to me). Here are their charts:
Attrition%20rates.png
And when they look at where the drug R&D efforts have been going, they find that comparatively more time and money has been spent on targets with lower probability of success. That means (among other things) more oncology, Alzheimer's, arthritis, Parkinson's et al. and less cardiovascular and anti-HIV.

That makes sense, too, in a paradoxical way. If we were to get drugs in those areas, the expected returns would be higher than if we found them in the well-established ones. The regulatory barriers would be smaller, the competition thinner, the potential markets are enthusiastic about new therapies - everything's lined up. If you can find a drug, that is. The problem is the higher failure rates. We knew that going in, of course, but the expectation was that the greater rewards would cancel that out. But what if they don't? What if, for a protracted period, there are no rewards at all?

The paper also has a very interesting analysis of European firms versus US ones. Instead of looking at where companies might be headquartered, the authors used the addresses of the inventors on patent filings as a better location indicator. Over 18,000 projects started by companies or public research organizations between 1990 and 2007 were examined, and they found:

Although at a first glance, European organizations seem to have higher success rates compared with US organizations, after controlling for the larger share of biotechnology companies and PROs in the United States and for differences in the composition of R&D portfolios, there is no significant gap between European and US organizations in this respect. Unconditional differences (that is, differences arising when no controls are taken into account) are driven by the higher propensity of US organizations to focus on novel R&D methodologies and riskier therapeutic endeavours. . .as an average US organization takes more risk, when successful, they attain higher price premiums than the European organizations.

The other take-home has to do with "me-too" compounds versus first-in-class ones, and is worth considering:

". . .both private and public payers discourage incremental innovation and investments in follow-on drugs in already established therapeutic classes, mostly by the use of reference pricing schemes and bids designed to maximize the intensity of price competition among different molecules. Indeed, in established markets, innovative patented drugs are often reimbursed at the same level as older drugs. As a consequence, R&D investments tend to focus on new therapeutic targets, which are characterized by high uncertainty and difficulty, but lower expected post-launch competition. Our empirical investigation indicates that this reorienting of investments accounts for most of the recent decline in productivity in pharmaceutical R&D, as measured in terms of attrition rates, development times and the number of NMEs launched."

So, rather than being in trouble for not trying to be innovative enough, according to these guys, we're in trouble for innovating too much. . .

Comments (26) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History


COMMENTS

1. PharmaHeretic on July 5, 2011 9:09 AM writes...

There is a rational, though tasteless, explanation for such "research" and "studies".

Research and Studies = Distortion, Lies, Fraud and Bullshit.

It appears that "research" in areas as diverse as drug discovery, nutrition, physics, eCONomics is now mostly done by people who have no interest in even trying to reconcile their ideas with what can be observed by an objective person. It is now mostly make believe, supporting dubious theories, popular models and lots of kabuki theater by clever morons.

These people are emulating the priests in more traditional religions..

Permalink to Comment

2. Todd on July 5, 2011 9:11 AM writes...

I think the issue is that it's a lot easier for the typical layman to see the impact of a brand-new cure than incremental change. Fairly or not, it's much easier for someone to envision a dramatic cure that saves 100,000 lives as opposed to 10 interventions that save 20,000 lives a piece. Even though the latter set of innovations would save more lives, it's also much harder to conceive off the top.

Permalink to Comment

3. PharmaHeretic on July 5, 2011 9:11 AM writes...

There is a rational, though tasteless, explanation for such "research" and "studies".

Research and Studies = Distortion, Lies, Fraud and Bullshit.

It appears that "research" in areas as diverse as drug discovery, nutrition, physics, eCONomics is now mostly done by people who have no interest in even trying to reconcile their ideas with what can be observed by an objective person. It is now mostly make believe, supporting dubious theories, popular models and lots of kabuki theater by clever morons.

These people are emulating the priests in more traditional religions..

Permalink to Comment

4. Anonymous on July 5, 2011 9:36 AM writes...

>>So, rather than being in trouble for not trying to be innovative enough, according to these guys, we're in trouble for innovating too much. . .

Well.if that's the case, then it's fricking stupid to lay us off just as we're starting to get the hang of it.

Brainless, clueless, MBAs.

