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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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January 12, 2012

Welcome To the Jungle! Here's Your Panther.

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Posted by Derek

English has no word of its own for schadenfreude, so we've had to appropriate the German one, and we're in the process of making it our own - just as we did with "kindergarten", not to mention "ketchup" and "pyjamas", among fifty zillion more. That's because the emotion is not peculiar to German culture, oh no. We can feel shameful joy at others' discomfort with the best of them - like, for example, when people start to discover from experience just how hard drug discovery really is.

John LaMattina has an example over at Drug Truths. Noting the end of a research partnership between Eli Lilly and the Indian company Zydus Cadila, he picked up on this language:

“Developing a new drug from scratch is getting more expensive due to increased regulatory scrutiny and high costs of clinical trials. Lowering costs through a partnership with an Indian drug firm was one way of speeding up the process, but the success rate has not been very high.”

And that, as he correctly notes, is no slam on the Indian companies involved, just as it won't be one on the Chinese companies when they run into the same less-than-expected returns. No, the success rate has not been very high anywhere. Going to India and China might cut your costs a bit (although that window is slowly closing as we watch), but for early-stage research, the costs are not the important factor.

Everything we do in preclinical is a roundoff error compared to a big Phase III trial, as far as direct costs go. What we early-stage types specialize in, God help us, are opportunity costs, and those don't get reported on the quarterly earnings statements. There's no GAAP way to handle the cost of going for the wrong series of lead compounds on the way to the clinic, starting a program on the wrong target entirely, or not starting one instead on something that would have actually panned out. These are the big decisions in early stage research, and they're all judgment calls based on knowledge that is always incomplete. You will not find the answers to the questions just by going to Shanghai or Bangalore. The absolute best you can hope for is to spend a bit less money while searching for them, and thus shave some dollars off what is the smallest part of your R&D budget to start with. Sound like a good deal?

Relative to the other deals on offer, it might just be worthwhile. Such is the state of things, and such are the savings that people are willing to reach for. But when you're in the part of drug discovery that depends on feeling your way into unknown territory - the crucial part - you shouldn't expect any bargains.

Comments (18) + TrackBacks (0) | Category: Business and Markets | Drug Development


COMMENTS

1. anchor on January 12, 2012 9:35 AM writes...

Derek: For pre-clinical efforts, the operative words such as alacrity and astuteness goes missing in both China and India! Add to these ingredients the QC as well. I have heard stories such as re-purifying the material from these countries and such. Those who had spend countless hours of doing pharmaceutical research here in the US knew that the decision by the upper management will come back to haunt them. And, now we see the early indication of it from both India and China! What more proof the big pharmaceutical companies want that their policy of outsourcing the early phase drug research is not the same as manufacturing?

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2. John Wayne on January 12, 2012 9:54 AM writes...

1. To open up a broader topic, why do pharma companies focus on 'optimizing' medicinal chemistry so much? Basic research is a small line item in the budget of every company that does clinical trials, marketing, etc., and chemistry is one of the smallest costs of drug hunting. Do you have any idea how much a box of 384-well plates or tips for a robot costs? (Go ahead and look, then buy yourself that glassware you've been loath to replace because it costs a thousand bucks)

2. It does make sense for big companies to have a presence in up-and-coming countries like China. It will give them access to new markets providing an 'in' with local governments and regulatory agencies. If I was a CEO, I'd be doing the minimum presence I figured I could get away with (doing some production, library synthesis, intermediate scale up, etc. offshore), and not disrupt the rest of my basic research investments.

3. Derek, really good title for this post (here's your panther; hah!)

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3. Anon on January 12, 2012 10:36 AM writes...

By diverting funds from basic research to areas like marketing and political correctness-related tyranny, and laying off (and pissing off) discovery scientists, it's clear the businesspeople in charge of pharma do not understand the concept of "opportunity costs." Or should I say "the costs of lost opportunity."

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4. John Wayne on January 12, 2012 11:06 AM writes...

I neglected to finish by thought in point 1 of the above post:

"To open up a broader topic, why do pharma companies focus on 'optimizing' medicinal chemistry so much? Basic research is a small line item in the budget of every company that does clinical trials, marketing, etc., and chemistry is one of the smallest costs of drug hunting."

Having worked for a couple relaly big companies, I would expect to be able to find savings about equal to the entire basic research budget elsewhere in the company. Furthermore, these savings will likely be in areas (business, regulatory and sales) wherein layoffs and spending a few years at a given job are a part of the culture. Why on earth are they coming after basic research? It doesn't make sense if you think about it from the persepective of business or math, so what gives?

Caveat: I'm not saying we shouldn't be pressured to do a better job; we should, but collecting unemployment probably isn't going to spur the next paradign shift of medicinal chemistry.

