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Derek Lowe The 2002 Model

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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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November 16, 2011

Virtual Pharma, Revisited

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Posted by Derek

John LaMattina takes on the perennial question of "Should a big drug company ditch R&D and just inlicense everything?". That one comes up regularly, and I've never been able to quite see how it works. (You'd also figure that since it's not exactly a new idea, that various people at said companies have run the numbers and can't see how it works, either). But as a former Pfizer honcho, LaMattina's opinion on this topic carries more weight than most.

Comments (11) + TrackBacks (0) | Category: Business and Markets | Drug Industry History


1. HelicalZz on November 16, 2011 1:41 PM writes...

R&D expense vs. capital acquisition. From an accounting perspective these are apples and oranges, but from a pharma or other R&D focused company view they are more peas in a pod. A good (aggressive) argument can be made for considering capitalization of some R&D expense (treat as capex). A similarly (defensive) one is looking at certain capex spending as an expense, particularly a pre or development-product acquisition (See Hewitt Heiserman - Its Earnings that count).

But it is also important to have a strong internal cadre of scientists to help evaluate the strength of the supporting data of compounds being considered for in-licensing.

This is likely a large key piece for why R&D will always be a necessity in big pharma, but .... fair to ask if they operate it well for that purpose?


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2. RB Woodweird on November 16, 2011 2:17 PM writes...

Isn't that the equivalent of a MLB franchise getting rid of its farm and scouting systems and just relying on buying free agents to fill its roster?

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3. Anonymouse on November 16, 2011 2:29 PM writes...

@2 - sounds a bit like the NY Yankees' strategy.

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4. startup on November 16, 2011 2:41 PM writes...

@3 - Except that Yankees' roster is chock full of homegrown talent.

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5. HelicalZz on November 16, 2011 3:07 PM writes...

I like the baseball comparison here, and the big market teams do fit the bill well, with the blend of both high price free agents and drafted talent. I would point out that teams like the Yankees and Red Sox very often get into the playoffs this way (disproportionate success to be sure).

Lets extend the analogy to trades. Big Pfarma (no typo) could easily trade for that drug on the brink of an expensive phase III trial (free agency) by providing cash and a couple of 'prospects' to the biotech operation (development specialist). Hmmmm ....


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6. Ricardo Rodriges on November 16, 2011 5:53 PM writes...

We talking about the same guy who destroyed Pfizer's R&D and moral?

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7. Innovorich on November 17, 2011 6:32 AM writes...

He doesn't really address the point there, and it is something that many industry CEO's/commentators avoid. If the majority of R&D costs are in the D, why are they going to so much effort to outsource the R?

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8. johnnyboy on November 17, 2011 9:15 AM writes...

@6: No, that would be Jeff Kindler.

I think LaMattina hits the nail on the head in his last paragraph. In order to know which compounds to in-license and which to avoid, for each compound you need a team of scientists (and specialists in manufacture, and in marketing, and in treating patients) who have direct experience with the type of compound chemistry, the biological behavior of the target, understanding of toxicology, knowledge of the therapeutic area, etc... This kind of experience can only be acquired by working on their own similar programs, so that they know what the real issues are; so you need to have active internal research programs, in all the areas which you want to license. Otherwise you'll have to use a bunch of consultants for hire, who have pretty websites and can talk the talk, but who in reality will always be out of their depth without practical experience.

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9. entropyGain on November 17, 2011 10:48 AM writes...

hahahah! Love it.
Internal scientists real contribution is to support licensing...
drug companies shouldn't create drugs...

"He who can, does. He who cannot, licenses."

one of these days he who can won't need he who cannot.

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10. Hap on November 17, 2011 10:49 AM writes...

Why are internally developed programs treated differently than externally acquired ones? They generate the same types of assets in theory, though (perhaps - internal politics probably interferes) internal assets should be worth somewhat more because more should be known by the company about them. The disparate treatment for the assets seems to lead to the devaluing of research - you figure that someone else can do it more cheaply, and that the costs are better hidden, but with the (hidden) caveat that you might not be getting assets with the same levels of uncertainty.

7: Particularly when better R is a cheaper way to limit the costs of trials (by having a better idea of who the potential beneficiaries of a drug are, and what problems and side effects might arise, though we don't know enough about those beforehand). Perhaps a combination of the financial treatment of R and the potential of better knowledge for limiting the market (and thus the financial benefits) of a drug causes the emphasis on reducing R. On the other hand, R hasn't been so productive lately, and it is a constant cost, while trials only cost money when you might have something to sell.

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11. Pharmer in the Dell on November 17, 2011 6:03 PM writes...

If pharma R&D is like MLB's farm system, then where might analytics like those in Moneyball fit in? It seems like PCCs or even research staff could be assessed and quantified to maximize their POS. Otherwise you're just betting without knowing the odds.

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