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5. anon on July 5, 2011 10:02 AM writes...

There seems to be an increasing trend in analyses which involve continual scrutiny of the industry's belly-button, and drawing conclusions already well recognized which most people who have any common sense and see what has been going on within Pharma during the past 15 years well know. Unfortunately, this type of situation, eg, telling people what they already should know under the guise of a special, focussed, novel assessment (be it by academics, Pharma insiders, or business consultants) usually poses a warning to indicate more "paradigm shifts" are in the offering---as the old is not working, there must be something new as the next, great best saving approach for the industry.

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6. pete on July 5, 2011 10:28 AM writes...

Nice to know that our European brothers & sisters are having just as bad a time at successful drug development as we are.

Over to you, China...

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7. simpl on July 5, 2011 10:31 AM writes...

re 6: belly-button research
This is okay with me, it shows that external analysts (investor driven) dont trust the MBA paradigms either.
re: innovating too much?
High risk is a given, if low risk is not allowed. This, to me, is the worst aspect of where current regulatory risk strategies is leading. But there is no reason that, say, the first statin is the best statin, and even the COX2 class showed differing side-effect profiles. For that reason, and to encourage lower prices, the barrier for me-two+s should be deliberately lowered, not raised. Before, say 1980, a portfolio of projects included a balanced mix of low and high risk, for stability and growth respectively.

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8. simpl on July 5, 2011 10:42 AM writes...

highest success rate
in table 1 is 20% for "others". This speaks clearly against the concept of therapeutic areas, and presumably for projects with a good concept not matching a major disease. I'd suggest some of these are the orphan autoimmune diseases (antibodies) and the non-profit diseases like malaria - the article is a bit short of data to check.

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9. TJMC on July 5, 2011 10:52 AM writes...

It is great to see this emphasis on areas of unmet needs - despite the "risks". As noted above, society will not reward you for MARGINAL contributions to their well being. I remember wondering why in the '90's we were looking for the umpteenth ACE variant. It seemed to be to me an "overfished pond" and we needed to look for new venues.

However I look forward to further insights as to what firms are doing to improve NME innovation and productivity, not hindsight why's. The authors looked at the location of patent authors to look for regional innovation differences (clever.) I would like to know if the R&D process or organizations that are more productive are somehow different and/or trying new things - not just new therapeutic areas. Breakout the data torture devices!

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10. Rich Rostrom on July 5, 2011 11:01 AM writes...

If I (a layman) understand the chart - the attrition rates are cumulative. Thus one multiplies (1-[each attrition rate]) to get the eventual survival rate.

Using the start and end values of the "linear-fit", lines, I find that the survival rate in 1990 was 7.27%, and in 2004 was 1.23%. That's an 83% decline.

And 2004 was seven years ago. If the trend lines continued, the rate would be 0.29% today.

One can hope that the trends are not in fact liner; if so, Phase II attrition will reach 100% by 2019. (Phase III attrition is climbing faster, but has further to go; it won't reach 100% till 2024.)

In other areas, extrapolated trends lead to "singularities". For instance, the increase in mean lifespan has been increasing; I have seen a prediction that by 2040 or so it will exceed 1 year of added life per year, which means anyone still alive may become immortal.

In this case, the "singularity" is that successful drug discovery will stop completely. As Mr. Lowe has noted, the shortage of recent drug discoveries may be (probably is) linked to the unprecedented year-over-year decline in drug R&D. If the discovery rate goes to zero, how long before R&D follows?

Permalink to Comment

11. qetzal on July 5, 2011 11:06 AM writes...

@anon #6,

You may be right that these conclusions are already be well recognized by people with common sense. However, consider how often we hear that big pharma spends all its time pursuing me-toos with no clinical value. (See this point of view article in the latest GEN, for example.)

Looks to me like there are still very many people out there who don't know these things, but should. It would be nice if this analysis made them reconsider.

Hey, a guy can dream, right?

Permalink to Comment

12. Innovorich on July 5, 2011 11:14 AM writes...

Damned if you do, and damned if you don't!

Permalink to Comment

13. TJMC on July 5, 2011 12:02 PM writes...

Anon #6: A weakness in the argument that " already well recognized which most people who have any common sense and see what has been going on..." is that if so, why have the better ideas not changed the sinking ship?

