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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

« The Layoff Project | Main | Novartis Announces Cutbacks »

October 25, 2011

NCPharma: Changing the Drug Industry How, Exactly?

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Posted by Derek

Today brings some pharma business news that makes no sense to me - see what you think. Via FierceBiotech, we have this report from Sky News in the UK. It's all about a new venture from Christopher Evans, which is said to be ready to "change the business models" of the big drug companies.

Howzat? Here, apparently is how:

Evans has lined up a heavyweight group of industry executives to join NCPharma Inc, which plans to raise billions of pounds to finance the acquisition of portfolios of medicines that are in development. They would then be sold back to the big pharmaceutical companies which founded them once they are ready to be taken to market. . .

. . .The company is initially aiming to raise $750m to finance the development of 32 clinical compounds licensed from Merck, according to insiders. As deals are done with other pharma companies, scores more products will be added to NCPharma’s development portfolio.

Conceivably that could mean that NCPharma is developing as many as 150 drug compounds within a few years if it persuades a handful of companies to partner with it.

Well, no, actually, that is not conceivable. 750 million is nowhere near enough to seriously pursue 32 compounds across several different therapeutic areas in the clinic, for one thing. And how, exactly, does Merck come to be sitting on 32 viable clinical candidates that they haven't quite gotten around to developing? A cynical mind might imagine that the company is cleaning out its desk drawers and wishing NCPharma good luck with its dusty collection of also-rans. Something does not add up here.

And how does this new company plan to succeed with the castoffs from the rest of the industry? Well you should ask:

The company believes it will be more effective than the integrated drugs companies at developing late-stage candidates because it will be “completely focused on clinical development of new pharmaceuticals and will not be affected by major overhead nor distracted by large corporate infrastructure, early research, large scale manufacture nor marketing activities. It will license-in only the best quality, premier drug portfolios from big pharma and biotech companies to develop in its unique, low-risk model.”

That is a string of grammatically correct English words, indeed it is, but it does not convey sense. Big pharma and biotech companies will not outlicense their best quality stuff - why should they? NCPharma will face the same costs and the same success rates as anyone else in the clinic - how can they not? And it's not like there aren't other companies out there that will provide outsourced clinical trial services for you; this is not some new business model that's just been thought of.

No, the only way I can make this add up is to note that there's a lot of talk about Middle East/Gulf States money in this venture. There's not much pharma expertise in that part of the world, and a cynical observer might see this whole thing as an arbitrage play. One group has a lot of money, but no drug industry. Meanwhile, the pharma industry has a lot of failed or sidetracked drug candidates, and no desire to spend more cash on them. And a third group, well, they exist to bring those two together. Am I missing anything?

Comments (36) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. dearieme on October 25, 2011 8:31 AM writes...

In which countries do you suppose they would hold their drug trials?

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2. Industry Guy on October 25, 2011 8:37 AM writes...

I'd be interested to see the list of "heavyweight industrial executives" lined up for this cash grab from their unsuspecting financiers....

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3. Calvin on October 25, 2011 8:48 AM writes...

I saw this too and sniggered. I particularly loved how early discovery was "a distraction". That said I think we all know there are plenty of quality compounds that have been "parked" at preclinical and Phase 1 due to "strategic reasons". Internal politics of big companies guarantees that there are quite a few decent compounds sitting there. Whether Chris Evans can figure out which ones they are is another matter. A few companies have tried to "foster" compounds but given that the people who discovered them tend to be the people who get let go it's hard for them to find people to answer due diligence questions. It's also wotrh pointing out that is also another one of Tony Blair's money making wheezes. He's in there introducing people from the middle east and taking his cut. As well as topping up his tan. For those of you who have never met the man he's fond of saying stuff like "I was never very good at science". Perfect for this I'd say. Watch this whole thing quietly disappear in 18 months

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4. gyges on October 25, 2011 9:01 AM writes...

Has the smell of a Lichtenstein property deal.

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5. anon the II on October 25, 2011 9:09 AM writes...

The partial answer for Industry Guy is here:

http://pharmagossip.blogspot.com/2011/10/sir-chris-evans-plots-ncpharma-launch.html

That would be the same guy who sent my job to China eight years ago. In fact, I think those were almost the exact words used by the site head as he made the announcement. "We're sending your jobs to China".

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6. David Formerly Known as a Chemist on October 25, 2011 9:12 AM writes...

My favorite line is "unique, low-risk model". Do they have a fancy new whiz-bang clinical development process they're keeping close to the chest?

Nope, you hit it on the head Derek, they've come up with some clever marketing hype to suck money out of people. They may indeed find some nice high-quality candidates sitting on the shelves of big pharma, what with all the recent mega-mergers, but it's a bit over the top to claim this is changing the pharma business model.

