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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

« A Quick Clean-Up | Main | Yeah, That Must Be It »

March 31, 2014

Where The Hot Drugs Come From: Somewhere Else

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Posted by Derek

Over at LifeSciVC, there's a useful look at how many drugs are coming into the larger companies via outside deals. As you might have guessed, the answer is "a lot". Looking at a Goldman Sachs list of "ten drugs that could transform the industry", Bruce Booth says:

By my quick review, it appears as though ~75% of these drugs originated at firms different from the company that owns them today (or owns most of the asset today) – either via in-licensing deal or via corporate acquisitions. Savvy business and corporate development strategies drove the bulk of the list. . .I suspect that in a review of the entire late stage industry pipeline, the imbalanced ratio of external:internal sourcing would largely be intact.

He has details on the ten drugs that Goldman is listing, and on the portfolios of several of the big outfits in the industry, and I think he's right. It would be very instructive to know what the failure rate, industry-wide, of inlicensed compounds like this might be. My guess is that it's still high, but not quite as high as the average for all programs. The inlicensed compounds have had, in theory, more than one set of eyes go over them, and someone had to reach into their wallet after seeing the data, so you'd think that they have to be in a little bit better shape. But a majority still surely fail, given that the industry's rate overall is close to 90% clinical failure (the math doesn't add up if you try to assume that the inlicensed failure rate is too low!)

Also of great interest is the "transformational" aspect. We can assume, I think, that most of the inlicensed compounds came from smaller companies - that's certainly how it looks on Bruce's list. This analysis suggested that smaller companies (and university-derived work) produced more innovative drugs than internal big-company programs, and these numbers might well be telling us the same thing.

This topic came up the last time I discussed a post from Bruce, and Bernard Munos suggested in 2009 that this might be the case as well. It's too simplistic to just say Small Companies Good, Big Companies Bad, because there are some real counterexamples to both of those assertions. But overall, averaged over the industry, there might be something to it.

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


COMMENTS

1. Morten on March 31, 2014 9:51 AM writes...

Small companies *may* have the same failure rate as big ones. But we can't tell from what survives to get inlicensed - that's just a snapshot from later in the process. Their early mistakes may get them buried instantly so we need someone to take a look at the whole process before we can judge.

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2. CognitiveBias on March 31, 2014 9:55 AM writes...

Let's asume fixed odds of success for any drug discovery project, be it run big pharma or small start up. It would definitely lead to more drug launches if you lean back, let the unsucessful projects die and buy in those having survived preclinical state and "look ing promising".
What does it tell us? I think it's been discussed before that a fair comparison would compare drug launches per money spent in big pharma vs launches per money spent in small companies INCLUDING failed and ultimately died small companies!
If picking the cherries for in-licensing would not be able to enrich the sucess stories, then that would be actually worse than random. Am I missing something?
It might also be worth looking at what big pharma could have acieved if they would not have spent the money for the merger/inlicensing, but for genuine inhouse research.
That said, look at the outliers to the negative!
Anyone forgot the great Sirtuin deal? Where does that appear in the analysis?

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3. Steve on March 31, 2014 11:31 AM writes...

Small companies are highly focussed on a core technology and small group of products. They need to produce in order to survive. They're mostly led by scientists, not by MBA marketing guys who think they know how to run research. And therein lies the difference.

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4. alig on March 31, 2014 11:59 AM writes...

More interesting is the fact that more than half of the "hot" drugs are antibodies.

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5. Anon on March 31, 2014 12:07 PM writes...

I'd like to see a comparison of this, vs. big pharma venture departments.

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6. Cellbio on March 31, 2014 2:11 PM writes...

As someone who jumped from big companies to small to help "feed the beast", I hope small companies providing innovation continues to be a viable ecosystem.

That being said, from my days at bigco, I can recognize specific examples from the list where internal innovation was augmented with in-licensed assets to the same target, as it should have been. While internal teams often feel they could do as well or better, the rapid pace and singular commitment of small companies leads to clinical candidates that get further faster than internal programs. I count perhaps a third of the molecules on the list as ones that had internal programs generating leads or clinical candidates.

So, I see this as less about innovation than about making bets with a greater sense of urgency coupled with cash rich pharma that can afford to buy rather than build. Buying also keeps a potential competitor out of another company's portfolio.

Also, the internal program makes the pitch that the buyer is the "partner of choice' much easier as domain experts connect and give the seller confidence that the buyer knows how to advance the molecule.