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5. CMCguy on January 12, 2012 11:38 AM writes...

#6 JW states "It doesn't make sense if you think about it from the persepective of business or math, so what gives?" Having talked/argued with a few MBA types from their view they offer business and math actually works the other way as only concern is Today without any considerations for Tomorrow. R&D is an Big Ticket Expense with costing increases seemingly faster that everything else. Therefore a cut of staff and facility closure has an immediate impact to the visible company Bottom Line, which apparently is all Shareholders care about.

I do not think MBAs and Investors are stupid but often can be short-sighted since immediate ROIs does not fit for Pharma endeavors. The Biotech evolution have provided alternate sourcing for internal R&D so now game is to let others pay for the highest risk then can acquire later once more viable and not sure that is a healthy model either. With the lack of R&D Productivity, Risk and Unpredictability plus the lack of Executives from Science and Technical side few advocates to hold back the tides of quick fixes by reduction and elimi9nation of R&D over the customary long term requirement to translate the Science to drugs.

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6. CMCguy on January 12, 2012 11:39 AM writes...

#6 JW states "It doesn't make sense if you think about it from the persepective of business or math, so what gives?" Having talked/argued with a few MBA types from their view they offer business and math actually works the other way as only concern is Today without any considerations for Tomorrow. R&D is an Big Ticket Expense with costing increases seemingly faster that everything else. Therefore a cut of staff and facility closure has an immediate impact to the visible company Bottom Line, which apparently is all Shareholders care about.

I do not think MBAs and Investors are stupid but often can be short-sighted since immediate ROIs does not fit for Pharma endeavors. The Biotech evolution have provided alternate sourcing for internal R&D so now game is to let others pay for the highest risk then can acquire later once more viable and not sure that is a healthy model either. With the lack of R&D Productivity, Risk and Unpredictability plus the lack of Executives from Science and Technical side few advocates to hold back the tides of quick fixes by reduction and elimi9nation of R&D over the customary long term requirement to translate the Science to drugs.

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7. William B Swift on January 12, 2012 12:23 PM writes...

Off-chemistry-topic, but this is an entertaining quote about English:

"English is like that, I'm afraid," Jim said, "It doesn't so much borrow words and idioms from other languages and cultures as chase them down dark alleys, bludgeon them into submission, and go through their pockets."

From a Star Trek novel, Diane Duane's, The Empty Chair. (The Jim talking is Kirk.)

Permalink to Comment

8. William B Swift on January 12, 2012 12:25 PM writes...

Off-chemistry-topic, but this is an entertaining quote about English:

"English is like that, I'm afraid," Jim said, "It doesn't so much borrow words and idioms from other languages and cultures as chase them down dark alleys, bludgeon them into submission, and go through their pockets."

From a Star Trek novel, Diane Duane's, The Empty Chair. (The Jim talking is Kirk.)

Permalink to Comment

9. William B Swift on January 12, 2012 12:27 PM writes...

Off-chemistry-topic, but this is an entertaining quote about English:

"English is like that, I'm afraid," Jim said, "It doesn't so much borrow words and idioms from other languages and cultures as chase them down dark alleys, bludgeon them into submission, and go through their pockets."

From a Star Trek novel, Diane Duane's, The Empty Chair. (The Jim talking is Kirk.)

Permalink to Comment

10. BioBritSD on January 12, 2012 12:30 PM writes...

Being British (English even) myself I can confirm we have a habit of going off and stealing whatever we need but don't have; be that words, ships, athletes, monarchies, islands, countries, whatever.

Permalink to Comment

11. Hap on January 12, 2012 12:52 PM writes...

If an activity 1) doesn't cost that much of your resources, 2) is the main source for your products (in some cases, is mainly a bargaining counterweight to get other people's products more cheaply), and 3) has the power to incur substantial costs in opportunity and in real money from trials in time if done poorly, then why is it a target for revenue enhancement at all?

You'd want to develop ways to minimize mistakes in early R+D (both in missing good compounds and in putting forward bad one) and to evaluate its effectiveness, and you'd want to move or lay off the people who aren't that good at drug discovery and try to find the people who are, but wholesale cuts and outsourcing don't seem to fit into a reasonable scheme of pharma management, only one which involves self-mutilation or quick-and-dirty looting (by management or stockholders).

What exactly happened to the advice "Don't outsource your core business"? You're supposed to put less important tasks in the hands of people/companies who do them well and leave the tasks critical to your company in the hands of its people. Or is the only critical business for drug companies collecting money, and if so, why do you need expensive managers or investors for that? They could offer to merge with banks or be a domestic training ground for the Mafiya if cash is what they want.