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7. David Formerly Known as a Chemist on October 25, 2011 9:16 AM writes...

My favorite line is "unique, low-risk model". Do they have a fancy new whiz-bang clinical development process they're keeping close to the chest?

Nope, you hit it on the head Derek, they've come up with some clever marketing hype to suck money out of people. They may indeed find some nice high-quality candidates sitting on the shelves of big pharma, what with all the recent mega-mergers, but it's a bit over the top to claim this is changing the pharma business model.

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8. HelicalZz on October 25, 2011 9:18 AM writes...

It will license-in only the best quality, premier drug portfolios from big pharma..

If you are buying a 'portfolio' it will not be best quality or premier.

. . .The company is initially aiming to raise $750m to finance the development of 32 clinical compounds licensed from Merck, ...

So I read 'licensed' as 'not paid for', so Merck still owns rights after this 'development', which amounts to ~ $20-25M per compound. And I assume 'clinical' to mean compounds with a filed IND i.e. not still 'projects' yet to be manufactured at a clinical scale or with toxicology data. Perhaps they could indeed to a proof of concept and confirming (2a and 2b) trial on these. But without outright ownership of the compounds, they may not get back their $750K (devil in the details of the licensing).

Worth the effort anyway. It may even be worth it to Merck to give them the bulk of the $750M -- oh wait, that is called 'just doing it themselves'.

Zz

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9. luysii on October 25, 2011 9:41 AM writes...

Clearly Evans majored in Semiotics at Brown. For details see https://luysii.wordpress.com/2011/10/24/the-higher-drivel/

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10. johnnyboy on October 25, 2011 9:49 AM writes...

Hey if Saudi sheiks have some loose money to throw around that can create extra pharma jobs, that's not too bad a deal, I guess.
I mean, it's doomed from the get-go, but who in present company can say they've never spent months or years working on doomed projects ?

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11. RD on October 25, 2011 10:02 AM writes...

I'm skeptical too. OTOH, drugs is drugs. If the Saudis want to throw me some design work that I can do in the privacy of my own home, I'm all for it.

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12. Hap on October 25, 2011 10:05 AM writes...

But they weren't doomed from the start, or at least people didn't know they were doomed, right? Or am I being naive?

More wasted money is not going to improve the desire of rational people to fund pharma, and if funding pharma requires either dumb/naive people with lots of money (a group for whom there is fierce competition), sharks (who only want all of your equity in return for funding), or the dishonest, there won't be a pharma industry here for long.

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13. MTK on October 25, 2011 10:20 AM writes...

Investor-speak aside, I'm going to put this out there.

What is the value of a compound that has been "parked" at preclinical or Phase I as Calvin put it and what is it's value after successful Phase I or Phase II? Is that increased value higher than the cost of the clinical trial and associated other activities?

Guess what I'm saying is that this thing may not be as nutty as it sounds, if you can keep a "clinical focus".

The major thing I'd worry about is with all the parking, licensing in and licensing back out, and all the other things you'll put on hold while being "clinically focused" that by the time a company could actually get it marketed most the patent life will be gone reducing the value substantially.

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14. johnnyboy on October 25, 2011 10:26 AM writes...

I've worked on projects I knew were doomed. Hell, most of what I'm working on now will never see the light of day. When you're a mid-level grunt in a huge structure, you're obviously not making the go/no-go decisions. Pointing out problems you think are painfully obvious will only brand you as a -pick your favorite corporatespeak bogeyword here-. The best you can do is plod along and hope that you're wrong, or that it won't take too long before the powers that be realize the project is a waste of time.
And anyway, who really knows what will happen in the future ? We're all happy doing our armchair-quarterbacking down here in the ole comments section, but who among us can really be sure that NCPharma won't be successful in some way ?

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15. CMCguy on October 25, 2011 10:52 AM writes...

I actually hold a believe that there could be a wealth of potentially viable drugs sitting on Big Pharma's IP/Discovery/early Clinic portfolios (32 as real choices seems extreme I would say). Often even if science is good, biological assay/models promising and preclin/clinical data acceptable projects have not progressed due to insufficient market projections, company shifts in therapeutic focus and redirection of resources to higher priorities/layoff. Some of these are associated with Mergers and Blockbuster syndrome that dominated the past few decades so again would surmise there may be viable drugs that never got advanced due to circumstances at a particular company.

I agree 750m lbs won't get too many compounds all the way to drugs however could advance a few select one if their "unique low risk" model can separate out the chafe and they can maintain development/clinical focus. Discovery/medchem is a "distraction" to much of development IMO, as too is manufacturing/marketing when it comes down to approach (heavy QA/Reg) required, however if have no or limited interactions between those various pre- and post- functions during development creates greater inefficiency that in the long term increases costs and likely leads to poorer decisions at key points.