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7. CMCguy on March 31, 2014 3:01 PM writes...

As Derek points out this is not a simple comparison since generally speaking small companies tend to be single focused in survival mode and build on innovative cultures whereas big companies get more caught up in sustaining profits/margins that can be inhibitory to innovation when can not overcome fixed risk/reward objectives. There is another couple questions to ask that include when did the compound transitions take place and if not for the deal would the drugs still be progressing? In our world of drug discovery no one really wants to pay for the early unknowns risks so unless have strong evidence of probable success is in hand collaborations or deals can be few and far between. That does seem to be the way of the current ecosystem where little company will discover and begin to exploit however to take on and finish demand resources beyond themselves. I recall older times when many pharmas engaged in mothballed internal projects because even they did not have adequate resources to pursue potential ideas of less certainty or found themselves behind competitors (and me too's less prevalent) and now that most seem to have devastated their R&D where else can the go but small houses with demonstrated promise.

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8. anon on March 31, 2014 3:20 PM writes...

Anyone know what's the % of drug discovery or biotech startups that were started by MBAs or lawyers?

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9. matt on March 31, 2014 4:45 PM writes...

Small companies good, or small companies good at finding the beginnings of a good candidate?

Perhaps what the small companies are good at is making bad bets (ie risky and likely to fail), where the big companies pick off the ones who got lucky and defied the odds. The rest become small caps for people to pump and dump. :)

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10. Anne on March 31, 2014 4:55 PM writes...

I'm writing this from deep in the bowels of academia, but does bankruptcy play a role in the ecology of small companies? I am picturing stories like "Small company X borrows heavily to research candidate Y. Candidate Y proves an expensive failure, so company X goes bankrupt, the investors eat the losses, and the employees go work somewhere else." Does this happen? Does it make small companies more willing to take risks? After all, what do the people working for company X lose?

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11. Chrispy on March 31, 2014 5:09 PM writes...

Real innovation requires venturing into areas where one might well fail, and failure may take years. This doesn't fit into a corporate culture very well. I can recall putting "fail more often" into my goals for the upcoming year back when I worked at BigPharma (meaning, really, take more risk, don't fear failure). Of course this failed to be received as an acceptable goal and I was already on my way to achieving it.

@10, Anne -- yes, small companies go bankrupt all the time. But that isn't what makes them less failure averse, it is just that in order to differentiate themselves from everything else out there they have to be innovative. Sadly, the scientists at those companies tend to be jettisoned even if the company does well and needs to, say, hire salespeople, fund clinical trials, or gets bought by BigPharma.

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12. Nigerian Prince on March 31, 2014 6:44 PM writes...

Are you in the need of somebody to be listening to your terrible jokes? Abuse the poor eardrums of your kids no more with an wonderful new inventions by sciences. We have creates a post who will to be listening to your jokes all day long. (It also is having an IQ 50 points higher than your daughter). Please be purchasing this said product soon in order to save many a cringe in the Lowe household.


Note: Post may be spontaneously combustible if it hears that pythagorean theorem/hypotenuse joke.

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13. Anonymous on March 31, 2014 6:55 PM writes...

small companies need great ideas.... to become small companies.

its the follow up to the initial good idea thats the kicker. every big pharma is always following up on an initial idea that made it great. it has nothing to do with a scientist or an mba running the company. get over yourselves phds

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14. Bryan on March 31, 2014 8:41 PM writes...

It may also be that you are seeing the many billions dollars in government supported research reflected in the small companies and university output. If big pharma spent as much on research they would likely have at least as high an output -- unless the bean counters screwed it up.

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15. Derek Lowe on March 31, 2014 9:15 PM writes...

Comment number 12 resolves to the IP address of my home router. I'm going to have to have some words with my daughter, I see!

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16. Anom the III on April 1, 2014 1:20 AM writes...

Another possibility: Internal programs get killed more often due to the risk adverse environment. After killing everything the shareholder demands a full clinical pipeline, so stuff is bought in - it has nothing to do with quality, more with end year goals and bonuses. Small companies can never ever produce half of the data/experiments an internal program has to go through (which is not necessary a bad thing, see the risk adverse part). If such an external compound went finally through the internal experiments and all the data is produced to compare it e.g. with the in-house activities often not much is left (most important: failure rates in the clinic don't improve) - but there is nothing better and more innovative than external. Everybody knows: Internal scientists have lost the edge and don't move along the bleeding edge of science anymore.

