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: firstname.lastname@example.org
The tension between drug companies and regulatory agencies is constant. It would be there even if no one cared a bit what drugs cost, because you can talk about safety and efficacy without ever mentioning a price. But since we do care about drug prices, and are coming to care more about them with every passing month, the tension is higher than ever. The questions aren't just "Is this drug safe?" or "Is this drug efficacious", or even "Is this drug relatively safe compared to its level of efficacy". You get into the really hard ones like "Is this drug's level of efficacy worth its price?"
Great Britain's NICE is at the forefront of these arguments, and some of the largest drug companies have recently been arguing back. In a public letter, they're calling on the Prime Minister to do something about the way the NICE approves new compounds:
We all accept there are increasing pressures on NHS spending, but there is a prevailing myth that medicines are expensive. In fact, spend on medicines was less than 10pc of total NHS expenditure in 2011. Britain pays less for its medicines than almost anywhere else in Europe. Over £7bn has already been saved from the medicines bill. No other part of the NHS is saving the taxpayer money on such a scale.
Medicines should not just be seen as a cost. They are an investment and an essential part of improving patient outcomes. Yet, fewer than one in three medicines have been recommended by the National Institute for Health and Care Excellence (NICE) for use in the NHS in line with their licence since 2005. And the proportion of medicines refused by NICE is only increasing.
The last straw seems to have been a recently-announced "voluntary" agreement with drug companies to freeze the costs of supplying drugs to the National Health Service. That was voluntary, in the sense of there would be mandatory price cuts if they didn't comply. That kind of voluntary. In turn, the drug companies' letter also has a part that might be titled "And If You Don't. . ." It goes like this:
. . .At a time when there is fierce global competition to attract investment in life sciences, the commercial environment is critical. The Government must work harder to get this right. It’s important that the impact that our medicines have on saving and improving people’s lives, and the innovation, economic stimulus and jobs that they deliver, is valued.
The key part is the "fierce global competition" phrase. I'd translate that as "You know, we don't have to employ people in this country. There are other places to go." Mind you, at least as far as medicinal chemistry is concerned, most companies in the UK seem to have already made good on that threat, even before the threat was made. But there are plenty of other jobs besides med-chem. We'll see how the UK government reacts.
Getting the week off to a bad start is this news from Eisai. They're stopping small-molecule work at their site in Andover, and (like everyone else, it seems) chopping med-chem at their UK site as well. Worldwide, it looks like a loss of 130 positions.
One way to look at a drug company's pipeline and portfolio is the "Freshness Index" - how much of its sales are coming from products approved within the past five years. Here's Bernard Munos earlier this year on this topic, where he shows that (too much) revenue lately has been coming from older products. At the time, the figures for the big companies started off with Novartis (19% "fresh" sales), GlaxoSmithKline (12%), J&J (11.8%) and Pfizer (10%).
I bring this up because there's a new look at the freshness index. This one has only products from 2010 or later, and year-to-date sales figures. Under those conditions, it's J&J in the lead (23.4% of sales), then Novartis (17.8%), and Novo Nordisk (13.6%). Now, Novo was not in Munos's list, so I can't say if there's been much of a change there or not, but I find the change in J&J's figures interesting. I don't think that's all due to new approvals - is it older stuff slipping off the list? The new list also has GSK down neat the bottom at 2.3% "fresh", which shows you how much the cutoffs matter to these assessments.
One thing both lists agree on, though, is Eli Lilly. They're at the bottom in both, showing 0.8% of their sales coming from anything approved since 2010. That can't be good, and it isn't. AstraZeneca, Pfizer, Merck, and Sanofi are all in the single digits as well. So's Roche, but their long-running Genentech-driven biotech products make up for that. AZ and Lilly don't exactly have that cushion.
I'm hearing reports of re-organization and worse at Shire's UK R&D today (Basingstoke). There had been reports in the press earlier this month, but things seem to be underway. The medicinal chemistry situation in the UK is surely the worst it's been in living memory. . .
A reader sent along a note about some of the recent layoffs we've been seeing across pharma/biotech companies. Different organizations have very different ways of handling things like stock units and options, and in a layoff one of the key variables is the vesting schedule. Remember, if you have compensation of this sort that hasn't vested, it isn't yours. It may show up in your statements (albeit under its own category), and you will have seen the announcements of it being awarded to you, but until this stuff vests that's all provisional.
I think that most people realize that part, although if you don't, it's going to come as a nasty surprise. What seems to have taken some people unaware recently, though, is that companies have different schedules for vesting the employer match contributions in 401(k) accounts. Some companies vest immediately, but those are probably not a majority. The rest follow different schedules, and if you are laid off, that unvested money is going to disappear unless the company specifically changes its mind about that.
Now that said, there's not much you can do about this, but it's worth knowing the real situation in advance so you can plan accordingly. Seeing money disappear from their retirement accounts was something of a shock to people in these recent layoffs, from what I'm told, making a bit situation just that much more painful.
The topic of "stack ranking" came up around here recently, so I wanted to pass on some news in this area. Microsoft, one of the most notorious practitioners, has apparently decided to stop. It's not clear to me just what they're replacing it with, but whatever system they're trying out could hardly be more demoralizing than what it's replacing. Drawing raises and bonuses out of a bingo cage would be preferable - at least then people wouldn't be at each other's throats.
Even if all members of a team performed well that year, the manager was required to designate a set percentage as underperformers — a practice that drew fire from employees. Many thought the system rewarded internal politicking, withholding of information and back-stabbing, rather than rewarding innovation or cooperation.
That review system has been blamed by some for causing Microsoft to fall behind other tech companies in the past decade in key areas such as mobile computing.
In an email to employees Tuesday, Lisa Brummel, Microsoft’s head of human resources, wrote that the new review process will now have “no more curve.”
“We will continue to invest in a generous rewards budget, but there will no longer be a predetermined targeted distribution,” she wrote. “Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget.”
In addition, she wrote, there will be “no more ratings. This will let us focus on what matters — having a deeper understanding of the impact we’ve made and our opportunities to grow and improve.”
It's a constant struggle, figuring out how to reward people without providing perverse incentives. And it's a problem with a lot of range, too, when you consider how it applies to businesses, schools, welfare policy, and many other areas. It's probably a safe bet that there's no general solution, but that doesn't give people an excuse to stick with something that's worse than neutral. The "two man enter, one man leave" aspect of a rank-and-yank system is definitely that. (As a side issue, it also assumes that the rating process is accurate enough to make calls like this, which is very much debatable in many organizations). Maybe Microsoft will start a trend here. . .
Ever since Iclusig (ponatinib) (note: fixed that name as an update) ran into trouble with blood-cloting side effects, Ariad has had a huge uncertain cloud blocking out its sunlight. Now that the FDA has told them to take the drug off the market completely, it was clear what was going to happen. Happen it has: the company is laying off a large part of its workforce.
It's very much in doubt whether Iclusig will ever come back. Update: in Europe, the EMA has now said that Iclusig can remain on the market "with increased caution").And if it doesn't, it's very much in doubt whether Ariad will, or how long that might take. There's a large, mostly-completed building around the corner from me covered in blue-green glass that was going to be the home of a larger, more solvent Ariad, and no one knows what's going to happen to that, either. It's a rough business.
Update: turns out the blue-green glass one was going to be Aveo, which cratered earlier this year. Who's going to occupy that, one wonders? Ariad's is the less-complete large framework going up across from the (incongruous) Mormon church. That's a pretty large building, or will be, and you wonder who will end up in there. There are so many biopharma construction sites in this town that you need a guidebook.
So Bristol-Myers Squibb did indeed re-org itself yesterday, with the loss of about 75 jobs (and the shifting around of 300 more, which will probably result in some job losses as well, since not everyone is going to be able to do that). And they announced that they're getting out of two therapeutic areas, diabetes and neuroscience.
Those would be for very different reasons. Neuro is famously difficult and specialized. There are huge opportunities there, but they're opportunities because no one's been able to do much with them, for a lot of good reasons. Some of the biggest tar pits of drug discovery are to be found there (Alzheimer's, chronic pain), and even the diseases for which we have some treatments are near-total black boxes, mechanistically (schizophrenia, epilepsy and seizures). The animal models are mysterious and often misleading, and the clinical trials for the biggest diseases in this area are well-known to be expensive and tricky to run. You've got your work cut out for you over here.
Meanwhile, the field of diabetes and metabolic disorders is better served. For type I diabetes, the main thing you can do, short of finding ever more precise ways of dosing insulin, is to figure out how to restore islet function and cure it, and that's where all the effort seems to be going. For type II diabetes, which is unfortunately a large market and getting larger all the time, there are a number of therapeutic options. And while there's probably room for still more, the field is getting undeniably a bit crowded. Add that to the very stringent cardiovascular safety requirements, and you're looking at a therapeutic that's not as attractive for new drug development as it was ten or fifteen years ago.
So I can see why a company would get out of these two areas, although it's also easy to think that it's a shame for this to happen. Neuroscience is in a particularly tough spot. The combination of uncertainly and big opportunities would tend to draw a lot of risk-taking startups to the area, but the massive clinical trials needed make it nearly impossible for a small company to get serious traction. So what we've been seeing are startups that, even more than other areas, are focused on getting to the point that a larger company will step in to pay the bills. That's not an abnormal business model, but it has its hazards, chief among them the temptation to run what trials you can with a primary goal of getting shiny numbers (and shiny funding) rather than finding out whether the drug has a more solid chance of working. Semi-delusional Phase II trials are a problem throughout the industry, but more so here.
Novartis, again. The company had already announced some cuts at their Emeryville site, but remarks in the comments section (and communicated to me directly) indicate that something even more serious is underway out there now.
More details as things become clearer. And that brings up another item: the Novartis Horsham closure earlier this week appears (again, by comments here and by personal communication) to have not been announced to the rest of the company at the time. A number of people around the organization seem to have heard about it through this site, which does not make a lot of sense to me. When I went with the blog post on this, I assumed that it was known at least inside Novartis, but apparently not.
That's something for companies to think about. This is 2013. People have phones and they have e-mail, and they've had them for a long time. Word gets out quickly. These things show up here, but they show up in other places, too, and will surely go on doing so. Leaving it to the grapevine when a press release could clear things up seems like an odd decision, but having never had to decide on a site closure myself, perhaps I'm missing something.
Damn it all, we just got through with Novartis closing down the Horsham site, and now I'm hearing, from several sources, that something is up at Bristol-Myers Squibb. Tomorrow and/or Friday, word has it, some sort of rearrangement is going to be announced, supposedly with loss of head count. Supposedly concentrated by therapeutic area, but who knows in these things? More details will surely be coming along.
The Novartis site at Horsham (UK) appears to be closing down. I heard night that there was to be a (rather sudden) meeting of all the managers there today, and now I'm getting word that they've been told that the entire site will be shuttered. The company had already been talking about "redeveloping" the site, but this would seem to come as a worst-case surprise. More details as they emerge.
So says Chemjobber today. He does a good job taking this apart, and it might not surprise you to find out that the company is actually able to find people when it offers a bit more money. It's like there was some kind of market or something.
So the picture that's emerging of Merck's drug discovery business after this round of cuts is confused, but some general trends seem to be present. West Point appears to have been very severely affected, with a large number of chemists shown the door, and reports tend to agree that bench chemists were disproportionately hit. The remaining department would seem to be top-heavy with managers.
Top-heavy, that is, unless the idea is that they're all going to be telling cheaper folks overseas what to make, that is. So is Merck going over to the Pfizer-style model? I regard this as unproven on this scale. In fact, I have an even lower opinion of it than that, but I'm sure that my distaste for the idea is affecting my perceptions, so I have to adjust accordingly. (Not everything you dislike is incorrect, just as not every person that's annoying is wrong).
But it's worth realizing that this is a very old idea. It's Taylorism, after Frederick Taylor, whose thinking was very influential in business circles about 100 years ago. (That Wikipedia article is written in a rather opinionated style, which the site has flagged, but it's a very interesting read and I recommend it). One of Taylor's themes was division of labor between the people thinking about the job and the people doing it, and a clearer statement of what Pfizer (and now Merck) are trying to do is hard to come by.
The problem is, we are not engaged in the kind of work that Taylorism and its descendants have been most successfully applied to. That, of course, is assembly line work, or any work flow that consists of defined, optimizable processes. R&D has proven. . .resistant to such thinking, to put it mildly. It's easy to convince yourself that drug discovery consists of and should be broken up into discrete assembly-line units, but somehow the cranks don't turn very smoothly when such systems are built. Bits and pieces of the process can be smoothed out and improved, but the whole thing still seems tangled, somehow.
In fact, if I can use an analogy from the post I put up earlier this morning, it reminds me of the onset of turbulence from a regime of laminar flow. If you model the kinds of work being done in some sort of hand-waving complexity space, up to a point, things run smoothly and go where they're supposed to. But as you start to add in key steps where the driving forces, the real engines of progress, are things that have to be invented afresh each time and are not well understood to start with, then you enter turbulence. The workflow become messy and unpredictable. If your Reynolds numbers are too high, no amount of polish and smoothing will stop you from seeing turbulent flow. If your industrial output depends too much on serendipity, on empiricism, and on mechanisms that are poorly understood, then no amount of managerial smoothing will make things predictable.
This, I think, is my biggest problem with the "Outsource the grunt work and leave the planning to the higher-ups" idea. It assumes that things work more smoothly than they really do in this business. I'm also reminded a bit of the Chilean "Project Cybersyn", which was to be a sort of control room where wise planners could direct the entire country's economy. One of the smaller reasons to regret the 1973 coup against Allende is that the chance was missed to watch this system bang up against reality. And I wonder what will happen as this latest drug discovery scheme runs into it, too.
Update: a Merck employee says in the comments that there hasn't been talk of more outsourcing, If that proves to be the case, then just apply the above comments to Pfizer.
Here's well known chemistry blogger See Arr Oh totaling up the cost of a job hunt these days. Time does indeed equal money, with a few correction factors thrown in, and it all adds up to a lot of both of them.
But from what he tells me, he hasn't given up on the idea of a job doing drug discovery, hard path though that may be these days. I've had many interactions with him, though, and he does indeed know the field (and can obviously write about it, too). If anyone out there has a need for someone like that, I think he'd be very glad to hear about it. You could staff a productive department pretty quickly with the sorts of people who are available these days. . .
Actually, decision time was a little while back. But I've heard from more than one source that this week is when everyone in Merck's chemistry hears the details of the job cuts and rearrangements announced recently. Good luck to all concerned. . .
As feared, the recent trouble at Ariad has indeed put their plans to move into a new site on hold. The Boston Globe has the story here. I go past this construction site all the time - well, to be accurate, if you travel around Cambridge, you past a lot of construction sites, all the time. One would assume that if Ariad has to back out that someone else will find a use for the space. . .
There's a new paper in Nature Reviews Drug Discovery that tries to find out what factors about a company influence its research productivity. This is a worthy goal, but one that's absolutely mined with problems in gathering and interpreting the data. The biggest one is the high failure rate that afflicts everyone in the clinic: you could have a company that generates a lot of solid ideas, turns out good molecules, gets them into humans with alacrity, and still ends up looking like a failure because of mechanistic problems or unexpected toxicity. You can shorten those odds, for sure (or lengthen them!), but you can never really get away from that problem, or not yet.
The authors have a good data set to work from, though:
It is commonly thought that small companies have higher research and development (R&D) productivity compared with larger companies because they are less bureaucratic and more entrepreneurial. Indeed, some analysts have even proposed that large companies exit research altogether. The problem with this argument is that it has little empirical foundation. Several high-quality analyses comparing the track record of smaller biotechnology companies with established pharmaceutical companies have concluded that company size is not an indicator of success in terms of R&D productivity1, 2.
In the analysis presented here, we at The Boston Consulting Group examined 842 molecules over the past decade from 419 companies, and again found no correlation between company size and the likelihood of R&D success. But if size does not matter, what does?
Those 842 molecules cover the period 2002-2011, and of them, 205 made it to regulatory approval. (Side note: does this mean that the historical 90% failure rate no longer applies?Update: turns out that's the number of compounds that made it through Phase I, which sounds more like it). There were plenty of factors that seemed to have no discernable influence on success - company size, as mention, public versus private financing, most therapeutic area choices, market size for the proposed drug or indication, location in the US, Europe, or Asia, and so on. In all these cases, the size of the error bars leave one unable to reject the null hypothesis (variation due to chance alone).
What factors do look like more than chance? The far ends of the therapeutic area choice, for one (CNS versus infectious disease, and these two only). But all the other indicators are a bit fuzzier. Publications (and patents) per R&D dollar spent are a positive sign, as is the experience (time-in-office) of the R&D heads. A higher termination rate in preclinical and Phase I correlated with eventual success, although I wonder if that's also a partial proxy for desperation, companies with no other option but to push on and hope for the best (see below for more on this point). A bit weirdly, frequent mention of ROI and the phrase "decision making" actually correlated positively, too.
The authors interpret most or all of these as proxy measurements of "scientific acumen and good judgement", which is a bit problematic. It's very easy to fall into circular reasoning that way - you can tell that the companies that succeeded had good judgement, because their drugs succeeded, because of their good judgement. But I can see the point, which is what most of us already knew: that experience and intelligence are necessary in this business, but not quite sufficient. And they have some good points to make about something that would probably help:
A major obstacle that we see to achieving greater R&D productivity is the likelihood that many low-viability compounds are knowingly being progressed to advanced phases of development. We estimate that 90% of industry R&D expenditures now go into molecules that never reach the market. In this context, making the right decision on what to progress to late-stage clinical trials is paramount in driving productivity. Indeed, researchers from Pfizer recently published a powerful analysis showing that two-thirds of the company's Phase I assets that were progressed could have been predicted to be likely failures on the basis of available data3. We have seen similar data privately as part of our work with many other companies.
Why are so many such molecules being advanced across the industry? Here, a behavioural perspective could provide insight. There is a strong bias in most R&D organizations to engage in what we call 'progression-seeking' behaviour. Although it is common knowledge that most R&D projects will fail, when we talk to R&D teams in industry, most state that their asset is going to be one of the successes. Positive data tends to go unquestioned, whereas negative data is parsed, re-analysed, and, in many cases, explained away. Anecdotes of successful molecules saved from oblivion often feed this dynamic. Moreover, because it is uncertain which assets will fail, the temptation is to continue working on them. This reaction is not surprising when one considers that personal success for team members is often tied closely to project progression: it can affect job security, influence within the organization and the ability to pursue one's passion. In this organizational context, progression-seeking behaviour is entirely rational.
Indeed it is. The sunk-cost fallacy should also be added in there, the "We've come so far, we can't quit now" thinking that has (in retrospect) led so many people into the tar pit. But they're right, many places end up being built to check the boxes and make the targets, not necessarily to get drugs out the door. If your organization's incentives are misaligned, the result is similar to trying to drive a nail by hitting it from an angle instead of straight on: all that force, being used to mess things up.
If there is some chemistry hiring going on out there in the big pharma world, and more to come, Eli Lilly does not look like it's going to be joining that kind of party. The analysts following its stock are getting increasingly worked up:
As the analyst notes, there are two distinct schools of thought about Lilly's pipeline. One, represented by Tim Anderson at Bernstein, is that Lilly's broad pipeline of late-stage assets will rescue the company from the loss of patents on the company's top drugs. The bear view, though, is that more failures of high-profile programs--like the recent Phase III failure of ramucirumab for breast cancer or last year's fiasco with the solanezumab flop in Alzheimer's--will leave Lilly no way out except with a restructuring. And that would alter CEO John Lechleiter's long-term plan for staying the course with in-house research.
Lilly's position is simple: Everything is great.
One of the only bright spots is the continuing clinical success of their injectable GLP-1 agonist dulaglutide. Nothing had better happen to that one - it really does look like an advance in type II diabetes therapy. But even if everything goes according to plan with that one, things are going to be rough in Indianapolis.
After recent posts on how hot the biotech IPO market has been, and on how the Boston/Cambridge area has so many companies these days, here's the article that sits right in the Venn diagram intersection, from the Boston Globe. It ends on what I think is an accurately cautionary note:
Some biotech companies will surely deliver on the promise in their labs. But an entire industry is being rewarded in advance by investors. That’s going to disappoint a lot of people.
I've heard from several sources that one of the large pharma companies is about to do something that none of them have been doing for a while now: hire some scientists. More concrete news should be out shortly, but the word is that a number of med-chem positions will be opening up. And when was the last time you heard that phrase?
Here's a look at where the biopharma companies really congregate, courtesy of Luke Timmerman at Xconomy. There's also a revealing comparison to the situation ten years ago.
His cutoff is for a company to have at least $100 million in cash (and short term investments) on hand to fund its operations. Companies with less than that, he says, rarely end up making an impact without crossing that threshold along the way (and I'd agree with that assessment). The most notable thing about the list is the degree to which things have proliferated in the Boston/Cambridge area. It was already a strong list in 2003, but in 2013 it outdistances everyone. It's now a self-perpetuating effect, to a good degree: companies come here because there are a lot of investors and a lot of good people in the workforce, and people come here because there are a lot of companies, and so on.
The San Francisco Bay area was number one ten years ago, but although it's grown since 2003 (24 companies versus 19), the growth in Boston has outstripped it. San Diego's in similar shape, but on a smaller scale. Seattle is clearly the laggard of the list, small and getting smaller. And the NJ/NY area has one fewer on its roster than it did ten years ago, in a process that is not showing any obvious signs of reversing.
Way back when, in late August, I wrote a post wondering if there were perhaps too many small biopharma companies going public. That took no magic powers; everyone looking at the market has been wondering that. Well, today an awful lot of biotech stocks seem to be diving - is that the signal for everyone to get out of the water? If so, then (as usual) a lot of people would have preferred that it went off a bit less abruptly. People at the companies in the IPO queue for the next couple of weeks are going to be a bit irritable and distracted today, I think. . .
You're running a drug company, and you have a new product coming out. How much of it do you expect to sell? That sounds like a simple question to answer, but it's anything but, as a new paper in Nature Reviews Drug Discovery (from people at McKinsey, no less) makes painfully clear.
Given the importance of forecasting, we set out to investigate three questions. First, how good have drug forecasts been historically? And, more specifically, how good have estimates from sell-side analysts been at predicting the future? Second, what type of error has typically been implicated in the misses? Third, is there any type of drug that has been historically more easy or difficult to forecast?
The answer to the first question is "Not very good at all". They looked at drug launches from 2002-2011, a period which furnished hundreds of sales forecasts to work from. Over 60% of the consensus forecasts were wrong by 40% or more. Stop and think about that for a minute - and if you're in the industry, stop and think about the times you've seen these predictions made inside your own company. Remember how polished the PowerPoint slides were? How high-up the person was presenting them? How confident their voice was as they showed the numbers? All for nothing. If these figures had honest error bars on them, they'd stretch up and down the height of any useful chart. I'm reminded of what Fred Schwed had to say in Where Are the Customers' Yachts about stock market forecasts: "Concerning these predictions, we are about to ask: 1. Are they pretty good? 2. Are they slightly good? 3. Are they any damn good at all? 4. How do they compare with tomorrow's weather prediction you read in the paper? 5. How do they compare with the tipster horse race services?".
As you can see from the figure, the distribution of errors is quite funny-looking. If you start from the left-hand lowball side, you think you're going to be looking at a rough Gaussian curve, but then wham - it drops off, until you get to the wildly overoptimistic bin, which shows you that there's a terribly long tail stretching into the we're-gonna-be-rich category. This chart says a lot about human psychology and our approach to risk, and nothing it says is very complimentary. In case you're wondering, CNS and cardiovascular drugs tended to be overestimated compared to the average, and oncology drugs tended to be underestimated. That latter group is likely due to an underestimation of the possibility of new indications being approved.
Now, those numbers are all derived from forecasts in the year before the drugs launched. But surely things get better once the products got out into the market? Well, there was a trend for lower errors, certainly, but the forecasts were still (for example) off by 40% five years after the launch. The authors also say that forecasts for later drugs in a particular class were no more accurate than the ones for the first-in-class compounds. All of this really, really makes a person want to ask if all that time and effort that goes into this process is doing anyone any good at all.
Writing at Forbes, David Shaywitz (who also draws some lessons here from Taleb's Antifragile) doesn't seem to think that it is, but he doesn't think that anyone is going to want to hear about it:
Unfortunately, the new McKinsey report is unlikely to matter very much. Company forecasters will say their own data are better, and will point to examples of forecasts that happen to get it right. They will emphasize the elaborate methodologies they use, and the powerful algorithms they employ (all real examples from my time in the industry). Consultants, too, will continue to insist they can do it better.
And indeed, one of the first comments that showed up to his piece was from someone who appears to be doing just that. In fact, rather than show any shame about these numbers, plenty of people will see them as a marketing opportunity. But why should anyone believe the pitch? I think that this conclusion from the NRDD paper is a lot closer to reality:
Beware the wisdom of the crowd. The 'consensus' consists of well-compensated, focused professionals who have many years of experience, and we have shown that the consensus is often wrong. There should be no comfort in having one's own forecast being close to the consensus, particularly when millions or billions of dollars are on the line in an investment decision or acquisition situation.
The folks at Popular Science should take note of this. McKinsey Consulting has apparently joined the "War on Expertise"!
This could get interesting: the deal that would have Otsuka buying Astex might be unraveling a bit. Here's what an investment fund with a stake in the matter has to say about it:
We are one of Astex's largest shareholders, owning approximately 5% of the outstanding shares of the company. We believe the recently announced merger transaction with Otsuka Pharmaceutical significantly undervalues Astex and therefore we do not intend to tender our shares.
It seems clear to us from both analyst commentary and press reports in response to the announcement of the Otsuka transaction that many shareholders concur with our view of the valuation of Astex and perhaps share our concerns about both the timing of the auction process and the manner in which it was conducted. With regard to timing, Astex's recent report on August 28th of clinical data on SGI-110, the company's second-generation DNA methyltransferase inhibitor, suggested the promise of the drug. However, it is the clinical studies to be reported in December 2013 and in 2014 that could most definitively illustrate the value the drug will confer to Astex. The fact that Astex is trying to consummate the sale process before these data are available is inexplicable and disturbing. . .
They go on to say some very unkind things about the bidding process and the incentives for Astex's senior management. Now, these folks are, of course, trying to get the most that they possibly can for their Astex shares (that's their job). So they might be trying to get Otsuka to crank up their offer, and if they can recruit enough other large shareholders to the effort, they might be able to do it. We'll see if that talk of other people not liking the bid turns out to be real.
Did you know that thirty-eight biotech companies have gone public this year? I knew there were a lot of them, but I didn't realize that the number was that high. The most recent one, Fate Therapeutics, didn't quite go off the way it was hoped to. At some point, the music has to stop, and what everyone seems to be wondering is whether that was the sound of a violin case closing or not. Do you feel like investing in the thirty-ninth IPO of the year? How about the forty-seventh? It's only October, you know, and that's always been a great month for the stock. . .oh, never mind.
I've been stuck underground on a stalled subway train, but the rumor that was passed on to me last night turns out to be true: Merck is doing some big, serious cuts. They're cutting back about 20% worldwide, and it's going to hit every part of the company. More details as they become available. . .
In case you didn't see it yesterday, Eli Lilly had yet another nasty Phase III failure. This one was ramucirumab against breast cancer (one of the Imclone projects). This was (yet again) one of the compounds that's supposed to be shoring the company up as it continues to lose patent protection on its existing drugs, and it's losing a lot of that.
I'm not going to focus on this particular antibody, but rather a larger issue. Here it is, outlined by FierceBiotech:
The crucial late-stage failure--ramucirumab has been considered one of the pharma giant's top Phase III prospects--scuttles one of Eli Lilly's chief near-term hopes for a major new drug approval application. The failure also follows several years of poor trial outcomes for Lilly, which has a reputation for taking expensive and very risky chances when it comes to late-stage development. Its shares ($LLY) immediately dropped more than 5% on the news.
Lilly does indeed have that reputation - you'll get one if you spend as much time on big Alzheimer's projects as they have, among other things. And here's my question: are they doing things wrong over there, or doing them right?
I mean, we in the drug business catch a lot of flak (often, but not always, undeservedly) for ducking the really big challenges in favor of grabbing market share from each other's established drugs. Those really big challenges, though, come with really high failure rates, and it's not like the failure rates for even the supposedly easy stuff aren't terrifying. (That's a point many outside critics miss - there are no lay-ups in this business when it comes to developing new drugs, none whatsoever). But if you don't like 80 or 90 per cent failure, try 95 per cent. Or, to a roundoff error, one hundred per cent, because that's pretty much been the historical failure rate for Alzheimer's, minus one drug that doesn't do very much. Someone who hasn't been paying attention might look at the lack of drugs in such therapeutic areas and decide that it's because the industry hasn't bothered to do anything - too busy making artificial tanning creams, you know - but it's clear that company after company has taken swings at things like Alzheimer's and just totally missed.
Eli Lilly has been taking some pretty big cuts, but they've mostly just fanned out a lot of dust the last few years. Are they (1) working with too risky a portfolio? (If so, was it by design, or did they just end up this way through attrition of other projects?) Or are they (2) working with a list that has an more appropriate balance, but doing a lousy job of prosecuting it? (A mix of 1 and 2 is also possible, of course). Do we look at Lilly's situation and say "Well, at least I wouldn't have done that", or do we say "There but for the grace of God and a few biomarkers go I?"
And some critics of the industry would do well to observe this process. Here is a big company, spending huge amounts of time and effort on some really big diseases that have a lot of unmet medical need. And they're being driven into the ground like a tent peg by the results of it all.
That didn't take long. Just a few days after Roger Perlmutter at Merck had praised the team that developed Bridon (sugammadex), the FDA turned it down for the second time. The FDA seems to be worried about hypersensitivity reactions to the drug - that was the grounds on which they rejected it in 2008. Merck ran another study to address this, but the agency apparently is now concerned about how that trial was run. What we know, according to FiercePharma, is that they "needed to assess an inspection of a clinical trial site conducting the hypersensitivity study". Frustratingly for Merck, their application was approved in the EU back in that 2008 submission period.
It's an odd compound, and it had a nomination in the "Ugliest Drug Candidate" competition I had here a while back. That's because it works by a very unusual mechanism. It's there to reverse the effects of rocuronium, a neuromuscular blockade agent used in anaesthesia. Sugammadex is a cyclodextrin derivative, a big cyclic polysaccharide of the sort that have been used to encapsulate many compounds in their central cavities. It's the mechanism behind the odor-controlling Febreze spray - interestingly, I've read that when that product was introduced, its original formulation failed in the market because it had no scent of its own, and consumers weren't ready for something with no smell that nonetheless decreased other odors). The illustration is from the Wikipedia article on sugammadex, and it shows very well how it's designed to bind rocuronium tightly in a way that it can no longer at at the acetylcholine receptor. Hats off to the Organon folks in Scotland who thought of this - pity that all of them must be long gone, isn't it?
You see, this is one of the drugs from Schering-Plough that Merck took up when they bought the company, but it was one of the compounds from Organon that Schering-Plough took up when they bought them. (How much patent life can this thing have left by now?) By the way, does anyone still remember the ridiculous setup by which Schering-Plough was supposed to be taking over Merck? Did all that maneuvering accomplish anything at all in the end? At any rate, Merck really doesn't seem to have gotten a lot out of the deal, and this latest rejection doesn't make it look any better. Not all of those problems were (or could have been) evident at the time, but enough of them were to make a person wonder. I'm willing to nominate it as "Most Pointless Big Pharma Merger", and would be glad to hear the case for other contenders.
What can you say in a press release about a clinical trial? "Darn near anything, apparently" will be the response from many people who've been seeing them over the years. But really, what can you say, legally? Is there some point where you've clearly crossed the line into fraud, or are all these things just varying interpretations of scientific data?
That uncomfortable question has been working its way through the court system in the person of W. Scott Harkonen, former CEO of Intermune. This case is back in the news thanks to a long article in the Washington Post (pointed out to me by a reader of this blog in the comments section here). Here's the background: Intermune was selling Actimmune (interferon gamma-1b) for two rare-disease indications, but wanted to break into the much larger market for idiopathic pulmonary fibrosis (IPF), for which there were basically no therapies at all.
Unfortunately, the trial didn't go the way that everyone had hoped. Here's the Washington Post's take on it, complete with quotation marks around the phrase "statistical significance":
In all, 330 patients were randomly assigned to get either interferon gamma-1b or placebo injections. Disease progression or death occurred in 46 percent of those on the drug and 52 percent of those on placebo. That was not a significant difference, statistically speaking. When only survival was considered, however, the drug looked better: 10 percent of people getting the drug died, compared with 17 percent of those on placebo. However, that difference wasn’t “statistically significant,” either.
Specifically, the so-called P value — a mathematical measure of the strength of the evidence that there’s a true difference between a treatment and placebo — was 0.08. It needs to be 0.05 or smaller to be considered “statistically significant” under the conventions of medical research.
Technically, the study was a bust, although the results leaned toward a benefit from interferon gamma-1b. Was there a group of patients in which the results tipped? Harkonen asked the statisticians to look.
It turns out that people with mild to moderate cases of the disease (as measured by lung function) had a dramatic difference in survival. Only 5 percent of those taking the drug died, compared with 16 percent of those on placebo. The P value was 0.004 — highly significant.
But there was a problem. This mild-to-moderate subgroup wasn’t one the researchers said they would analyze when they set up the study. Subdividing patients after the fact and looking for statistically significant results is a controversial practice. In its most extreme form, it’s scorned as “data dredging.” The term suggests that if you drag a net through a bunch of numbers enough times, you’ll come up with something significant sooner or later.
Yes indeed. In fact, the term suggests that because that's absolutely true, and it can be proven mathematically. If you take a large enough pile of clinical data, with enough variables, and break it down into enough subgroups, the odds get better and better than something will look significant simply by chance. You can say when you've done enough to have a 50% chance of that happening, or a 90% chance, or whatever cutoff you like. It isn't voodoo, although statistics are poorly understood enough to make it sound so if you've never had to think about the issues.
The situation Intermune found itself in is a tough one, but it's not uncommon. This is why clinical trial design is so critical. You want to run one that has the best chance of showing a clinically relevant effect, but you're not going to be able to cover every sort of patient and subgroup, either, because time and money get out of control very quickly at this point and can absolutely sink your whole effort. The "might have worked" result is a hard place to be.
Unfortunately, Harkonen does not seem to have reacted well to it. He personally wrote a press release with these headlines: “InterMune Announces Phase III Data Demonstrating Survival Benefit of Actimmune in IPF” and “Reduces Mortality by 70% in Patients with Mild to Moderate Disease.” If you read the rest of the text, it did mention that the study missed its primary endpoints, but there was no mention that the mild-to-moderate group was a post hoc analysis. He ended up charged with wire fraud, and was convicted. That conviction has been appealed (here's the appeals court ruling against him), and now there's talk of going to the Supreme Court, although I don't know if his legal team has asked for certiorari yet or not.
So, what's the line between protected free speech and fraud? The newspaper article mentions the recent United States v. Alvarez decision, which ended up overturning the "Stolen Valor Act" making it illegal to claim (falsely) to have military decorations. The Alvarez in question was an idiot who claimed, in his job on a water district board, to have won the Medal of Honor. Sure thing. But although I Am Not a Lawyer, this seems like a different case to me. One of the big points of contention in the Alvarez case was whether or not it was a defamation, and if so, who was being defamed, and how they were damaged. The Supreme Court was split up all over the place in their own opinions, with even justices that agreed with the majority disagreeing over what they were agreeing about.
This case seems more straightforward, at least to me. I think it's more a case of commercial speech. There's probably case law by the shelfload on this, and I may be totally wrong, but I would regard all press releases by publicly traded companies as commercial speech, simply due to their effects on the stock prices involved. If the case makes it to the Supreme Court, I'd expect it to be so that the justices can try to untangle that issue (as in this previous case, which the Court dodged due to a procedural matter).
Oh, one other thing, which doesn't necessarily bear on this case but is worth mentioning as an illustration of its issues. Intermune actually did go forward with another trial of Actimmune against mild-to-moderate IPF patients. And sure enough, it didn't work.