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16. RB Woodweird on October 25, 2011 10:55 AM writes...

Well it's about time someone started working smarter instead of harder.

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17. Biotechtranslated on October 25, 2011 11:36 AM writes...

The article seems a little too "hyped" for my tastes but I do agree with CMCguy that there are valuable candidates either on-hold or being outsourced.

Heck! Look at Cialis. GSK developed tadalafil with ICOS, but then let ICOS keep it since it wasn't in their "core market". Lilly then stepped in and took over development. From what I've heard, GSK was desperate to co-market Levitra with Bayer because the loss of Cialis was so embarrassing. So sometimes good compounds do slip through the cracks.

However, the idea that you'll be able to get "32 high-quality" candidates through out-licensing is rather absurd.

Mike

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18. Hap on October 25, 2011 11:53 AM writes...

I can see that there would be valuable potential drugs that someone misses and that companies sometimes do projects for bad reasons (for example, "the CEO just dropped $700M on this class of compounds and so they can't suck, y'hear?"). I would have figured, though, that if there were a reliable method to determine which projects were both likely to be successful and likely to make enough money to be worth the investment, pharma wouldn't be in this spot.

It might make sense if they have a process that is better than what other drug companies have for separating useless from not useless, and good enough that the hits pay off everything else. With no R+D and no investment in such, they might be a good test of the "insource your way to greatness" and the "package each candidate as its own investment" models. That seems a lot to ask, though, and financial hype doesn't make me think more positively of their chances for having such ideas.

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19. A Nonny Mouse on October 25, 2011 11:55 AM writes...

Seem to remember the Sir Chris refused to put in $12m for Aliskerin...............

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20. A Nonny Mouse on October 25, 2011 11:57 AM writes...

Seem to remember the Sir Chris refused to put in $12m for Aliskerin...............

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21. pete on October 25, 2011 12:06 PM writes...

"hey Emptor, put down that caveat and bring me some doo diligence!"

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22. John on October 25, 2011 1:33 PM writes...

I know of two Big Pharma compounds that never made it past Phase II despite weak competition and demonstrated safety & efficacy for some populations. Someone is eventually going to take that money off the table.

The blockbuster philosophy is alive and well, so if NCPharma is focusing on sub-$200m drugs they could do quite well.

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23. bbooooooya on October 25, 2011 1:51 PM writes...

"they've come up with some clever marketing hype to suck money out of people"

Yes, and no doubt a couple of investment banks who'll help them with the appropriately purchased BUY (or STRONG BUY) ratings after (or before) public offerings.

Per Adam Feuerstein tweet this AM: http://www.youtube.com/watch?v=4-jsqZQ4OOY

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24. qetzal on October 25, 2011 3:04 PM writes...

MTK asks:

What is the value of a compound that has been "parked" at preclinical or Phase I as Calvin put it and what is it's value after successful Phase I or Phase II? Is that increased value higher than the cost of the clinical trial and associated other activities?

Yes because you don't know in advance if the trial will succeed. Simplistically, the pre-trial value is the value it will have IF it succeeds times the chance of success (which of course is always less than 100%).

So sure, the ones that have successful trials will generally go up in value more than the trial costs. The problem is that the drugs that don't have successful trials go down in value. Your overall value doesn't increase unless the increased value from the successes outweighs the losses from the failures and the costs to do the trials.

Essentially, these guys claim they'll routinely be better at picking winners than the originators were. Not impossible, but I wouldn't bet the farm on it.

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25. bbooooooya on October 25, 2011 3:20 PM writes...

"In presentations to potential investors, NCPharma has described itself as “a unique biopharmaceutical company formed from over USD $1.0 billion of high quality research resulting in a portfolio of potential medicines targeted to cancer, diabetes, cardiovascular ailments and other diseases”."

That's just fantastic! Who wouldn't want to buy " over USD $1.0 billion of high quality research" for only $750 million? It's like there's money just sitting there on the ground, folks.

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26. Jumbo on October 25, 2011 3:58 PM writes...

Boy, don't you get it? The accountants running pharma now will be happy to sell a Ph2 program (with only 35% chance of launching) for $50-75M (or more if they can get it). They also get to take the development costs off the books (around $100-200M for a Ph2). Instantly increase EPS by the net cash add of $150-300M. Plus, turning over to Rob Armstrong, well known and successful drug developer. What could go wrong?