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17. tangent on April 1, 2014 2:12 AM writes...

I could not figure out what on earth kind of a joke meta-spam thing #12 was, until #15 and then I laughed.

What's the Pythagorean Theorem joke though?

(Oh wait on second thought if it's the "squaw" joke let's pass on that one.)

Permalink to Comment

18. schinderhannes on April 1, 2014 3:40 AM writes...

Please tell us more silly sience jokes!
What is the pythagorean theorem/hypotenuse one anyways?

Here are two of my favorites for your daughters ears (one only works in German so it actualy a treat for you)!

Sinus, Cosinus and E-function go to a Party.
Sinus and Cosinus are immediately on the dancefloor wobbeling around like crazy. After a while the notice E-function standing alone in the
corner. They walk over and ask: "Why don´t you intergrate yourself a bit more?" E-function says: "I already did!"

Ein Proton eine Elektron und ein Neutron wollen in die Diskothek. Der Türsteher lässt Proton und Elektron durch, aber hält das Neutron zurück mit den Worten "nur für geladene Gäste"!

Permalink to Comment

19. London Chemist on April 1, 2014 5:19 AM writes...

Minor point, but the Merck PD-1 antibody MK-3475 wasn't originally from SP/Organon--they had licensed it from somebody else (MRCT)

Permalink to Comment

20. Derek Lowe on April 1, 2014 5:58 AM writes...

Actually, turns out that #12 was my son, instead, thus the remark about a post having an IQ higher than his sister. And yes, the Pythagorean joke is the Squaw one, which I've told them about a ten-minute version of, to their lasting regret.

My son tells me that for a low, low payment he can make sure that the site doesn't fill up with his Nigerian Prince comments. I have, in turn, made a compelling counteroffer.

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21. anony-mous on April 1, 2014 6:20 AM writes...

Hmm...can you say SIRTRIS?

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22. anonymous on April 1, 2014 9:32 AM writes...

@19 Merck's anti-PD-1 mAb was derived by Organon scientists in house via normal mouse immunization and then humanized at MRCT to become MK-3475.

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23. Nili on April 1, 2014 12:32 PM writes...

In relation to the named approximate 90% failure rate in the clinical trials, the 8% success rate on new drugs was in 2003, and it has further decreased to 4% [South Texas Law Review 2013 p. 498]. It gets worse. The percentage of new approved drugs that are safer or more effective than the existing ones range from 14% - 11% [STLR 2013 p. 499]. So, 0.14 x 4% = 0.56%! And it gets worse even more. This extremely small "success rate" doesn't take into account the serious adverse drug reactions that some will experience.

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24. Anonymous on April 1, 2014 12:39 PM writes...

Yes, Sirtris was a disaster. But, at some point it has to come down as the example of a biotech that did not lead to anything.

One thing is clear, if you are looking for an innovation, don't bet on a large organization. Small pharma is not better than big, but anytime too many people have to sign off on a program/project/idea, it raises the chance that it will be killed.

Celgene is an excellent example of how to do it. 2-3 people make all the key in licensing calls. God help us if we are waiting for a large organization to drive innovation and risk-taking. Its too damn easy to sit in a boardroom and say 'no'. There is a reason that most innovation (look at other fields) happens when small groups of committed people work on something. Flip it to a large organization and its dead. Big pharma is good at late stage trials and marketing-probably all they will do in 15 years-already happening...

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25. Hap on April 1, 2014 3:27 PM writes...

The problem with Sirtris wasn't that it failed, but that so much money was spent on smoke and mirrors. If you can't sort out good bets from bad bets (and recognizing that most of them will fail, good or bad), then the ecosystem of buying what you can't build internally fails miserably; the big companies don't get drugs, and the wrong little companies (those that look and sound good but don't necessarily have good data to back up the look and sound) succeed, which depletes money needed for companies that might actually find drugs to do so.

This doesn't even count that, while at least some people like to work in small pharma (singleness of purpose, different tasks, less onerous management), it entails a lot of risk for individuals, with very little payoff (as Chrispy said above, whether your company succeeds or fails, you will probably get canned); this will likely affect the pool of people who will discover drugs in the future.

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26. Anonymous Big Pharma Researcher on April 13, 2014 6:03 PM writes...

Interesting article on the state of Pharma:

http://features.blogs.fortune.cnn.com/2014/03/13/what-ails-big-pharma/

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