In the post here the other day about Duchenne Muscular Dystrophy (DMD) I mentioned two other companies that are looking at transcriptional approaches: Prosensa (with GSK) and Sarepta. They've got antisense-driven exon-skipping mechanisms, rather than PTC's direct read-through one.
Well, Sarepta still does, anyway. Prosensa and GSK just announced clinical data on their agent, drisapersen, and it appears to have missed completely. The primary endpoint was a pretty direct one, total distance walked over six minutes, and they didn't make statistical significance versus placebo. This was over 48 weeks of treatment, and none of the secondary measures showed any signs either, from what I can see. I can't think of any way to spin this in any positive direction at all.
So drisapersen is presumably done. What does this say about Sarepta's candidate, eteplirsen? One the one hand, their major competitor has just been removed from the board. But on the other, their complete failure with such a closely related therapy can't help but raise doubts. I don't know enough about the differences between the two (PK?) to speculate, but it'll be interesting to see if Sarepta's stock zips up today, sells off, or (perhaps) fights to a draw between two groups of investors who are taking this news in very different ways.
That's the delirious fun of biotech investing. And that's just for the shareholders - you can imagine what it feels like to bet your whole company on this sort of thing. . .
Does it matter how a drug works, if it works? PTC Therapeutics seems bent on giving everyone an answer to that question, because there sure seem to be a lot of questions about how ataluren (PTC124), their Duchenne Muscular Dystrophy (DMD) therapy, acts. This article at Nature Biotechnology does an excellent job explaining the details.
Premature "stop" codons in the DNA of DMD patients, particularly in the dystrophin gene, are widely thought to be one of the underlying problems in the disease. (The same mechanism is believed to operate in many other genetic-mutation-driven conditions as well. Ataluren is supposed to promote "read-through" of these to allow the needed protein to be produced anyway. That's not a crazy idea at all - there's been a lot of thought about ways to do that, and several aminoglycoside antibiotics have been shown to work through that mechanism. Of that class, gentamicin has been given several tries in the clinic, to ambiguous effect so far.
So screening for a better enhancer of stop codon read-through seems like it's worth a shot for a disease with so few therapeutic options. PTC did this using a firefly luciferase (Fluc) reporter assay. As with any assay, there are plenty of opportunities to get false positives and false negatives. Firefly luciferase, as a readout, suffers from instability under some conditions. And if its signal is going to wink out on its own, then a compound that stabilizes it will look like a hit in your assay system. Unfortunately, there's no particular market in humans for a compound that just stabilizes firefly luciferase.
That's where the argument is with ataluren. Papers have appeared from a team at the NIH detailing trouble with the FLuc readout. That second paper (open access) goes into great detail about the mechanism, and it's an interesting one. FLuc apparently catalyzes a reaction between PTC124 and ATP, to give a new mixed anhydride adduct that is a powerful inhibitor of the enzyme. The enzyme's normal mechanism involves a reaction between luciferin and ATP, and since luciferin actually looks like something you'd get in a discount small-molecule screening collection, you have to be alert to something like this happening. The inhibitor-FLuc complex keeps the enzyme from degrading, but the new PTC124-derived inhibitor itself is degraded by Coenzyme A - which is present in the assay mixture, too. The end result is more luciferase signal that you expect versus the controls, which looks like a hit from your reporter gene system - but isn't. PTC's scientists have replied to some of these criticisms here.
Just to add more logs to the fire, other groups have reported that PTC124 seems to be effective in restoring read-through for similar nonsense mutations in other genes entirely. But now there's another new paper, this one from a different group at Dundee, claiming that ataluren fails to work through its putative mechanism under a variety of conditions, which would seem to call these results into question as well. Gentamicin works for them, but not PTC124. Here's the new paper's take-away:
In 2007 a drug was developed called PTC124 (latterly known as Ataluren), which was reported to help the ribosome skip over the premature stop, restore production of functional protein, and thereby potentially treat these genetic diseases. In 2009, however, questions were raised about the initial discovery of this drug; PTC124 was shown to interfere with the assay used in its discovery in a way that might be mistaken for genuine activity. As doubts regarding PTC124's efficacy remain unresolved, here we conducted a thorough and systematic investigation of the proposed mechanism of action of PTC124 in a wide array of cell-based assays. We found no evidence of such translational read-through activity for PTC124, suggesting that its development may indeed have been a consequence of the choice of assay used in the drug discovery process.
Now this is a mess, and it's complicated still more by the not-so-impressive performance of PTC124 in the clinic. Here's the Nature Biotechnology article's summary:
In 2008, PTC secured an upfront payment of $100 million from Genzyme (now part of Paris-based Sanofi) in return for rights to the product outside the US and Canada. But the deal was terminated following lackluster data from a phase 2b trial in DMD. Subsequently, a phase 3 trial in cystic fibrosis also failed to reach statistical significance. Because the drug showed signs of efficacy in each indication, however, PTC pressed ahead. A phase 3 trial in DMD is now underway, and a second phase 3 trial in cystic fibrosis will commence shortly.
It should be noted that the read-through drug space has other players in it as well. Prosensa/GSK and Sarepta are in the clinic with competing antisense oligonucleotides targeting a particular exon/mutation combination, although this would probably taken them into other subpopulations of DMD patients than PTC is looking to treat.
If they were to see real efficacy, PTC could have the last laugh here. To get back to the first paragraph of this post, if a compound works, well, the big argument has just been won. The company has in vivo data to show that some gene function is being restored, as well they should (you don't advance a compound to the clinic just on the basis of in vitro assay numbers, no matter how they look). It could be that the compound is a false positive in the original assay but manages to work through some other mechanism, although no one knows what that might be.
But as you can see, opinion is very much divided about whether PTC124 works at all in the real clinical world. If it doesn't, then the various groups detailing trouble with the early assays will have a good case that this compound never should have gotten as far as it did.
This is an interesting article in Nature Biotechnology that I'm trying to figure out whether I believe. It's a combination of interviews with managers across biopharma along with an analysis of open-position job ads from thousands of sources. What the authors are trying to do is figure out what sorts of skills employers in this field are looking for, and whether that's changed.
First, let's go to what they found, then we can start the arguing. The quantitative data from all those job postings is presumably pretty solid. The degree-required distribution shows that (weirdly) 14% of the posted openings require only high-school level education, which makes me wonder if those positions, whatever they are, really qualify as "jobs in the biopharma industry" as opposed to "jobs in the hauling stuff around" industry. Past that, half of the total openings are bachelor's-level. 12% ask for a graduate or professional degree (I think that they have master's and PhD in there together), and most of the rest were unspecified.
As for the skills listed as wanted, far and away the most mentioned was. . .chemistry. "Clinical research" runs a distant second. When they analyzed the names of the positions themselves, "Medical/clinical laboratory technician" was number one, with "Chemist" close behind. These are broad terms, which surely accounts for their dominance, but the number of positions using the word "Biologist" is still only about a third of those that say "Chemist".
Now the paper switches to what they learned from all those manager interviews. Here's where I start doing the Spock-eyebrow thing:
Hiring and workforce deployment trends were consistent across company sizes ranging from small (less than 25 employees) to large (over 1,000), but there was a surprising anecdotal finding that was supported across the interview set. Whereas historically, large companies have tended to invest in workforce training, and small companies have sought employees who were sufficiently trained to 'hit the ground running', the lean human capacity models practiced by large global pharmaceutical companies have resulted in a reluctance to hire untrained individuals by companies of all sizes. . .
. . .The introductory analysis highlights a common theme addressed by all interviewees and points to a clear shift in the industry's demand for talent away from the senior scientist positions that tend to be more highly specialized and narrowly focused, to a talent pool consisting of individuals who have interdisciplinary academic training with the ability to work broadly across multiple areas and in project teams where not everyone has to be an expert in everything. Specific skill sets desired among scientists, engineers, clinicians and management teams who work within the industry include strong communications skills that facilitate the translation of the science effectively to stakeholders, a commercial market-based mindset versus an academic mindset, the ability to apply skills to real world problems, comfort with big data management, the capacity to be creative and the willingness to push boundaries.
OK, let me blow a whistle at this point. All that stuff is hiring-manager-speak, straight from HR training slides. If you ever hear someone, an actual human out there in the wild, conversationally use the phrase "facilitate the translation of the science effectively to stakeholders", you should run. If there's no ready exit, well, I hope you've read a lot of those books about how to deal with zombies, 'cause they're finally going to come in handy. What I'm saying is that this stuff is what such people always tell you that they want, on paper. "The ability to apply skills to real-world problems"? You don't say! Trying to draw conclusions from these phrases is like analyzing the stuff written on the windshields of used cars.
I adduce this line from the article as evidence of cluelessness: "Hiring managers and industry leaders made little mention of gender differences or preferences in the interviews." Did they not? After endless hours of training to drive home the point that they can get fired for doing anything of the sort? Come on.
The article ends with three mushy calls for action. The first is to "further develop and increase the scope of public-private and industry-academic internships, cooperative fellowships, and training programs". Hard to find anyone who's going to take a strong stand against that one. The second is "to build a national life science certification program that includes deep dives into topics such as regulations, clinical trial design and process validation". I'm not so sure about that one. Who runs this, and who pays for it? Do you have to have one of their pieces of paper in order to get a job in those areas? Who gets to decide the curriculum?
But it's the final recommendation that's going to set some people off. It "focuses on the need to recognize the global nature of the industry and the need for strong cross-cultural fertilization and job mobility across national borders." And once again, I come to this topic as someone who actually favors immigration of smart, competent, well-trained people into the US. But I swear, there are a lot of people who seem bent on making me squirm as much as possible while holding that position, because I can't help but think that many of them hold it because they're looking for the cheapest technically qualified labor force that they can get. It's not like I like the look of some of the people on the other side of the issue, either, because just because it's bad policy to fiddle things to drive wages down, it's bad policy to rig the system to keep them high, too. I think that there should be a market for labor, and its price should move up and down, and be therefore somewhat self-correcting. No one should get a thumb on the scale. Yeah, I'm an idealist.
But this is the first time I've heard "cross-cultural fertilization" brought up as a reason, I have to say. Personally, I think that a reasonable amount of immigration is a good thing for American society (if only we could define "reasonable"), and that we should favor letting in people who are smart, competent, and hard-working. I'd like to have new citizens who want to be part of the economy, and who can appreciate the ideals that this country was founded on. "Cross-cultural fertilization" is a bit too nebulous for me. I worry that it's one of those feel-good diversity slogans designed to make anyone who complains about it sound like a Neanderthal. Maybe I'm showing my prejudice against Neanderthals by saying that, though. I should check with HR.
No, this survey is starting to sound a lot like that PriceWaterhouseCooper thing I wrote about here and here. "Gosh, we just can't seem to find anyone to hire!" Keep an eye on this sort of thing; we're going to see more of it.
BioCentury always does a big issue for the fall, entitled "Back to School". They often use this as a state-of-biopharma platform, going into depth on what they see as the biggest issues that need to be addressed. This year, the September 2 issue, they're telling people (and not for the first time!) to get braced for higher standards for what health insurance is going to pay for:
Drug companies must start creating the case for value differentiation in discovery and then steadily build a body of evidence throughout the product development process.
Some drug developers have figured this out and have reshaped both their pipelines and development practices accordingly. But the number of me-too and purportedly me-better products still in the pipeline — coupled with the fact that drugs are still getting to Phase III and beyond without comparisons to relevant SOC (standard of care) or data on quality of life and other metrics that patients value — shows efforts in this department are still wanting.
For example, BioCentury’s BCIQ online database shows 54 compounds in active development that target VEGF or its receptors, not counting line extensions of approved VEGF and VEGF receptor inhibitors.
Even accounting for different variants of the receptor and its ligand and differences in delivery, formulation and dosing, it is highly unlikely that so many compounds could be differentiated sufficiently that physicians and patients would strongly prefer them to marketed alternatives — or that payers would be willing to reimburse them without restrictions.
. . .Back to School argues bio-industry must abandon efforts to block third-party assessments of value, and instead ramp up nascent efforts to be at the table where technology assessment takes place in the U.S., Europe and the rest of the world. Comparative effectiveness and cost effectiveness assessments will not be stopped. Industry can either contribute its expertise to improve the quality of the results, or stand by while others who may know less about both the drugs and the best ways to study them do the work based on their own priorities. Right now that priority is finding ways to avoid paying for new drugs.
Well put. But doing so is not going to be easy, or cheap. Differentiating new drug candidates in the clinic has often been left for later on in Phase III, and smaller companies often don't do much of it at all, figuring that'll be a job for their bigger partners when the time comes. The FDA "Breakthrough" designations can help here, because they explicitly encourage companies to show, as early as possible, why their compound stands out from the others. But as the Biocentury piece goes on to say, even then companies are going to have to be get ready to collect even more data on real-world outcomes, after the drug is approved, if they want to be able to persuade the various payers out there.
There's another issue here, too. Incremental innovation is just as much a part of the business (and the science) as are sudden leaps forward. There's room to wonder if the frequency of those sudden leaps (and the distance they cover) will go down if we don't get to take as many steps in the run-up to them. This is one of those issues that moves slowly enough to be effectively unprovable on any sort of reasonable financial or political time scale, but there are a lot of very real things out there that don't fit themselves to our calendars.
BioCentury recommends that (1) companies should work with regulatory agencies, insurance (both public and private), and patient groups to define just what constitutes real value for a given disease area, (2) they should immediately get to work with those payers who are already mandated to show improvements in their quality of care, (3) as mentioned above, whenever some government or international agency starts rating health care and medical technology advances, the industry had better be there, and (4) the drug industry had better change some of its traditional attitudes, and fast, because its pricing power is clearly diminishing.
As a drug-discovery guy, I don't spend as much time thinking about these issues as I do scientific ones. But if I'm discovering new things that no one wants, because no one needs them, that no one will then feel like paying for, all my work (and that of my colleagues) will be in vain. None of us can afford to keep our heads down these days.
There's some Merck news today, via FiercePharma. First off, their R&D head Roger Perlmutter sat down with some of the most prominent analysts for a chat about the company's direction - and they came out with two completely different stories. Big changes? Minor ones? I wonder if people were taking away what they wanted to hear to confirm what they'd already decided Merck should be doing. Seamus Fernandez, for example, apparently came away saying that he thought a major R&D restructuring was inevitable, but that's what he thought before he sat down. This sort of thing is worth keeping in mind when you hear some Wall St. types (particularly on the "sell side") going on authoritatively about what's happening inside a given company.
The other news is that Merck is handing off one of their oncology programs (the WEE-1 kinase inhibitor MRK-1775) to AstraZeneca. If I were a mean person given to saying unkind things, I'd say that this drug is at least now going to get a lot more money spent on it, because that's what AZ has been famous for. But I'll stick with what John Carroll had to say on Twitter: "So if $MRK thought 1775 was any damn good, would they outlicense it to $AZN?"
So Astex, one of the pioneers in fragment-based drug discovery, has been bought by Otsuka for their oncology portfolio. You don't hear people asking "What has all this fragment stuff accomplished?" as much as you used to, but here's another answer: an $886 million dollar buyout.
The president of Otsuka says that they're going to keep Astex's research the way it is:
"Astex's unique fragment-based drug discovery technology and clinical oncology research and development capabilities, born out of the passion of its researchers, exemplify our corporate mottos and belief in "Sozosei (Creativity) and Jissho (Proof through Execution). I would like Otsuka Pharmaceutical to continue to respect Astex's uniqueness and leverage it to bring further growth for Otsuka Pharmaceutical."
And the Japanese companies have, for the most part, been good at leaving things alone when they say they will. In the case of Astex's unusual set of skills, this seems like a smart move.
Steve Ballmer's departure from Microsoft, snidely remarked on here, has prompted any number of "What went wrong?" pieces to appear. One of the key documents, though, is from last year: Kurt Eichenwald's writeup in Vanity Fair. The editorial staff has helpfully illustrated it with a photo of Ballmer himself that's so characteristic of his style that it's liable to give ex-Microsofters the shivering flashbacks.
One of the common themes to all these articles is the company's use of "stack ranking", where you evaluate your direct reports and rank them top to bottom. The bottom performers get hammered, no matter how they might have done on some hypothetical absolute scale. If you happen to have a great group of high-performing people working for you - too bad. Some of them are going to be ranked at the imaginary bottom, and get punished for it. Here's Eichenwald:
At the center of the cultural problems was a management system called “stack ranking.” Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees. The system—also referred to as “the performance model,” “the bell curve,” or just “the employee review”—has, with certain variations over the years, worked like this: every unit was forced to declare a certain percentage of employees as top performers, then good performers, then average, then below average, then poor.
“If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review,” said a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.”
. . .For that reason, executives said, a lot of Microsoft superstars did everything they could to avoid working alongside other top-notch developers, out of fear that they would be hurt in the rankings. And the reviews had real-world consequences: those at the top received bonuses and promotions; those at the bottom usually received no cash or were shown the door.
You can well imagine the sorts of behaviors this system promotes. A Microsoft engineer said in the article that "One of the most valuable things I learned was to give the appearance of being courteous while withholding just enough information from colleagues to ensure they didn’t get ahead of me on the rankings". What's even more dysfunctional about this system is that it was not officially acknowledged by the managers. Here's a former Microsoft employee writing in Slate:
Then I had to explain things to my reports. This illustrated another problem with the system: It destroyed trust between individual contributors and management, because the stack rank required that all lower-level managers systematically lie to their reports. Why? Because for years Microsoft did not admit the existence of the stack rank to nonmanagers. Knowledge of the process gradually leaked out, becoming a recurrent complaint on the much-loathed (by Microsoft) Mini-Microsoft blog, where a high-up Microsoft manager bitterly complained about organizational dysfunction and was joined in by a chorus of hundreds of employees. The stack rank finally made it into a Vanity Fair article in 2012, but for many years it was not common knowledge, inside or outside Microsoft. It was presented to the individual contributors as a system of objective assessment of “core competencies,” with each person being judged in isolation.
Why do I bring this up? Because many large drug companies persist in ranking-and-rating behaviors that are very nearly as stupid, and very nearly as destructive. And we've been doing it for years. At any rate, I've been complaining about it for years, and I'm certainly not alone. Rating people in research is notoriously difficult already, but rating them by jamming them into an artificial (and mathematically illiterate) template is even worse. If you want people to focus on stepping over each other, pit them against each other with a good, hard stack ranking system. If you'd like them to do something else with their time, you might want to rethink.
I see that the IEEE Spectrum has also come out saying that there is no shortage of scientists and engineers. I agree with him, as longtime readers will know. The market for people who do these things does not look like a market facing any kind of shortage:
What’s perhaps most perplexing about the claim of a STEM worker shortage is that many studies have directly contradicted it, including reports from Duke University, the Rochester Institute of Technology, the Alfred P. Sloan Foundation, and the Rand Corp. A 2004 Rand study, for example, stated that there was no evidence “that such shortages have existed at least since 1990, nor that they are on the horizon.”
That report argued that the best indicator of a shortfall would be a widespread rise in salaries throughout the STEM community. But the price of labor has not risen, as you would expect it to do if STEM workers were scarce. In computing and IT, wages have generally been stagnant for the past decade, according to the EPI and other analyses. And over the past 30 years, according to the Georgetown report, engineers’ and engineering technicians’ wages have grown the least of all STEM wages and also more slowly than those in non-STEM fields; while STEM workers as a group have seen wages rise 33 percent and non-STEM workers’ wages rose by 23 percent, engineering salaries grew by just 18 percent. The situation is even more grim for those who get a Ph.D. in science, math, or engineering. The Georgetown study states it succinctly: “At the highest levels of educational attainment, STEM wages are not competitive.”
Given all of the above, it is difficult to make a case that there has been, is, or will soon be a STEM labor shortage. . .
The article's author, Robert Charette, has done a lot of digging through the archives to trace the history of this whole idea. There's an entertaining sidebar with looming-shortage-of-science-and-engineering quotes going back to the 1930s. No era seems immune. (Thanks to another alert reader, I can add, though, that in 1972 an article in Science actually forecast an overabundance of PhD holders on the horizon. No one seems to have believed it then). And he also has what I think is a clear view of why this alarm keeps on being sounded:
Clearly, powerful forces must be at work to perpetuate the cycle. One is obvious: the bottom line. Companies would rather not pay STEM professionals high salaries with lavish benefits, offer them training on the job, or guarantee them decades of stable employment. So having an oversupply of workers, whether domestically educated or imported, is to their benefit. It gives employers a larger pool from which they can pick the “best and the brightest,” and it helps keep wages in check. No less an authority than Alan Greenspan, former chairman of the Federal Reserve, said as much when in 2007 he advocated boosting the number of skilled immigrants entering the United States so as to “suppress” the wages of their U.S. counterparts, which he considered too high.
The idea of a shortage also benefits the funding of all levels of education, so what's not to like?
Luke Timmerman has a good piece on a drug (Bexxar) that looked useful, had a lot of time, effort, and money spent on it, but still never made any real headway. GSK has announced that they're ceasing production, and if there are headlines about that, I've missed them. Apparently there were only a few dozen people in the entire US who got the drug at all last year.
When you look at the whole story, there’s no single reason for failure. There were regulatory delays, manufacturing snafus, strong competition, reimbursement challenges, and issues around physician referral patterns.
If this story sounds familiar, it should—there are some striking similarities to what happened more recently with Dendreon’s sipuleucel-T (Provenge). If there’s a lesson here, it’s that cool science and hard medical evidence aren’t enough. When companies fail to understand the markets they are entering, the results can be quite ugly, especially as insurers tighten the screws on reimbursement. If more companies fail to pay proper attention to these issues, you can count on more promising drugs like Bexxar ending up on the industry scrap heap.
So Amgen's bid for Onyx look like it's going through, and the reaction of John Carroll at FiercePharma was to tweet "Expect big layoffs soon". He took some flak for being such a downer, but he's right, as far as I can see. Amgen isn't buying Onyx for their research staff, or any of their people at all. As that Bloomberg story linked to above has it, "Amgen to Buy Onyx for $10.4 Billion to Gain Cancer Drug".
That's Kyprolis (carfilzomib), their proteasome inhibitor, and that's all they need from Onyx, who bought the compound anyway when they acquired Proteolix a few years ago. So since I don't want to be a downer either, especially on Monday morning, I'd be interested to see if anyone can make another case. . .
And after that mention of CEO pay, this sounds like a good time to link to this article from Nature Biotechnology. If you've ever been curious about why different companies pay out in stock options and/or restricted stock, this will satisfy your curiosity and more. A big part of the answer, you will not be surprised to hear, is the tax code, and if you're someone getting these kinds of compensation, you need to know some tax angles from your end, too.
And, of course, the type of award that works out best for the company doesn't always work out best for the grantee. Likewise, not every grantee will be best served by a single kind of award - it all depends on what you're trying to reward:
Although stock options continue to be a popular employee incentive device, in the past few years their advantages have been diminished through accounting and tax law changes, whereas their shortcomings have become more apparent in the biotech sector—in which a consistently growing stock price is far from assured, or even likely. As a consequence, biotech firms are moving away from an exclusive reliance on stock options and instead are using a mix of equity-based incentives, most commonly a combination of stock options and performance-based stock units.
From the perspective of a founder or other employee, the shift to a combination of stock options and some form of restricted stock or stock units should be welcome, making it less likely that the employee's awards will have no value at all. Unlike the corporate employer, an employee would prefer that restricted stock or stock units not be subject to performance conditions. . .
Definitely worth a look if you haven't thought about these details. After a good long stare, though, you may decide that the best course is to pay someone else to think about these things for you (!)
In the case of Microsoft's Steve Ballmer, the stock market appears to be saying "About minus 18 billion dollars". As Alex Tabarrok notes here, that sort of puts average CEO compensation in perspective. . .do we have some bigwigs in this business who could do as much for their shareholders by following Ballmer's example?
This is just what people working in R&D at Merck don't want to see. According to FiercePharma, a prominent analyst is urging the company to get its finances in line with its competitors. . .by cutting R&D.
Seamus Fernandez at Leerink Swann says that Merck should reduce their expenditures in that area by around a billion dollars, which is at least 8 times deeper than the new R&D head, Roger Perlmutter, has talked about. Here's the whole analysis, which includes this:
We believe a major restructuring at MRK is necessary; movement here likely would be well-received. As pressure builds on MRK mgmt to: (1) improve R&D productivity, (2) maintain top-tier operating margins, and (3) continue returning cash to shareholders, we believe a deep restructuring should be seriously considered in light of the relatively lackluster 2013 top-line performance, disappointing Ph III/ registrational pipeline evolution (odanacatib, suvorexant, Bridion U.S.), and overall industry challenges. We estimate that every $1B reduction of operating expenses would add $0.25/share to MRK's bottom line, and would bring MRK's absolute R&D spend closer to PFE's (MP) ~$6.5B but still be in line with several of its diversified competitors' spend at ~14% of sales. A 10% cut in overall operating expenses would equate to ~$2B of annual cost reductions.
If you read the rest, you'll see that the reasons Fernandez has for optimism are all on the financial side of the company: how much cash the company has on hand, its opportunities to do things like sell off animal health, sell off consumer care, and of course its opportunities to cut costs. There's absolutely nothing in there about the company doing better because of anything that's coming along in the pipeline. No, all that drug stuff is in the negative category: doubts about the big IMPROVE-IT trial in cardiovascular, competition for the existing drugs, regulatory uncertainties, and so on. Nothing but trouble.
At this point, it would be easy for me to get up on the lab bench and make a rabble-rousing speech about how short-sighted all this is, how Merck is a research-driven company, not some sort of bank or insurance operation, and so on. I'm tempted. But these points, while definitely not invalid, don't address whether Fernandez might be right about Merck's current situation. He knows as well as anyone that the only reason Merck got to be this size is by discovering and selling valuable medicines, and he knows that this is still the company's core business. Those ideas about selling off animal health and consumer products? Those are supposed to bring in more money to discover drugs. If Merck doesn't do that, they're toast; that's the engine of the whole company.
OK, so why cut R&D if that's the whole reason the company exists? Here's where we get down to it. Fernandez's take is that Merck is spending too much and getting too little back for it. He's not suggesting the of chopping most of the R&D department to make the bottom line suddenly bloom (for a while). This is more of a gas-mileage problem. In this view, Merck's engine is R&D, for sure, but that engine is burning too much fuel (money) while covering too little distance in the process. To stick with the engine analogy, does it really need twelve cylinders? Does it have to be as heavy and humungous as it is? After all, others are burning similar amounts of fuel (or less) and making more progress.
What Fernandez is saying to Roger Perlmutter, as I see it, is "Throw us a bone, Roger. Show that you seriously realize that things have been going wrong at Merck, and that you understand that the company's gotten in the habit of spending too much money. Show us in the only way that you can, because just telling us that you're going to do things better and smarter isn't enough. Everyone says that, no matter how dumb they are. Even if you really can follow through on that better/smarter stuff, no one will see the results of it for years. Show us something that we can see happening right now."
The question then is whether this sort of cutting and re-engineering can be done without disrupting Merck's R&D even more, and now that is a tough question, and I'm glad I'm not on the hook to provide an answer. The problem is, a company can cut back like this, but still keep the same inefficiencies and bad processes that got it into trouble in the first place. That's what happens when a company lops off a whole division: "We still suck, but now we suck on a smaller scale". It's doing the same not-so-good stuff as it always did, but in fewer areas, and might therefore be even less likely to make anything of it. A company can also cut back in ways that might, objectively, be the right thing to do, but nonetheless end up disorganizing and demoralizing the remaining workers so much that things end up worse than before in that way, too.
These are the downside risks of taking the cut-back-your-expenditures advice, and they're very real. Not taking the advice has real risks, too, naturally. Running a company that size, or its R&D department, is not a low-pressure job with easy decisions. We'll see which way Perlmutter goes, and how he makes his case. Keep in mind, too, that these issues do not apply only to Merck. Not at all.
It's worth noting, on the business end of things, that we seem to be in a boom period for biotech/small pharma IPOs. I don't think anyone saw that coming, but these things take on momentum of their own. Hardly anyone went public for a few years once the financial crisis hit in 2007/2008. Then last year there were eleven new public companies, the most in quite a while. This year, though, there have been 29 (according to this piece in FierceBiotech), with eight of them since just the end of June.
That's pretty lively. And while some of this can be explained as a holdover from companies that would have gone public earlier, under less trying conditions, you'd have to think that we're getting near the bottom of the sack by now. Whatever gets pulled up at this point has a greater likelihood of having all kinds of stuff stuck to it, and it might not be in good enough condition for your portfolio to consume it. Soon we'll probably be in the part of the cycle where good companies, who would have happily launched themselves into the market a few months before, get whipsawed by a closing IPO window. If you think of a large flock of birds wheeling around in the sky, unable to quite decide which tree to land on, or whether to land at all, you'll have a pretty good mental picture of the market.
So reports FiercePharma, quoting a story in the 21st Century Business Herald and the Shanghai Daily. A former Novartis sales rep says that she was "ordered" to bribe doctors to meet sales quotas. As Tracy Staton at Fierce puts it:
With Chinese authorities actively looking for any suggestion of corruption or bribery, we're likely to see more whistleblowers come forward and officials investigations follow. Though no one wants to admit it, payments to doctors and hospitals have been commonplace in China for years. The BBC reported this week that bribes are "routinely paid" by big drugmakers in China, citing 5 pharma reps working in China. One of those reps, however, said such payments are "rare," and "only very few people" get money from pharma.
The government previously tolerated the practice--or encouraged it, even, by putting doctors on paltry salaries. Now, officials are targeting foreign drugmakers for it, perhaps to make examples of them, perhaps to twist their arms for lower prices. Probably both.
Now Sanofi is tangled up in trouble in China. The last few days have brought news of a wide-ranging investigation into payments to hospitals and medical workers, similar to what GlaxoSmithKline has been accused of.
And I don't have much reason to doubt either story, because (as this BBC story details) payments of this sort are rife. I would also note that, according to the AP, the Chinese government "is investigating production costs at 60 Chinese and foreign pharmaceutical manufacturers, according to state media, possible as a prelude to revising state-imposed price caps on key medications."
A system where everyone is in violation of the law has a lot of advantages - if you're the government. Retribution, when it's needed, is always at hand, because all you have to do is threaten to enforce what's already on the books. And lest someone think that I'm just beating away at the Chinese situation, the same applies to the US (on what I hope is a lower level). Here's economist Tyler Cowen, from the Marginal Revolution blog, on that very subject:
Faced with the evidence of an non-intentional crime, most prosecutors, of course, would use their discretion and not threaten imprisonment. Evidence and discretion, however, are precisely the point. Today, no one is innocent and thus our freedom is maintained only by the high cost of evidence and the prosecutor’s discretion.
The GSK and Sanofi allegations are, of course, all about intentional acts. But prosecuting them is very much up to the discretion of the Chinese authorities. If they're trying to root out corruption in their health care system, more power to them, because that's a worthy cause. But if they're just putting the squeeze on people long enough to bargain with them, only to let things return to the status quo ante after concessions have been extracted, then I have another opinion. Cynically, that's just what I expect to happen. After all, one might need to charge these companies with bribery again at some point. The Chinese authorities - authorities in general, all over the world - are not in the habit of putting down useful weapons and walking away from them.
This has just shown up in the comments section, so I wanted to note it out here on the front page. The New Jersey state workforce directory lists Merck as notifying them that they plan to eliminate up to 113 jobs in Kenilworth, with an effective date of October 1.
I don't know what the follow-through is on notices like this, or the legal consequences thereof. And there's certainly nothing in there about what sorts of reductions these might be. But it's worth noting that the company has at least filed the paperwork - has anyone in Kenilworth heard more?
This PNAS paper's title certainly caught my attention: "Advertisements impact the physiological efficacy of a branded drug". The authors, from the University of Chicago, are digging into the business end of the placebo effect. After giving a set of subjects a skin-test panel to common allergans, here's what happened:
We conducted two randomized clinical trials to measure the impact of direct-to-consumer advertising on the objective, physiological effect of Claritin (Merck & Co.), a leading antihistamine drug. A pilot study assessed the efficacy of Claritin across subjects exposed to advertisements for Claritin, advertisements for Zyrtec (McNeil), or control advertisements. . .Among subjects with allergies, the efficacy was the same across the three advertisement conditions, but among subjects without allergies, efficacy was significantly greater in the Claritin advertisements condition than in the Zyrtec advertisements condition.
The heterogeneity of the treatment effect based on the allergy status was discovered only ex post facto, so we conducted a follow- up trial to replicate these initial findings. To maximize statistical power, the follow-up trial used a larger sample, assigned subjects only to Claritin advertisements or Zyrtec advertisements, and block-randomized subjects based on their allergy status. In ad- dition, we elicited subjects’ beliefs about the efficacy of Claritin to examine whether any difference in impact of the advertisements across the two subpopulations is driven by the relative malleability of their beliefs. . .
This reminds me of the various experiences that people have had with blind taste testing of wines. In the follow-up trial, they used a histamine challenge in the skin test, which will give a red reaction no matter what you're allergic to. The effect repeated:
In the subpopulation without allergies, we find that the efficacy of Claritin at 120 min is substantially higher for subjects who were exposed to Claritin advertisements. Claritin advertisements have no significant impact on efficacy 60 min after the drug is taken. This pattern is consistent with the observed changes in the subjects’ beliefs. Exposure to Claritin advertisements in this subpopulation greatly increases the belief in the efficacy of Claritin. At the same time, the realized efficacy of Claritin at 120 min (but not at 60 min) is strongly correlated with the change in beliefs.
In the subpopulation with allergies, we find no relationship between exposure to Claritin advertisements and the change in beliefs. Moreover, the advertisements have no impact on the efficacy of Claritin at 120 min. We do find a curious negative impact of Claritin advertisements on Claritin’s efficacy at 60 min in this subpopulation, but this effect cannot be mediated by the (nonexistent) impact of advertisements on beliefs.
Oh, boy. I truly wonder why this experiment hasn't been run before, but look for a lot of follow-ups now that it's out. As the authors themselves detail, there are several unanswered questions that could be addressed: does seeing the Claritin advertisements make the Claritin work better, or does seeing the Zyrtec ads make Claritin work more poorly? Why does this seem to work only in people without specific allergies in the first place? What's the physiological pathway at work here, in any case?
Here's the big one: does direct-to-consumer advertising actually increase the efficacy of the drugs it advertises? That is, does the effect shown in this experiment translate to real-world conditions? For how many compounds is this the case, and in what therapeutic classes is the effect most likely to occur? Is there an actual economic or public health benefit to this effect, should it prove to be robust? If so, how large is compared to the money spent on the advertising itself? And if people internalize the idea that advertisements make a drug work better, will advertisements continue to do that at all?
Today, Pfizer is announcing plans to move forward to internally separate its commercial operations into three business segments, two of which will include Innovative business lines and a third which will include the Value business line. . .
One of the Innovative business segments. . .will generally include products across multiple therapeutic areas that are expected to have market exclusivity beyond 2015. The therapeutic areas include Inflammation and Immunology, CV/Metabolic, Neuroscience and Pain, Rare Diseases and Women's/Men's Health. . .the other Innovative business segment will include Vaccines, Oncology and Consumer Healthcare. . .The Value business segment. . .will include products that generate strong, consistent cash flow, and will be positioned to provide patients access to effective, lower-cost, high-value treatments. In addition to products that have lost market exclusivity, it will generally include mature, patent-protected products that are expected to lose exclusivity through 2015 in most major markets, biosimilars and current and future established products collaborations. . .
I'm not at all sure that I understand this yet. I can see why the "Value" business segment exists separately, although I think that it's unfortunately named. (You can either get the impression that the other two don't have value, or make the connection with "cheap/generic" as in some store's "Value Line" of products). But I'm not getting the distinction between the other two so well. It's not broken down by biologics/small molecules, or by specialty marketing/wider market, not from what I can see. And putting vaccines, oncology, and consumer health into one bunch sounds like a random draw of tiles out of a bag.
No doubt there will be many, many more explanations to come, and I look forward to seeing how many of them are coherent. For now, it looks like more uncertainly and disruption, which is not quite what Pfizer seems to need.
Note: for those of you wondering where the obvious Latin joke is, Chemjobber already got the Julius Caesar quote off on Twitter!