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27. barry on October 25, 2011 10:17 PM writes...

as John #22 points out, as Big Pharma has been consolidated into Bigger Pharma, they've been unwilling to develop anything that won't be a blockbuster. The exception is Gleevec, that became a billion dollar property only after it was launched as an orphan.
Sure, this reeks of hype. But what BiggerPharma has been doing this last decade leaves a whole lot of room for better approaches.

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28. SMILES2L on October 26, 2011 12:22 AM writes...

Re# “..well known and successful drug developer”

Ask folks at Lilly if this has any merit. The approach is no more than what the Wall Street is doing: "transaction makes bigger money”, not invention/production/manufacture, just transaction. Looks like big pharma, inside or out, have already forgotten that chemistry, like German used to say, is more "art" than "science", i.e. it is personal thing, so does the drug R&D. All these in-licensed drug candidates without attached original inventors/developers will soon get lost. Mass production of drug R&D never worked. Look no further than past years at e.g., PEF, etc.

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29. Milo Minderbinder on October 26, 2011 3:22 AM writes...

This is so good that I can't believe that I didn't think of this myself!

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30. drug_hunter on October 26, 2011 7:30 AM writes...

I'm actually more bullish on this idea than most of you. Yes, the article Derek quoted from is hyped a lot. But let's consider what Derek wrote:

DEREK: "Big pharma and biotech companies will not outlicense their best quality stuff - why should they?"

Answer: Maybe not their BEST molecules, but often in fact GOOD molecules get parked for BAD reasons. Maybe the project's champion left. Or maybe there was just one bit of tox data that someone over-reacted to. Or there was a decision to move out of a therapeutic area. Or the marketing guys said "this can't make enough money to be worth it." These sorts of things happen all the time.

DEREK: "NCPharma will face the same costs and the same success rates as anyone else in the clinic - how can they not?"

Answer: It is amazing what a limited budget and single-minded focus can do. Not that there is any magic here; but look at how bloated most pharma clinical and regulatory groups have become. You can't tell me that there is NO opportunity for savings, efficiency, fresh thinking. Not magic, but I bet you could routinely see a 2X improvement.

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31. weirdo on October 26, 2011 11:40 AM writes...

I'm definitely with the minority on this one. I'll go one step farther than "drug_hunter": I think that, in some companies, the BEST drug candidates are not moving forward. Because it isn't "core". Or the marketing guys don't like it. Or because it was the previous VP's baby. Plenty of reasons.

This is a great idea, in theory. In practice, not clear. But one of the primary tenets of many of the posters on this blog is that management of Big Pharma are, in general, evil/dumb/short-sighted. So how, pray tell, can they not be easy marks?

I wish these guys well. It may be the future business model of the industry.

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32. Hap on October 26, 2011 1:22 PM writes...

Is there a reasonable way to determine what the promising candidates eliminated for reasons other than economics and science are? People inside the companies might know some things about them, but they may not be able to reveal that information. The science isn't necessarily well-determined either, and companies may have made bad choices because of perceived risk or because of bad information. Figuring out candidates that fit those categories seems to be in the "highly nontrivial" category if they actually intend to do it (if it's not just a snatch-and-grab investment plan). Spinning off candidates for funding might make sense, although I assume there are reasons other than stupidity or intransigence that it hasn't been.

Hype tends to invite mistrust. Without the hype, this seems like a hard (but potentially rewarding) way to find drugs.

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33. Jumbo on October 26, 2011 2:06 PM writes...

It should be noted that Derek and the other skeptics are not alone. At Fierce Biotech news (http://www.fiercebiotech.com/story/sir-chris-and-finns-take-opposite-views-merlins-real-value/2011-10-26) they point out the the Finnish government investment fund just wrote off most of their investment in Evan's Merlin Biosciences Fund, meaning the Finns have decided that the investments Evan's is proposing have turned out to be all but worthless.

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34. old timer on October 26, 2011 7:56 PM writes...

Seems like a scheme to provide jobs or new opportunities for out-of-work or retired "strategic thinkers" (euphemism "upper management") from big Pharma. and/or academia (eg, those who have never actually discovered or developed an NCE into a drug used for any type of medical management). Great sounding goals & obejctives of "doing it differently", which is then passed onto others to execute, implement, and ultimately to fail.

BUT, it was such a great concept....why couldn't it be done?

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35. Nick K on October 27, 2011 8:35 AM writes...

If Tony Blair is indeed involved, as Calvin at #3 asserts, I would cordially advise any potential investors to stay as far away as possible from this venture.

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36. MDACC Student on October 28, 2011 12:57 AM writes...

What wasn't addressed is, what are you going to show a potential buyer (ncpharma) before selling? If I'm looking at everyone's pipeline AND discovery in detail, I can get a really good picture of a big pharm corp in almost real time. If nothing else, I could out maneuver them with my large cash reserves and limited accountability (no shareholders).

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