I feel that when you are talking about a better direction (not taken), prove it through measurable results. Enough firms have been experimenting with those changes you implicitly decry, to see something. Analyses like this one in Nature tries to do just that. Use analytical thinking to gain insight and understanding - through data. That was a foundation I learned and embraced as a scientist, and later as an MBA.

Finally, as #13 quetzal notes, "there are still very many people out there who don't know these things, but should. It would be nice if this analysis made them reconsider." Or challenge their assumptions - also a good scientific foundation.

Permalink to Comment

14. anon on July 5, 2011 12:48 PM writes...

....because, you are assuming there is a way to bail the ship fast enough to keep it from sinking....today's scenarios look toward more of the same of the past 15 years, not a reversal to "those golden days of yore".

Permalink to Comment

15. Titus! on July 5, 2011 1:08 PM writes...

Dear NRDD,

Enough!

Please stop:
...publishing specious articles with titles like "The productivity crisis in pharmaceutical R&D"!

Please start:
...publishing articles by Drug Discovery scientists on approaches and insights that could actually help discover medicines!

Permalink to Comment

16. milkshake on July 5, 2011 1:16 PM writes...

the most serious case of the mentioned disastrous research reorientation into the areas that did not pay off is the blockbuster mentality coupled with excessive focus on target-orienced drug discovery. In times not so long ago the common pharma management wisdom was that a drug has to have at least 2 billions a year projected sales or it is not worth developing. Which sounds like a rational criterion to the stockholders, except that it fails to mention that the reasons for which drug becomes a blockbuster (Lipitor, Viagra, Topamax, Plavix) are (somewhat) clear only in retrospect, and the reasons for which the expected moneymakers had fail are even more unpredictable. You certainly cannot plan for this 2billions a year sort of success in the same way like in Soviet Union they had 5 year plan (which was never fulfilled, except on paper) , you can only hope to have decent drug with some possible advantages, and the actual merits/unexpected effect profile become clear in late stage trials. And sales projections are worthless until the drug has been prescribed for few years. The point is that the dishonest pharma management was fooling themselves and the investors and everyone else.

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17. bbooooooya on July 5, 2011 3:13 PM writes...

SHHHHHHH, don't tell everyone that "You certainly cannot plan for this 2billions a year sort of success in the same way like in Soviet Union", there's good money to be made on Wall St. making just these estimates, and with unflappable certainty, yet! After all, how hard can it be to predict sales of a drug in 2016? So what if it isn't even in Phase 2, details!

Does no one appreciate the benefit of studying productivity on productivity? I guess it keeps people out of the lab, and likely prevent accidents.....

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18. J. Miller on July 5, 2011 5:10 PM writes...

"...there's good money to be made on Wall St. making just these estimates..."

There's the entire problem with the industry today. There's more money to be made by screwing with the business for short-term gains to pump up stock prices on Wall Street than there's to be made by investing in research and development.

I'd go so far as to say that's the problem with modern capitalism in general. There's more money in screwing with numbers on Wall Street than in investing in your company and workforce. God forbid that investors have to suck it up a little.

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19. bbooooooya on July 5, 2011 5:52 PM writes...

"I'd go so far as to say that's the problem with modern capitalism in general"

Maybe, but good luck getting investors to "suck it up a little".

I'd be surprised if there was ever a period of time in which investors didn't prefer to make more money faster. And, I assume beyond stories of "the good old days", that such a time never existed.

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20. Cellbio on July 5, 2011 6:00 PM writes...

Agree with Milkshake, especially this part:

"... the actual merits/unexpected effect profile become clear in late stage trials..."

And now couple 'fail fast' mentality to the blockbuster/target scheme, and very few opportunities to generate late stage trial data emerge since the Portal Committee/Review Board will not release funding without clear rationale, scientifically supported, for the expectations of the trial outcome. There is no space left in risk averse organizations for pleasant surprises or unexpected merits to emerge. With no money left for start-ups to push their assets deep into trials, late stage becomes the domain of big pharma and not the more risk tolerant, or desperate small company. I see no way out except to admit we no less about human disease and small molecule pharmacology than we think, and much less than we infer from genetics and animal models. The 'validation' we use to drive our priorities and resourcing decisions has not served us well. Not sure we can put the genie back into the bottle though, so I have only lobbied for adding an empirical, old school approach, not for upending the whole system, but one wonders if they can coexists in one organization or even survive the regulatory environment..