Permalink to Comment

12. Sam P on January 12, 2012 12:58 PM writes...

William B. Swift: That's a paraphrase of something James Nicoll wrote on Usenet more than two decades ago (http://en.wikipedia.org/wiki/James_Nicoll#.22The_Purity_of_the_English_Language.22):


The problem with defending the purity of the English language is that English is about as pure as a cribhouse whore. We don't just borrow words; on occasion, English has pursued other languages down alleyways to beat them unconscious and rifle their pockets for new vocabulary

Permalink to Comment

13. MTK on January 12, 2012 2:25 PM writes...

Hap,

Your assumption is that discovering drugs is Big Pharma's core business.

Using a core business/competency model, one must first determine what it is you do better than others. For Big Pharma, that means developing and marketing drugs, not necessarily discovering them. Big Pharma is conducting and financing the big clinical trials needed to get FDA approval. Not to mention all the other studies, ie formulation, toxicity, etc. and tying it all together in a package for the FDA. They're also good at then marketing that drug once it's approved.

Discovering those drugs, however? Not so good. Or at least not demonstrably better than biotech if one measures that by # of INDs vs market cap or spending on research. So in that respect, the decision to outsource discovery functions has some merit.

As for the topic of Derek's post, I feel neither freude nor schade at the whole thing. No matter how expensive or cheap an outfit is, external or internal, it all comes down to productivity and return on investment. I find this neither a vindication of internal research nor a repudiation of offshoring. All it means is that they weren't cutting it by whatever measures Lilly used.

Permalink to Comment

14. Hap on January 12, 2012 3:43 PM writes...

I thought that when they were successful, they did discover drugs. Lately, they've been focusing on development and sales instead, and they've not been doing so well. Calling development and sales core competencies might be a stretch - they aren't competent enough at them.

In addition, while drug development is a core competency for a drug company, sales would not appear so - it is easily done by other people (else they wouldn't be running sales out the door or replacing them with call centers). Overselling drugs could have bad effects, but they've been rather willing to do that to themselves, so either the money to be made overselling is worth the risk (why you keep it in house) or, again, they're not good enough. Finally, overselling adds costs to drug development, by raising the safety/effectiveness ratio required by regulatory authorities.

Last, much of what you need to know about a drug to decide to develop it is probably determined in its discovery. If you can't determine the features of a compound that might make it good or bad for further development, you're going to have a harder time deciding what candidates to buy, with the compounding factor that the information that went into finding and selecting that compound are likely to be partly hidden from you.
Given that, it seems that discovery is precisely the job that drug companies (at least if they want to make money) need to do, and outsourcing it would seem to be...not a good idea.

Permalink to Comment

15. pipetodevnull on January 12, 2012 8:00 PM writes...

Language is sometimes more interesting than science--think of how lucky Cavalli-Sforza was to do the work he did!
English is the largest language by word count (double of many other European languages) partly from stealing, but it also helped to have the home country invaded & run by Romans, Normans, etc.

Permalink to Comment

16. lynn on January 14, 2012 11:06 PM writes...

#14 - I agree, Hap...In my simplistic view, Big Pharma did do discovery well. And I think the integration of biologists, chemists, pharmacologists, animal work, etc that Big Pharma affords is necessary for successful discovery. But discovery at Pharma went downhill when time became the biggest factor. Not efficiency - but time. Pick your best compound by September. Timed objectives for ongoing HR evaluations, the MBA brainchild, killed discovery in Big Pharma - starting in the 90s. Biotechs are obviously under time/financial pressure - and I see them outsourcing pieces of discovery to CROs, minimizing the number of tests to do - to their detriment. In Big Pharma, where, as has been said upthread, R is very cheap compared to D, spending time on doing the right things early in order to identify real clinical candidates [and not fooling yourself] was possible. I see less and less of this throughout the industry.

Permalink to Comment

17. anon on January 16, 2012 2:43 PM writes...

drug discovery of the future will lose terms like SAR, potency, selective inhibitor.
The new drug discovery terms are
fiscal prudency, outsourcing, megadeal.
How many ex- big pharma people have seen the change over the years where business analysts tell us how badly we do our jobs, they tell us that the potent selective agonist for Alzheimers will not be a billion dollar drug because their market analysis tells them so> Much like GSK BA's said that there would never be a major market for statins when they turned down lipitor.
Scientists maek drugs and understand the industry better than anyone and so should be running companies not leaving it history graduates and lawyers.

Permalink to Comment

18. Dan Spinato on January 29, 2012 1:02 AM writes...

Economy-wise, it is indeed a good investment for big companies to build connections with such developing countries as China and India. Quality, however, should never be compromised and it would be sensible to keep QC onshore.

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