Surprisingly, two people have come forward saying that they were among the people who bought options in Onyx Pharmaceuticals just before Amgen's bid for the company. This wildly profitable trade has attracted plenty of regulatory attention, and the SEC has already filed a civil lawsuit (and is hunting for defendants).
Dhia Jafar and Omar Nabulsi, both of Dubai, said a court-ordered freeze should be lifted on the $2.53 million profit that they made lawfully from buying Onyx call options in the last week of June, according to filings late Tuesday in U.S. District Court in Manhattan.
The defendants said that when they bought the call options, they had no material, non-public information that biotechnology company Amgen Inc was trying to buy its smaller rival for $10 billion, a hefty premium at the time.
Who knows? People do get lucky. And the fact that these two have come forward to defend their trades is unusual, and suggests that they think that they have a case to make. But I'll bet that not everyone who did that trade will be persuasive about their reasons.
This Reuters story may be telling people everything they need to know in the first paragraph:
British drugmaker GlaxoSmithKline said on Monday some of its executives in China appeared to have broken the law in a bribery scandal, as it promised changes in its business model that would lower the cost of medicine in the country.
GSK is the latest in a string of multinationals to be targeted by Chinese authorities over alleged corruption, price-fixing and quality controls.
Chinese police visited the Shanghai office of another British drugmaker, AstraZeneca, a company spokeswoman said on Monday. They arrived on Friday and took away a sales representative for questioning, she said.
Will AstraZeneca cut its prices for China as well? In case some readers may think I'm drawing conclusions too quickly, well, the Reuters story draws them for you:
GSK's intention to cut the price of its medicines in China would be in line with how other foreign companies have responded to pressure from Beijing.
European food groups Nestle and Danone said they would cut infant milk formula prices in China after Beijing launched an inquiry into the industry.
"In China, when the government criticises people, they tend to bow down and apologise very quickly because they are scared of the authority of the central government to do tremendous harm to their business - whether it be for arresting executives very quickly or through auditing," said Shaun Rein, managing director of the Shanghai-based China Market Research Group.
We now return to our regularly schedule program around here - or at least, Eli Lilly is now returning to theirs. The company announced that they're freezing salaries for most of the work force, in an attempt to save hundreds of millions of dollars in advance of their big patent expirations. Some bonuses will be reduced as well, they say, but that leaves a lot of room. Higher-ups don't look for increases in base pay as much as they look for bonuses, options, and restricted shares (although, to be fair, these are often awarded as a per cent of salary).
‘‘This action is necessary to withstand the impact of upcoming patent expirations and to support the launch of our large phase III pipeline,’’ Chief Executive Officer John Lechleiter, 59, said in a letter to employees today, a copy of which was obtained by Bloomberg. ‘‘The current situation requires us to take the appropriate action now to secure our company’s future. We can’t allow ourselves to let up and fail to make the tough choices.”
Lechleiter himself has not had a raise since 2010, it appears, although I'm not sure if his non-salary compensation follows the same trend. If anyone has the time to dig through the company's last few proxy statements, feel free, but actually figuring out what a chief executive is really paid is surprisingly difficult. (I remember an article a few years ago where several accountants and analysts were handed the same batch of SEC filings and all of them came out with different compensation numbers).
But there's not doubt that Lilly is in for it, something that has been clear for some time now. The company's attempts to shore up its clinical pipeline haven't gone well, and it looks like (more and more) they're putting a lot of their hopes on a success in Alzheimer's. If they see anything, that will definitely turn the whole situation around - between their diagnostic branch and a new therapeutic, they'll own the field, and a huge field it is. But the odds of this happening are quite low. The most likely outcome, it seems to me, is equivocal data that will be used to put pressure on the FDA, etc., to approve something, anything, for Alzheimer's.
It's worth remembering that it wasn't very long ago at all that the higher-ups at Lilly were telling everyone that all would be well, that they'd be cranking out two big new drugs a year by now. Hasn't happened. Since that 2010 article, they've had pretty much squat - well, Jentadueto, which is Boehringer Ingleheim's linagliptin, which Lilly is co-marketing, with metformin added. Earlier this year, they were talking up plans for five regulatory submissions in the near future, but that figure is off now that enzastaurin has already bombed in Phase III. Empagliflozin and ramucirumab are still very much alive, but will be entering crowded markets if they make it through. Dulaglutide is holding up well, though.
But will these be enough to keep Lilly from getting into trouble? That salary freeze is your answer: no, they will not. All the stops must be pulled out, and the ones after this will be even less enjoyable.
I thought everyone could use something inspirational after the sorts of stories that have been in the news the last few days. Here's a piece at FierceBiotech on Regeneron, a company that's actually doing very well and expanding. And how have they done it?
Regeneron CEO Dr. Leonard "Len" Schleifer, who founded the company in 1988, says he takes pride in the fact that his team is known for doing "zero" acquisitions. All 11 drugs in the company's clinical-stage pipeline stem from in-house discoveries. He prefers a science-first approach to running a biotech company, hiring Yancopoulos to run R&D in 1989, and he endorsed a 2012 pay package for the chief scientist that was more than twice the size of his own compensation last year.
Scientists run Regeneron. Like Yancopoulos, Schleifer is an Ivy League academic scientist turned biotech executive. Regeneron gained early scientific credibility with a 1990 paper in the journal Science on cloning neurotrophin factor, a research area that was part of a partnership with industry giant Amgen. Schleifer has recruited three Nobel Prize-winning scientists to the board of directors, which is led by long-time company Chairman Dr. P. Roy Vagelos, who had a hand in discovering the first statin and delivering a breakthrough treatment for a parasitic cause of blindness to patients in Africa.
"I remember these people from Pfizer used to go around telling us, 'You know, blockbusters aren't discovered, they're made,' as though commercial people made the blockbuster," Schleifer said in an interview. "Well, get lost. Science, science, science--that's what this business is about."
I don't know about you, but that cheers me up. That kind of attitude always does!
The state of Florida is press-releasing that Bristol-Myers Squibb is opening a "capability center" in the Tampa area, which will bring 579 jobs. What they're not saying - but what I hear through the grapevine - is that some of these jobs were formerly somewhere else. I don't know how many of the total are actually new positions.
They seem mostly to be support staff (I have to say, I have no clear picture of what a capability center actually is), and the affected people were notified late this afternoon. At least it opens in January, when a move to Tampa will be somewhat more tolerable. . .
Well, this got my attention: according to the Sunday Times, GlaxoSmithKline is preparing to hand out hefty bonus payments to scientists if they have a compound approved for sale. Hefty, in this context, means up to several million dollars. The earlier (and much smaller) payouts for milestones along the way will disappear, apparently, to be replaced by this jackpot.
The article says that "The company will determine who is entitled to share in the payout by judging which staff were key to its discovery and development", and won't that be fun? In Germany, the law is that inventors on a corporate patent do get a share of the profits, which can be quite lucrative, but it means that there are some very pointed exchanges about just who gets to be an inventor. The prospect of million-dollar bonuses will be very welcome, but will not bring the best in some people, either. (It's not clear to me, though, if these amounts are to be split up among people somehow, or if single individuals can possibly expect that much).
I am all for recognizing scientists in this way. After all, they must be successful in order for a company the size of GSK to have a sustaining pipeline. However, the drug R&D process is really a team effort and not driven by an individual. The inventor whose name is on the patent is generally the chemist or chemists who designed the molecule that had the necessary biological activity. Rarely, however, are chemists the major contributor to the program’s success. Oftentimes, it is a biologist who conceives the essence of the program by the scientific insight he or she might have. The discovery of Pfizer’s Xeljanz is such a case. There have been major classes of drugs that have been saved by toxicologists who ran insightful animal experiments to explain aberrant events in rats as was done by Merck with both the statins and proton-pump inhibitors – two of the biggest selling classes of drugs of all time.
On occasion, the key person in a drug program is the process chemist who has designed a synthesis of the drug that is amenable to the large scales of material needed to conduct clinical trials. Clinical trial design can also be crucial, particularly when studying a drug with a totally new mechanism of action. A faulty trial design can kill any program. Even a nurse involved in the testing of a drug can make the key discovery, as happened in Pfizer’s phase 1 program with Viagra, where the nurse monitoring the patients noticed that the drug was enhancing blood flow to an organ other than the heart. To paraphrase Hilary Clinton, it takes a village to discover and develop a drug.
You could end up with a situation where the battery is arguing with the drive shaft, both of whom are shouting at the fuel pump and refusing to speak to the tires, all because there was a reward for whichever one of them was the key to getting the car to go down the driveway.
There's another problem - getting a compound to go all the way to the market involves a lot of luck as well. No one likes to talk about that very much - it's in everyone's interest to show how it was really due to their hard work and intelligence - but equal amounts of hard work and brainpower go into projects that just don't make it. Those are necessary, but not sufficient. So if GSK is trying to put this up as an incentive, it's only partially coupled to factors that the people it's aimed at can influence.
And as LaMattina points out, the time delay in getting drugs approved is another factor. If I discover a great new compound today, I'll be lucky to see it on the market by, say, 2024 or so. I have no objection to someone paying me a million dollars on that date, but it won't have much to do with what I've been up to in the interim. And in many cases, some of the people you'd want to reward aren't even with the company by the time the drug makes it through, anyway. So while I cannot object to drug companies wanting to hand out big money to their scientists, I'm not sure what it will accomplish.
Using Michael Kinsley's definition of a gaffe, as when a politician or spokesman accidentally tells the truth, I think we can put this one firmly in that category. Novogen, a small Australian company that's been though some ups and downs (mostly downs) recently raised several million dollars to continue operations. But this line in the CEO's letter to shareholders is, well. . .
". . .we need the funds to create the news flow in order to achieve market appreciation so that we can progressively raise the funds to support ongoing news flow."
There must have been a better way to phrase that, something about "making the investment community aware of the company's potential", etc. But there you have it: they're raising money to create publicity so that they can raise more money for more publicity. Their recent failure with phenoxodiol was not completely unexpected, given that the compound had been in the clinic before without success.
Thanks to this writer at the Motley Fool for picking up on this.
Aveo Pharmaceuticals has, you'd think, enough problems already. Their failed attempt to get tivozanib through the FDA crashed their stock and led to a large number of their staff being laid off. But now they disclose that they've received a subpoena in the SEC. Given the sort of thing that went on during the run-up to the approval hearing, this shouldn't be too much of a surprise:
After finding out that the FDA had suggested a year ago that Aveo's late-stage work should be supplemented with a new trial, surprised analysts began to demand some answers of their own. Those questions grew more pointed as class action lawsuits began to pile up after the stock had been eviscerated in the subsequent rout.
Weeks after the review process, Aveo responded by laying off 140 staffers, 62% of its staff, including the commercial team that had been brought in after CEO Tuan Ha-Ngoc began to confidently assure investors that the company could explain the OS data and win approval.
And as that FierceBiotech piece notes, it took the company a week to disclose the SEC's inquiry. At this point, why anyone is holding this stock is something of a mystery - you have to be a very risk-tolerant investor with some long-shot money to spare. Or (more likely) you're stuck with a lot of sunk-cost Aveo stock, bought in a more hopeful era, and although you've probably written it off by now, you figure what the heck, you might be able to get a little of the money back if you let it ride. Good luck with that.
There hasn't been much news about Warp Drive Bio since their founding. And that founding was a bit of an unusual event all by itself, since the company was born with a Sanofi deal already in place (and an agreement for them to buy the company if targets were met). But now things seem to be happening. Greg Verdine, a founder, has announced that he's taking a three-year leave of absence from Harvard to become the company's CEO. They've also brought in some other big names, such as Julian Adams (Millennium/Infinity) to be on the board of directors.
The company has a very interesting research program: they're hoping to coax out cryptic natural products from bacteria and the like, molecules that aren't being found in regular screening efforts because the genes used in their biosynthetic pathways are rarely activated. Warp Drive's plan is to sequence heaps of prokaryotes, identify the biosynthesis genes, and activate them to produce rare and unusual natural products as drug candidates. (I'm reminded of this recent work on forcing fungi to produce odd products by messing with their epigenetic enzymes, although I'm not sure if that's what Warp Drive has in mind specifically). And the first part of that plan is what the company has been occupying itself with over the last few months:
“These are probably really just better molecules, and always were better,” he says. “The problems were that they took too long to discover and that one was often rediscovering the same things over and over again.”
Verdine explains the reason this happened is because many of the novel genes in the bacteria aren’t expressed, and remain “dark,” or turned off, and thus can’t be seen. By sequencing the microbes’ genetic material, however, Warp Drive can illuminate them, and find the roadmap needed to make a number of drugs.
“They’re there, hiding in plain sight,” Verdine says.
Over the past year and a half, Warp Drive has sequenced the entire genomes of more than 50,000 bacteria, most of which come from dirt. That library represents the largest collection of such data in existence, according to Verdine.
The entire genomes of 50,000 bacteria? I can well believe that this is the record. That is a lot of data, even considering that bacterial genomes don't run that large. My guess is that the rate-limiting step in all this is going to be a haystack problem. There are just so many things that one could potentially work on - how do you sort them out? Masses of funky natural product pathways (whose workings may not be transparent), producing masses of funky natural products, of unknown function: there's a lot to keep people busy here. But if there really is a dark-matter universe of natural products, it really could be worth exploring - the usual one certainly has been a good thing over the years, although (as noted above) it's been suffering from diminishing returns for a while.
But there's something else I wondered about when Warp Drive was founded: Verdine himself has been involved in founding several other companies, and there's another one going right here in Cambridge: Aileron Therapeutics, the flagship of the stapled-peptide business (an interesting and sometimes controversial field). How are they doing? They recently got their first compound through Phase I, after raising more money for that effort last year.
The thing is, I've heard from more than one person recently that all isn't well over there, that they're cutting back research. I don't know if that's the circle-the-wagons phase that many small companies go through when they're trying to take their first compound through the clinic, or a sign of something deeper. Anyone with knowledge, feel free to add it in the comments section. . .
Update: Prof. Verdine emails me to note that he's officially parted ways with Aileron since 2010, to avoid conflicts of interest with his other venture capital work. His lab has continued to investigate stapled peptides on their own, though.
This will be interesting to follow: the recent offer by Amgen for Onyx Pharmaceuticals (which happened while I was traveling, and didn't get a chance to write about) has had a financial sidelight: someone got very, very lucky with some nearly-expired call options.
On Thursday and Friday, traders enacted a few small-sized trades on Onyx call options - which give the buyer the right to buy the stock at a given price by a certain date - hoping to catch a share price rally by mid-July.
Onyx averaged 715 calls per day over the past 22 trading days, according to options analytics firm Trade Alert.
Call volume was notable on Friday, when a total of 1,561 calls changed hands, more than double the normal level, against 488 puts. On Thursday, traders exchanged 1,374 calls and 664 puts on Onyx, data from Trade Alert showed.
"This flow looks a bit suspect to me. It's possible the buyers knew of the deal and put that knowledge to work," said Trade Alert President Henry Schwartz. "The odds of turning a few hundred thousand dollars into millions overnight are very small, yet that's exactly what happened in Onyx options last week."
Specifically, some of these were July call options, worth a dollar or two on the Friday before the announcement, which started off Monday at about $30. That's just the sort of thing that speculative options traders dream about, and it's also just the sort of trade that the SEC likes to investigate. I wish good luck to whoever it is that has to explain this activity; they're going to need it in order to persuade anyone that good luck was all that was involved.
Aveo Oncology (AVEO_) fired 140 middle and lower-level employees -- 62 percent of its workforce -- on Tuesday in order to save money to pay the salaries and bonuses of its top executives who blew up the company, decimated shareholder value and are too cowardly to accept responsibility for their incompetence.
Late last year came word that the AstraZeneca/Rigel compound, fostamatinib, had failed to show any benefit versus AbbVie's Humira in the clinic. Now they've gritted their corporate teeth and declared failure, sending the whole program back to Rigel.
I've lost count of how many late-stage clinical wipeouts this makes for AZ, but it sure is a lot of them. The problem is, it's hard to say just how much of this is drug discovery itself (after all, we have brutal failure rates even when things are going well), how much of it is just random bad luck, or what might be due to something more fundamental about target and compound selection. At any rate, their CEO, Pascal Soriot, has a stark backdrop against which to perform. Odds are, things will pick up, just by random chance if by nothing else. But odds are, that may not be enough. . .
Readers may recall the bracing worldview of Valeant CEO Mike Pearson. Here's another dose of it, courtesy of the Globe and Mail. Pearson, when he was brought in from McKinsey, knew just what he wanted to do:
Pearson’s next suggestion was even more daring: Cut research and development spending, the heart of most drug firms, to the bone. “We had a premise that most R&D didn’t give good return to shareholders,” says Pearson. Instead, the company should favour M&A over R&D, buying established treatments that made enough money to matter, but not enough to attract the interest of Big Pharma or generic drug makers. A drug that sold between $10 million and $200 million a year was ideal, and there were a lot of companies working in that range that Valeant could buy, slashing costs with every purchase. As for those promising drugs it had in development, Pearson said, Valeant should strike partnerships with major drug companies that would take them to market, paying Valeant royalties and fees.
It's not a bad strategy for a company that size, and it sure has worked out well for Valeant. But what if everyone tried to do the same thing? Who would actually discover those drugs for inlicensing? That's what David Shayvitz is wondering at Forbes. He contrasts the Valeant approach with what Art Levinson cultivated at Genentech:
While the industry has moved in this direction, it’s generally been slower and less dramatic than some had expected. In part, many companies may harbor unrealistic faith in their internal R&D programs. At the same time, I’ve heard some consultants cynically suggest that to the extent Big Pharma has any good will left, it’s due to its positioning as a science-driven enterprise. If research was slashed as dramatically as at Valeant, the industry’s optics would look even worse. (There’s also the non-trivial concern that if Valeant’s acquisition strategy were widely adopted, who would build the companies everyone intends to acquire?)
The contrasts between Levinson’s research nirvana and Pearson’s consultant nirvana (and scientific dystopia) could hardly be more striking, and frame two very different routes the industry could take. . .
I can't imagine the industry going all one way or all the other. There will always be people who hope that their great new ideas will make them (and their investors) rich. And as I mentioned in that link in the first paragraph, there's been talk for years about bigger companies going "virtual", and just handling the sales and regulatory parts, while licensing in all the rest. I've never been able to quite see that, either, because if one or more big outfits tried it, the cost of such deals would go straight up - wouldn't they? And as they did, the number would stop adding up. If everyone knows that you have to make deals or die, well, the price of deals has to increase.
But the case of Valeant is an interesting and disturbing one. Just think over that phrase, ". . .most R&D didn't give good return to the shareholders". You know, it probably hasn't. Some years ago, the Wall Street Journal estimated that the entire biotech industry, taken top to bottom across its history, had yet to show an actual profit. The Genentechs and Amgens were cancelled out, and more, by all the money that had flowed in never to be seen again. I would not be surprised if that were still the case.
So, to steal a line from Oscar Wilde (who was no stranger to that technique), is an R&D-driven startup the triumph of hope over experience? Small startups are the very definition of trying to live off returns of R&D, and most startups fail. The problem is, of course, that any Valeants out there need someone to do the risky research for there to be something for them to buy. An industry full of Mike Pearsons would be a room full of people all staring at each other in mounting perplexity and dismay.
FiercePharma has some good figures to back up my posts the other day on R&D spending versus marketing. I mentioned how many people, when they argue that drug companies spend more on marketing than they do on research, are taking the entire SG&A number, and how companies tend to not even break out their marketing numbers at all.
Well, the folks at Fierce had a recent article on marketing budgets in the business, and they take Pfizer's numbers as a test case. That's actually a really good example: Pfizer is known as a mighty marketing machine, and for a long time they had what must have been the biggest sales force in the industry. They also have a lower R&D spend than many of their peers, as a percentage of sales. So if you're looking for the sort of skewed priorities that critics are always complaining about, here's where you'd look.
Pfizer spent $622 million on advertising last year. Man, that's a lot of money. It's so much that it's not even one-tenth of their R&D budget. Ah, you say, but ads are only part of the story, and so they are. But while we don't have a good estimate on that for Pfizer, we do have one for the industry as a whole:
DTC spending is only part of the overall sales-and-marketing budget, of course. Detailing to doctors costs a pretty penny, and that's where drugmakers spend much of their sales budget. Consumer advertising spending dropped by 11.5% in 2012 to $3.47 billion. Marketing to physicians, according to a Johns Hopkins Bloomberg School of Public Health study, amounted to $27.7 billion in 2010; that same year, DTC spending was just over $4 billion.
That's a total for 2010 of more than $31 billion, the best guess-timate we can come up with on short notice. According to FierceBiotech's 2010 R&D spending report, the industry shelled out $67 billion on research that year--more than twice our quick-and-dirty marketing estimate.
So let's try for a Pfizer estimate then. If they stayed at roughly that ratio, then they would have spent seven times as much marketing to physicians as they did on advertising per se. That gives a rough number of $4.3 billion, plus that $622 million, for a nice round five billion dollars of marketing. That's still less than their R&D budget of $7.9 billion, folks, no small sum. (And as for that figure from a couple of years ago about how it only costs $43 million to find a new drug, spare me. Spare everyone. Pfizer is not allocating $7.9 billion dollars for fun, nor are they planning on producing 184 new drugs with that money at $43 million per, more's the pity.)
So let me take a stronger line: Big Pharma does not spend more on marketing than it does on R&D. This is a canard; it's not supported by the data. And let me reiterate a point that's been made here several times: no matter what the amount spent on marketing, it's supposed to bring in more money than is spent. That's the whole point of marketing. Even if the marketing budget was the same as the R&D, even if it were more, it still wouldn't get rid of that point: the money that's being spent in the labs is money that came in because of marketing. Companies aren't just hosing away billions of dollars on marketing because they enjoy it; they're doing it to bring in a profit (you know, that more-money-than-you-spend thing), and if some marketing strategy doesn't look like it's performing, it gets ditched. The response-time loop over there is a lot tighter than it is in research.
There. Now the next time this comes up, I'll have a post to point to, with the numbers, and with the links. It will do no good at all.
Note: I am not saying that every kind of drug company marketing is therefore good. Nor am I saying that I do not cringe and roll my eyes at some of it. And yes indeed, companies can and do cross lines that shouldn't be crossed when they get to selling their products too hard. Direct-to-consumer advertising, although it has brought in the money, has surely damaged the industry from other directions. All this is true. But the popular picture of big drug companies as huge advertising shops with little vestigial labs stuck to them: that isn't.
The United States spent more than US$3 billion last year across 209 federal programmes intended to lure young people into careers in science, technology, engineering and mathematics (STEM). The money goes on a plethora of schemes at school, undergraduate and postgraduate levels, all aimed at promoting science and technology, and raising standards of science education.
In a report published on 10 April, Congress’s Government Accountability Office (GAO) asked a few pointed questions about why so many potentially overlapping programmes coexist. The same day, the 2014 budget proposal of President Barack Obama’s administration suggested consolidating the programmes, but increasing funding.
What no one asked was whether these many activities actually benefit science and engineering, or society as a whole. My answer to both questions is an emphatic ‘no’.
And I think he's right about that. Whipping and driving people into science careers doesn't seem like a very good way to produce good scientists. In fact, it seems like an excellent way to produce a larger cohort of indifferent ones, which is exactly what we don't need. Or does that depend on the definition of "we"?
The dynamic at work here isn’t complicated. By cajoling more children to enter science and engineering — as the United Kingdom also does by rigging university-funding rules to provide more support for STEM than other subjects — the state increases STEM student numbers, floods the market with STEM graduates, reduces competition for their services and cuts their wages. And that suits the keenest proponents of STEM education programmes — industrial employers and their legion of lobbyists — absolutely fine.
And that takes us back to the subject of these two posts, on the oft-heard complaints of employers that they just can't seem to find qualified people any more. To which add, all too often, ". . .not at the salaries we'd prefer to pay them, anyway". Colin Macilwain, the author of this Nature piece I'm quoting from, seems to agree:
But the main backing for government intervention in STEM education has come from the business lobby. If I had a dollar for every time I’ve heard a businessman stand up and bemoan the alleged failure of the education system to produce the science and technology ‘skills’ that his company requires, I’d be a very rich man.
I have always struggled to recognize the picture these detractors paint. I find most recent science graduates to be positively bursting with both technical knowledge and enthusiasm.
If business people want to harness that enthusiasm, all they have to do is put their hands in their pockets and pay and train newly graduated scientists and engineers properly. It is much easier, of course, for the US National Association of Manufacturers and the British Confederation of British Industry to keep bleating that the state-run school- and university-education systems are ‘failing’.
This position, which was not my original one on this issue, is not universally loved. (The standard take on this issue, by contrast, has the advantage of both flattering and advancing the interests of employers and educators alike, and it's thus very politically attractive). I don't even have much affection for my own position on this, even though I've come to think it's accurate. As I've said before, it does feel odd for me, as a scientist, as someone who values education greatly, and as someone who's broadly pro-immigration, to be making these points. But there they are.
Update: be sure to check the comments section if this topic interests you - there are a number of good ones coming in, from several sides of this issue.
So drug companies may spend a lot on R&D, but they spend even more on marketing, right? I see the comments are already coming in to that effect on this morning's post on R&D expenditures as a percentage of revenues. Let's take a look at those other numbers, then.
We're talking SG&A, "sales, general, and administrative". That's the accounting category where all advertising, promotion and marketing ends up. Executive salaries go there, too, in case you're wondering. Interestingly, R&D expenses technically go there as well, but companies almost always break that out as a separate subcategory, with the rest as "Other SG&A". What most companies don't do is break out the S part separately: just how much they spend on marketing (and how, and where) is considering more information than they're willing to share with the world, and with their competition.
That means that when you see people talking about how Big Pharma spends X zillion dollars on marketing, you're almost certainly seeing an argument based on the whole SG&A number. Anything past that is a guess - and would turn out to be a lower number than the SG&A, anyway, which has some other stuff rolled into it. Most of the people who talk about Pharma's marketing expenditures are not interested in lower numbers, anyway, from what I can see.
So we'll use SG&A, because that's what we've got. Now, one of the things you find out quickly when you look at such figures is that they vary a lot, from industry to industry, and from company to company inside any given group. This is fertile ground for consultants, who go around telling companies that if they'll just hire them, they can tell them how to get their expenses down to what some of their competition can, which is an appealing prospect.
Here you see an illustration of that, taken from the web site of this consulting firm. Unfortunately, this sample doesn't include the "Pharmaceuticals" category, but "Biotechnology" is there, and you can see that SG&A as a percent of revenues run from about 20% to about 35%. That's definitely not one of the low SG&A industries (look at the airlines, for example), but there are a lot of other companies, in a lot of other industries, in that same range.
So, what do the SG&A expenditures look like for some big drug companies? By looking at 2012 financials, we find that Merck's are at 27% of revenues, Pfizer is at 33%, AstraZeneca is just over 31%, Bristol-Myers Squibb is at 28%, and Novartis is at 34% high enough that they're making special efforts to talk about bringing it down. Biogen's SG&A expenditures are 23% of revenues, Vertex's are 29%, Celgene's are 27%, and so on. I think that's a reasonable sample, and it's right in line with that chart's depiction of biotech.
What about other high-tech companies? I spent some time in the earlier post talking about their R&D spending, so here are some SG&A figures. Microsoft spends 25%, Google just under 20%, and IBM spends 21.5%. Amazon's expenditures are about 23%, and have been climbing. But many other tech companies come in lower: Hewlett-Packard's SG&A layouts are 11% of revenues, Intel's are 15%, Broadcom's are 9%, and Apple's are only 6.5%.
Now that's more like it, I can hear some people saying. "Why can't the drug companies get their marketing and administrative costs down? And besides, they spend more on that than they do on research!" If I had a dollar for every time that last phrase pops up, I could take the rest of the year off. So let's get down to what people are really interested in: sales/administrative costs versus R&D. Here comes a list (and note that some of the figures may be slightly off this morning's post - different financial sites break things down slightly differently):
Well, now, isn't that enough? As you go to smaller companies, it looks better (and in fact, the categories flip around) but when you get too small, there aren't any revenues to measure against. But jut look at these people - almost all of them are spending more on sales and administration than they are on research, sometimes even a bit more than twice as much! Could any research-based company hold its head up with such figures to show?
Sure they could. Sit back and enjoy these numbers, by comparison:
Note that these companies, all of whom appear regularly on "Most Innovative" lists, spend anywhere from two to eight times their R&D budgets on sales and administration. I have yet to hear complaints about how this makes all their research into some sort of lie, or about how much more they could be doing if they weren't spending all that money on those non-reseach activities. You cannot find a drug company with a split between SG&A and research spending like there is for IBM, or GE, or 3M. I've tried. No research-driven drug company could survive if it tried to spend five or six times its R&D on things like sales and administration. It can't be done. So enough, already.
Note: the semiconductor companies, which were the only ones I could find with comparable R&D spending percentages to the drug industry, are also outliers in SG&A spending. Even Intel, the big dog of the sector, manages to spend slightly less on that category than it does on R&D, which is quite an accomplishment. The chipmakers really are off on their own planet, financially. But the closest things to them are the biopharma companies, in both departments.
How much does Big Pharma spend on R&D, compared to what it takes in? This topic came up during a discussion here last week, when a recent article at The Atlantic referred to these expenditures as "only" 16 cents on the dollar, and I wanted to return to it.
One good source for such numbers is Booz, the huge consulting outfit, and their annual "Global Innovation 1000" survey. This is meant to be a comparison of companies that are actually trying to discover new products and bring them to market (as opposed to department stores, manufacturers of house-brand cat food, and other businesses whose operations consist of doing pretty much the same thing without much of an R&D budget). Even among these 1000 companies, the average R&D budget, as a per cent of sales, is between 1 and 1.5%, and has stayed in that range for years.
Different industries naturally have different averages. The "chemicals and energy" category in the Booz survey spends between 1 and 3% of its sales on R&D. Aerospace and defense companies tend to spend between 3 and 6 per cent. The big auto makers tend to spend between 3 and 7% of their sales on research, but those sales figures are so large that they still account for a reasonable hunk (16%) of all R&D expenditures. That pie, though, has two very large slices representing electronics/computers/semiconductors and biopharma/medical devices/diagnostics. Those two groups account for half of all the industrial R&D spending in the world.
And there are a lot of variations inside those industries as well. Apple, for example, spends only 2.2% of its sales on R&D, while Samsung and IBM come in around 6%. By comparison with another flagship high-tech sector, the internet-based companies, Amazon spends just over 6% itself, and Google is at a robust 13.6% of its sales. Microsoft is at 13% itself.
The semiconductor companies are where the money really gets plowed back into the labs, though. Here's a roundup of 2011 spending, where you can see a company like Intel, with forty billion dollars of sales, still putting 17% of that back into R&D. And the smaller firms are (as you might expect) doing even more. AMD spends 22% of its sales on R&D, and Broadcom spends 28%. These are people who, like Alice's Red Queen, have to run as fast as they can if they even want to stay in the same place.
Now we come to the drug industry. The first thing to note is that some of its biggest companies already have their spending set at Intel levels or above: Roche is over 19%, Merck is over 17%, and AstraZeneca is over 16%. The others are no slouches, either: Sanofi and GSK are above 14%, and Pfizer (with the biggest R&D spending drop of all the big pharma outfits, I should add) is at 13.5%. They, J&J, and Abbott drag the average down by only spending in the 11-to-14% range - I don't think that there's such a thing as a drug discovery company that spends in the single digits compared to revenue. If any of us tried to get away with Apple's R&D spending levels, we'd be eaten alive.
All this adds up to a lot: if you take the top 20 biggest industrial R&D spenders in the world, eight of them are drug companies. No other industrial sector has that many on the list, and a number of companies just missed making it. Lilly, for one, spent 23% of revenues on R&D, and BMS spend 22%, as did Biogen.
And those are the big companies. As with the chip makers, the smaller outfits have to push harder. Where I work, we spent about 50% of our revenues on R&D last year, and that's projected to go up. I think you'll find similar figures throughout biopharma. So you can see why I find it sort of puzzling that someone can complain about the drug industry as a whole "only" spending 16% of its revenues. Outside of semiconductors, nobody spends more
Crowdfunding academic research might be changing, from a near-stunt to an widely used method of filling gaps in a research group's money supply. At least, that's the impression this article at Nature Jobs gives:
The practice has exploded in recent years, especially as success rates for research-grant applications have fallen in many places. Although crowd-funding campaigns are no replacement for grants — they usually provide much smaller amounts of money, and basic research tends to be less popular with public donors than applied sciences or arts projects — they can be effective, especially if the appeals are poignant or personal, involving research into subjects such as disease treatments.
The article details several venues that have been used for this sort of fund-raising, including Indiegogo, Kickstarter, RocketHub, FundaGeek, and SciFund Challenge. I'd add Microryza to that list. And there's a lot of good advice for people thinking about trying it themselves, including how much money to try for (at least at first), the timelines one can expect, and how to get your message out to potential donors.
Overall, I'm in favor of this sort of thing, but there are some potential problems. This gives the general pubic a way to feel more connected to scientific research, and to understand more about what it's actually like, both of which are goals I feel a close connection to. But (as that quote above demonstrates), some kinds of research are going to be an easier sell than others. I worry about a slow (or maybe not so slow) race to the bottom, with lab heads overpromising what their research can deliver, exaggerating its importance to immediate human concerns, and overselling whatever results come out.
These problems have, of course, been noted. Ethan Perlstein, formerly of Princeton, used RocketHub for his crowdfunding experiment that I wrote about here. And he's written at Microryza with advice about how to get the word out to potential donors, but that very advice has prompted a worried response over at SciFund Challenge, where Jai Ranganathan had this to say:
His bottom line? The secret is to hustle, hustle, hustle during a crowdfunding campaign to get the word out and to get media attention. With all respect to Ethan, if all researchers running campaigns follow his advice, then that’s the end for science crowdfunding. And that would be a tragedy because science crowdfunding has the potential to solve one of the key problems of our time: the giant gap between science and society.
Up to a point, these two are talking about different things. Perlstein's advice is focused on how to run a successful crowdsourcing campaign (based on his own experience, which is one of the better guides we have so far), while Ranganathan is looking at crowdsourcing as part of something larger. Where they intersect, as he says, is that it's possible that we'll end up with a tragedy of the commons, where the strategy that's optimal for each individual's case turns out to be (very) suboptimal for everyone taken together. He's at pains to mention that Ethan Perlstein has himself done a great job with outreach to the public, but worries about those to follow:
Because, by only focusing on the mechanics of the campaign itself (and not talking about all of the necessary outreach), there lurks a danger that could sink science crowdfunding. Positive connections to an audience are important for crowdfunding success in any field, but they are especially important for scientists, since all we have to offer (basically) is a personal connection to the science. If scientists omit the outreach and just contact audiences when they want money, that will go a long way to poisoning the connections between science and the public. Science crowdfunding has barely gotten started and already I hear continuous complaints about audience exasperation with the nonstop fundraising appeals. The reason for this audience fatigue is that few scientists have done the necessary building of connections with an audience before they started banging the drum for cash. Imagine how poisonous the atmosphere will become if many more outreach-free scientists aggressively cold call (or cold e-mail or cold tweet) the universe about their fundraising pleas.
Now, when it comes to overpromising and overselling, a cynical observer might say that I've just described the current granting system. (And if we want even more of that sort of thing, all we have to do is pass a scheme like this one). But the general public will probably be a bit easier to fool than a review committee, at least, if you can find the right segment of the general public. Someone will probably buy your pitch, eventually, if you can throw away your pride long enough to keep on digging for them.
That same cynical observer might say that I've just described the way that we set up donations to charities, and indeed Ranganathan makes an analogy to NPR's fundraising appeals. That's the high end. The low end of the charitable-donation game is about as low as you can go - just run a search for the words "fake" and "charity" through Google News any day, any time, and you can find examples that will make you ashamed that you have the same number of chromosomes as the people you're reading about. (You probably do). Avoiding this state really is important, and I'm glad that people are raising the issue already.