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21. Rick on July 5, 2011 6:12 PM writes...

bbooooooya (#19),
I think I've figured out where your coming from: you're trying to be the agent provocatuer, a la Stephen Colbert, of this blog. In response to your comment, "I'd be surprised if there was ever a period of time in which investors didn't prefer to make more money faster." It happens all the time: somehow going to jail usually (but not always) seems to dampen the lust for maximum conceivable profit. Short of jail time, I have even seen companies sacrifice a bit of short term profit to do something of longer term value, sometimes even value in, GASP!!!, non-monetary terms, like, GASP!!!!, social value.

Having said that, I would agree with a slightly modified version of your statement: "I'd be surprised if there was ever a period of time in which SPECULATORS (or compulsive gamblers) didn't prefer to make more money faster."

Permalink to Comment

22. bbooooooya on July 5, 2011 7:42 PM writes...

Actually, I was being serious when I said investors prefer to make more money faster. I am not saying I think it's in the best interest of society overall, and I agree that companies will make stupid mistakes to meet street expectations (which are based often on shockingly little insight).

I also don't think it's really changed much since the days of Druckenmmiller and or/Buffet(yes, I know he's still around....have a look at his purchases of GS in 2008---he may still be holding, but he knew that was for a short term gain, which it was).

I assume the difference in investment horizon today is partly due to efficiency of information flow. In the "old days" people could get a serious advantage by going down to the NYSE library and looking at a company's most recent SEC filing: these days, any schmoe with a Bloomberg has the data right away (and schlubs who rely on Yahoo finance a few minutes later).

In any case, the short term mindset is just a reflection of what people want. If there were profit to be made in a fund that only wanted to return 5 or 6% annually to investors, someone would sell it. I doubt that there are people lining up to buy such a product.

Permalink to Comment

23. WB on July 5, 2011 9:03 PM writes...

@#15: People want to read about disasters in their papers. It's so hard to get them to read something informative and educational. I agree though that some uplifting articles would be nice, but often times these "uplifting" ones are hype from nonscientists. Scientists tend to be much more critical even of their own work.

Permalink to Comment

24. GG on July 6, 2011 1:45 AM writes...

I wonder if changing the reductionist approach to drug discovery might improve innovation. Medicine and chemistry have traditionally benefited greatly from seredipity, and this seems to be, for the most part, engineered out of the system now. Whole-cell assays right from the get-go and forget about analyzing target-ligand interactions until late in the game. I'm an outsider looking in so perhaps this is already how it works...any thoughts from industry veterans?

An unpalatable reality for managers and the public is that prediction has never been the forte of science...but we sell pleasant fictions to soothe the people spending the money.

Permalink to Comment

25. Cellbio on July 6, 2011 11:10 AM writes...

@GG,

At one company, I led a group that set up a whole-cell driven discovery system. Our aim was to compliment the target approach with an empirical, cellular pharmacology driven approach that we felt was an updated and higher thru=put parallel to the tissue baths of old that screened in living tissues ex vivo. Technically we succeeded, but we did not prevail in converting the target oriented crowd to see the full merits of this manner of discovery, despite logically compelling evidence. Then budgets got cut drastically, and the effort vanished. Of course, a few years later, the idea is put forth again as a solution to the failing pipeline, by new management that has no idea of the prior effort. Entrenched paradigms, tough budgets and rotating management with little historical perspective across the industry or within one company make changes very difficult.

I like your comment about pleasant fiction. It is almost universal in the telling of our successes, and serves to feed not only the money folks, our own desires as scientists to have logical story arcs. This manner of arranging our thoughts is one driver for holding onto target-based drug discovery so tightly as it lends itself to providing story details that give a false sense of precision to our decision making.

Permalink to Comment

26. RandDChemist on July 21, 2011 10:34 AM writes...

There's your problem!

http://blogs.forbes.com/stevedenning/2011/07/14/memo-to-merck-rethink-big-pharma/

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