What if, though, someone were to set up a science crowdfunding appeal, with hopes of generating something that could actually turn a profit, and portions of that to be turned over to the people who put up the original money? We have now arrived at the biopharma startup business, via a different road than usual. Angel investors, venture capital groups, shareholders in an IPO - all of these people are doing exactly that, at various levels of knowledge and participation. The pitch is not so much "Give us money for the good of science", but "Give us money, because here's our plan to make you even more". You will note that the scale of funds raised by the latter technique make those raised by the former look like a roundoff error, which fits in pretty well with what I take as normal human motivations.
But academic science projects have no such pitch to make. They'll have to appeal to altruism, to curiosity, to mood affiliation, and other nonpecuniary motivations. Done well, that can be a very good thing, and done poorly, it could be a disaster.
I've heard this morning that Astellas is closing the OSI site in Farmingdale, NY, and the Perseid Therapeutics site in Redwood City, CA. More details as I hear them (and check the comments section; people with more direct knowledge may be showing up in there).
Here's a fine profile of Merck's Ken Frazier at Forbes. Matthew Herper does a good job of showing the hole that Merck has been slowly sliding into over the past few years, and wonders if Frazier is going to be able to drag the company out of it:
But it is clear that Frazier still views himself through the prism of his lawyerly training–he has not yet grown into a commanding and decisive chief executive. He’s scrupulous about not making anyone else look bad–working almost too hard in interviews to be clear that Perlmutter’s predecessor was not fired–and seems to be afraid to be seen as making too many big changes. “I am a person who does not subscribe to the hero-CEO school of thought,” he says. His persona is the culmination of the careful lessons he learned from his long climb to the top and his masterful legal defense against the lawsuits related to the pain pill Vioxx, which saved Merck and got him the top job. In order to be a great leader, he’s going to have to unlearn them.
I don't subscribe much to the hero-CEO school, either, at least not for a company the size of Merck. But even for a huge company, I think a rotten CEO can do a lot more harm than a good one can help (there's some thermodynamic way to express that, I'm sure). Frazier is certainly not in that category, and I've enjoyed some of the things he's had to say in the past (although I've also wondered about the follow-through). I wonder, though: how much of what Merck needs is in Frazier's power to do anything about? Or any one person's?
Update: here's David Shaywitz at Forbes, wondering about similar issues and what biopharma CEOs can actually do about them.
Here's an excellent look back by venture capitalist Bruce Booth at one of the companies his firm funded. But this isn't one of those we-exited-with-a-thirtyfold-return stories. On-Q-ity, a diagnostic play, has unfortunately just folded.
There were several reasons for this, but I'd guess that the ones below really, really didn't help:
. . .By mid-2010, only six months after the Series A came together, it was clear that the DNA repair biomarkers were going to be tough, as an early trial failed to reproduce the nice Kaplan-Meyer curves of the original academic work. By late 2010/early 2011, two more larger trials read out negatively so we decided to terminate that effort. But unfortunately those trials and the biomarker lab work required to support them consumed 60%+ of the capital in the Series A round.
Not much had gone into the CTC platform in that first year and so early in 2011 the company refocused exclusively on CTCs and streamlined the team, but the clock was ticking. As we dug in to the status of the CTC platform, it was very clear that lots more work needed to be done – the paper descriptions of what it was supposed to deliver didn’t map to the platform’s actual robustness (or lack thereof) at that time. Antibodies that were supposedly functional turned out not to work, and several other things like this. . .
This looks like yet another example of something that never worked as well in the real world as it did in the publications. Bruce himself has blogged about this problem, which shows you that it's lying in wait for everyone trying to make something out of new discoveries. I recommend the whole post, especially for anyone working at a small startup or thinking about doing so. It shows you some things to stay alert for, and there are many.
Sunday isn't usually a big day for announcements from big pharma companies. But yesterday is when Bristol-Myers Squibb let everyone know that their CSO, Elliott Sigal, is retiring. I wonder when he found out - Saturday night? More from FierceBiotech here.
I feel as if there should be some good news around here on the hiring front, so when any becomes available I want to try to mention it. So here's some: Regeneron has announced today that they're expanding their site in Westchester (NY), adding another 300,000 square feet of lab and office space, and adding over 400 new jobs in a number of areas.
The fusion protein Eylea (aflibercept) has been doing very well for them since its approval in 2011. And they're very much in the hunt for PCSK9 therapies, which could provide a completely new LDL-lowering mechanism. (Here's some good background from John LaMattina on that - Sanofi and Regeneron are running one of those humungous cardiovascular Phase III trials as we speak, and the results of it (compared to the statin standard of care) are going to be extremely interesting). If those numbers come out well, Regeneron could be looking for even more room.
According to FierceBiotech, Amylin's La Jolla site is to be shut down. People have been getting let go from there for months now, ever since BMS bought them, but now everything must go. That's not what the San Diego region needs - another big closure - but here goes.
Yeah, I know, that's a headlines that could have been used several times over the years. But this time, they mean it: the company is demolishing their former research headquarters off Eastern Point Road in Groton. And local officials and developers aren't happy at all:
Officials involved in the negotiations said last-minute obstacles thrown up by Pfizer after a major developer had offered to purchase the 750,000-square-foot complex known as Building 118 made it appear as though the pharmaceutical giant never had been serious about finding a buyer.
. . .(Developer Stu) Lichter echoed legislators' suspicions that Pfizer never really intended to sell the building, despite the fact that it will cost more to demolish the structure than it would have to sell it, even for a nominal price.
Lichter said Pfizer initially told him that the company had a schedule for demolition, but if a deal could be worked out within a certain timetable, officials would seriously consider an offer.
But, according to Lichter, Pfizer kept bringing up additional issues that would stall negotiations.
You may remember this insider trading scandal from last year, involving a lead investigator for Wyeth/Elan's trials of bapineuzumab for Alzheimer's.
Here's the sequel. The hedge fund involved has agreed to pay $600 million dollars to settle the charges, although this does not get the manager himself off the hook (litigation in his case continues). Dr. Sidney Gilman, the investigator who leaked the information, has already been required to give back all his own gains, with interest and penalties.
AstraZeneca has announced another 2300 job cuts, this time in sales and administration. That's not too much of a surprise, as the cuts announced recently in R&D make it clear that the company is determined to get smaller. But their overall R&D strategy is still unclear, other than "We can't go on like this", which is clear enough.
One interesting item has just come out, though. The company has done a deal with Moderna Therapeutics of Cambridge (US), a relatively new outfit that's trying something that (as far as I know) no one else has had the nerve to. Moderna is trying to use messenger RNAs as therapies, to stimulate the body's own cells to produce more of some desired protein product. This is the flip side of antisense and RNA interference, where you throw a wrench into the transcription/translation machinery to cut down on some protein. Moderna's trying to make the wheels spin in the other direction.
This is the sort of idea that makes me feel as if there are two people inhabiting my head. One side of me is very excited and interested to see if this approach will work, and the other side is very glad that I'm not one of the people being asked to do it. I've always thought that messing up or blocking some process was an easier task than making it do the right thing (only more so), and in this case, we haven't even reliably shown that blocking such RNA pathways is a good way to a therapy.
I also wonder about the disease areas that such a therapy would treat, and how amenable they are to the approach. The first one that occurs to a person is "Allow Type I diabetics to produce their own insulin", but if your islet cells have been disrupted or killed off, how is that going to work? Will other cell types recognize the mRNA-type molecules you're giving, and make some insulin themselves? If they do, what sort of physiological control will they be under? Beta-cells, after all, are involved in a lot of complicated signaling to tell them when to make insulin and when to lay off. I can also imagine this technique being used for a number of genetic disorders, where we know what the defective protein is and what it's supposed to be. But again, how does the mRNA get to the right tissues at the right time? Protein expression is under so many constraints and controls that it seems almost foolhardy to think that you could step in, dump some mRNA on the process, and get things to work the way that you want them to.
But all that said, there's no substitute for trying it out. And the people behind Moderna are not fools, either, so you can be sure that these questions (and many more) have crossed their minds already. (The company's press materials claim that they've addressed the cellular-specificity problem, for example). They've gotten a very favorable deal from AstraZeneca - admittedly a rather desperate company - but good enough that they must have a rather convincing story to tell with their internal data. This is the very picture of a high-risk, high-reward approach, and I wish them success with it. A lot of people will be watching very closely.
Affymax has had a long history, and it's rarely been dull. The company was founded in 1988, back in the very earliest flush of the Combichem era, and in its early years it (along with Pharmacopeia) was what people thought of when they thought of that whole approach. Huge compound libraries produced (as much as possible) by robotics, equally huge screening efforts to deal with all those compounds - this stuff is familiar to us now (all too familiar, in many cases), but it was new then. If you weren't around for it, you'll have to take the word of those who were that it could all be rather exciting and scary at first: what if the answer really was to crank out huge piles of amides, sulfonamides, substituted piperazines, aminotriazines, oligopeptides, and all the other "build-that-compound-count-now!" classes? No one could say for sure that it wasn't. Not yet.
Glaxo bought Affymax back in 1995, about the time they were buying Wellcome, which makes it seem like a long time ago, and perhaps it was. At any rate, they kept the combichem/screening technology and spun a new version of Affymax back out in 2001 to a syndicate of investors. For the past twelve years, that Affymax has been in the drug discovery and development business on its own.
And as this page shows, the story through most of those years has been peginesatide (brand name Omontys, although it was known as Hematide for a while as well). This is synthetic peptide (with some unnatural amino acids in it, and a polyethylene glycol tail) that mimics erythropoetin. What with its cyclic nature (a couple of disulfide bonds), the unnatural residues, and the PEGylation, it's a perfect example of what you often have to do to make an oligopeptide into a drug.
But for quite a while there, no one was sure whether this one was going to be a drug or not. Affymax had partnered with Takeda along the way, and in 2010 the companies announced some disturbing clinical data in kidney patients. While Omontys did seem to help with anemia, it also seemed to have a worse safety profile than Amgen's EPO, the existing competition. The big worry was cardiovascular trouble (which had also been a problem with EPO itself and all the other attempted competition in that field). A period of wranging ensued, with a lot of work on the clinical data and a lot of back-and-forthing with the FDA. In the end, the drug was actually approved one year ago, albeit with a black-box warning about cardiovascular safety.
But over the last year, about 25,000 patients got the drug, and unfortunately, 19 of them had serious anaphylactic reactions to it within the first half hour of exposure. Three patients died as a result, and some others nearly did. That is also exactly what one worries about with a synthetic peptide derivative: it's close enough to the real protein to do its job, but it's different enough to set off the occasional immune response, and the immune system can be very serious business indeed. Allergic responses had been noted in the clinical trials, but I think that if you'd taken bets last March, people would have picked the cardiovascular effects as the likely nemesis, not anaphylaxis. But that's not how it's worked out.
Takeda and Affymax voluntarily recalled the drug last month. And that looked like it might be all for the company, because this has been their main chance for some years now. Sure enough, the announcement has come that most of the employees are being let go. And it includes this language, which is the financial correlate of Cheyne-Stokes breathing:
The company also announced that it will retain a bank to evaluate strategic alternatives for the organization, including the sale of the company or its assets, or a corporate merger. The company is considering all possible alternatives, including further restructuring activities, wind-down of operations or even bankruptcy proceedings.
I'm sorry to hear it. Drug development is very hard indeed.
I started hearing word Friday that it looked like some AstraZeneca sites were preparing for some sort of big announcement or meeting, but I didn't want to run with the news in case it turned out to to be nothing. Well, it wasn't nothing. The company is restructuring R&D:
. . .Under the plans, AstraZeneca's small molecule and biologics R&D activities will be concentrated in three strategic centres: Cambridge, UK; Gaithersburg, US; and Mölndal, Sweden. The proposals are expected to be fully implemented by 2016.
Cambridge, UK: AstraZeneca will invest around $500 million to establish a new, purpose-built facility in Cambridge, a world-renowned centre for life sciences innovation with strong links to globally important research institutions in London. Consolidating the company's UK-based small molecule and biologics research and development at a new centre will build on AstraZeneca's world-leading protein engineering capabilities already based in the city. Cambridge will also become AstraZeneca's new global corporate headquarters.
Gaithersburg, Maryland, US: The site of MedImmune's headquarters and the primary location for AstraZeneca's biologics activities, Gaithersburg will also become home to much of the company's US-based Global Medicines Development activities for small and large molecules and will accommodate some global marketing and US specialty care commercial functions.
Mölndal, Sweden: AstraZeneca's site in Mölndal, near Gothenburg, will continue to be a global centre for research and development, with a primary focus on small molecules.
The three strategic sites will be supported by other existing AstraZeneca facilities around the world, including Boston, Massachusetts, US which will continue to be a centre for research and development, with a primary focus on small molecules.
But that means that some other sites are getting hit. Specifically, Alderley Park in the UK will no longer be an R&D site. The company says that "1,600 roles" will migrate from the site, but it says nothing about people. Alderley Park, which is up to the south of Manchester, is a stiff drive from Cambridge; no one could possible haul 160 miles each way on the M6 every day of the week. AZ's Paddington office in London will also be closing. In the US, 1,200 "roles" will be leaving Wilmington, as the Global Medicines Development group relocates.
So there's a lot that's unclear about this announcement. What happens to the people who are now employed at Alderley Park? How is the company going to staff its new Cambridge (UK) site? And what's the real role of the Waltham (Massachusetts) R&D site in this new arrangement? That one's already gone through a lot of shakeups over the last couple of years. More details as they become known.
Update: FiercePharma says that this comes down to a loss of 650 jobs in the US. No more details on how the UK moves will work, though.
Well, GlaxoSmithKline CEO Andrew Witty has made things interesting. Here he is at a recent conference in London when the topic of drug pricing came up:
. . . Witty said the $1 billion price tag was "one of the great myths of the industry", since it was an average figure that includes money spent on drugs that ultimately fail.
In the case of GSK, a major revamp in the way research is conducted means the rate of return on R&D investment has increased by about 30 percent in the past three or four years because fewer drugs have flopped in late-stage testing, he said.
"If you stop failing so often you massively reduce the cost of drug development ... it's why we are beginning to be able to price lower," Witty said.
"It's entirely achievable that we can improve the efficiency of the industry and pass that forward in terms of reduced prices."
I have a feeling that I'm going to be hearing "great myths of the industry" in my email for some time, thanks to this speech, so I'd like to thank Andrew Witty for that. But here's what he's trying to get across: if you start research on for a new drug, name a clinical candidate, take it to human trials and are lucky enough to have it work, then get it approved by the FDA, you will not have spent one billion dollars to get there. That, though, is the figure for a single run-through when everything works. If, on the other hand, you are actually running a drug company, with many compounds in development, and after a decade or so you total up all the money you've spent, versus the number of drugs you got onto the market, well, then you may well average a billion dollars per drug. That's because so many of them wipe out in the clinic; the money gets spent and you get no return at all.
That's the analysis that Matthew Herper did here (blogged about here), and that same Reuters article makes reference to a similar study done by Deloitte (and Thomson Reuters!) that found that the average cost of a new drug is indeed about $1.1 billion when you have to pay for the failures.
And believe me, we have to pay for them. A lottery ticket may only cost a dollar, but by the time you've won a million dollars playing the lottery, you will have bought a lot of losing tickets. In fact, you'll have bought far more than a million dollar's worth, or no state would run a lottery, but that's a negative-expectations game, while drug research (like any business) is supposed to be positive-expectations. Is it? Just barely, according to that same Deloitte study:
In effect, the industry is treading water in the fight to deliver better returns on the billions of dollars ploughed into the hunt for new drugs each year.
With an average internal rate of return (IRR) from R&D in 2012 of 7.2 percent - against 7.7 percent and 10.5 percent in the two preceding years - Big Pharma is barely covering its average cost of capital, estimated at around 7 percent.
Keep that in mind next time you hear about how wonderfully profitable the drug business is. And those are still better numbers than Morgan Stanley had a couple of years before, when they estimated that our internal returns probably weren't keeping up with our cost of capital at all. (Mind you, it seems that their analysis may have been a bit off, since they used their figures to recommend an "Overweight" on AstraZeneca shares, a decision that looked smart for a few months, but one that a person by now would have regretted deeply).
But back to Andrew Witty. What he's trying to say is that it doesn't have to cost a billion dollars per drug, if you don't fail so often, and he's claiming that GSK is starting to fail less often. True, or not? The people I know at the company aren't exactly breaking out the party hats, for what that's worth, and it looks like the company's might have to add the entire Sirtris investment to the "sunk cost" pile. Overall, I think it's too soon to call any corners as having been turned, even if GSK does turn out to have been doing better. Companies can have runs of good fortune and bad, and the history of the industry is absolutely littered with the press releases of companies who say that they've Turned A New Page of Success and will now be cranking out the wonder drugs like nobody's business. If they keep it up, GSK will have plenty of chances to tell us all about it.
Now, one last topic. What about Witty's statement that this new trend to success will allow drug prices themselves to come down? That's worth thinking about all by itself, on several levels - here are my thoughts, in no particular order:
(1) To a first approximation, that's true. If you're selling widgets, your costs go down, you can cut prices, and you can presumably sell more widgets. But as mentioned above, I'm not yet convinced that GSK's costs are truly coming down yet. And see point three below, because GSK and the rest of us in this business are not, in fact, selling widgets.
(2) Even if costs are coming down, counterbalancing that are several other long-term trends, such as the low-hanging fruit problem. As we move into harder and harder sorts of targets and disease areas, I would assume that the success rate of drugs in the clinic will be hard pressed to improve. This is partly a portfolio management problem, and can be ameliorated and hedged against to some degree, but it is, I think, a long-term concern, unless we start to make some intellectual headway on these topics, and speed the day. On the other side of this balance are the various efforts to rationalize clinical trials and so on.
(3) A larger factor is that the market for innovative drugs is not very sensitive to price. This is a vast topic, covered at vast length in many places, but it comes down to there being (relatively) few entrants in any new therapeutic space, and to people, and governments, and insurance companies, being willing to spend relatively high amounts of money for human health. (The addition of governments into that list means also that various price-fixing schemes distort the market in all kinds of interesting ways as well). At any rate, price mechanisms don't work like classical econ-textbook widgets in the drug business.
So I'm not sure, really, how this will play out. GSK has only modest incentives to lower the prices of its drugs. Such a move won't, in many markets, allow them to sell more drugs to make up the difference on volume. And actually, the company will probably be able to offset some of the loss via the political capital that comes from talking about any such price changes. We might be seeing just that effect with Witty's speech.
The news about Sirtris prompts me to mention something else that I've been hearing about over the last few days. More than one source has told me that GlaxoSmithKline is thinking about doing some other rearranging/staff cutting, but I don't have enough detail beyond that to elaborate. I wonder if today's Sirtris announcement is part of such a move? At any rate, one of the places where these stories seem to be going around the most, naturally, is inside GSK itself. We'll see if any more announcements come in the near future.
Just heard rumors of this earlier this morning, and the rumors are true: GSK is shutting down the Sirtris operation in Cambridge. FierceBiotech has the goods:
GlaxoSmithKline has decided to shutter Sirtris's office in Cambridge, MA, opting to fully integrate their research work now underway into the giant pharma company's R&D operations. A spokesperson for GSK tells FierceBiotech that about 60 staffers currently work at the site in Cambridge, and an yet undetermined number will be given a chance to relocate to the Philadelphia area.
More details as I hear them. I didn't expect this to be Sirtris day around here, but you never know, do you?
So we all know about the amount of biopharma investment going into places like China and India - right? But it's important to keep the categories straight. There's manufacturing, which is its own thing, and there are service organizations, which are a very large part of the market. But neither of those are doing their own R&D. What part of the investment in these countries is going to what we'd think of as traditional venture capital and local research?
There's an article in Nature Biotechnology that tries to answer this question (and it's not an easy one). Here's the take-away:
. . .data on sources of venture capital (VC) that are supporting such innovative biotech startups are unclear because existing investment metrics include not only innovative enterprises but also manufacturing or service firms lacking R&D capability. The quality of published data is also poor, with only one study on healthcare VC activity in China providing data for a single quarter in 2008
and it does not separate innovative ventures. Here, we present a data set of life sciences VC in emerging markets to inform government innovation policy and VC investment strategy. Our data suggest that life sciences VC activity is low in the emerging economies we studied, despite growing levels of activity in that sector and in those regions.
The authors are basing their conclusions (on China, India, Brazil, and South Africa) largely on their own fieldwork, rather than relying on what's in the press, which is probably a wise decision. They found 116 firms backed by 148 financing deals, which may sound like a lot, but the total amounts aren't too impressive yet. Their estimate is that since 2000, about $1.7 billion has been invested, which (by comparison) would be considered a strong quarterly figure in the US. Most of these firms (about 70) are Chinese, and most of the rest are Indian (Brazil and South Africa are round-off errors). The outfits doing the fund-raising are also quite concentrated; there are some big players in both countries, and there's a scattering of everybody else. A lot of the money is from home as well. The great majority of these firms, as it turns out, are targeting oncology (a full 90% of the Chinese ones, for example).
So what are we to make of all this? These numbers are about as good as anyone is going to see, but they're probably still incomplete. At any rate, it seems clear that the amount of money going into new biopharma companies in these countries is still very tiny by industry standards. There are surely several reasons for this - lack of a "startup culture" being a big (albeit vague) one. That covers a lot of ground, including physical infrastructure and fewer experienced investors. It's not like India and China have a long history of funding small new medical research firms - it takes a while to get the hang of it, for sure (assuming that anyone ever does!)
One possibility is that the innovative research being done in these countries is being done more inside the walls of the large international firms that have set up shops there. What I think people have been waiting to see is whether these will eventually lead to more smaller companies spinning out. And then there's the other source of many startups in the US and Europe, academic labs. My impression has been that the academic research culture is very different in China and India from what we're used to in the US, and this is surely having an effect on the whole venture-capital-based world there, too. Eventually, though, the combination of the universities and the talent pool from the larger companies might cause something to happen.
But since no one's quite sure how to make a Boston/Cambridge or San Francisco Bay, it's hard to say what these countries should be doing differently, or whether any such recommendations would even be feasible. Efforts in the developing parts of Asia to make such things happen by fiat have not gone well - does anyone remember Malaysia's big push into the area? Here's a 2003 story on it - "Biovalley" was going to be the next big thing. Just a few years later, it was clear that it wasn't quite working out, and current information is rather hard to come by. India and China (and their investors) surely don't want to go through that experience. Letting things develop on their own, without too much over-targeted encouragement, might be the best course.
The question now is, should the verb "retires" have quotation marks around it or not? Roger Perlmutter (ex-Amgen) will take over from him. Here's the Reuters story - more details when and if any emerge.
I still get inquiries about TauRx and their work on Alzheimer's. There's an awful lot of pent-up demand in that field, and it's getting worse every year. The latest is that the company has ten million more dollars in a follow-on investment option from the Dundee Corporation of Toronto.
Who they? That's what I wondered, too, and the press release occasions more questions than it answers:
Dundee Corporation is a Canadian independent publicly traded asset management company listed on the Toronto Stock Exchange (“TSX”) under the symbol “DC.A”. Asset management activities are focused in the areas of the corporation’s core competencies and include resources, real estate and infrastructure, and more recently, the agriculture sector.
What, then, are they doing investing in biopharma? You can lose your shirt over here, guys, and you can most especially lose it in Alzheimer's. TauRx also has major funding from the Genting Burhad group. And you may well ask "Who they?", too, because they're a large Malaysian company whose core business is casinos and resorts. Now, they're also into cruise ships, and oil and gas, and power generation and (perforce) real estate, but biotech would seem to be rather far down the list.
This is a. . .unique funding setup for a biopharma company. I have to think that there's a reason for it, but I'm not quite sure what the reason is. Speculation, anyone? Thanks to John Carroll of FierceBiotech on Twitter, who doesn't understand what's going on, either.
Luke Timmerman at Xconomy has a good post on biotech research hubs. A recent survey set him off, not because it ranked the Boston area #1 (a reasonable assessment, and not just because I live here), but because it ranked San Diego #2.
It's not that he has anything against San Diego (nor do I). But it does not outrank the San Francisco Bay area as a biopharma hub, not in any way that I can think of. Luke goes into the details, and shows how this latest survey went off the rails. But he's also calling for someone to come up with a better one, and he has a very realistic list of criteria that should be used.
So what's the harm? San Diego (and Raleigh-Durham, etc.) get to feel good when they finish high in such surveys, and why not? Well, the temptation might be to think that you already have what you need to succeed - heck, that you've already succeeded. But San Diego, for example, could use help in the local venture capital environment, and (as Luke points out) could also use some help even in things like its airport connections. Complacency is not your friend.
A Friday night blog entry is a rare event around here, but I've had a report that Pfizer has been closing down their Covx unit in San Diego today. It is (or was) the peptide therapeutic part of the company. This makes this part of the Pfizer web site a bit. . .inoperative:
CovX and Rinat are two biotechnology companies acquired by Pfizer that are currently operating as independent units within Worldwide R&D. This operating model allows CovX and Rinat to maintain their unique cultures and scientific approaches while having full access to Pfizer's world-class capabilities and resources.
I wanted to come back to the topic of whether we have (1) too many unemployed (or underemployed) scientists and technology people in the US, or (2) a critical shortage of qualified people that's leading companies to complain that they can't fill positions. Can we really have both at the same time? All this bears on (3): should we revise the visa rules to let in more technically qualified immigrants?
The other day I wrote about a PriceWaterhouseCooper (PwC as they would have it) report on this very issue. I'll pick up where that post left off. One thing to notice about the PwC report is that it's aimed at HR departments, and it tells them some of the things they want to hear - that they're important, that they're unappreciated, and that they have a crucial role to play in today's hiring environment. This is not just flattery; this is advertising - aspirational advertising, to be more accurate. That's the technique (used since forever) of pitching an ad to a slightly more elevated group (socioeconomically) than the one it's actually aimed at. Think of mail-order catalogues and credit-card offers; that's where you see this in the crudest form. The idea is to make the recipients think "Wow, they must think I'm one of those people", or (even better) "Wow, I must really be one of those people". That is, the sort of people who shop for this pricey merchandise, or who think nothing of paying the annual fee for a MatteBlackAnodizedPlatinum Card, what have you, because that's the high-end life they lead.
What's PwC selling, then? Why, consulting services to all these HR departments, to help them navigate their extremely important, critical-like-never-before jobs in this extraordinary environment. The HR people have their morale improved, PwC gets some new accounts, and everyone's happy. But the report is still a pure example of the "critical lack of good candidates" idea, being put to more immediate use by a company that sees an opportunity to trade on what's saturating the air right now.
But how can there be a shortage and an excess at the same time? Part of the answer might be found in the work of Peter Cappelli of the Wharton School at Penn. A reader sent that link along to me the other day, and it's well worth a look. Cappelli is the author of Why Good People Can't Get Jobs, and his take is that employers are largely to blame for this situation:
. . .Today’s CEOs regularly blame schools and colleges for their difficulties in finding adequately prepared employees. The complaint shows up in survey after survey, as Cappelli shows in his book, and it is substantially more common among American employers than their peers in most other developed and developing economies.
But do these surveys “show that the United States is among the world leaders in skills gaps,” Cappelli asks, “or simply in employer whining and easy media acceptance of employer complaints?”
He thinks a body of lesser-reported studies contains the answer. “If you look at the studies of hiring managers and what they want, they’re not complaining about academic skills,” Cappelli says. “You hear the business spokespeople saying this, but the actual hiring managers are not saying this now. And in fact they’ve never, in modern times, said that.”
And Cappelli also has pointed out that this view of the world is appealing to several constituencies at the same time, among them, people who advocate school reform and changes in research funding, social reformers of several different kinds, and employers who would rather place the blame for some of their problems on outside factors. There's a reason this idea keeps circulating around - there are a lot of extraneous reasons to keep believing it.
He goes on to decry what he calls the "Home Depot" approach to hiring:
In a 2011 op-ed article for The Wall Street Journal, Cappelli remarked on a telling statistic from the Silicon Valley tech boom of the 1990s: only 10 percent of the people in IT jobs had IT-related degrees. But a lot of the same people would probably have a hard time landing similar jobs today, because employers have increasingly adopted what Cappelli calls “a Home Depot view of the hiring process, in which filling a job vacancy is seen as akin to replacing a part in a washing machine.
“We go down to the store to get that part,” he explains, “and once we find it, we put it in place and get the machine going again. Like a replacement part, job requirements have very precise specifications. Job candidates must fit them perfectly or the job won’t be filled and business can’t operate.”
He lays some of the blame for this on software-based hiring practices, the CV-scanning programs that look for the keywords that supposedly have to be present for a candidate to be considered. (Many readers here may have run into this problem; chemistry and its associated disciplines are an unfortunately good fit for this approach). And here's where some sympathy for the HR people might be appropriate: these sorts of "solutions" are often used when there aren't enough people (or enough time, or money) to do a good job of screening applicants. That's not to say that there probably aren't some HR people who truly believe that this is the best way to do things, but some of them also have their backs to their own walls.
There's another part of that article on Cappelli that takes us to the H1B visa issue:
When there are three or four job-seekers for every vacancy—and some postings draw applicants by the hundred—firms have an understandable incentive to wait for a dream candidate to show up. And ideally, a dream candidate who expresses a low salary requirement.
In (a recent) Manpower survey, 11 percent of the employers reporting skill shortages chalked it up to applicants unwilling to accept job offers at the wages companies were willing to pay.
I have the impression that much of the push to open up the technical-worker visas is coming from Silicon Valley and the IT world in general. (Someone correct me if I'm wrong). And it's also my impression that there are already a lot of people in that job market looking for work - again, if I'm mistaken about this, I'll revise this post. So one (not very charitable) explanation for a drive to bring in more job candidates from abroad is that they will be cheaper to hire, and that employers will have more leverage over them because of their visa situation. Plausible, or not? Update: apparently all too plausible - see this New York Times piece.
Now, it pains me to write that sort of thing, because we could head right off into the whole immigration-reform swamp, which is concerned with a lot of issues that are peripheral to this discussion. (Undocumented workers from Central America, for example, are not a big factor in IT or chemistry hiring). And I think that the US should indeed admit immigrants, that doing so has been one of the big factors in making us the nation we are (the good parts, I mean), and that if we're going to let people in, that we should strongly, strongly bias the process towards smart, entrepreneurial, hard-working ones. So I have a natural sympathy towards the idea of bringing in technically and scientifically trained people.
But not to use them as a source of cheap labor that can be leaned on because of their immigrant status. I don't like that idea much at all, not for what it does to the people who are already here, and not for what it does to the ones who would come here looking for something better, either. And this illustrates the tangle of mixed motives, declared and otherwise, that this whole issue is stuck in. The real reasons people advocate the positions they do in this area can be hard to work out, and that has the nasty side effect of giving everyone plenty of opportunities to accuse others of acting in bad faith, etc. It's a mess.
So, in the same way that I tried to dig into the motives of PhRMA the other day, one can try to look at motivations here. Employers, in fact, could well have an interest in keeping the whole "We can't find good people" line of thinking alive, which is something I mentioned when I brought up the PriceWaterhouseCoopers report. It gives upper management someone else to blame, and in some cases it can be used to keep wages down. As I've said here before, the idea that companies here in the US will hire workers here if they're forced to is, I think, a fantasy. They'll keep those positions open and complain about it instead.
And although this is a particular problem for Silicon Valley and that industry, biopharma is not immune. Not at all.
Here's the story, from Lee Howard of The Day, who's covered the company for years.
Pfizer had 4,500 employees - mostly scientists - at its Groton and New London campuses two years ago, when the New York-based company announced a major downsizing that would cut the local workforce to slightly less than 3,400. By June of last year, Pfizer reported that reductions were well under way, with about 3,700 employees remaining on the Groton campus.
Pfizer's response to a request last week for an update on the local jobs number initially indicated there were now slightly fewer than 3,150 Pfizer employees at the company's consolidated site in Groton - 250 fewer than had been anticipated when the local downsizing was announced. The company later amended the number, however, saying the initial report had neglected to count some personnel, and Pfizer gave a new census of about 3,300 employees, only a hundred less than what had been projected.
There were as many as 6,000 employees at one point, but it's been a long and bouncy ride since those days. The article says that Pfizer has been trying to find buyers for a number of vacant buildings (with, in this market and in that region, little success). Part of the Groton reduction is the move of the drug discovery people up to Cambridge. I go past the new building, still in construction, fairly often - it's right down the street from a gigantic hole in the ground that will be an expansion of the Novartis site. All of this construction recalls Levi Strauss getting rich during the California gold rush - not by doing anything so chancy as panning for gold, but by selling trousers to those who did. I've been in Cambridge for over five years now, and I have never yet traveled across it without going past some sort of academic/scientific construction site.
Addex Therapeutics has been trying to develop allosteric modulators as drugs. That's a worthy goal (albeit a tough one) - "allosteric" is a term that covers an awful lot of ground. The basic definition is a site that affects the activity of its protein, but is separate from the active or ligand-binding site itself. All sorts of regulatory sites, cofactors, protein-protein interaction motifs, and who knows what else can fit into that definition. It's safe to say that allosteric mechanisms account for a significant number of head-scratching assay results, but unraveling them can be quite a challenge.
It's proving to be one for Addex. They've announced that they're going to focus on a few clinical programs, targeting orphan diseases in the major markets, and to do that, well. . .:
In executing this strategy and to maximize potential clinical success in at least two programs over the next 12 months, the company will reduce its overall cost structure, particularly around its early-stage discovery efforts, while maintaining its core competency and expertise in allosteric modulation. The result will be a development-focused company with a year cash runway. In addition, the company will seek to increase its cash position through non-dilutive partnerships by monetizing its platform capability as well as current discovery programs via licensing and strategic transactions.
That is the sound of the hatches being battened down. And that noise can be heard pretty often in the small-company part of the drug business. Too often, it comes down to "We can advance this compound in the clinic, enough to try to get more money from someone, or we can continue to do discovery research. But not both. Not now." Some companies have gone through this cycles several times, laying off scientists and then eventually hiring people back (sometimes some of the same people) when the money starts flowing again. But in the majority of these cases, I'd say that this turns out to be the beginning of the end. The failure rates in the clinic see to that - if you have to have your compounds work there, the very next ones you have, the only things you have on hand in order to survive, then the odds are not with you.
But that's what every small biopharma company faces: something has to work, or the money will run out. A lot of the managing of such an outfit consists of working out strategies to keep things going long enough. You can start from a better position than usual, if that's an option. You can pursue deals with larger companies early on, if you actually have something that someone might want (but you won't get as good a deal as you would have later, if what you're partnering actually works out). You can beat all sorts of bushes to raise cash, and try all sorts of techniques to keep it from being spent so quickly, or on the wrong things (as much as you can tell what those are).
But eventually, something has to work, or the music stops. Ditching everything except the clinical candidates is one of the last resorts, so I wish Addex good luck, which they (and all of us) will need.
Here's a report on employment in the biopharma industry that will cause some pretty strong emotions in those of us who (still) work there. PriceWaterhouseCoopers (PwC), in their annual CEO survey finds (here's the good news) that:
Nearly three-quarters (72 percent) of executives said their organizations are looking to increase R&D capacity over the next 12 months, and six in 10 intend to increase investments over the next three years to create a more skilled workforce.
So far, so good. But would you like to know what the executives said was one of the biggest problem in doing all this? Honestly, you'll never guess:
The knowledge-intensive pharmaceutical industry had the highest reported difficulty in hiring top talent of the 19 industries featured in PwC's 2012 Global CEO Survey. CEOs identified talent gaps as one of the biggest threats to future growth prospects.
Research conducted by HRI, including a survey of human resource and R&D executives at U.S. biopharmaceutical companies found (that) fifty-one percent of industry executives report that hiring has become increasingly difficult and only 28 percent feel very confident they will have access to top talent.
Well, now. One's first impulse is to refer, with deep feeling, to bovine waste products, but one mustn't jump to conclusions about whether the industry might just possibly have heaved too many people over the side over the last ten years or so. As Pharmalotpoints out, the people that are allegedly being sought are not always the ones that have already been ditched:
Of course, the workplace is not stagnant and the demand for certain skills is always evolving. Seen this way, the data suggest that pharma execs may want the sort of talent that is not on the sidelines or simply clamoring for a different opportunity. For instance, 34 percent say that developing and managing outside partnerships is the most important skill being sought among scientists. . .
Now, that one I can believe. An uncharitable summary of many of those outside partnership managerial positions would be "Keep track of what all the cheap overseas contract workers are doing". And there is indeed a demand for that relatively thankless task. Another task that appears to be strongly in demand is for scientists who can deal with regulatory affairs. Fine. But what about actual research, not actually in China or beyond? There are possibilities, but things still don't look so good if you're a chemist. Pharmalot again:
As for job growth among scientists, not surprisingly there is only a 4 percent increase forecast for chemists, who were thrown overboard in large masses in recent years, and 13 percent for microbiologists. Conversely, a 62 percent boost is predicted for biomedical engineers and 36 percent for medical scientists. Biochemists and biophysicists trail at 31 percent.
PwC seems to be taking a broad view of biopharma if "biomedical engineers" are the top category. That's a flexible-sounding category, but I'd guess medical devices, at the very least. "Medical scientists" is also the label on a rather large bin, and this gives only a fuzzy picture of where the hiring will supposedly be taking place.
Looking through the PwC material, you can tell that it's addressed largely to HR folks, trying to gear them up for all this talent-searching and position-filling. It spends, for example, some time sharing sympathy for the HR departments who don't, somehow, feel as if they're key parts of the organization on the front lines of discovery. (Which they aren't, usually, but that's another story). But there's some useful advice for them in there, too - see what you make of this:
Scientists want career paths that recognize and reward their passion and commitment to research, not just additional responsibilities. Too often, scientists are pushed out of what they do best – research -- and saddled with management chores that distract them.
Finally, senior executives must act as a powerful motivating force for their people. Companies with decades-long legacies have lost their edge due to repeated layoffs, wearing down the morale of scientific staff.
Ain't that the truth. But how many senior executives are in a position to act as a "powerful motivating force"? Well, OK, some of them have been, but with a negative sign in front, which isn't the idea. In many organizations, the sorts of behavior that the scientists would find motivating on the part of a top-level manager are often not the sorts of behavior that lead people into top managerial positions. So you get people who are, at the very least, rusty on those skills (if they ever had them in the first place). And that leads to things like (in my own experience, some years ago) hearing a high-level guy exhort various research teams while mispronouncing the names of some of their projects. Which neither bred confidence, nor raised morale.
Overall, I find this PwC report irritating, perhaps because of its HR-centric worldview. And the message of "Shortage of top talent!" is rather hard to take, no matter how you spin it. It also brings thoughts of the perennial "America's critical lack of scientists" headlines, which have only slightly abated. I'm waiting for someone to tie those two together into one annoying headline. . .
Note: I'll get back to that out-of-the-science-and-into-the-management topic again; it's come up here before, but it's an important one.
Here's a rather grim analysis from the AP of Merck's current status. The company's stock was recently downgraded by two analysts after last Friday's earnings call didn't go very well (links added by me below):
Future sales of Vytorin, a controversial combination drug on sale since 2004 that includes Zocor, and prospects for a crucial experimental osteoporosis drug called odanacatib were thrown into question Friday as Merck announced its fourth-quarter results. Company executives made some cryptic comments, suggesting significant problems with both drugs. . .
Merck said Friday that it won't apply for approval of odanacatib, a new type of osteoporosis drug, until 2014 instead of by this June. Management said it was reviewing safety and efficacy data from one study and now won't apply for approval until they have longer-term data from an extension study.
Executives also said a committee monitoring its 18,000-patient study of Vytorin, called IMPROVE-IT, had requested a new interim analysis of patient data in March. The study is meant to determine whether Vytorin reduces risk of heart attack, stroke and death in heart disease patients — the ultimate purpose of cholesterol drugs — but Merck executives, grilled by analysts on a conference call, wouldn't say that they're confident the study will show that benefit.
I wouldn't, either, if I were in their shoes. The Vytorin story has been long and complex, and that complexity comes from two sources: the drug's unique mechanism of action (at least the ezetimibe part), and the uncertainties of human lipid handling and its relationship to cardiovascular outcomes. Honestly, these things could go any way at all, and the same goes for Merck's high-profile push in CETP. A lot of the company is riding on some very uncertain science.
But I wonder, as I was speculating on in that last link, if that isn't where the whole industry is these days. By now, we've attacked all the things that we believe we really know something solid about. What's left is often big, important, potentially very profitable. . .and risky enough to make you leave fingernail marks in the armrests of your chair. The higher up you sit, and the nicer the material that chair is made of, the more damage is being done to it.
Sales will fall by a “mid- to high-single digit percentage” at constant exchange rates in 2013, the London- based company said today in a statement. Analysts had estimated a decline of about 3 percent, according to data compiled by Bloomberg. The company also said earnings fell for a fourth straight quarter and left the annual dividend unchanged. The stock fell the most in nine months.
And things will continue to be. . .challenging:
AstraZeneca has ended nine drug development programs since June 30, including selumetinib for solid tumors, AZD4017 for glaucoma and AZD9773 for severe sepsis, which were in mid-stage trials. In December, the company said fostamatinib, its experimental drug for rheumatoid arthritis, failed to show a benefit against AbbVie Inc. (ABBV)’s Humira in a mid-stage trial.
On the one hand, you want to get rid of such programs before they chew up still more time and money. But on the other hand, you do need something to sell. All this makes a person think that if you're a small company with an asset to sell, that you're going to want to give AZ a call. I think that they'll be ready to deal.
The brand names of drugs are famously odd. But they seem to be getting odder. That's the conclusion of a longtime reader, who sent this along:
I was recently perusing through the recent drug approval list and was struck by how strange the trade names have become. Perhaps it is a request from the FDA so that there are fewer prescription errors, but some of these are really bizarre and don't quite roll off the tongue. USAN names I can understand, but trade names, to me anyway, used to be much more polished (Viagra, Lipitor etc). Could it have to do with the fact that most of these are for cancer? I have a list below comparing trade names from 2004 to those from the past year or so.
He's got a point; some of those look like someone rested an elbow on the keyboard when they were filling out the form. I'd be willing to bet that the oncology connection is a real one - those drugs don't get mass-market advertising at all, so they don't have to be catchy. This Reuters article also notes the trend in cancer drugs, and brings up the need for novelty. Not only is it good to have a name that stands out in the memory, it's a legal requirement to have one that can't be easily confused with another drug. That goes for handwriting as well:
"Regulators want a lot of pen strokes up and down that provide a much more unique-looking name. It is more readable or interpretable if it has a lot of (Zs and Xs)," said Brannon Cashion, Addison Whitney's president.
Whether anyone can actually pronounce the name is of less concern.
That's for sure, when you're talking about things like Xgeva (edit: fixed this name to eliminate the extra "r" I put into it. Can anyone blame me for getting it wrong?). But that one's a good case in point: the generic name is denosumab. That's a good ol' USAN name, with the "-mab" suffix telling you that it's a monoclonal antibody. It's sold in the oncology market as Xgreva for bone-related cancer complications, but it's also prescribed for postmenopausal women to halt loss of bone tissue. There, the same drug goes under the much more consumer-friendly name of Prolia. Now, that's a blandly uplifting name if I've ever heard one, whereas Xgeva sounds like the name of an alien race in a cheap science fiction epic ("An Xgeva ship has been detected in the quadrant, Captain!").
Or, like its recent peers, it also sounds like an excellent Scrabble word, were it to be allowed, which it wouldn't. Me, my proudest moment was playing "axolotl" one time for seven letters. Come to think of it, Axolotl would make a perfectly good drug name under the current conditions. . .
Update: I notice that the comments are filling up with alternative definitions of some of these names, many of which (not all!) sound more sensible.
Here's the latest big picture, from Chemjobber. Note, though, that on Twitter he said that after writing this post he felt as if he could press KBr pellets with his jaws. That should give you some idea.
Chemistry World has really touched a lot of nerves with this editorial by economics professor Paula Stephan. It starts off with a look back to the beginnings of the NIH and NSF, Vannevar Bush's "Endless Frontier":
. . .a goal of government and, indirectly, universities and medical schools, was to build research capacity by training new researchers. It was also to conduct research. However, it was never Bush’s vision that training be married to research. . .
. . .It did not take long, however, for this to change. Faculty quickly learned to include graduate students and postdocs on grant proposals, and by the late 1960s PhD training, at least in certain fields, had become less about capacity building and more about the need to staff labs.
Staff them we have, and as Prof. Stephen points out, the resemblence to a pyramid scheme is uncomfortable. The whole thing can keep going as long as enough jobs exist, but if that ever tightens up, well. . .have a look around. Why do chemists-in-training (and other scientists) put up with the state of affairs?
Are students blind or ignorant to what awaits them? Several factors allow the system to continue. First, there has, at least until recently, been a ready supply of funds to support graduate students as research assistants. Second, factors other than money play a role in determining who chooses to become a scientist, and one factor in particular is a taste for science, an interest in finding things out. So dangle stipends and the prospect of a research career in front of star students who enjoy solving puzzles and it is not surprising that some keep right on coming, discounting the all-too-muted signals that all is not well on the job front. Overconfidence also plays a role: students in science persistently see themselves as better than the average student in their program – something that is statistically impossible.
I don't think the job signals are particularly muted, myself. What we do have are a lot of people who are interested in scientific research, would like to make careers of it, and find themselves having to go through the system as it is because there's no other one to go through.
Stephan's biggest recommendation is to try to decouple research from training: the best training is to do research, but you can do research without training new people all the time. This would require more permanent staff, as opposed to a steady stream of new students, and that's a proposal that's come up before. But even if we decide that this is what's needed, where are the incentives to do it? You'd have to go back to the source of the money, naturally, and fund people differently. Until something's done at that level, I don't see much change coming, in any direction.
So Daniel Vasella, longtime chairman of Novartis, has announced that he's stepping down. (He'll be replaced by Joerg Reinhardt, ex-Bayer, who was at Novartis before that). Vasella's had a long run. People on the discovery side of the business will remember him especially for the decision to base the company's research in Cambridge, which has led to (or at the very least accelerated the process of) many of the other big companies putting up sites there as well. Novartis is one of the most successful large drug companies in the world, avoiding the ferocious patent expiration woes of Lilly and AstraZeneca, and avoiding the gigantic merger disruptions of many others.
That last part, though, is perhaps an accident. Novartis did buy a good-sized stake in Roche at one point, and has apparently made, in vain, several overtures over the years to the holders of Roche's voting shares (many of whom are named "Hoffman-LaRoche" and live in very nice parts of Switzerland). And Vasella did oversee the 1996 merger between Sandoz and Ciba-Geigy that created Novartis itself, and he wasn't averse to big acquisitions per se, as the 2006 deal to buy Chiron shows.
It's those very deals, though, that have some investors cheering his departure. Reading that article, which is written completely from the investment side of the universe, is quite interesting. Try this out:
“He’s associated with what we can safely say are pretty value-destructive acquisitions,” said Eleanor Taylor-Jolidon, who manages about 400 million Swiss francs at Union Bancaire Privee in Geneva, including Novartis shares. “Everybody’s hoping that there’s going to be a restructuring now. I hope there will be a restructuring.” . . .
. . .“The shares certainly reacted to the news,” Markus Manns, who manages a health-care fund that includes Novartis shares at Union Investment in Frankfurt, said in an interview. “People are hoping Novartis will sell the Roche stake or the vaccines unit and use the money for a share buyback.”
Oh yes indeed, that's what we're all hoping for, isn't it? A nice big share buyback? And a huge restructuring, one that will stir the pot from bottom to top and make everyone wonder if they'll have a job or where it might be? Speed the day!
No, don't. All this illustrates the different world views that people bring to this business. The investors are looking to maximize their returns - as they should - but those of us in research see the route to maximum returns as going through the labs. That's what you'd expect from us, of course, but are we wrong? A drug company is supposed to find and develop drugs, and how else are you to do that? The investment community might answer that differently: a public drug company, they'd say, is like any other public company. It is supposed to produce value for its shareholders. If it can do that by producing drugs, then great, everything's going according to plan - but if there are other more reliable ways to produce that value, then the company should (must, in fact) avail itself of them.
And there's the rub. Most methods of making a profit are more reliable than drug discovery. Our returns on invested capital for internal projects are worrisome. Even when things work, it's a very jumpy, jerky business, full of fits and starts, with everything new immediately turning into a ticking bomb of a wasting asset due to patent expiry. Some investors understand this and are willing to put up with it in the hopes of getting in on something big. Other investors just want the returns to be smoother and more predictable, and are impatient for the companies to do something to make that happen. And others just avoid us entirely.
And while we're talking big pharma shakeups, I note that AstraZeneca's new CEO has rearranged the executive furniture pretty vigorously, ditching Martin Mackay. He was the R&D head, ex-Pfizer, and seems to have lasted about two years at AZ, whose well-known problems are going to make the higher positions pretty perilous for some time to come. And the middle positions. And all the others.
What's going on with Pfizer? I have a few questions, and a rumor that I've heard and would like to float.
There's been all sorts of speculation about what Ian Read is going to do with the company. He's been dropping hints for months about splitting it up. And with Abbott recently doing just that, it's no surprise that there are people on Wall Street making the case for Pfizer following along (after all, think of the fees and commissions to be earned). As of this morning, there's fresh talk of all this, since Pfizer seems to be reorganizing its constituent parts, in a way that makes you think it could all break in two.
Now for the rumor, which more directly concerns the company's med-chem research. As everyone in the industry knows, Pfizer's moving towards an outsource-all-the-early-work model. "Drug designers" will occupy that new building I see going up here in Cambridge, and they will cogitate fiercely, pick up their phones, rattle their keyboards, turn on the video-conferencing software, and tell a bunch of chemists twelve time zones away what to make. Repeat as necessary.
But I've been hearing something else recently, even beyond this. Rumor has it that the company is contemplating getting out of all their in-house small molecule drug discovery, and putting most of the focus on biologics and the like. I have not verified this, but that's what I've heard. Now, I didn't know what to think when this came up, but perhaps it has something to do with the possibility of the company splitting up? The small-molecule stuff gets spun out on its own, as a different entity with a different name? Or would Pfizer split between pharma (in one company) and everything else (consumer, generics, etc.) in the other, in which case - if the story I've heard is true - then the small molecule stuff doesn't spin out, it just goes away.
I'd be interested in hearing thoughts on this - its plausibility, its likelihood, and whether anyone else has heard anything similar. I'm not sure I buy into the idea myself, but (as usual) crazier things have happened.
The folks at InVivoBlog are taking votes for "Deal of the Year" in the biopharma space for 2012. There are three categories: M&A (featuring the likes of BMS/Inhibitek and DeCode/Amgen), alliances (such as U. Penn and Novartis), and exit/financing deals for early-stage companies (Warp Drive Bio, anyone?)
So, which of these were good ideas, and which were. . .well, the other kind of idea? I hope that the results show the entire range of voting, and not just the winners, so we can see what the crowd thinks.
I don't know how I've missed posting on this, but according to a recent survey, the "happiest company in America" is. . .wait for it; you'll never guess. . .Pfizer! Yep, the list apparently "honors the 50 companies that are most dedicated to cultivating happy work environments", and it's just hard to think of any large organization that's been more dedicated to that cause over the last few years than Pfizer. Right?
Drug research consultant Bernard Munos popped in the comments here the other day and mentioned this story from 2010 in the Indiana Business Journal. That's where we can find Eli Lilly's prediction that they were going to start producing two new drugs per year, starting in 2013. Since that year is nearly upon us, how's that looking?
Not too well. Back in 2010, Lilly's CEO (John Lechleiter) was talking up the company's plans to weather its big patent expirations, including that two-a-year forecast. Since then, the company has had a brutal string of late-stage clinical failures. In addition to the ones in that article, Lilly's had to withdraw Xigris, and results for edivoxetine are mixed. No wonder we're hearing so much about the not-too-impressive Alzheimer's drugs from them.
But, as I said here, what would I have done differently, were I to have had to misfortune of having to run Eli Lilly? I might not have placed such a big bet on Alzheimer's, but I probably would have found equally unprofitable ways to spend the money. (And in the end, the company deserves credit for taking on such an intractable disease - just no one tell Marcia Angell; she doesn't think anyone in the drug industry does any such thing).
About the only thing I'm sure of is that I wouldn't have gone around telling people that we were going to start launching two drugs a year. No one's ever been able to keep to that pace, not even in the best of times, and these sure aren't the best of times. It's tempting to think about telling the investors and the analysts that we're going to work as hard as we can, using our brains as much as we can, and we're going to launch what we're going to launch, when it's darn well ready to be launched. And past that, no predictions, OK? The only problem is, the stock market wouldn't stand for it. Ken Frazier at Merck tried something a bit like this, and it sure didn't seem to last long. Is happy talk what everyone would rather hear?
George Whitesides of Harvard has a good editorial in the journal Lab on a Chip. He's talking about the development of microassays, but goes on to generalize about the new technologies - how they're found, and how they're taken up (or not) by a wider audience (emphasis mine below):
Lab-on-a-chip (LoC) devices were originally conceived to be useful–that is, to solve problems. For problems in analysis or synthesis (or for other applications, such as growing cells or little animals) they would be tiny – the “microcircuits of the fluidic world.” They would manipulate small volumes of scarce samples, with low requirements for expensive space, reagents and waste. They would save cost and time. They would allow parallel operation. Sensible people would flock to use such devices.
Sensible and imaginative scientists have, in fact, flocked to develop such devices, or what were imagined to be such devices, but users have not yet flocked to solve problems with them. “Build it, and they will come” has not yet worked as a strategy in LoC technology, as it has, say, with microprocessors, organic polymers and gene sequencers. Why not? One answer might seem circular, but probably is not. It is that the devices that have been developed have been elegantly imagined, immensely stimulating in their requirements for new methods of fabrication, and remarkable in their demonstrations of microtechnology and fluid physics, but they have not solved problems that are otherwise insoluble. Although they may have helped the academic scientist to produce papers, they have not yet changed the world of those with practical problems in microscale analysis or manipulation.
Where is the disconnect? One underlying problem has been remarked upon by many people interested in new technology. Users of technology are fundamentally not interested in technology—they are interested in solving their own problems. They want technology to be simple and cheap and invisible. Developers of technology, especially in universities, are often fundamentally not interested in solving real problems—they are interested in the endlessly engaging activity of building and exercising new widgets. They want technology to be technically very cool. “Simple/cheap/invisible” and “technically cool” are not exclusive categories, but they are certainly not synonymous.
That is a constant and widespread phenomenon. There are people who want to be able to do things with stuff, and people who want stuff to do things for them, and the overlap between those two is not always apparent. What happens over time, though, in the best cases, is that the tinkerers come up with things that can be used by a wider audience to solve their own problems. Look no further than the personal computer industry for one of the biggest examples ever. If you didn't live through it, you might not realize how things went from "weird hobbyist thingies" to "neat gizmos if you have the money" to "essential parts of everyday life". Here's Whitesides again:
Here are three useful, homely, rules of thumb to remember in developing products.
• The ratio of money spent to invent something, to make the invention into a prototype product, to develop the prototype to the point where it can be manufactured, and to manufacture and sell it at a large scale is, very qualitatively, 1:10:100:1000. We university folks—the inventors at the beginning of the path leading to products—are cheap dates.
• You don't really know you have solved the problem for someone until they like your solution so much they're willing to pay you to use it. Writing a check is a very meaningful human interaction.
• If the science of something is still interesting, the “something” is probably not ready to be a product.
His second rule reminds me of Stephen King's statement on whether someone has any writing talent or not: "If you wrote something for which someone sent you a check, if you cashed the check and it didn't bounce, and if you then paid the light bill with the money, I consider you talented". It's also the measure of success in the drug industry - we are, after all, trying to make things that are useful enough that people will pay us money for them. If we don't come up with enough of those things, or if they don't bring in enough money to cover what it took to find them, then we are in trouble indeed.
More comments on the Whitesides piece here. For scientists (like me, and many readers of the blog), these points are all worth keeping in mind. Some of our biggest successes are things where our contributions are invisible to the end users. . .
Adam Feuerstein at TheStreet.com has his yearly readers' pick for "Worst Biotech CEO". This year's winner is Jim Bianco of Cell Therapeutics, and there seems to be a good case:
Bianco, a longtime worst biotech CEO nominee, broke through this year and finally shoved his way into loser's circle by managing to engineer a 77% drop in his company's price despite finally winning European approval for the its lymphoma drug.
In many ways, TheStreet's biotechnology readers are (dis)honoring Bianco for a lifetime of investor bamboozlement and self-enrichment. The numbers that define Bianco's career as chief executive of Cell Therapeutics are stunning: Total losses of more than $1.7 billion, a 99.99999999% drop in the value of company shares and total compensation for him and his hand-picked team of executive cronies in the tens of millions of dollars.
Other than that, things have been going fine. Check the post for more, and to find out who the runners-up were. You can be sure that they're not thrilled to be on the list, either. . .
You'll have seen the headlines about off-label promotion of drugs by pharma companies. No, not the ones that decry it as a shady marketing technique, punishable by huge fines. I mean the ones about how a federal court has ruled that it's completely legal.
This came as a surprise, at least to me. The U. S. Court of Appeals, in United States v. Caronia ruled explicitly that "government cannot prosecute pharmaceutical manufacturers and their representatives under the (Food, Drug and Cosmetic Act) for speech promoting the lawful, off-label use of an FDA-approved drug." That does go up against the previous belief that if it's off-label, it isn't lawful. So how did the court get here, and what happens next?
The case concerns Alfred Caronia, a sales rep for Orphan Medical, who was prosecuted for off-label promotion of Xyrem (the sodium salt of gamma-hydroxybutyrate, GHB) in 2005. (The company has since been acquired by Jazz Pharmaceuticals of Dublin). He appealed his conviction on First Amendment grounds, and this argument seems to have rung the bell with the appeals court. Here's a writeup at the FDA Law Blog:
The Court explained that FDA’s construction of the FDCA legalizes the outcome of off-label use by doctors, but “prohibits the free flow of information that would inform that outcome.” The Second Circuit concluded that “the government’s prohibition of off-label promotion by pharmaceutical manufacturers ‘provides only ineffective or remote support for the government’s purpose.’”
There's some case law that backs up this decision, namely Sorrell v. IMS Health Inc.. The Supreme Court decision, for those of you who are truly hard-core about this stuff, is here. In that one, the court found that a Vermont law that restricted physicians from selling information on their prescription history violated the First Amendment as well. From this earlier post at the FDA Law Blog, it appears that a lot of the maneuvering during this latest case was about whether Sorrell applied here or not. That post also makes it clear that the FDA's own statements on the legality of off-label promotion are, to put it gently, unclear.
Well, this ruling certainly clears it up. For now. Here's the 82-page decision itself, with a vigorous dissent from the third judge on the appellate panel. But I can tell you that I'm not reading it yet. That's because I expect the FDA to try to take this to the Supreme Court, and it looks (to my non-lawyer eyes) like just the sort of thing they'd grant certiorari to. So I don't think this story is done - but for now, off-label promotion cannot be prosecuted.
And that's a big change indeed. This whole issue has been a black eye for the industry over the years, because (for one thing) the FDA made it clear, over and over, that it believed the practice was illegal, and that companies (and individuals) could be prosecuted for it. In that atmosphere, a company that went ahead was doing so in knowing violation of the rules as they were understood. No drug company, as far as I know, ever tried to make a First Amendment court case out of an FDA fine for off-label promotion (if anyone knows of any examples, send 'em along). Instead, they argued about whether it had happened or not, how much of it there really was, then paid the whacking fines, and then (likely as not) went out and did it some more. And they did it not because they were free-speech activists, but because that's where a lot of big money was to be found. Not the sort of thing that covers you with glory, for sure.
So it's not like this latest ruling is going to rehabilitate many reputations in the marketing departments. It's more like "Great! Turns out to be legal after all! Who knew?"
I have tried to listen to this podcast with Marcia Angell, on drug companies and their research, but I cannot seem to make it all the way through. I start shouting at the screen, at the speakers, at the air itself. In case you're wondering about whether I'm overreacting, at one point she makes the claim that drug companies don't do much innovation, because most of our R&D budget is spent on clinical trials, and "everyone knows how to do a clinical trial". See what I mean?
Angell has many very strongly held opinions on the drug business. But her take on R&D has always seemed profoundly misguided to me. From what I can see, she thinks that identifying a drug target is the key step, and that everything after that is fairly easy, fairly cheap, and very, very profitable. This is not correct. Really, really, not correct. She (and those who share this worldview, such as her co-author) believe that innovation has fallen off in the industry, but that this has happened mostly by choice. Considering the various disastrously expensive failures the industry has gone through while trying to expand into new diseases, new indications, and new targets, I find this line of argument hard to take.
So, I see, does Alex Tabarrok. I very much enjoyed that post; it does some of the objecting for me, and illustrates why I have such a hard time dealing point-by-point with Angell and her ilk. The misconceptions are large, various, and ever-shifting. Her ideas about drug marketing costs, which Tabarrok especially singles out, are a perfect example (and see some of those other links to my old posts, where I make some similar arguments to his).
So no, I don't think that Angell has changed her opinions much. I sure haven't changed mine.
Word comes that Fluorous is shutting down. The company had been trying for several years to make a go of it with its polyfluorinated materials, used for purification and reaction partitioning, but the commercial side of the business has apparently been struggling for a while. It's a tough market, and there hasn't, as far as I know, been what the software people would call a "killer app" for fluorous techniques - they're interested, often useful, but it's been hard to persuade enough people to take a crack at them.
The company is still taking orders for its remaining stock, and the link above will allow you to download their database of literature references for fluorous techniques, among other things. I wish the people involved the best, and I wish that things had worked out better.
For those connoisseurs of things that have gone wrong, here's a list of the worst drug launches of recent years. And there are some rough ones in there, such as Benlysta, Provenge, and (of course) Makena. And from an aesthetic standpoint, it's hard not to think that if you name your drug Krystexxa that you deserve what you get. Read up and try to avoid being part of such a list yourself. . .
Here's something from just this morning, a whopping large case on illegal trading in Wyeth and Elan stock. This one involves a hedge fund manager, Mathew Martoma, and (quite disturbingly), Dr. Sidney Gilman of the University of Michigan, who was the lead investigator on a very large bapineuzumab trial for Alzheimer's. His conduct appears, from the text of the complaint, to be completely inexcusable, just a total, raw tipoff of confidential information.
I blogged at the time about the trial results, not knowing, of course, that someone had been pre-warned and was trading 20 per cent of Elan's stock volume on the news (and at least ten per cent of Wyeth's). So I take back anything I said about insider trading cases becoming more small-time over the years; this case has jerked the average right back up.
Update: Adam Feuerstein on Twitter: "Gilman's presentation of bapi data at 2008 ICAD meeting was so poorly done. It was shockingly bad. Now we know why."
Public biopharma companies have to put in a lot of effort to safeguard sensitive information. Since we have so many big, important binary events in our business (clinical trial results, sales figures for individual drugs, and so on), you really have to keep that stuff from getting out and around.
Which means that there's also a strong incentive for such things to leak. One could do very well for one's self, if one were not so concerned with being forced to disgorge all of one's profits, and even spending one's time in the slammer. And those factors completely neglect one's sense of ethics, assuming that one has any. These concerns are brushed aside strictly on a risk basis, one understands:
John Lazorchak, 42, director of financial reporting at Celgene, regularly tipped others to nonpublic information on acquisitions, quarterly earnings results and regulatory news, according to a Federal Bureau of Investigation complaint filed yesterday in federal court in Newark, New Jersey.
Mark Cupo, 51, the director of accounting and reporting at Sanofi-Aventis, now known as Sanofi; and Mark Foldy, 42, a marketing executive at Stryker Corp., also were charged. Prosecutors said most of the profit went to Lawrence Grum, 48, and Michael Castelli, 48, who also tipped friends and family. The case involves two sets of high school friends and at least one witness who secretly recorded Grum for the FBI.
Oh, dear. The total profit, in this instance, is about $1.5 million, and standards vary, but even if I had ethical problems I wouldn't run such risks for a share of that amount. Or the full amount, either. But as this Bloomberg story details, insider trading seems to have become a rather more democratic activity over the years, and the amounts of money involved have changed accordingly. Perhaps the people involved are thinking that these sums are too small to be noticed, by the standards of Wall Street and the SEC, and that they'll have a better chance of getting away with the trades.
Not so. I knew someone once who was having a dispute with the IRS, and was (by my standards) insufficiently concerned about his situation. "I'm just a little guy", was the response, "they don't care about someone like me". What I told him was "Whales eat plankton, you know". In that spirit, that second link gives the grim details of a case involving an employee at Seattle Genetics, and it could serve as the template for many others like it. It's a sad story. Most of them are.
If you want to see the effects of (a) patent expirations on big-selling small molecules and (b) the lack of patent expiration effects on biologics (for now), take a look at the likely list of best-selling drugs of 2012. There are three small molecule therapies in the top ten: Advair, Crestor, and Lipitor, all of which are getting rather elderly. More show up below that point, but it's going to be hard to dislodge those antibodies from the upper reaches of the list. . .
This would seem to be inviting the wrath of the Drug Development Gods, and man, are they a testy bunch: "Novartis could produce 14 or more new big-selling 'blockbuster' drugs within five years . . ."
I'll certainly wish them luck on that, and it certainly seems true that Novartis research has been productive. But think back - how many press releases have you seen over the years where Drug Company A predicts X number of big product launches in the next Y years? And how many of those schedules have ever quite worked out? The most egregious examples of this take the form of claiming that your new strategy/platform/native genius/good looks have now allowed you to deliver these things on some sort of regular schedule. When you hear someone talking about how even though they haven't been able to do anything like it in the past, they're going to start unleashing a great new drug product launch every year (or every 18 months, what have you) from here on out, run.
Now, Novartis isn't talking like this, and they have a much better chance of delivering on this than most, but still. Might it not be better just to creep up on people with all those great new products in hand, rather than risk disappointment?
Continuing with some more short links for today, those of you who are interested in what small-stock operators can get up to will enjoy this one, from Adam Feuerstein. What should have been about a $50 million dollar infusion of cash for a small nutritional-supplement company turned into an $18 million dollar infusion of cash. Where, you ask, did the rest of the money go? Read the fine print, and remember, this sort of thing goes on a lot, although it's rarely quite so blatant as this cynical rip-off. Something to keep in mind when you hear about a distressed small company being "rescued".
In a groundbreaking new study, scientists at Some University have discovered that a single molecule may drive people to perform that complex behavior we’ve all observed. Though other researchers consider the results of the small, poorly structured experiment misleading, a well-written press release ensures that their criticisms will be restricted to brief quotes buried near the bottoms of most news stories on the work, if they’re included at all.
There's more at the link, and believe me, you've seen releases that conform to this template so perfectly, it's eerie. I'm reminded of this famous BBC news report. . .
Note: politics ahead. This will not be a regular feature around here, but when events warrant, it'll rear its scaly head.
BioCentury has an interesting piece this week on the growing budget impasse and its implications for both academic and industrial biomedical research. It's already widely known that the so-called "Fiscal Cliff", the budget sequestration process that will trigger if no better deal is reached, will perforce come after funding for both the NIH and the FDA. It's always tricky to figure out the impact of such spending cuts, due to the well-known "Washington Monument" tactic. (That refers to the way that if you try to cut the budget for, say, the Park Service, the first thing they'll do is close the Washington Monument. After all, you are having to save money, right? And if you can do it in a way that causes the most outrage and inconvenience, thus increasing the chance that your budget will be restored, well, why wouldn't you?)
So that means that I don't necessarily believe all the predictions for what sequestration would do to any given agency's budget. But there's no doubt that it would have a powerful effect. At the very least, current plans for increased services or expanded programs would immediately go into the freezer, and there would be layoffs and program cancellations on top of that. New NIH grants would surely be hit, and the approval process at the FDA would slow down. Budget sequestration would not mean The End of Science in America, but we'd feel it, all right.
The flip side of budget-cutting is raising revenue. And for that, we can (among many other places) turn back to the deals made with PhRMA when the Affordable Care Act (aka "Obamacare") was passed. Says BioCentury:
Many of the deficit reduction playbooks Congress and the White House will consult include recommendations to suck money out of the pharmaceutical industry. These include a number of proposals that were taken off the table in the PhRMA deal to support the Affordable Care Act.
Near the top of the list: Imposing rebates on drugs purchased under Medicare Part D by so-called “dual-eligibles,” individuals who are eligible for both Medicare and Medicaid.
The Obama administration’s proposed fiscal 2013 budget projected $135 billion in revenues over a decade from dual-eligibles rebates. The idea, which is anathema to PhRMA, was also endorsed by the National Commission on Fiscal Responsibility and Reform chaired by Alan Simpson, a former Republican senator from Wyoming, and Erskine Bowles, President Clinton’s chief of staff.
The White House is also likely to continue to press for reducing the exclusivity period for biologics to seven years from the 12 years established when Congress created a biosimilars pathway in the Affordable Care Act.
Some readers may recall that I predicted something like this. There's a quote from the head of a health-care consulting firm, who says that "Everything that was taken off the table is back", and I can't say that I'm surprised. The twelve-year exclusivity idea had already been on the block to be chopped; I assume that one way or another, it's a goner.
Here's another provision of the Affordable Care Act that could affect the pharma industry. Starting in 2014, health insurance plans will have a defined "minimum level of coverage", which will be determined state-by-state. Late last year, the Department of Health and Human Services said that it plans to require that "essential" will mean one drug in each therapeutic class, with that one drug to be determined by some process I can only imagine. That idea hasn't been popular, with either drug companies or patients, and one might expect to see it altered. But not without a huge amount of wrangling, that's for sure.
There's an interesting article posted on Nassim Taleb's web site, titled "Understanding is a Poor Substitute for Convexity (Antifragility)". It was recommended to me by a friend, and I've been reading it over for its thoughts on how we do drug research. (This would appear to be an excerpt from, or summary of, some of the arguments in the new book Antifragile: Things That Gain from Disorder, which is coming out later this month).
So this latest article is certainly worth reading, although much of it reads like the title, that is, written in fluent and magisterial Talebian. This blog post is being written partly for my own benefit, so that I make sure to go to the trouble of a translation into my own language and style. I've got my idiosyncracies, for sure, but I can at least understand my own stuff. (And, to be honest, a number of my blog posts are written in that spirit, of explaining things to myself in the process of explaining them to others).
Taleb starts off by comparing two different narratives of scientific discovery: luck versus planning. Any number of works contrast those two. I'd say that the classic examples of each (although Taleb doesn't reference them in this way) are the discovery of penicillin and the Manhattan Project. Not that I agree with either of those categorizations - Alexander Fleming, as it turns out, was an excellent microbiologist, very skilled and observant, and he always checked old culture dishes before throwing them out just to see what might turn up. And, it has to be added, he knew what something interesting might look like when he saw it, a clear example of Pasteur's quote about fortune and the prepared mind. On the other hand, the Manhattan Project was a tremendous feat of applied engineering, rather than scientific discovery per se. The moon landings, often used as a similar example, are also the exact sort of thing. The underlying principles of nuclear fission had been worked out; the question was how to purify uranium isotopes to the degree needed, and then how to bring a mass of the stuff together quickly and cleanly enough. These processes needed a tremendous amount of work (it wasn't obvious how to do either one, and multiple approaches were tried under pressure of time), but the laws of (say) gaseous diffusion were already known.
But when you look over the history of science, you see many more examples of fortunate discoveries than you see of planned ones. Here's Taleb:
The luck versus knowledge story is as follows. Ironically, we have vastly more evidence for results linked to luck than to those coming from the teleological, outside physics —even after discounting for the sensationalism. In some opaque and nonlinear fields, like medicine or engineering, the teleological exceptions are in the minority, such as a small number of designer drugs. This makes us live in the contradiction that we largely got here to where we are thanks to undirected chance, but we build research programs going forward based on direction and narratives. And, what is worse, we are fully conscious of the inconsistency.
"Opaque and nonlinear" just about sums up a lot of drug discovery and development, let me tell you. But Taleb goes on to say that "trial and error" is a misleading phrase, because it tends to make the two sound equivalent. What's needed is an asymmetry: the errors need to be as painless as possible, compared to the payoffs of the successes. The mathematical equivalent of this property is called convexity; a nonlinear convex function is one with larger gains than losses. (If they're equal, the function is linear). In research, this is what allows us to "harvest randomness", as the article puts it.
An example of such a process is biological evolution: most mutations are harmless and silent. Even the harmful ones will generally just kill off the one organism with the misfortune to bear them. But a successful mutation, one that enhances survival and reproduction, can spread widely. The payoff is much larger than the downside, and the mutations themselves come along for free, since some looseness is built into the replication process. It's a perfect situation for blind tinkering to pay off: the winners take over, and the losers disappear.
Taleb goes on to say that "optionality" is another key part of the process. We're under no obligation to follow up on any particular experiment; we can pick the one that worked best and toss the rest. This has its own complications, since we have our own biases and errors of judgment to contend with, as opposed to the straightforward questions of evolution ("Did you survive? Did you breed?"). But overall, it's an important advantage.
The article then introduces the "convexity bias", which is defined as the difference between a system with equal benefit and harm for trial and error (linear) and one where the upsides are higher (nonlinear). The greater the split between those two, the greater the convexity bias, and the more volatile the environment, the great the bias is as well. This is where Taleb introduces another term, "antifragile", for phenomena that have this convexity bias, because they're equipped to actually gain from disorder and volatility. (His background in financial options is apparent here). What I think of at this point is Maxwell's demon, extracting useful work from randomness by making decisions about which molecules to let through his gate. We scientists are, in this way of thinking, members of the same trade union as Maxwell's busy creature, since we're watching the chaos of experimental trials and natural phenomena and letting pass the results we find useful. (I think Taleb would enjoy that analogy). The demon is, in fact, optionality manifested and running around on two tiny legs.
Meanwhile, a more teleological (that is, aimed and coherent) approach is damaged under these same conditions. Uncertainty and randomness mess up the timelines and complicate the decision trees, and it just gets worse and worse as things go on. It is, by these terms, fragile.
Taleb ends up with seven rules that he suggests can guide decision making under these conditions. I'll add my own comments to these in the context of drug research.
(1) Under some conditions, you'd do better to improve the payoff ratio than to try to increase your knowledge about what you're looking for. One way to do that is to lower the cost-per-experiment, so that a relatively fixed payoff then is larger in comparison. The drug industry has realized this, naturally: our payoffs are (in most cases) somewhat out of our control, although the marketing department tries as hard as possible. But our costs per experiment range from "not cheap" to "potentially catastrophic" as you go from early research to Phase III. Everyone's been trying to bring down the costs of later-stage R&D for just these reasons.
(2) A corollary is that you're better off with as many trials as possible. Research payoffs, as Taleb points out, are very nonlinear indeed, with occasional huge winners accounting for a disproportionate share of the pool. If we can't predict these - and we can't - we need to make our nets as wide as possible. This one, too, is appreciated in the drug business, but it's a constant struggle on some scales. In the wide view, this is why the startup culture here in the US is so important, because it means that a wider variety of ideas are being tried out. And it's also, in my view, why so much M&A activity has been harmful to the intellectual ecosystem of our business - different approaches have been swallowed up, and they they disappear as companies decide, internally, on the winners.
And inside an individual company, portfolio management of this kind is appreciated, but there's a limit to how many projects you can keep going. Spread yourself too thin, and nothing will really have a chance of working. Staying close to that line - enough projects to pick up something, but not so many as to starve them all - is a full-time job.
(3) You need to keep your "optionality" as strong as possible over as long a time as possible - that is, you need to be able to hit a reset button and try something else. Taleb says that plans ". . .need to stay flexible with frequent ways out, and counter to intuition, be very short term, in order to properly capture the long term. Mathematically, five sequential one-year options are vastly more valuable than a single five-year option." I might add, though, that they're usually priced accordingly (and as Taleb himself well knows, looking for those moments when they're not priced quite correctly is another full-time job).
(4) This one is called "Nonnarrative Research", which means the practice of investing with people who have a history of being able to do this sort of thing, regardless of their specific plans. And "this sort of thing" generally means a lot of that third recommendation above, being able to switch plans quickly and opportunistically. The history of many startup companies will show that their eventual success often didn't bear as much relation to their initial business plan as you might think, which means that "sticking to a plan", as a standalone virtue, is overrated.
At any rate, the recommendation here is not to buy into the story just because it's a good story. I might draw the connection here with target-based drug discovery, which is all about good stories.
(5) Theory comes out of practice, rather than practice coming out of theory. Ex post facto histories, Taleb says, often work the story around to something that looks more sensible, but his claim is that in many fields, "tinkering" has led to more breakthroughs than attempts to lay down new theory. His reference is to this book, which I haven't read, but is now on my list.
(6) There's no built-in payoff for complexity (or for making things complex). "In academia," though, he says, "there is". Don't, in other words, be afraid of what look like simple technologies or innovations. They may, in fact, be valuable, but have been ignored because of this bias towards the trickier-looking stuff. What this reminds me of is what Philip Larkin said he learned by reading Thomas Hardy: never be afraid of the obvious.
(7) Don't be afraid of negative results, or paying for them. The whole idea of optionality is finding out what doesn't work, and ideally finding that out in great big swaths, so we can narrow down to where the things that actually work might be hiding. Finding new ways to generate negative results quickly and more cheaply, which can means new ways to recognize them earlier, is very valuable indeed.
Taleb finishes off by saying that people have criticized such proposals as the equivalent of buying lottery tickets. But lottery tickets, he notes, are terribly overpriced, because people are willing to overpay for a shot at a big payoff on long odds. But lotteries have a fixed upper bound, whereas R&D's upper bound is completely unknown. And Taleb gets back to his financial-crisis background by pointing out that the history of banking and finance points out the folly of betting against long shots ("What are the odds of this strategy suddenly going wrong?"), and that in this sense, research is a form of reverse banking.
Well, those of you out there who've heard the talk I've been giving in various venues (and in slightly different versions) the last few months may recognize that point, because I have a slide that basically says that drug research is the inverse of Wall Street. In finance, you try to lay off risk, hedge against it, amortize it, and go for the steady payoff strategies that (nonetheless) once in a while blow up spectacularly and terribly. Whereas in drug research, risk is the entire point of our business (a fact that makes some of the business-trained people very uncomfortable). We fail most of the time, but once in a while have a spectacular result in a good direction. Wall Street goes short risk; we have to go long.
I've been meaning to get my talk up on YouTube or the like; and this should force me to finally get that done. Perhaps this weekend, or over the Thanksgiving break, I can put it together. I think it fits in well with what Taleb has to say.
Check out this graph from a recent ACS Webinar, as reprinted by Chemjobber. It shows PhDs awarded in the US over a forty-year period. And while chemistry degrees have been running a bit high for a few years, which surely hasn't helped the employment situation, they're still in the same rough 2000 to 2400 per year range that they've been in since I got my own PhD in 1988. The bigger employment problem for chemists is surely demand; that's slumped much harder than any supply increase.
But will you look at the "Biomedical PhD" line! It had a mighty climb in the late 1980s and early 1990s, then leveled off for a few years. But starting in 2004, it has been making another strong, powerful ascent, and into a vicious job market, too. . .what's driving this? Any thoughts?
From the folks at FierceBiotech, here's a list of the "most frequently cited" takeover targets in the biotech sector. As John Carroll put it, the key seems to be: "targets that include either late-stage blockbuster candidates or some clearly defined new products on the market that can be had for $1 billion to $6 billion." I'll tell you that Onyx is number one on the list, but take a look at the rest and see if you agree. . .
For those who have been complaining that Chemical and Engineering News has been minimizing the employment situation for chemists, try this article. Note before you read: it's about as worrisome and depressing as it can be, and will absolutely give you the shakes whether you're currently employed or not. But for its subjects (and the other people in such situations) it's reality.
True, but that's unfair to lemmings. This is Raghuram Selveraju of Aegis Capital, talking about deal-making executives in the big pharma companies and the string of costly blowups so far this year. That link has the list, and it's quite an impressive string of fireballs.
“What all of these deals had in common was the desperation of big pharma, because its R&D productivity has been dropping and we’ve known that for a long time,” he said.
That desperation leads to the repetition of familiar mistakes which derive from the predictable thinking of too many business development executives at big pharma, Selveraju opined. First, when looking for licensing opportunities, pharmas very often seek out their comfort zone – a potential product for which they can deploy an existing sales force or promote to doctors they already know and communicate with. Also, to be confident in an experimental drug’s preclinical and clinical data, pharmas often want to go into areas where their competitors also have a compound as well as into validated targets.
“Basically, they’re a bunch of lemmings,” Selveraju said. “As soon as a target becomes hot, they all have to have a molecule in that space, hitting that target."
But who could blame them? Going out into areas that haven't been explored, or haven't worked out for others, can get you slaughtered, too (ask Eli Lilly about Alzheimer's). And when that happens, you have nowhere to hide. If everyone else was rushing into a given therapeutic area and it turns out to be a disaster, well, you yourself might be able to get by, because that's just one of those things, and it happened to everyone at the same time. It reminds me of something I saw years ago about investment managers. If you go out and buy a bunch of (say) IBM for your clients and it drops, people might say "Man, what's wrong with IBM?" But if you go out and buy a bunch of WhoZat, Inc., and it drops, people will ask what's wrong with you.
My own biases make me think that if the chances for failure are high both ways, then maybe you should go ahead and strike out for the unknown territory, because the payoff is larger if you succeed. Selveraju himself has a much more cautious (and perhaps outright dispiriting) recommendation:
What then is Selveraju’s prescription for better business development practices? It might disappoint those who want pharma to be in the vanguard of innovation. He recommends incremental innovation – using FDA’s 505b2 pathway to develop products with already defined efficacy and safety – as well as biosimilars and re-purposing. Pharma also should focus on niche and specialty indications, and largely eliminate primary care products and the large commercial operations that come with them.
That's cranking up the dial even more on the Bernard Munos strategy. Munos also recommends getting out of the big, expensive areas and going more for niche and specialty ones, but mainly because of the cost of the clinical trials (and the validation step inherent in them). Alzheimer's, for example, scores big on innovation, but very, very poorly on the risk/cost ratio, since it's going to take you years and years in huge clinical trials to see if you've got something.
But that "develop products with already defined efficacy and safety" line is Selveraju’s own, and doesn't that sound like loads of fun? Coming up with new formulations and dosing schedules of existing drugs is what a 505(b)(2) strategy amounts to, and it brings up thoughts of alternative careers - going off to trucking school and learning to drive the big rigs, for example. Actually, as a drug-discovery chemist, that's probably what I'd end up doing if everyone switched to that plan, since you certainly don't need people like me if you're five-oh-five-bee-twoing.
Like night follows day: GSK completes its acquisition of HGS, and the scythe begins to come down. The company had previously notified the state of Maryland that it was cutting 114 positions, and now it's saying that 97 more are disappearing. That Fierce Biotech post says that even more are on the way after the first of the year.
GSK had offered $13 a share for the company, which the company turned down as too low. They got $14.25 in the end, which is not the sort of premium that they'd been hoping for, I'm sure. Lower-than-expected Benlysta sales are the primary cause of all this trouble. Without that approval, the company would likely have disappeared (or contracted beyond recognition). With it, the company is disappearing, and contracting anyway. . .
They cut back staff back in the spring, and the CEO departed. Now the expected has happened: the company has apparently laid off everyone in research, and is conserving what cash it has to try to get something to the deal-making point. A sad, but familiar story in this business. . .sometimes companies come back after this point, and sometimes the event horizon turns out to have been passed.
Ethan Perlstein at Princeton is the main author of this research on sertraline that I blogged about earlier this year. Now he's looking to crowdfund his next research project, on the neuronal effects of amphetamines. He's trying to raise $25,000 to do radiolabeling and electron microscopy studies, which would make this the largest crowdfunding experiment in the sciences so far (but still, I might add, small change compared to the sorts of grants that much of academia spends its time trying to line up).
What he's looking at is 2 to 3 months of work for one MS-level scientist. In this post he describes some of the reactions he's had to the idea so far, and lists the benefits that donors will receive, according to the amounts they contribute. That list is a real eye-opener, let me tell you - it's a different world we're entering, or trying to enter, at any rate. For example: "$100 or higher – You’ll get a hearty thanks in person, and the opportunity to talk science over a round of beer or glass of wine at a NYC watering hole one night after work, or when you visit NYC within the next 6 months." Or how about this one: "$1,000 or higher – Attend up to 2 lab meetings during the project and 1 publication brainstorming session at the end of the project. You will also receive access to a Google Doc during the manuscript writing stage. Supporters who contribute substantially to the final manuscript may receive co-authorship."
Needless to say, I'm going to watch this with great interest. The projects that can be funded at this level (with some expectation of producing something useful) are, perhaps, special cases, but it's the principle of the thing that intrigues me the most. That's why I'm also putting this one in the "Business and Markets" category, because asking for donations like this is a pure market activity. As a person with a pronounced free-market bias, I'm very much wondering how this will all play out. Thoughts?
So after all the talking we've done around here about stock buybacks in the pharma world, it's worth noting that the new CEO of AstraZeneca has halted their program. Naturally, that has people talking about what they're going to use the money for otherwise - that is, what company they're going to buy. But it's interesting to see a public mention of the buyback program hitting the brakes like this. . .
Now, here's a big idea. Thirty billion dollars worth of big idea. Andrew Lo, professor of finance at MIT (Sloan) and hedge fund manager, along with Jose-Maria Fernandez (Sloan) and Roget Stein (Sloan and Moody's) propose raising that much money for discovery-stage oncology research. But he's not running a fund-raising appeal for a charity; he wants to raise that money as an investment:
Here we propose a financial structure in which a large number of biomedical programs at various stages of development are funded by a single entity to substantially reduce the portfolio's risk. The portfolio entity can finance its activities by issuing debt, a critical advantage because a much larger pool of capital is available for investment in debt versus equity. By employing financial engineering techniques such as securitization, it can raise even greater amounts of more-patient capital. In a simulation using historical data for new molecular entities in oncology from 1990 to 2011, we find that megafunds of $5–15 billion may yield average investment returns of 8.9–11.4% for equity holders and 5–8% for 'research-backed obligation' holders, which are lower than typical venture-capital hurdle rates but attractive to pension funds, insurance companies and other large institutional investors.
Here's a Boston Globe story on the idea. Lo and his co-authors note the low productivity of drug research in recent years (which he doesn't seem to think is a scam!), and its increasing costs. At the same time, there have been many scientific advances in areas that you might have thought would have helped, but here's how he reconciles these trends:
Here we propose one explanation for this apparent inconsistency and a possible solution. Our proposed explanation is the trend of increasing risk and complexity in the biopharma industry. This trend can be attributed to at least two distinct sources: scientific advances and economic circumstances. That biomedicine is far more advanced today than even a decade ago is indisputable, but breakthroughs such as molecular biomarkers for certain diseases generate many new potential therapies to be investigated, each of which requires years of translational research at a cost of hundreds of millions of dollars and has a substantial likelihood of failure. Although such complexity offers new hope to the afflicted, it also presents an enormous number of uncertain prospects that must be triaged by researchers, biopharma business executives, investors, policymakers and regulators. . .the lengthy process of biomedical innovation is becoming increasingly complex, expensive, uncertain and fraught with conflicting profit-driven and nonpecuniary motivations and public-policy implications. Although other industries may share some of these characteristics, it is difficult to find another so heavily burdened by all of them.
Hard to argue with that. He then goes on to one of the same questions that's been discussed around here - the effect of the stock market on a drug company's behavior. If the quarter-by-quarter focus of most investors is inappropriate (or downright harmful) when applied to an R&D-driven company with timelines like the drug industry's, and if private equity doesn't have the cash to invest on that scale (or the willingness to take the expected returns even if things work out), what's left?
That's the idea here, to provide something that currently doesn't exist. The idea is to finance things via securitization:
Our approach involves two components: (i) creating large diversified portfolios—'megafunds' on the order of $5–30 billion—of biomedical projects at all stages of development; and (ii) structuring the financing for these portfolios as combinations of equity and securitized debt so as to access much larger sources of investment capital. These two components are inextricably intertwined: diversification within a single entity reduces risk to such an extent that the entity can raise assets by issuing both debt and equity, and the much larger capacity of debt markets makes this diversification possible for multi-billion-dollar portfolios of many expensive and highly risky projects.
These debt instruments will have longer time horizons, which can be tailored a number of different ways. Securitization can provide a whole range of different bonds to be issued, with different maturities and different levels of risk. The fund itself would earn its returns from the sale of whatever assets its funded projects generate - outright purchases by larger companies, milestone payments, royalties, whatever. With enough diversification, Lo et al. think that this could work, if some cost savings kick in as well:
Compared with the plethora of small pharmaceutical companies currently pursuing just one or two projects, these savings are especially important for a megafund. It is considerably harder to cull compounds efficiently in a small company because the livelihoods of the employees and management depend on the continued development of the company's few compounds—in these cases, development tends to continue until the money runs out. With a megafund, this conflict is greatly reduced—capital can be more efficiently allocated to projects that are likely to succeed, and failing projects and compounds can be abandoned rapidly. In fact, for megafunds that have invested in a sufficient number of early-stage projects, it may be worthwhile to build and operate shared facilities for conducting preclinical studies motivated by the megafund's projects. Such a 'preclinical incubator' could provide the megafund with valuable economies of scale as well as reduce duplicative costs in the industry.
Now, this idea is fascinating, but it raises several big questions. Readers with some knowledge of the financial markets will have noted that this whole securitization-and-repackaging process was one of the main engines of destruction during the recent financial crisis. (I continue to recommend Michael Lewis's The Big Short for details on this). Vast amounts of mortgage-backed securities were generated, and their risks were, it is fair to say, poorly evaluated. The paper explicitly addresses this problem, with suggestions on how to keep things from getting out of hand, but this is something that will have to be watched carefully. Securitization, the authors note, can almost be too efficient a way to raise capital.
The rest of the article is a detailed look at the idea through the lens of portfolio theory, along with some simulations of how it might have worked in the past. I strongly recommend that anyone who finds this idea interesting check out these details, but they're beyond the scope of an already-lengthy blog post. I note that Felix Salmon has looked at this from a financial writer's point of view. His take is that this is quite possibly a worthy idea, but he has doubts. For one thing, the proposed "megafund" might find it difficult to pay investors in its early years, and might be forced to make some bad decisions in order to do so. He's also skeptical that the training-set period used for Lo's simulations is representative of what we might expect in the future.
But Salmon's biggest objection is that the idea might well prove unworkable even to test. A smaller version of such a fund would lose many of its advantages; it has to start off large or not start at all. And he's not so sure that anyone can raise that kind of money for something that's as big a change as this would be. There is, in chemical terms, too high an activation barrier.
I'm still thinking about all this myself; there's a lot to think about. Take a look and see what occurs to you - I think that I can guarantee that you'll have some strong opinions, because this is one of those proposals that it's hard to be neutral about.
Update: Nature Reviews Drug Discovery weighs in with a detailed assessment. The article is cautiously optimistic, but wonders if more money will really do the trick.
Here's a piece by an industry consultant who's interacted with Pfizer a lot over the years. He says that they're really, truly going to change:
But buying companies, partners, and products never added up to a net gain in R&D productivity because the resulting behemoth lacked the key ingredient: integration. Like the industry in general, Pfizer’s acquisitions bought it little else but time. When its enormous R&D engine broke down after failing to produce an adequate pipeline, the company reflexively slashed research spending and staff. But something else happened along the way — a sea change for the company not only in organization but also in philosophy. Like China or the former Soviet Union renouncing past Maoist or Stalinist practices, Pfizer has now declared an end to its legendary imperialism in favor of a new, open and collaborative research model.
Let's just say, that as with many large companies, "open" and "collaborative" have not necessarily been the first words one associates with Pfizer's research strategy. My initial impulse is to discount this stuff as they-have-to-say-that pronouncements from the executive suite. But I'm a cynical person sometimes. If Pfizer really is going to change, theway to convince people (such as their potential collaborators) will be through deeds rather than words. We'll see.
Elan announced not long ago that they were going to spin off their drug discovery efforts into a separate entity, Neotope. But I've also heard that they've recently let go a large number of people in their discovery effort, and I haven't heard any talk of them being Neotoped - does anyone know what's going on over there?
A reader sent along a link to this, which appears to be a completely serious effort by Boehringer Ingelheim to make a Facebook game about drug discovery. My guess is that whatever it might teach anyone about drug R&D will be outweighed by what it'll teach them (incorrectly) about the amount of effort needed to do it. No remotely realistic game could ever have enough payoffs to keep people interested. We can only handle that sort of thing in real life; one expects more from one's entertainment.
In addition to Toulouse, research jobs could go in Montpellier, southern France, in addition to Strasbourg, eastern France, as well as Chilly and Vitry-sur-Seine near Paris.
A number of vaccines unit and support jobs could also be slashed as part of the reshuffle.
Chief Executive Chris Viehbacher, a German Canadian who is Sanofi's first non-French top manager, is now focusing on France as part of his drive to boost productivity in research labs company-wide after wielding the axe in other countries.
"The reality is that our research in France hasn't really come up with a new medicine in 20 years and therefore we have to take a much more productive approach to how we do this," he told analysts in July. "It is a reorganization within France. It's not externalizing research to other countries."
The company is regrouping its research operations around the world into regional hubs - such as Boston, where its rare disease unit Genzyme and cancer research labs are based - while shuttering other laboratories.
That's not going to be popular, given France's history of lively labor relations. But everywhere else in the Sanofi world has heard the swish of the ax, so it can't come as that much of a surprise, can it?
Update: well, here's the announcement itself. And maybe this is my first impression, but compared to what's gone on in other Sanofi sites (like Bridgewater), this one comes across like a shower of dandelion fluff. No reduction in the number of sites, no actual layoffs - just 900 positions to phase out, mostly via attrition, over the next two years. The Toulouse site is the only loose end; that one is the subject of a "working group" to figure out what it's going to do, but I see no actual language about closing it.
When Roche announced that they were moving their remaining East Coast R&D out of Nutley (NJ), I (and others) thought that the Boston area was surely the front-running location. But we were wrong: they're moving to Manhattan. More specifically, it's Murray Hill, near the NYU Medical Center. Cue the speculation about NYC becoming a biotech R&D hub. . .
Swamped with all sorts of stuff today - when science marches on, you have to make sure that it's not leaving its bootprints on your back. But I do have some interesting links:
The bluest of blue-sky brain research, funded by Paul Allen. Fascinating stuff, on several levels - here's a big publication that came out this week. I find the phenomenon of tech-billionaire funding for things like this, asteroid mining, low-cost orbital access and the like very encouraging. (And of course, the Gates Foundation is doing a lot in more earthbound pursuits).
The Wall Street Journalreveals what is apparently a rather ill-kept secret: most firms funded by venture capital fail. "Most", as in about 3 out of 4. That's a loose definition, though - as the article says, if you're talking total wipeout of capital, then that's about one third of them. If you're talking about failing to see the projected return in the projected time, well, that's over 90%. But it's all about the ones that succeed, just like the drug business.
The Royal Society of Chemistry, in a rather self-congratulatory press release, pledges money to help authors publish their work open-access in RSC journals. The UK government is putting money into this, but no one's sure if it'll be enough.
Do you want to make this compound? No? Neither do I. Especially not when they turn around and stick three more nitro groups onto it.
I've heard from more than one person with knowledge of the situation that BI has announced that they'll be closing their Laval site next March. Montreal's drug R&D culture has been taking some major hits the last few years, and this just piles on some more.
Update: the story is now out on the wires, and it looks like this is part of the company getting completely out of antivirals. 170 employees to be affected at Laval.
Startup biopharma companies: they've gotta raise money, right? And the more money, the better, right? Not so right, according to this post by venture capitalist Bruce Booth. Companies need money, for sure, but above a certain threshold there's no correlation with success, either for the company's research portfolio or its early stage investors. (I might add that the same holds true for larger drug companies as well, for somewhat different reasons. Perhaps Pfizer's strategy over the last twenty years has had one (and maybe only one) net positive effect: it's proven that you cannot humungous your way to success in this business. And yes, since you ask, that's the last time I plan to use "humungous" as a verb for a while).
There's also a fascinating look back at FierceBiotech's 2007 "Top Deals", to see what became of the ten largest financing rounds on the list. Some of them have worked out, and some of them most definitely haven't: 4 of the ten were near-total losses. One's around break-even, two are "works in progress" but could come through, and three have provided at least 2x returns. (Read his post to attach names to these!) And as Booth shows, that's pretty much what you'd expect from the distribution over the entire biotech industry, including all the wild-eyed stuff and the riskiest small fry. Going with the biggest, most lucratively financed companies bought you, in this case, no extra security at all.
A note about those returns: one of the winners on the list is described as having paid out "modest 2x returns" to the investors. That's the sort of quote that inspires outrage among the clueless, because (of course) a 100% profit is rather above the market returns for the last five years. But the risk/reward ratio has not been repealed. You could have gotten those market returns by doing nothing, just by parking the cash in a couple of index funds and sitting back. Investing in startup companies requires a lot more work, because you're taking on a lot more risk.
It was not clear which of those ten big deals in 2007 would pay out, to put it mildly. In fact, if you take Booth's figures so far, an equal investment in each of the top seven companies on the list in 2007 would leave you looking at a slight net loss to date, and that includes one company that would have paid you back at about 3x to 4x. Number eight was the big winner on the list (5x, if you got out at the perfect peak, and good luck with that), and number 9 is the 2x return (while #10 is ongoing, but a likely loss). As any venture investor knows, you're looking at a significant risk of losing your entire investment whenever you back a startup, so you'd better (a) back more than one and (b) do an awful lot of thinking about which ones those are. This is a job for the deeply pocketed.
And when you think about it, a very similar situation obtains inside a given drug company. The big difference is that you don't have the option of not playing the game - something always has to be done. There are always projects going, some of which look more promising than others, some of which will cost more to prosecute than others, and some of which are aimed at different markets than others. You might be in a situation where there are several that look like they could be taken on, but your development organization can't handle so many. What to do? Partner something, park something that can wait (if anything can)?Or you might have the reverse problem, of not enough programs that look like they might work. Do you push the best of a bad lot forward and hope for the best? If not, do you still pay your development people even if they have nothing to develop right now, in the hopes that they soon will?
Which of these clinical programs of yours have the most risk? The biggest potential? Have you balanced those properly? You're sure to lose your entire investment on the majority - the great majority - of them, so choose as wisely as you can. The ones that make it through are going to have to pay for all the others, because if they don't, everyone's out of a job.
This whole process, of accumulating capital and risking it on new ventures, is important enough that we've named an entire economic system for it. It's a high-wire act. Too cautious, and you might not keep up enough to survive. Too risky, and you could lose too much. They do focus one's attention, such prospects, and the thought that other companies are out there trying to get a step on you helps keep you moving, too. It's not a pretty system, but it isn't supposed to be. It's supposed to work.
So here's a comment to this morning's post on stock buybacks, referring both to it and my replies to Donald Light et al. last week. I've added links:
Did you not spend two entire posts last week telling readers how only pharma "knows" how to do drug research and that we should "trust" them and their business model. Now you seem to say that they are either incompetent or conmen looking for a quick buck. So what is it? Does pharma (as it exists today) have a good business model or are they conmen/charlatans out for money? Do they "know" what they are doing? Or are they faking competence?
False dichotomy. My posts on the Donald Light business were mostly to demonstrate that his ideas of how the drug industry works are wrong. I was not trying to prove that the industry itself is doing everything right.
That's because it most certainly isn't. But it is the only biopharma industry we have, and before someone comes along with a scheme to completely rework it, one should ask whether that's a good idea. In this very context, the following quote from Chesterton has been brought up, and it's very much worth keeping in mind:
In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, "I don't see the use of this; let us clear it away." To which the more intelligent type of reformer will do well to answer: "If you don't see the use of it, I certainly won't let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it."
This paradox rests on the most elementary common sense. The gate or fence did not grow there. It was not set up by somnambulists who built it in their sleep. It is highly improbable that it was put there by escaped lunatics who were for some reason loose in the street. Some person had some reason for thinking it would be a good thing for somebody. And until we know what the reason was, we really cannot judge whether the reason was reasonable. It is extremely probable that we have overlooked some whole aspect of the question, if something set up by human beings like ourselves seems to be entirely meaningless and mysterious. There are reformers who get over this difficulty by assuming that all their fathers were fools; but if that be so, we can only say that folly appears to be a hereditary disease. But the truth is that nobody has any business to destroy a social institution until he has really seen it as an historical institution. If he knows how it arose, and what purposes it was supposed to serve, he may really be able to say that they were bad purposes, that they have since become bad purposes, or that they are purposes which are no longer served. But if he simply stares at the thing as a senseless monstrosity that has somehow sprung up in his path, it is he and not the traditionalist who is suffering from an illusion.
The drug industry did not arise out of random processes; it looks the way it does now because of a long, long series of decisions. Because we live in a capitalist system, many of these decisions were made to answer the question "Which way would make more money?" That is not guaranteed to give you the best outcome. But neither is it, as some people seem to think, a guarantee of the worst one. Insofar as the need for new and effective drugs is coupled to the ability to make money by doing so, I think the engine works about as well as anything could. Where these interests decouple (tropical diseases, for one), we need some other means.
My problem with stock buybacks is that I think that executives are looking at that same question ("Which way would make more money?") and answering it incorrectly. But under current market conditions, there are many values of "wrong". In the long run, I think (as does Bruce Booth) that it would be more profitable, both for individual companies and for the industry as a whole, to invest more in research. In fact, I think that's the only thing that's going to get us out of the problems that we're in. We need to have more reliable, less expensive ways to discover and develop drugs, and if we're not going to find those by doing research on how to make them happen, then we must be waiting for aliens to land and tell us.
But that long run is uncertain, and may well be too long for many investors. Telling the shareholders that Eventually Things Will Be Better, We Think, Although We're Not Sure How Just Yet will not reassure them, especially in this market. Buying back shares, on the other hand, will.
Bruce Booth has an excellent look at a topic we were discussing around here earlier this year: stock buybacks in biopharma. I didn't have a lot of good things to say about the concept. I understand that corporations have obligations to their shareholders, and I certainly understand that a stock buyback is about the least controversial thing a big company can do with its money. Paying shareholders through dividends has tax consequences. But you can't sit on a big pile of cash forever, and what are you supposed to do if you think that market returns will beat the return on investment in your own business?
That brings up another, larger question: if you truly believe that last part, how long do you think that situation will obtain? And how long are you willing to put up with it? If a business really, truly, can't deliver returns that could be realized through a reasonable investment strategy, then why is it in business to start with? (I've seen discussions among economists about this very point when applied to many small businesses).
Booth wonders about the use of capital, too:
In recent years, plowing it back into internal R&D hasn’t been the preferred option given pipeline productivity questions. Returning capital to shareholders via dividends has certainly been high on the list. Another, albeit indirect, way of paying shareholders is through share repurchases (stock buybacks), and it has also been quite popular. The expectation (or hope) with these indirect stock buybacks is that the stock will move upwards because the shares oustanding goes down (or at least the buybacks offset the dilution from the exercise of options).
But buybacks have a more mixed assessment in practice (links at his site - DBL) and are typically only a smart if a company is (a) under-valued and (b) has no better uses of capital. This latter point is where they draw my ire, especially given their scale in our industry and the many strategic alternatives.
Totaling up the buybacks gives you some humongous figures. One thing that I'm not quite sure about with these numbers is whether all these buybacks are actually followed through. You'd think there would be legal consequences if the discrepancy grosw too large, but I don't know the law on this topic. But taking the figures as we have them, you get this:
To appreciate the magnitude of these buybacks, it’s worth comparing them to other important financial values in the biopharma ecosystem. It’s bigger than the NIH budget for both 2011-2012 by nearly 25%. It’s 4.5x bigger than all of the private venture-backed M&A that occurred in the past 18 months – and that involved over 70 biotech companies. It’s 12x bigger than the sum total of venture dollars invested in biotech in that period. And it's nearly 80x bigger than all the capital raised by fifteen biotech IPOs during that period. This is a huge amount of capital washing into stock repurchases.
The problem is, as Booth goes on to show, is that there's no particular correlation (that anyone can see) between these buybacks and the performance of the stocks themselves. (You could always say that they'd have performed even worse without the buybacks, an unanswerable and untestable point). He's got some other suggestions for the money, and he's not even asking for all of it. Or half of it. Or a tenth. Five per cent of the buyback pool would totally alter the funding universe for early-stage companies and precompetitive consortia. In other words, potentially alter the future of the whole industry. But we're not doing that. We're buying our own shares. Tens of billions of dollars of our own shares, because we can't seem to think of anything better to do.
The British Medical Journalsays that the "widely touted innovation crisis in pharmaceuticals is a myth". The British Medical Journal is wrong.
There, that's about as direct as I can make it. But allow me to go into more detail, because that's not the the only thing they're wrong about. This is a new article entitled "Pharmaceutical research and development: what do we get for all that money?", and it's by Joel Lexchin (York University) and Donald Light of UMDNJ. And that last name should be enough to tell you where this is all coming from, because Prof. Light is the man who's publicly attached his name to an estimate that developing a new drug costs about $43 million dollars.
I'm generally careful, when I bring up that figure around people who actually develop drugs, not to do so when they're in the middle of drinking coffee or working with anything fragile, because it always provokes startled expressions and sudden laughter. These posts go into some detail about how ludicrous that number is, but for now, I'll just note that it's hard to see how anyone who seriously advances that estimate can be taken seriously. But here we are again.
Light and Lexchin's article makes much of Bernard Munos' work (which we talked about here), which shows a relatively constant rate of new drug discovery. They should go back and look at his graph, because they might notice that the slope of the line in recent years has not kept up with the historical rate. And they completely leave out one of the other key points that Munos makes: that even if the rate of discovery were to have remained linear, the costs associated with it sure as hell haven't. No, it's all a conspiracy:
"Meanwhile, telling "innovation crisis" stories to politicians and the press serves as a ploy, a strategy to attract a range of government protections from free market, generic competition."
Ah, that must be why the industry has laid off thousands and thousands of people over the last few years: it's all a ploy to gain sympathy. We tell everyone else how hard it is to discover drugs, but when we're sure that there are no reporters or politicians around, we high-five each other at how successful our deception has been. Because that's our secret, according to Light and Lexchin. It's apparently not any harder to find something new and worthwhile, but we'd rather just sit on our rears and crank out "me-too" medications for the big bucks:
"This is the real innovation crisis: pharmaceutical research and development turns out mostly minor variations on existing drugs, and most new drugs are not superior on clinical measures. Although a steady stream of significantly superior drugs enlarges the medicine chest from which millions benefit, medicines have also produced an epidemic of serious adverse reactions that have added to national healthcare costs".
So let me get this straight: according to these folks, we mostly just make "minor variations", but the few really new drugs that come out aren't so great either, because of their "epidemic" of serious side effects. Let me advance an alternate set of explanations, one that I call, for lack of a better word, "reality". For one thing, "me-too" drugs are not identical, and their benefits are often overlooked by people who do not understand medicine. There are overcrowded therapeutic areas, but they're not common. The reason that some new drugs make only small advances on existing therapies is not because we like it that way, and it's especially not because we planned it that way. This happens because we try to make big advances, and we fail. Then we take what we can get.
No therapeutic area illustrates this better than oncology. Every new target in that field has come in with high hopes that this time we'll have something that really does the job. Angiogenesis inhibitors. Kinase inhibitors. Cell cycle disruptors. Microtubules, proteosomes, apoptosis, DNA repair, metabolic disruption of the Warburg effect. It goes on and on and on, and you know what? None of them work as well as we want them to. We take them into the clinic, give them to terrified people who have little hope left, and we watch as we provide with them, what? A few months of extra life? Was that what we were shooting for all along, do we grin and shake each others' hands when the results come in? "Another incremental advance! Rock and roll!"
Of course not. We're disappointed, and we're pissed off. But we don't know enough about cancer (yet) to do better, and cancer turns out to be a very hard condition to treat. It should also be noted that the financial incentives are there to discover something that really does pull people back from the edge of the grave, so you'd think that we money-grubbing, public-deceiving, expense-padding mercenaries might be attracted by that prospect. Apparently not.
The same goes for Alzheimer's disease. Just how much money has the industry spent over the last quarter of a century on Alzheimer's? I worked on it twenty years ago, and God knows that never came to anything. Look at the steady march, march, march of failure in the clinic - and keep in mind that these failures tend to come late in the game, during Phase III, and if you suggest to anyone in the business that you can run an Alzheimer's Phase III program and bring the whole thing in for $43 million dollars, you'll be invited to stop wasting everyone's time. Bapineuzumab's trials have surely cost several times that, and Pfizer/J&J are still pressing on. And before that you had Elan working on active immunization, which is still going on, and you have Lilly's other antibody, which is still going on, and Genentech's (which is still going on). No one has high hopes for any of these, but we're still burning piles of money to try to find something. And what about the secretase inhibitors? How much time and effort has gone into beta- and gamma-secretase? What did the folks at Lilly think when they took their inhibitor way into Phase III only to find out that it made Alzheimer's slightly worse instead of helping anyone? Didn't they realize that Professors Light and Lexchin were on to them? That they'd seen through the veil and figured out the real strategy of making tiny improvements on the existing drugs that attack the causes of Alzheimer's? What existing drugs to target the causes of Alzheimer are they talking about?
Honestly, I have trouble writing about this sort of thing, because I get too furious to be coherent. I've been doing this sort of work since 1989, and I have spent the great majority of my time working on diseases for which no good therapies existed. The rest of the time has been spent on new mechanisms, new classes of drugs that should (or should have) worked differently than the existing therapies. I cannot recall a time when I have worked on a real "me-too" drug of the sort of that Light and Lexchin seem to think the industry spends all its time on.
That's because of yet another factor they have not considered: simultaneous development. Take a look at that paragraph above, where I mentioned all those Alzheimer's therapies. Let's be wildly, crazily optimistic and pretend that bapineuzumab manages to eke out some sort of efficacy against Alzheimer's (which, by the way, would put it right into that "no real medical advance" category that Light and Lexchin make so much of). And let's throw caution out the third-floor window and pretend that Lilly's solanezumab actually does something, too. Not much - there's a limit to how optimistic a person can be without pharmacological assistance - but something, some actual efficacy. Now here's what you have to remember: according to people like the authors of this article, whichever of these antibodies that makes it though second is a "me-too" drug that offers only an incremental advance, if anything. Even though all this Alzheimer's work was started on a risk basis, in several different companies, with different antibodies developed in different ways, with no clue as to who (if anyone) might come out on top.
All right, now we get to another topic that articles like this latest one are simply not complete without. That's right, say it together: "Drug companies spend a lot more on marketing than they do on research!" Let's ignore, for the sake of argument, the large number of smaller companies that spend all of their money on R&D and none on marketing, because they have nothing to market yet. Let's even ignore the fact that over the years, the percentage of money being spent on drug R&D has actually been going up. No, let's instead go over this in a way that even professors at UMDNJ and York can understand it:
Company X spends, let's say, $10 a year on research. (We're lopping off a lot of zeros to make this easier). It has no revenues from selling drugs yet, and is burning through its cash while it tries to get its first on onto the market. It succeeds, and the new drug will bring in $100 dollars a year for the first two or three years, before the competition catches up with some of the incremental me-toos that everyone will switch to for mysterious reasons that apparently have nothing to do with anything working better. But I digress; let's get back to the key point. That $100 a year figure assumes that the company spends $30 a year on marketing (advertising, promotion, patient awareness, brand-building, all that stuff). If the company does not spend all that time and effort, the new drug will only bring in $60 a year, but that's pure profit. (We're going to ignore all the other costs, assuming that they're the same between the two cases).
So the company can bring in $60 dollars a year by doing no promotion, or it can bring in $70 a year after accounting for the expenses of marketing. The company will, of course, choose the latter. "But," you're saying, "what if all that marketing expense doesn't raise sales from $60 up to $100 a year?" Ah, then you are doing it wrong. The whole point, the raison d'etre of the marketing department is to bring in more money than they are spending. Marketing deals with the profitable side of the business; their job is to maximize those profits. If they spend more than those extra profits, well, it's time to fire them, isn't it?
R&D, on the other hand, is not the profitable side of the business. Far from it. We are black holes of finance: huge sums of money spiral in beyond our event horizons, emitting piteous cries and futile streams of braking radiation, and are never seen again. The point is, these are totally different parts of the company, doing totally different things. Complaining that the marketing budget is bigger than the R&D budget is like complaining that a car's passenger compartment is bigger than its gas tank, or that a ship's sail is bigger than its rudder.
OK, I've spend about enough time on this for one morning; I feel like I need a shower. Let's get on to the part where Light and Lexchin recommend what we should all be doing instead:
What can be done to change the business model of the pharmaceutical industry to focus on more cost effective, safer medicines? The first step should be to stop approving so many new drugs of little therapeutic value. . .We should also fully fund the EMA and other regulatory agencies with public funds, rather than relying on industry generated user fees, to end industry’s capture of its regulator. Finally, we should consider new ways of rewarding innovation directly, such as through the large cash prizes envisioned in US Senate Bill 1137, rather than through the high prices generated by patent protection. The bill proposes the collection of several billion dollars a year from all federal and non-federal health reimbursement and insurance programmes, and a committee would award prizes in proportion to how well new drugs fulfilled unmet clinical needs and constituted real therapeutic gains. Without patents new drugs are immediately open to generic competition, lowering prices, while at the same time innovators are rewarded quickly to innovate again. This approach would save countries billions in healthcare costs and produce real gains in people’s health.
One problem I have with this is that the health insurance industry would probably object to having "several billion dollars a year" collected from it. And that "several" would not mean "two or three", for sure. But even if we extract that cash somehow - an extraction that would surely raise health insurance costs as it got passed along - we now find ourselves depending on a committee that will determine the worth of each new drug. Will these people determine that when the drug is approved, or will they need to wait a few years to see how it does in the real world? If the drug under- or overperforms, does the reward get adjusted accordingly? How, exactly, do we decide how much a diabetes drug is worth compared to one for multiple sclerosis, or TB? What about a drug that doesn't help many people, but helps them tremendously, versus a drug that's taken by a lot of people, but has only milder improvements for them? What if a drug is worth a lot more to people in one demographic versus another? And what happens as various advocacy groups lobby to get their diseases moved further up the list of important ones that deserve higher prizes and more incentives?
These will have to be some very, very wise and prudent people on this committee. You certainly wouldn't want anyone who's ever been involved with the drug industry on there, no indeed. And you wouldn't want any politicians - why, they might use that influential position to do who knows what. No, you'd want honest, intelligent, reliable people, who know a tremendous amount about medical care and pharmaceuticals, but have no financial or personal interests involved. I'm sure there are plenty of them out there, somewhere. And when we find them, why stop with drugs? Why not set up committees to determine the true worth of the other vital things that people in this country need each day - food, transportation, consumer goods? Surely this model can be extended; it all sounds so rational. I doubt if anything like it has ever been tried before, and it's certainly a lot better than the grubby business of deciding prices and values based on what people will pay for things (what do they know, anyway, compared to a panel of dispassionate experts?)
Enough. I should mention that when Prof. Light's earlier figure for drug expense came out that I had a brief correspondence with him, and I invited him to come to this site and try out his reasoning on people who develop drugs for a living. Communication seemed to dry up after that, I have to report. But that offer is still open. Reading his publications makes me think that he (and his co-authors) have never actually spoken with anyone who does this work or has any actual experience with it. Come on down, I say! We're real people, just like you. OK, we're more evil, fine. But otherwise. . .
I'm told that BMS is cutting scientific staff today in New Jersey as they refocus some of their therapeutic areas. More details as I get them (or in the comments below).
Update: there are cuts in the metabolic disease area. The company apparently feels that traditional diabetes drug discovery has become a challenging area, both because it's become increasingly well-served and because the regulatory/clinical path has become much more difficult in recent years. . .
Update #2: the company has now confirmed that it has eliminated "fewer than 100" positions, but is giving no further details. In lieu of those, it has chosen, like so many other organizations, to inform the world that it ". . .is strategically evolving the company’s Research focus to ensure the delivery of a sustainable, innovative drug pipeline in areas of serious unmet medical need and potential commercial growth," and that it "is aligning and building internal capabilities. . ." In case you were wondering.
Does anyone want to put money into the pharma/biotech industry? Let's widen that question: does anyone want to put money into R&D-driven industries in general? That question, which on first glance seems ludicrous, becomes more worryingly believable the longer you think about it. Consider this exchange between Eric Schmidt of Google and Peter Thiel. Thiel makes a pretty provocative statement about what Google is doing with its money:
PETER THIEL: …Google is a great company. It has 30,000 people, or 20,000, whatever the number is. They have pretty safe jobs. On the other hand, Google also has 30, 40, 50 billion in cash. It has no idea how to invest that money in technology effectively. So, it prefers getting zero percent interest from Mr. Bernanke, effectively the cash sort of gets burned away over time through inflation, because there are no ideas that Google has how to spend money.
That apparently didn't get answered to the moderator's satisfaction, so it came up again:
ADAM LASHINSKY: You have $50 billion at Google, why don’t you spend it on doing more in tech, or are you out of ideas? And I think Google does more than most companies. You’re trying to do things with self-driving cars and supposedly with asteroid mining, although maybe that’s just part of the propaganda ministry. And you’re doing more than Microsoft, or Apple, or a lot of these other companies. Amazon is the only one, in my mind, of the big tech companies that’s actually reinvesting all its money, that has enough of a vision of the future that they’re actually able to reinvest all their profits.
ERIC SCHMIDT: They make less profit than Google does.
PETER THIEL: But, if we’re living in an accelerating technological world, and you have zero percent interest rates in the background, you should be able to invest all of your money in things that will return it many times over, and the fact that you’re out of ideas, maybe it’s a political problem, the government has outlawed things. But, it still is a problem.
ADAM LASHINSKY: I’m going to go to the audience very soon, but I want you to have the opportunity to address your quality of investments, Eric.
ERIC SCHMIDT: I think I’ll just let his statement stand.
ADAM LASHINSKY: You don’t want to address the cash horde that your company does not have the creativity to spend, to invest?
ERIC SCHMIDT: What you discover in running these companies is that there are limits that are not cash. There are limits of recruiting, limits of real estate, regulatory limits as Peter points out. There are many, many such limits. And anything that we can do to reduce those limits is a good idea.
PETER THIEL: But, then the intellectually honest thing to do would be to say that Google is no longer a technology company, that it’s basically ‑‑ it’s a search engine. The search technology was developed a decade ago. It’s a bet that there will be no one else who will come up with a better search technology. So, you invest in Google, because you’re betting against technological innovation in search. And it’s like a bank that generates enormous cash flows every year, but you can’t issue a dividend, because the day you take that $30 billion and send it back to people you’re admitting that you’re no longer a technology company. That’s why Microsoft can’t return its money. That’s why all these companies are building up hordes of cash, because they don’t know what to do with it, but they don’t want to admit they’re no longer tech companies. . .
I agree with Alex Tabarrok; this sort of thing is disturbing food for thought. As his point about the reveal preferences of technology leaders, some possible bright exceptions are people like Elon Musk, who seems quite serious about his space program (and good for him). And I very much hope that Google's Schmidt and others are serious about thing like their asteroid-mining venture, and that it's not just the "propanganda ministry".
Closer to home, I got to thinking that if there were any sort of robust returns to be earned in biotech or pharma, that Google, Microsoft et al. would have probably taken a spare billion or so and funded some ventures in these areas. But they haven't. Keep in mind, these folks have money well in excess of what they seem to need to continue investing in their own business. They're presumably looking for something to do with it all, and the point about not being able to return it to the shareholders is a valid one, because (rightly or not) that's seen as an admission that they don't have any particularly good new ideas. (Of course, the fact that they're letting the cash pile up might also be interpreted that way, but issuing a dividend really nails it down).
There are many similarities between this situation and the discussion/argument we had around here about pharma companies buying back their own stock. The likes of Apple can plausibly claim that hey, their business is going so well that they really don't have to spend all those revenues on running it; their current spend is plenty to keep the good times rolling. But what drug company can say that? Everyone in this business is on a frantic treadmill, thanks to patent expirations above all. You'd think that taking money that could be spent on R&D (yours or someone else's) and using it to prop up the share price would be an unaffordable luxury. I know, I know - a public company has obligations to its shareholders. But in this business, perhaps one of those obligations is to explain to your current (and potential) shareholders just what sort of business this is, and what it requires. In a better world, you might end up with a better-informed and more realistic group of people holding your stock.
Unless - and I can't rule this out - the belief is that a completely honest look at the way things are in this business would scare off too many people from investing in it at all. It seems to have scared off Big Tech, with their massive piles of fallow cash. It's not like they have to become experts to invest over here; expertise can be hired. What if they went to some of the existing investment groups over here and asked them what they would be able to do with a billion dollars? Are there even a billion dollars worth of ideas out there right now?
I'm pressed for time this morning, so I wanted to put up a quick link to Adam Feuerstein's thoughts on media embargoes of scientific results (and how they're becoming increasingly useless).
And I also wanted to note this odd bit of news: I'll bet you thought that fluorine, elemental gaseous fluorine, wasn't found in nature. Too reactive, right? But we're all wrong: it's found in tiny cavities in an unusually stinky mineral. And part (or all) of that smell is fluorine itself, which I'll bet that very few people have smelled in the lab. I hope not, anyway.
Looks like AstraZeneca's internal numbers agree with Matthew Herper's. The company was talking about its current R&D late last week, and this comment stands out:
Discovery head Mene Pangalos told reporters on Thursday that mistakes had been in the past by encouraging quantity over quality in early drug selection.
"If you looked at our output in terms of numbers of candidates entering the clinic, we were one of the most productive companies in the world, dollar for dollar. If you rated us by how many drugs we launched, we were one of the least successful," he said.
Yep, sending compounds to the clinic is easy - you just declare them to be Clinical Candidates, and the job is done. Getting them through the clinic, now, that's harder, because at that point you're encountering things that can't be rah-rah-ed. Viruses and bacteria, neurons and receptors and tumor cells, they don't care so much about your goals statement and your Corporate Commitment to Excellence. In the end, that's one of the things I like most about research: the real world has the last laugh.
The news aggregator Biospace has a particularly misleading headline on all this: "AstraZeneca Claims Neuroscience Shake-Up is Paying Off ; May Advance at Least 8 Drugs to Final Tests by 2015". I can't find anyone from AZ putting it in quite those terms, fortunately. That would be like saying that my decision, back in Boston, to cut costs by not filling my gas tank is paying off as I approach Philadelphia.
If you haven't seen it, there's an excellent article in the Washington Post by Brian Vastag on why the whole "America Faces Critical Shortage of Scientists!" thing is ridiculous. I hope it does some good - this idea gets repeated too often by people who have no idea of what they're talking about. Vastag hits a lot of important themes - layoffs in once-thriving sci/tech fields, the perverse incentives to churn out more PhDs and post-docs, and so on.
Chemjobber has good commentary on the article here, as does David Kroll. It's good to see a major media outlet pick up on what people in the field have been saying for some time, and going against the lazy America-falls-behind-in-science-race take.
You'll have heard that GlaxoSmithKline has paid out three billion dollars in a settlement on illegal marketing practices, misreporting of safety data, and other violations. Needless to say, GSK does not have a spare three billion lying around that's not being used for anything; they'd be a lot better off if they hadn't put themselves in this position.
What's hard to figure, though, is how much money the company made through these actions. There's a lot of talk, understandably, about how drug companies (and their executives) could be warned off such behavior, but if GSK realized, say, an extra $4 billion in the process of incurring their $3 billion dollar fine, it's going to be hard to make the case to some of those people. The settlement actually appears to be a bit less than some investors were expecting, and there may, in the end, be no way to have the magnitude of the potential fines do all the work of a deterrent.
Matthew Herper at Forbesnotes that the company's current CEO, Andrew Witty, has issued an unusually forthright statement (by CEO standards) on the whole matter:
All of the actions predated the tenure of current GlaxoSmithKline chief executive Andrew Witty, who has been trying to improve the company’s reputation. He has pushed forward with efforts to develop medicines for poor nations, including a malaria vaccine that Glaxo is developing with the Bill & Melinda Gates Foundation. He has also taken steps to remove incentives that made pharma salespeople so overzealous, no longer tying compensation to how much of a drug they can sell. In a statement, he said that employees have been removed from positions as a result of the changes and that new provisions will allow the company to take back compensation from executives if they don’t adhere to the company’s standards.
Glaxo has done something else right, too: Witty actually managed, in the press release disclosing this settlement, something close to a full-throated apology. He said:
“Whilst these originate in a different era for the company, they cannot and will not be ignored. On behalf of GSK, I want to express our regret and reiterate that we have learnt from the mistakes that were made.”
That may not sound like much, but in the context of an industry that has almost never seen fit to apologize for anything it is a step in the right direction.
But I also wanted to mention by name two of the people who set this entire thing in motion. One of them is Blair Hamrick, and another is Greg Thorpe. These were GSK sales reps who grew concerned about illegal activity over ten years ago:
“Regardless of what company policy may be, my letters to human resources and my previous complaints of misconduct have been quashed. My 23-plus year career with this company has been trashed, and it is obvious I can no longer work with my district manager and friends/counterparts just because I have come forward with the truth, which could save the reputation of GSK and millions of dollars in fines,” wrote Thorpe, one of the whistleblowers on whose claims the feds based their allegations, in a January 2002 note to Glaxo officials. . .instead, though, Glaxo officials issued their own warnings to Thorpe about his willingness to be a team player and refused to address various violations of the False Claims Act, which he referred to specifically and repeatedly in numerous communications.
"Team player" is one of those phrases that should put a person on their guard. It can be used completely innocuously, but it can also be used to justify pretty much any behavior that the rest of a group is doing, and on no more basis than, well, the rest of the group is doing it. I reserve my admiration for those who need more justification than that for their actions.
There are some effects that I hope this GSK news will have: making someone think twice about getting caught when they're planning something that goes over the line, or (on the other side) shoring up the resolve of a person who's deciding not to go along with something that they've realized is wrong. The world tends to run short of both of those.
I wanted to highlight this latest post by Gaussling on starting a chemical business. (Here's an earlier one). In today's environment, I'm sure that this has crossed many people's minds, and this series has a lot of wisdom to offer on how to do it (and how not to). Not everything that looks like it should make money will do so:
The other big negative to selling proprietary reagents or processes is negotiating the terms and pricing. From the customers perspective, adopting your composition or process means that smack in the middle of their process train they have to manage a licensed technology with extra paper work and auditing. This is a big problem with catalysts. Many of the newer catalysts you see in the Aldrich or Strem catalogs are proprietary and must be used under a license agreement. Nothing stirs the creative juices like the desire to avoid paying royalities by finding white space in a patent or inventing a new process.
Having been involved in such license negotiations, I can say that you need to have a lawyer looking over your shoulder while you consider the terms and conditions. These agreements often entail upfront fees and a sliding scale of pricing based on usage. Some IP owners want a piece of your gross product sales resulting from the use of their technology. An annual audits may be expected as well. It’s like having raccoons in your picnic basket.
Indeed. I can tell you from my own experience, on the other side of the table, that few things will make your potential clients want to see your back more than asking for a percentage of the eventual profits. Fee-for-service is a lot easier to handle, but is of course less profitable.
And even then, pricing is tricky. Sometimes there's not much space in between "Who do these people think they are?" and "They're so cheap that there much be something wrong". My advice to anyone starting such a business is to be open to all sorts of different arrangements, to at least get your foot into as many doors as possible. Your potential clients will probably be a pretty variable bunch, and you'll need to be able to vary right along with them.
Over at Forbes, Matthew Herper has some thoughts now that the major parts of the Affordable Care Act have been upheld. Among them is this on its effect on the pharma business:
Will the law actually benefit some drug companies? Many in the drug business have expressed regret about the decision to back the Affordable Care Act, even blaming former Pfizer chief Jeffrey Kindler, a Democrat, for having pushed a deal through. I think that some of this opposition is based on outdated thinking that says that even though the government already pays for a lion’s share of health care spending through Medicare and Medicaid, giving it even more control will eventually create price controls like in Europe.
This made sense when the industry made all of its money selling mass market pills such as Lipitor and Plavix, both now off-patent. But the model for many new cancer drugs (the biggest category in drug company pipelines) and for drugs for rare diseases is that the companies charge a price no individual can pay, and then try to get insurers and governments to pay for them. This is the basic strategy taken by companies like Alexion, Biomarin, and the Genzyme division of Sanofi, all of which charge hundreds of thousands of dollars per patient per year for there medicines. Getting more people insured is good for these companies. Right now Alexion and Biomarin are down, which makes little sense. Fundamentally, the success of the drug industry depends on inventing new medicines; at most, the law is neutral. . .
We'll see. I think that the high-price/low-patient-population strategy that Herper refers to will be up for revision at some point, and perhaps sooner than we expect. One of the selling points of the ACA/Obamacare was that it would (somehow) contain costs, and I still have a lot of trouble believing that it will do anything of the kind. If (when?) we find that we're still spending piles of money on health care, one of the more politically popular ways to cut costs (or at least look as if you're cutting costs) will be to go after therapies that cost six figures a year.
And this could get tricky, because any cancer drugs that are actually effective are likely to be so only for small populations (the people who have tumors that are driven by one treatable mutation, as opposed to a swarm of genomically unstable cells that can mutate their way out of attempts to shut them down). The more we learn about which drugs to give to which patients, the smaller the treatable population gets for any individual drug, and the higher the price. These lines have been heading for an intersection for some time now, and I don't see how the health care law will keep things from getting messy.
Big news, and unfortunate news for the New Jersey end of the pharma business: Roche is closing down their entire site in Nutley. That's a loss of 1000 jobs, and an end to a research site that's been going since the 1930s and which was once a huge presence in the R&D world. The research is going to be picked up by Roche sites in Germany and Switzerland. The company says that it's going to open a smaller translational research center, though:
A location is being identified on the East Coast to focus on translational clinical research to support Roche US-based clinical trials and early development programs, support and maintain Roche interactions with the U.S. Food and Drug Administration (FDA), and enhance Roche's collaborations with US based partners, such as academic institutions and biotech companies. This new center is expected to host around 240 employees.
That sounds like a Boston/Cambridge deal to me, but we'll see. For now, we have a very large closing indeed.
Nature Reviews Drug Discoveryhas an article on the current state of drug development, looking at what's expected to be launched from 2012 to 2016. There's a lot of interesting information, but this is the sentence that brought me up short: "the global pipeline has stopped growing". The total number of known projects in the drug industry (preclinical to Phase III) now appears to have peaked in 2009, at just over 7700. It's now down to 7400, and the biggest declines are in the early stages, so the trend is going to continue for a while.
But before we all hit the panic button, it looks like this is a somewhat artificial decline, since it was based on an artificial peak. In 2006, the benchmark year for the 2007-2011 cohort of launched drugs, there were only about 6100 projects going. I'm not sure what led to the rise over the next three years after that, but we're still running higher. So while I can't say that it's healthy that the number of projects has been declining, we may be largely looking at some sort of artifact in the data. Worth keeping an eye on.
And the authors go on to say that this larger number of new projects, compared to the previous five-year period, should in fact lead to a slight rise in the number of new drugs approved, even if you assume that the success rates drop off a bit. They're guessing 30 to 35 launches per year, well above the post-2000 average. Peak sales for these new products, though, are probably not going to match the historical highs, so that needs to be taken into account.
More data: the coming cohort of new drugs is expected to be a bit more profitable, and a bit more heavily weighted towards small molecules rather than biologics. Two-thirds of the revenues from this coming group are expected to be from drugs that are already in some sort of partnership arrangement, and you'd have to think that this number will increase further for the later-blooming candidates. The go-it-alone blockbuster compound really does seem to be a relative rarity - the complexity and cost of large clinical trials, and the worldwide regulatory and marketing landscape have seen to that.
As for therapeutic area, oncology has the highest number of compounds in development (26% of them as of 2011). It's to the point that the authors wonder if there's an "oncology bubble" on the way, since there are between 2 and 3 compounds chasing each major oncology target. Personally, I think that these compounds are probably still varied enough to make places for themselves, considering the wildly heterogeneous nature of the market. But it's going to be a messy process, figuring out what compounds are useful for which cases.
So in the near term, overall, it looks like things are going to hold together. Past that five-year mark, though, predictions get fuzzier, and the ten-year situation is impossible to forecast at all. That, in fact, is going to be up to those of us doing early research. The shape we're in by that time will be determined, perhaps, by what we go out into the labs and do today. I have a tool compound to work up, to validate (I hope) an early assay, and another project to pay attention to this afternoon. 2022 is happening now.
Update: here are John LaMattina's thoughts on this analysis, asking about some things that may not have been taken into account.
OK, it's time to haul the marketing guys back in again. Via Pharmalot, I see that Merck, in its capacity now as Merck Schering-Plough, is promoting Claritin via a tie-in with the kid's movie "Madagascar 3". That is certainly the first time I've ever heard of a drug company co-promoting with a children's movie (or, actually, any movie at all, although I've probably missed an example or two).
And if these reports are true, the promotion is rather extensive, in an eye-rolling cringe-inducing way:
". . .customized Madagascar 3 packaging for both types of Claritin; a “Free Movie Ticket Offer” promotion with a Claritin purchase at Walgreens; the Claritin Facebook page offers a free, downloadable Madagascar Inspired Circus Activity Guide and a Madagascar themed “Circus Stackers” game; eight activity guides for free download from Facebook, and product packaging that included “5 Free Stickers” of Madagascar characters.
Merck also initiated “Children’s Claritin Mom Crew” members to hold Madagascar-themed viewing parties. Mom Crew members are bloggers who have been selected by Merck to be product endorsers, the letter states. [The Public Health Advocacy Institute at Northeastern], in fact, says it ran a Google search using the terms “Claritin mom crew Madagascar.” Of the first 40 search results, 31 were unique accounts of Children’s Claritin Madagascar viewing parties held by Claritin Mom Crew members from across the country.
Well, I just did that same search, and believe me, it's no longer the case. The Pharmalot post is now the first search result, and most of the others are unfavorable publicity in the same vein. But there certainly are accounts from the (excuse me while I hold my nose) "Claritin Mom Crew" in the results, although I'm having a lot of trouble believing that these are real blog posts that emerged from spontaneous human action. This really smells like a planned campaign, with close attention paid to phrasing, linking, and other search engine optimization techniques. For one thing, I note that every mention of this thing is carefully capitalized, and there's even a standard Twitter hashtag.
But maybe my ideas of "spontaneous human action" need to be a bit broader. There's been a long-standing technique of spreading endorsements via compensated blog posts (money, coupons, discounts, affiliate percentages), and there are surely many here's-what-I-do-with-my-kids sites that exist partly (or wholly) to reap the benefits from all these promotions. I note that at least one of these blogs is now feeling the backlash from all the negative publicity in this case, and they're probably not alone. (Roll with it, I say - after all, think of all the extra traffic you're getting!)
But this whole promotion is a rotten idea, although I suppose that you'd have to be a marketing whiz for that not to at least cross your mind. How anyone could have planned it and launched it without realizing that this backfire reaction was exactly what would surely happen is beyond me. And sure, maybe they're going to sell some more children's Claritin, briefly. But how much more, compared to all the negative PR? Compared to headline after headline that makes Merck look like the sort of organization that has no problem using cartoon character tie-ins to sell histamine receptor antagonists to kids?
Hey, why not? After all, Merck - or at least their marketing department - clearly is the sort of organization that has no problem with that at all. Own it guys - stand up and be proud. I'm sure you can manage it.
If you're looking for the master list of business-speak cliches, look no further. That article has 89 of them, and if you can get to the end without shedding neurons from your frontal lobes, you're tougher than I am. (Note that the author of the piece recognizes this danger himself). It's a value-added, win-win paradigm shift, net-net, at the end of the day, sure to move the needle going forward. Dang. There go some of those neurons right now.
Via ChemJobber, here's a quote from the National Research Council's Committee on Challenges in Chemistry Graduate Education. Their report has just come out, and I agree that this should be a key point for people to ponder:
Whitesides believes that the question should be asked whether PhD theses are narrow technical presentations for jobs that no longer exist. Should U.S. graduate students be doing organic synthesis if most organic synthesis is being done in China? “That’s not to say that these aren’t really important activities, but we need to connect our investment in graduate school with what’s actually needed to give jobs to students.”
It's worth remembering that Whitesides hasn't exactly been the biggest booster of traditional organic synthesis over the years, he does have a point. This may not be the right way to look at the situation, but if it hasn't crossed your mind, you haven't thought hard enough about the issues yet. I have a couple of quick responses:
1. There are all kinds of organic synthesis. I don't think that there's much point to the human-wave-attack style of making gigantic natural products, as I've said here several times. And if there's not much point to what's considered the highest level of total synthesis, then there must really not be much to the low levels of the field. Those are the papers I'd characterize as "Here's a molecule that no one much cares about, made in a way that you'd figure would probably work, using reactions everyone already knows". But there's more to the field than that; at least, there'd better be.
2. Prof. Whitesides is exaggerating to make a point. It's not like there's no organic synthesis being done in the U.S. A lot of the stuff that's moved to China (and India) is routine chemistry that's being outsourced because it's cheap (or has been cheap, anyway). As that changes, the costs go up, and we head towards a new equilibrium. It seems beyond doubt that there are fewer people doing industrial organic chemistry than there used to be in this country, but it's not like it's only found in China (or will be).
3. That said, he's absolutely right that people need to think about where the jobs are, lest chemistry (and some other sciences) go the way of some of the humanities graduate programs. If you go off and get a doctorate in English with a dissertation on minor 18th-century poets, you're mostly qualified to teach other people about minor 18th-century poets so they can go off and write dissertations of their own. (Actually, your own work would probably have concentrated on the relation of said poets to prevailing gender norms or something, in which case I really don't see the point). We do not want to teach people to do organic chemistry if the majority of them are going to have to seek jobs teaching other people to do organic chemistry.
4. Doing that - thinking about the larger economic and scientific context - is hard. The time it takes to get a degree means that the situation could well have changed by the time a person gets out of grad school, compared with the way things looked when they made the decision to go. But this has always been the case; that's life as we know it. People have to keep their eyes open and be intelligent and flexible, because there are potential dead ends everywhere. As hard as that advice is to follow, though, I still think it's better than any sort of scheme to allocate/ration people among different fields of study. My bias against central planning isn't just philosophical; I don't see how it can possibly work, and it is very, very likely to make the situation even worse.
I'm on the train, and can't download a 120-page PDF at the moment, but I'll have a look at the report and add more thoughts as they come up.
The Chinese government recently amended its intellectual property law to allow for compulsory licensing. Similar measures are on the books in many other companies, and it's allowed under international patent law (WIPO) in cases of emergency or threats to public health. India recently did this to Bayer's Nexavar. Thailand has used this provision more than once, and other countries (such as Brazil) have threatened it during negotiations with drug companies.
Pharmalot has more on the story, particularly with respect to Gilead and their dealings with the Chinese government over their HIV therapy Viread. As that piece says, China is particularly well suited (as is India) to follow through on such moves, since both countries have robust pharma manufacturing and generic drug business sectors.
I'm actually surprised that the Chinese government didn't have these provisions in place before, though. It's a useful negotiating tool, and I would expect them to avail themselves of everything available, since they are in such a good position to play hardball. Of course, they also have a huge amount of investment from multinational companies on the other side of such considerations - but they also have that huge market that the companies want access to. My guess is that last factor will, in the end, trump everything. There are many drugs, and many drug companies, but there's only one Chinese market. And the only way to that market is through China's one government, which means that companies (and not just drug companies) will continue to smile through gritted teeth and put up with pretty much anything.
Via Pharmalot, it appears that a former WuXi employee helped himself to samples of two Merck Phase II clinical candidates that were under evaluation. The samples were then offered for sale.
Here's a link to a Google Translate version of a Chinese news report. It looks like gram quantities were involved, along with NMR spectra, with the compounds being provided to a middleman. It's not clear who bought them from him, but the article gives the impression that someone did, was satisfied with the transaction, and wanted more. But in the meantime, Merck did pick up on an offer made by this middleman to sell one of the compounds online, and immediately went after him, which unraveled the whole scheme. (The machine translation is pretty rocky, but I did appreciate that an idiom came through: it mentions that having these valuable samples in an unlocked cabinet was like putting fish in front of a cat).
I would think that this kind of thing is just the nightmare that WuXi's management fears - and if it isn't, it should be. The cost advantage to doing business with them (and other offshore contract houses) is still real, but not as large as it used to be. Stories like this can close that price gap pretty quickly.
Over at Xconomy, Luke Timmerman asks why any biopharma company would go to the trouble and expense of changing its name. There are several reasons (such as having chosen a lousy name to begin with), but he's right that most company names don't mean much before or after a change.
He also has a poll of some name changes, asking if they were upgrades or not. The first on his list is my nomination for the Worst Company Name: AbbVie, which is what Abbott decided to call its pharma business as it spins that out on its own. I just can't say enough bad things about that one -it's meaningless, for starters, and that double "b" looks like a misprint. The b/v consonant combination doesn't exactly roll off the tongue; the "Vie" is silly for a company not based in France (or at least selling something that's supposed to be French), and I've never been a fan of InterCapitalization. Other than that, I guess it's fine.
So here's a quick question: what's the biotech/pharma company out there with the worst name - well, other than AbbVie? Is there anyone who can beat them? Boring doesn't count. We're looking for actually harmful. Nominees?
Well, that's because things can't go on the way that they have been, as this Reuters piece makes clear:
For several years, AstraZeneca kept investors happy with a strategy of hefty dividend payments and share buybacks, but more recently key shareholders have grown restive about its failure to develop promising new medicines.
The group has suffered repeated drug development setbacks, stoking fears about its long-term prospects given a complete reliance on prescription medicines at a time when rivals have diversified.
I'm not so sure about how well their rivals have done with that diversification, if it even exists in many cases. AstraZeneca has discovered too few new drugs and spent far too much money doing so, and no amount of share buyback programs can help that. There are apparently two contradictory sets of recommendations: that AZ should aggressively buy someone, perhaps several companies, in an effort to make up for its own failures. But the other camp says that the company should shrink down to something viable, and thus make itself an attractive target for someone else to buy.
Both of those are, needless to say, business recommendations from Wall Street analysts. As such, they're answering the question "If I owned a lot of AstraZeneca stock, what would I want to the company to do to keep me from losing even more money?" (Never mind that the answer, in some of these cases, is "Don't own that stock; cut and run"). Another question, asked from a different perspective, is "What should use should be made of AstraZeneca's vast drug discovery and development resources? How can we make something different happen than what's been happening for the last ten years?" In other words, "How can this company discover more drugs?"
Those two viewpoints intersect if you believe that discovering more drugs would lead to a more profitable company. And that would follow, except for the nasty lead time of ten or twelve years. If someone at AZ waved a magic wand this afternoon and caused a host of future clinical successes to be made in the labs, and also magically caused their future development to go as smoothly as possible, then the company's bottom line would show the effects in. . .what, 2022 or so? Given that, the shorter-term Wall Street solutions will have a free hand. There isn't time for science to rescue this situation.
ChemJobber catches a very odd situation, as reported in C&E News. An official at a large R&D organization testifies to Congress about the importance of research funding. No surprises, eh? But get this: it's a VP of Corporate Alliances at WuXi.
Although, actually, it makes perfect sense. The more research funding there is in the U.S., the more contracting work there might be for WuXi, to make those dollars stretch further. Sensible or not, though, it does look strange.
Update: Immune Response Biopharma CEO David Buswell has left a detailed comment to this point, pointing out that it was his company that ended talks with GSK, and not the other way around. See here for the details.
GlaxoSmithKline has decided not to pursue further development of a potential vaccine therapy for multiple sclerosis, dumping former partner Immune Response BioPharma. We get that sort of headline all the time in this business - deals come, and deals go. What we don't get are press releases like these. The full unaltered text:
"Immune Response BioPharma, Inc. has the first MS Vaccine a first in class and best in class multiple sclerosis drug which restores deficient FOXP3+ T-Regs. GSK has no approved MS drug and probably will never have one they are busy wasting their shareholders money on HGSI and a Lupus drug with poor sales, we don't need them or to give away our blockbuster drug for MS to them which we believe will become treatment of choice" IRBP CEO Mr. Buswell
"IRBP values NeuroVax north of a billion dollar of annual sales once approved. We will find a solid partner or raise capital on our own, we don't need GSK which has zer0 experience in multiple sclerosis or auto-immune diseases. GSK is a joke and seems very ignorant on how multiple sclerosis drugs work and how to develop one, we gave them a chance to develop NeuroVax but their management appears to be very poor. We have decided to terminate any collaboration or development with GSK. GSK is a loser in the MS market and will continue to be a loser" IRBP CEO Mr. Buswell
Y'know, in his way, this CEO is a breath of fresh air. Everyone thinks these things in such situations, but not many people put them out on the PR wires. This release seems to have transcribed directly from Mr. Buswell's (no doubt heated) statements at the time, which I'm sure accounts for the take-a-breath grammar. I'll follow NeuroVax's progress with interest to see who has the last laugh this time. . .
This article from the Telegraph has nothing to say at all about the drug industry. But you might find it strangely familiar and appropriate, starting with the headline: Bloodless Bean Counters Rule Over Us:
You find this hollowing-out everywhere. In schools, the head who does not teach is now a familiar, indeed dominant figure. University vice-chancellors, instead of being dons who move from their subject into administration for a period of their lives, are now virtually lifelong managers, with hugely increased salaries to match. It is even commonplace for charities to be run by people with no commitment to the charity’s specific purpose, but proud possession of what they call the necessary “skill-sets”, such as corporate governance. . .
. . .These habits are now pervasive across industry and the public services. “Diversity” is always “celebrated”, but it never means diversity of thought. The people who tell you they are “passionate about” X or Y are usually the most bloodless ones in the outfit.
In such cultures, just as the experts, the professionals and the technicians bitterly resent the managerialists for neither understanding nor caring, so the managerialists secretly detest the professionals who, they believe, get in the way of their rationalisations. They are desperate to “let go” of such people. Very unhappy organisations result.
Or then again, perhaps you haven't encountered anything like this after a few years in the industry. What, after all, are the odds?
Mat Todd at the University of Sydney (whose open-source drug discovery work on schistosomiasis I wrote about here) has an interesting chemical suggestion. His lab is also involved in antimalarial work (here's an update, for those interested, and I hope to post about this effort more specifically). He's wondering about whether there's room for a "Molecular Craigslist" for efforts like these:
Imagine there is a group somewhere with expertise in making these kinds of compounds, and who might want to make some analogs as part of a student project, in return for collaboration and co-authorship? What about a Uni lab which might be interested in making these compounds as part of an undergrad lab course?
Wouldn’t it be good if we could post the structure of a molecule somewhere and have people bid on providing it? i.e. anyone can bid – commercial suppliers, donators, students?
Is there anything like this? Well, databases like Zinc and Pubchem can help in identifying commercial suppliers and papers/patents where groups have made related compounds, but there’s no tendering process where people can post molecules they want. Science Exchange has, I think, commercial suppliers, but not a facility to allow people to donate (I may be wrong), or people to volunteer to make compounds (rather than be listed as generic suppliers. Presumably the same goes for eMolecules, and Molport?
Is there a niche here for a light client that permits the process I’m talking about? Paste your Smiles, post the molecule, specifying a purpose (optional), timeframe, amount, type of analytical data needed, and let the bidding commence?
The closest thing I can think of is Innocentive, which might be pretty close to what he's talking about. It's reasonably chemistry-focused as well. Any thoughts out there?
I mentioned the other day that Human Genome Sciences had turned down an offer from GSK, feeling that they could do better. Well, if they can, now's the time: GSK is now offering the same deal ($13/share) on the open market in a hostile takeover attempt. One of these companies is wrong about that price, and now I guess we'll find out which one of them it is. . .
A number of people have sent me this article about the number of people with Master's and PhD degrees who are receiving food stamps. And while it's undeniable that the numbers have grown, I'd ask for everyone to keep their statistical glasses on. According to the chart at the end of the piece, the percentage of doctorate holders receiving assistance went from 0.05% in 2007 to 0.15% in 2010. (For MS/MA degree holders, it went from 0.5% to 1.3% over that same time).
So it can't be said that this is a widespread phenomenon. One would also want to see the numbers broken down by age cohort, and (especially) by field of study. The examples in the article are all history and English types. Also, if those figures are correct, the headline could have just as easily read "Master's Degree Holders Ten Times More Likely To Be On Food Stamps".
Honestly, the number I find most alarming in that chart is the total number of advanced degree holders. We went from 20 million in 2007 to 22 million in 2010 - two million more in only three years? The population of the country went from 301 million to 313 million during that time, so that's a pretty good crop of degree holders. Given what the economy has been like during that period, I'm surprised the food stamp figures aren't even higher.
Looking at advanced degrees as a percentage of the population, we have 4.3% in 1970, 7.2% in 1980, 8.8% in 1990, 8.6% in 2000 (a decrease I'm at a loss to explain), and 10.6% in 2009. Those figures don't quite add up with the ones in the food stamp article, but the trend certainly is in the same direction. We have figures in the growth in bachelor's degree or higher going back to 1940, and they show the relentless uptrend you'd expect.
So it shouldn't come as a surprise that well-educated people are participating more in some of the downsides that hit the rest of the population. Well-educated people are becoming more and more of the population.
Benlysta got approved for lupus last year, as the first new drug in the field in decades. But as noted at the time, it didn't exactly blow the doors out at the FDA, nor in the clinic. Now it's having a rough time in Europe, which makes things interesting for both Human Genome Sciences and their partners at GlaxoSmithKline.
Both the British (NICE) and German (IQWiG) agencies responsible for assessing the cost/benefit of new drugs have recommended against Benlysta's use. This adds some drama to GSK's recent offer of $2.6 billion for HGSI, which the smaller company turned down out of hand. Their case for a higher bid seems to be based on the market potential of Benlysta, but the arguing has begun over how realistic those hopes are. This is the sort of issue that gets settled with a sales price - or perhaps, in this case, just an upper bound. . .
In other news, Delta Airlines has rejected the idea of making its new fleet of long-range passenger jets out of bamboo and stale Fig Newton bars. There are also reports this morning that Burger King has rejected the idea of buying Birkenstock and cramming their sandals into buns in lieu of hamburger patties. More business news as it become available.
Here's an excellent piece by venture capital guy Bruce Booth, looking back at the heady days of 1991-1994. I can tell you that they weren't so heady in Big Pharma, but there were a lot of startups coming along. Included are some really big names of today, but also a lot of outfits that no one even remembers any more. And how have investors fared? That depends:
Only a subset of the 1991-1994 IPO window have accrued real value over time. There were certainly a few big winners in there – Gilead probably being the biggest, up over 100x since its IPO in 1992. MedImmune also fared quite well with its $16B acquisition (though AZ is not thrilled about it now), and Vertex is up 10x.
But let’s take the prior two examples, Isis and Amylin, which represent “successful” 20-year old mid-cap biotechs. Both have gone from preclinical stage companies around their IPOs to having products launched or filed with the FDA. But they haven’t really created any shareholder value over 20 years. Isis today trades at $8 per share, but it went public at $10 per share. Amylin went out at $14, but closed on the end of its first day of trading in 1992 at $21 per share. It now trades at $25. So for 20 years, these companies (and many, many others in the 1991-1994 cohort) have underperformed not only all major equity indices, but also treasury bills, and consumed billions in equity capital. And recall that many more companies from this window, probably at least half, ended up dying long whimpering deaths like long-forgotten Autoimmune Inc and Alpha-Beta Technology.
And that's a big reason why you don't see so many big biotech/small pharma IPOs any more. The markets are a different place, twenty years on:
The current reality, shaped by a couple decades of lackluster performance, is that the public markets aren’t open for business in biotech. While they are much less tolerant of the value-destroying tactics of the past (which is a good thing), they have also set the bar so high as to discourage even great, innovative companies from considering it as a viable option. In this new world, the old company building models just don’t work: it’s hard to back a startup today with an investment thesis around “we’re building the next Gilead” – the capital markets are just so different.
Small companies have to act differently, raise money differently, and sell themselves differently these days. Stay private, do as much virtually/outsourced, sell out to Big Pharma earlier than before. . .it's worth another post or two to talk about some of those models, but the "Let's Have an IPO!" one isn't going to be on the list. Not for some time to come, anyway.
So AstraZeneca's CEO is leaving. This wasn't necessary a voluntary move, but if it was, I don't blame him. I would have some serious thoughts about sticking around, too. (If reports of David Brennan's severance package have any truth in them, though, he'll have some time to figure out what to do next.)The company has major problems in its drug pipeline, has had major problems for a long time now, and no obvious fixes come to mind that won't take years of sustained effort.
That's the revenue coming in from existing drugs, and there's not much that bids to replace it, either. Note, again, that Eli Lilly appears to be in a very similar fix. I would not expect things there to go smoothly over the next few years, either.
In Geneva, the (former) headquarters of Serono. They're transferring some of the jobs, but at least 500 are gone - and the people holding them are being put out into what (from here) looks like a very unfriendly jobs market. . .
Since I've mentioned Ardea Pharmaceuticals and their gout drug RDEA594 (lesinurad) here a couple of times, I should note that AstraZeneca has decided to put up over a billion dollars to buy the entire company.
It's not surprising to see AZ getting the wallet out, considering the company's overall problems, which are also, naturally, the source of all the relentless cutbacks they've been announcing. I will not, however, endorse the following statement from the company's head of R&D:
"We’re building some momentum here in R&D,” Martin Mackay, head of research and development, said in a telephone interview today. “I would be disappointed if we didn’t announce further deals by the end of this year. We’ve taken our hits but we’re turning a corner.”
Update: just to make things clear, this is only one aspect of the whole problem, but perhaps an easier one to tackle. More on the rest of the proposals to come!
Yesterday's post brought in a lot of welcome comment, and I want to follow up on the ideas in it. The first problem I wanted to tackle was journal access for entrepreneurs, the recently unemployed, and small shops. Here are some of the comments from the first post, consolidated:
A better bet would be to negotiate a group agreement with DeepDyve. "You can rent the article and view it at DeepDyve for 24 hours or more" for $1. The catch? No printing- you have to read it online (hence the renting not purchasing model).
Something like that might be necessary, because others pointed out that:
I like the idea of the journal access, HOWEVER, you'll pay handsomely for such access. It's no different than a large corp or large library. You have 300 people in your organization? You need to buy a group license.
OK, how you going to limit access? Is it just single, non-employed people who can get access? Perhaps you'd like to expand it to small companies? What size cut off? 10? 100? 500? Perhaps the mid-size biotechs should join up, and drop their own subscriptions. And maybe the smaller colleges?
And from "Mrs. McGreevy" herself, who kicked off the discussion:
Alternatively, if enough people think this is something the ACS should be doing, and start demanding it loudly and frequently, perhaps the ACS will get around to doing it. Maybe they don't know what to do, either. Cheaper access to ACS publications? That would be nice. Perhaps even negotiating group payment rates or even (*gasp*) subsidies for access to other publishers' papers? I wonder if that's even possible, but I'll bet the ACS hasn't even considered it up until now. Perhaps there wouldn't need to be an independent library if the ACS were willing to take on the job. We should ask them. (In fact, why stop at the ACS? Maybe the unemployed biologists would be willing to pony up some time, money and lobbying power as well.)
Another idea would be to subsidize journal access with website ads as well as membership dues. Perhaps start a paid online directory of consultants or CROs, sort of the Ye Olde Yellowe Pages model. Perhaps there could be a small fee for posting an RFP or a project up for bid, sort of a classified ad business model to help clients, CROs and consultants find each other. Various small fees for various small services ==> money for subsidized journal access.
OK, those are the journal thoughts so far (other than a number of people who agree that it's a major problem, as do I!) Any more ideas on this aspect to add to the pile? I'd never heard of DeepDyve myself, and they sound interesting: anyone have any experience with them, and is there anyone else in that market niche? We'll put together some action points after this round of ideas. . .
I've had an interesting e-mail from a reader who wants to be signed as "Mrs. McGreevy", and it's comprehensive enough that I'm going to reproduce it in full below.
As everyone but the editorial board of C&E News has noticed, jobs in chemistry are few and far between right now. I found your post on virtual biotechs inspiring, but it doesn't look like anyone has found a good solution for how to support these small firefly businesses until they find their wings, so to speak. Lots of editorials, lots of meetings, lots of rueful headshaking, no real road map forward for unemployed scientists.
I haven't seen this proposed anywhere else, so I'm asking you and your readership if this idea would fly:
What about a voluntary association of independent research scientists?
I'm thinking about charging a small membership fee (for non-profit administration and hard costs) and using group buying power for the practical real-world support a virtual biotech would need:
1. Group rates on health and life insurance.
How many would-be entrepreneurs are stuck in a job they hate because of the the health care plan, or even worse, are unemployed or underemployed and uninsurable, quietly draining their savings accounts and praying no one gets really sick? I have no idea how this would work across state lines, or if it is even possible,but would it hurt to find out? Is anyone else looking?
2. Group rates on access to journals and library services.
This is something I do know a bit about. My M.S. is in library science, and I worked in the Chemistry Library in a large research institution for years during grad school. What if there were one centralized virtual library to which unaffiliated researchers across the country could log in for ejournal access? What if one place could buy and house the print media that start-ups would need to access every so often, and provide a librarian to look things up-- it's not like everyone needs their own print copy of the Canada & US Drug Development Industry & Outsourcing Guide 2012 at $150 a pop. (But if 350 people paid $1 a year for a $350/yr online subscription . . . )
Yes, some of you could go to university libraries and look these things up and print off articles to read at home, but some of you can't. You're probably violating some sort of terms of service agreement the library and publisher worked out anyway. It's not like anyone is likely to bust you unless you print out stacks and stacks of papers, but still. It's one more hassle for a small company to deal with, and everyone will have to re-invent the wheel and waste time and energy negotiating access on their own.
3. How about an online community for support and networking-- places for blogs, reviews, questions, answers, exchanges of best practices, or even just encouragement for that gut-wrenching feeling of going out on your own as a new entrepreneur?
4. What sort of support for grantwriting is out there? Is there a hole that needs to be filled?
5. How about a place to advertise your consulting services or CRO, or even bid for a contract? Virtual RFP posting?
6. Would group buying power help negotiate rates with CROs? How about rates for HTS libraries, for those of you who haven't given up on it completely?
Is there a need for this sort of thing? Would anyone use it if it were available? How much would an unaffiliated researcher be willing to pay for the services? Does anyone out there have an idea of what sort of costs are involved, and what sort of critical mass it would take to achieve the group buying power needed to make this possible?
I'd be happy to spark a discussion on what a virtual biotech company needs besides a spare bedroom and a broadband connection, even if the consensus opinion is that the OP an ill-informed twit with an idea that will never fly. What do you need to get a virtual biotech started? How do we make it happen? There are thousands of unemployed lab scientists, and I refuse to believe that the only guy making a living these days from a small independently-funded lab is Bryan Cranston.
A very worthy topic indeed, and one whose time looks to have come. Thoughts on how to make such a thing happen?
So says Matthew Herper in Forbes, and I'm certainly not going to argue with him. His point is what he calls lack of appreciation for the human capital in drug discovery:
An ideal drug company would follow all sorts of crazy ideas in early research, with the goal of selecting those where there was a high probability of believing they would actually prove effective in clinical development. It would bulk up on scientists, and try to limit the number of large clinical trials it conducted to those where some kind of test — blood levels of some protein, perhaps — led researchers to think they had a high probability of success. (Novartis, the most successful company in terms of getting new drugs to market, has moved in this direction.) But the tendency of the shutdowns has been to shut laboratories, too. Look at Merck’s stance toward the old Organon labs or Pfizer’s decision to shut the Michigan labs where Lipitor was invented. Taking the ax to the scientists is probably a mistake.
There's always been a disconnect between the business end and the scientific end, but the stresses of the last few years have opened it up wider than ever. The business of making money from drug discovery has never been trickier (or more expensive), and the scientists themselves have never felt more threatened. I can see it in the comments here on this site, whenever the topic of layoffs or top-management incompetence comes up. There are a lot of hard feelings out there - and, really, given the way things have been going, why wouldn't there be?
But at the risk of collecting some thrown bricks myself, I see where the business people are coming from. Our current cost structures are unsustainable. And although I don't agree with the solution of laying everyone off, I don't know what I would do instead. For many companies, it would have been better to have started adjusting years ago, although there's hindsight bias to keep in mind when you think that way. Many companies did try to start adjusting years ago, only to be overwhelmed by even worse than they'd counted on. Then there are a few organizations that just look unfixable by any means anyone can think up.
But I think it's safe to say that relations between the two lobes of the drug R&D enterprise, the financial one and the scientific one, have probably never been worse. It's nothing that some success and hiring couldn't fix, but those are thin on the ground these days.
I would not like to count the number of times I've said bad things here about pharma mergers. The best of them, as far as I can see, have been not all that harmful, and the worst have been near-disasters. As the undisputed M&A kings of the industry over the last twenty years, I've been especially hard on Pfizer.
And now that great big financial wheel is turning. Huge mergers and acquisitions appear, finally, to be going out of favor. Since there are no longer reputations to be made, bold visions to be realized, and (don't forget) massive fees to be earned by implementing such moves, the latest word is: breaking up. Spinning off. Leaner, meaner, core businesses, unlocking value, more focus, back to what they do best . .you can write the Wall Street reports as well as I can. Goldman Sachs is out this week making the breathless case for Pfizer doing just this.
I suspect we're in for years of this sort of thing, with Abbott's spinoff of their pharma business now looks like the starter's pistol going off. (They named the new company AbbVie, which I hope they didn't pay someone too much to think up, the same time disappointing the legions of fans who wanted to see it named Costello). Get ready for a long cycle of devolution.
We've all been hearing for a while about "virtual biotechs". The term usually refers to a company with only a handful of employees and no real laboratory space of its own. All the work is contracted out. That means that what's left back at the tiny headquarters (which in a couple of cases is as small as one person's spare bedroom) is the IP. What else could it be? There's hardly any physical property at all. It's as pure a split as you can get between intellectual property (ideas, skills, actual patents) and everything else. Here's a 2010 look at the field in San Diego, and here's a more recent look from Xconomy. (I last wrote about the topic here).
Obviously, this gets easier to do earlier in the whole drug development process, where less money is involved. That said, there are difficulties at both ends. A large number of these stories seem to involve people who were at a larger company when it ran out of money, but still had some projects worth looking at. The rest of the cases seem to come out of academia. In other words, the ideas themselves (the key part of the whole business) were generated somewhere with more infrastructure and funding. Trying to get one of these off the ground otherwise would be a real bootstrapping problem.
And at the other end of the process, getting something all the way through the clinic like this also seems unlikely. The usual end point is licensing out to someone with more resources, as this piece from Xconomy makes clear:
In the meantime, one biotech model gaining traction is the single asset, infrastructure-lite, development model, which deploys modest amounts of capital to develop a single compound to an early clinical data package which can be partnered with pharma. The asset resides within an LLC, and following the license transaction, the LLC is wound down and distributes the upfront, milestone and royalty payments to the LLC members on a pro rata basis. The key to success in this model is choosing the appropriate asset/indication – one where it is possible to get to a clinical data package on limited capital. This approach excludes many molecules and indications often favored by biotech, and tends to drive towards clinical studies using biomarkers – directly in line with one of pharma’s favored strategies.
This is a much different model, of course, than the "We're going to have an IPO and become our own drug company!" one. But the chances of that happening have been dwindling over the years, and the current funding environment makes it harder than ever, Verastem aside. It's even a rough environment to get acquired in. So licensing is the more common path, and (as this FierceBiotech story says), that's bound to have an effect on the composition of the industry. People aren't holding on to assets for as long as they used to, and they're trying to get by with as little of their own money as they can. Will we end up with a "field of fireflies" model, with dozens, hundreds of tiny companies flickering on and off? What will the business look like after another ten years of this - better, or worse?
Eli Lilly is a drug company with a lot of problems - check out this chart for their patent expiration woes, which are probably the worst in the industry. But they're trying to make it up overseas, as this news shows:
CEO John Lechleiter wants Lilly to be the fastest-growing pharma company in China. To accomplish this goal, he will concentrate on diabetes and cancer over the next 5 years as the company introduces more than a dozen drugs to the market, according to a Bloomberg report.
The drugmaker has made major strides in China and has doubled its sales force there. Its efforts seem to have paid off: Sales in China grew 25% last year--that's faster than the industry average. And with diabetes rates rising there, Lilly might have an edge with its diabetes portfolio.
A lot of companies (and not just in the drug industry) are hoping for the Chinese market to save them, and in some cases, it'll happen. But since all our assets in pharma are wasting ones (patent expirations!), it doesn't do you much long-term good if you're not discovering new drugs quickly enough. Then again, "long term" has a different definition these days - "next couple of years" is probably about as good as any CEO in the business can hope for, and perhaps the China sales can cushion the blows a bit for Lilly. But I still think that it only moves them from "in hideous trouble" to "in very bad trouble".
So the news is that Merck is now going to start its own nonprofit drug research institute in San Diego: CALIBR, the California Institute for Biomedical Research. It'll be run by Peter Schultz of Scripps, and they're planning to hire about 150 scientists (which is good news, anyway, since the biomedical employment picture out in the San Diego area has been grim).
Unlike the Centers for Therapeutic Innovation that Pfizer, a pharmaceutical company based in New York, has established in collaboration with specific academic medical centres around the country, Calibr will not be associated with any particular institution. (Schultz, however, will remain at Scripps.) Instead, academics from around the world can submit research proposals, which will then be reviewed by a scientific advisory board, says Kim. The institute itself will be overseen by a board of directors that includes venture capitalists. Calibr will not have a specific therapeutic focus.
Merck, meanwhile, will have the option of an exclusive licence on any proteins or small-molecule therapeutics to emerge. . .
They're putting up $90 million over the next 7 years, which isn't a huge amount. It's not clear if they have any other sources of funding - they say that they'll "access" such, but I have to wonder, since that would presumably complicate the IP for Merck. It's also not clear what they'll be working on out there; the press release is, well, a press release. The general thrust is translational research, a roomy category, and they'll be taking proposals from academic labs who would like to use their facilities and expertise.
So is this mainly a way for Merck to do more academic collaborations without the possible complications (for universities) of dealing directly with a drug company? Will it preferentially take on high-risk, high-reward projects? There's too little to go on yet. Worth watching with interest as it gets going - and if any readers find themselves interviewing there, please report back!
Last fall, when Verastem announced their initial public offering, I wondered about how such an early-stage company (in such a speculative area) could plausibly offer stock. Now Nate Sadeghi-Nejad at TheStreet.com wonders the same thing:
Biotech companies with drugs in much later stages of clinical development find it difficult to go public today, yet here was Verastem, with nary a single patient exposed to any of its drugs, selling 5.5 million shares to the public at $10 per share.
Forty days later, the minimum time period allowed by law, sell-side analysts from all five of the investment banks which took Verastem public issued glowing reports with buy ratings and price targets 50% to 100% above the current share price.
Well, this sort of thing does happen. I mean, just because an investment bank makes money off an IPO doesn't mean that it isn't just a terrific place to put your money. Right? That's because they do lots of research on these things. Right? Well, as Sadeghi shows, that research assigned a Probability of Success of 30% to Verastem's plan of finding cancer-stem-cell specific therapeutics. This in an environment where the clinical failure rate is worse than 90%, and these guys haven't even been to the clinic yet. Their lead compound is salinomycin, an ionophore antibiotic which has been shown in vitro to target tumor stem cells.
Now, that's a perfectly respectable high-risk project to take on, because it has a lot of potential to go along with the risk. But a thirty per cent chance of success? There is no preclinical oncology program in the world with a thirty per cent chance of success. That figure is laughable.
I don't wish bad fortune to Verastem - I hope that their compound works. And I don't wish bad things for their investors, although I hope that they're braced for some. We need new modes of action in cancer drugs; we need for things to work. But we also need to be honest with ourselves and with investors. Investment banks are not going to do that for you, though.
Apparently today is the day at AstraZeneca in Waltham. I'm hearing bits and pieces, but it looks like a substantial number of the research chemists there are being let go. Anyone with details, please add them to the comments.
Here are the results of a salary and job satisfaction survey from Pharma Manufacturing. It's not a pretty picture, by any means, but it seems to have gotten a bit less nasty. That's downstream of R&D, where many readers of this blog reside, but it's worth a look.
There's another "Troubles of Drug Discovery" piece in Nature Reviews Drug Discovery, but it's a good one. It introduces the concept of "Eroom's Law", and if you haven't had your coffee yet (don't drink it, myself, actually), that's "Moore's Law" spelled backwards. It refers, as you'd fear, to processes that are getting steadily slower and more difficult with time. You know, like getting drugs to market seems to be.
Eroom's Law indicates that powerful forces have outweighed scientific, technical and managerial improvements over the past 60 years, and/or that some of the improvements have been less 'improving' than commonly thought. The more positive anyone is about the past several decades of progress, the more negative they should be about the strength of countervailing forces. If someone is optimistic about the prospects for R&D today, they presumably believe the countervailing forces — whatever they are — are starting to abate, or that there has been a sudden and unprecedented acceleration in scientific, technological or managerial progress that will soon become visible in new drug approvals.
Here's the ugly trend (dollars are inflation-adjusted:
I particularly enjoyed, in a grim way, this part:
However, readers of much of what has been written about R&D productivity in the drug industry might be left with the impression that Eroom's Law can simply be reversed by strategies such as greater management attention to factors such as project costs and speed of implementation, by reorganizing R&D structures into smaller focused units in some cases or larger units with superior economies of scale in others, by outsourcing to lower-cost countries, by adjusting management metrics and introducing R&D 'performance scorecards', or by somehow making scientists more 'entrepreneurial'. In our view, these changes might help at the margins but it feels as though most are not addressing the core of the productivity problem.
In the original paper, each of those comma-separated phrases is referenced to the papers that have proposed them, which is being rather scrupulously cruel. But I don't blame the authors, and I don't really disagree with their analysis, either. As they go on to say, investors don't seem to disagree, either. The cost-cutting that we're seeing everywhere, particularly cutbacks in research (see all that Sanofi stuff the other day!) are the clearest indicator. People are acting as if the return on pharmaceutical R&D is insufficient compared to the cost of capital, and if you think differently, well, now's a heck of a time to clean up as a contrarian.
Now, the companies (and CEOS) involved in this generally talk about how they're going to turn things around, how cutting their own research will put things on a better footing, how doing external deals will more than make up for it, and so on. But it's getting increasingly hard to believe that. We are heading, at speed, for a world in which fewer and fewer useful medicines are discovered, while more and more people want them.
The authors have four factors that they highlight which have gotten us into this fix, and all four of them are worth discussing (although not all in one post!) The first is what they call the "Better Than the Beatles" effect. That's what we face as we continue to compete against our greatest hits of the past. Take generic Lipitor, as a recent example. It's cheap, and it certainly seems to do the job it's prescribed for (lowering LDL). Between it and the other generic statins, you're going to have a rocky uphill climb if you want to bring a new LDL-lowering therapy to market (which is why not many people are trying to do that).
I think that this is insufficiently appreciated outside of the drug business. Nothing goes away unless it's well and truly superseded. Aspirin is still with is. Ibuprofen still sells like crazy. Blood pressure medicines are, in many cases, cheap as dirt, and the later types are inexorably headed that way. Every single drug that we discover is headed that way; patents are wasting assets, even patents on biologics, although those have been wasting more slowly (with the pace set to pick up). As this paper points out, very few other industries have this problem, or to this degree. (Even the entertainment industry, whose past productions do form a back catalog, has the desire for novelty on its side). But we're in the position of someone trying to come up with a better comb.
More on their other reasons in the next posts - there are some particularly good topics in there, and I don't want to mix everything together. . .
The large number of comments on yesterday's post on Sanofi CEO Chris Viehbacher's relentless candid interview included a response from someone at the company itself. At least, I have to assume that it is indeed Jack Cox, Senior Director of Public Affairs and Media Relations (as his LinkedIn profile has it), since the name and position match up, and the IP address of the comment resolves to Sanofi-US. I wanted to highlight his response - in the interest of fairness - and the responses to it, without having everything buried in the triple-digit comments thread to the previous post. Says Mr. Cox:
Anyone who has followed Chris in recent months will have heard some variation of these comments, but within the broader context that unfortunately didn't make it into the Q&A you reference.
Chris has consistently said that his vision for Sanofi's R&D organization is one of open collaboration, in which our own researchers increasingly partner with external teams. This is consistent with a comment you've included: "We're not going to get out of research. We believe we do things will in research but we want to work with more outside companies, startup biotechs, with universities."
In an interview with Luke Timmerman published by Xconomy in January Chris explained how this is working in practice:
"In Cambridge, you've got all those things. Being the No. 1 life sciences employer in Boston is great, but we didn't want to just do the same thing we did everywhere else, having everybody inside our walls. So we created this concept of a hub. There's a core, with a lot of competencies that a big organization can bring, but the idea of a hub is that we can manage the relationships we have with everybody from Dana-Farber Cancer Institute to Harvard to MIT to the Joslin Diabetes Center to some of the biotechs we work with. And we put our own oncology research team in Cambridge. There's a whole ecosystem in Boston, and we feel integrated and at the center of it."
Seeking external expertise, particularly when it concerns emerging technologies, contributes to the creativity and innovation we have within. The key to our approach, however, is that we don't want to simply be investors, but true partners. Again, consider the broader context as shared with Luke:
"The Warp Drive Bio project is interesting because it demonstrates where we want to go. It was very much on the basis of saying we want to work with (Harvard University chemical biologist) Greg Verdine. Someone like that isn't going to come work for Big Pharma, but we liked the science he was doing. We have a strong interest and expertise in natural products, and he had a genomics screening tool.
We will contribute expertise. I don't want to be a venture capitalist, or have a venture fund, like some other companies do. But I want to actually partner, where we bring some of what we know, and combine it with what Warp Drive has. The fact that we are trying to bring people from Sanofi into the collaboration, at such an early stage of research, is unusual. The single factor for success will be whether you can take a company like Warp Drive, with a handful of people, and make it work with an organization of 110,000 people without smothering it."
I believe your readers will agree that in this case the context really matters. Relying on one incomplete source doesn't do justice to the overall approach Chris has been describing.
If you want to truly understand the vision Chris has for Sanofi's research organization, I invite you to catch one of his public speaking engagements in the Boston area.
One has to wonder if the main difference between the two interviews was that Viehbacher spent more time considering his replies to Xconomy. I take it that since there's been no attempt to deny the earlier quotes in MedCityNews, that they're authentic. And the problem is, even some of his less popular statements in that interview are not false. It really is harder to innovate in a big company compared to a smaller one, for example. But while not false, they're also not the sort of thing one would expect the CEO of a major drug company to just blurt out, either, especially considering the likely effects of such statements on his own company's morale. I believe, in fact, that some current and (recently) ex-Sanofi employees have comments to make on that issue.
In case you're a scientist, and especially if you're a scientist at Sanofi, their CEO Chris Viehbacher would like you to know some things. What things are those, you ask? Well, how about your position in the world, and especially your position at Sanofi itself?
"What Sanofi is doing is reducing its own internal research capacity. The days when we locked all of our scientists up in a building and put them on a nice tree-lined campus are done. We will do less of our own research. We’re not going to get out of research. We believe we do certain things well in research but we want to work with more outside companies, startup biotechs, with universities."
You know, people with real ideas, innovative stuff, that kind of thing. When asked if this was cheaper, Viehbacher replied:
"It is cheaper. But research and development is either a huge waste of money or too, too valuable. It’s not really anything in between. You don’t really do things because it’s cheaper. The reality is the best people who have great ideas in science don’t want to work for a big company. They want to create their own company. So, in other words, if you want to work with the best people, you’re going to have go outside your own company and work with those people … And, you want to work with them, why do they want to work with you? The reality over the last 10 years is, (a small biotech) wouldn’t get caught dead working with one of these big cumbersome pharma companies. Once you have a funding gap, suddenly there’s a much greater willingness of earlier-stage companies to work with Big Pharma. We’re looking earlier and people who are early need help.
So, if you're one of Sanofi's dwindling number of internal scientists, at least now you know what you're being treated the way you are. It's because you're, well, you're not the sharpest tool in the shed. If your company really wants something to happen, they'll need to bypass you and find someone good. Sticking you in a nice building and telling you to discover stuff hasn't worked out, clearly, and blame must be attached somewhere. Right?
At least Viehbacher has enough self-knowledge to know what people outside his company thinks of it (and its ilk). But hey, now that the people who can actually discover things are desperate, opportunity knocks! This is a business plan known as "So, you need a deal real bad? Well, here's a really bad deal!" And it's the sort of arrangement that just makes everyone happy all around. When asked about working with venture capital firms (as Sanofi recently did with the unfortunately named Warp Drive Bio), the response was:
"There’s two reasons I like (working with venture capital firms). One is, they can sometimes bring competencies we don’t have, like for instance in how to help a startup company. The second thing is to give you a second opinion. Somebody in your company is going to love the science and be championing this internally. But you want to have a second opinion. If you have a venture capital company that’s willing to put money in, that kind of gives a little validation of that."
Those people in his own company again! Nothing but trouble. You wonder, though, what happens when someone inside Sanofi thinks that some hot startup deal might not be a good idea. I wonder if everyone was in love with Warp Drive Bio, for example? No matter - a VC firm was willing to put actual money into the thing, so that's pretty much all the validation anyone needs. Investors in the public markets, though, are apparently fools, because they think that because a big pharma company is interested, that means that a small company might have something going for it:
"The new model, where we’re trying to go, we believe that Big Pharma has competencies in validation. So, if a Big Pharma company does a deal with a smaller company, the smaller company’s share price goes up because people believe that Big Pharma has depth of competencies to judge whether this science is any good or not. Now big companies, and not just Big Pharma, big companies I believe, are not any good at doing innovation. There has to be some element of disruptive thinking to have innovation and I can tell you that big companies do everything to avoid any disruptive thinking in their companies."
Hah! The investors should read Viehbacher's interview, and realize that the sort of scientists who work inside a big company like his wouldn't know an innovation if it slithered up their leg.
Now, there are points to be made about large organizations, and about disruptive thinking, and about various models for drug discovery and for funding ideas. But you know, at the moment, I'm too disgusted to make them.
Update: comments have been disabled now, due to the large volume of them and the follow-up post. Any thoughts can be directed over there - thanks!
Courtesy of C&E News, here's an interesting look inside the Chinese labs of HEC Pharm, a company making APIs and generics. The facilities look good. I have to say, that's an awful lot of HPLC capacity, starting at 0:41.
The idea of company housing, though, is a bit harder to get used to. . .
I'm hearing stories that there was a layoff (yet again) at Pfizer, this time affecting the Cambridge researchers. Word is that they got the word over the weekend, which seems rather unusual - anyone have any more details on this?
Matthew Herper at Forbes has a very interesting column, building on some data from Bernard Munos (whose work on drug development will be familiar to readers of this blog). What he and his colleague Scott DeCarlo have done is conceptually simple: they've gone back over the last 15 years of financial statements from a bunch of major drug companies, and they've looked at how many drugs each company has gotten approved.
Over that long a span, things should even out a bit. There will be some spending which won't show up in the count, that took place on drugs that got approved during the earlier part that span, but (on the back end) there's spending on drugs in there that haven't made it to market yet, too. What do the numbers look like? Hideous. Appalling. Unsustainable.
AstraZeneca, for example, got 5 drugs on the market during this time span, the worst performance on this list, and thus spent spent nearly $12 billion dollars per drug. No wonder they're in the shape they're in. GSK, Sanofi, Roche, and Pfizer all spent in the range of $8 billion per approved drug. Amgen did things the cheapest by this measure, 9 drugs approved at about 3.7 billion per drug.
Now, there are several things to keep in mind about these numbers. First - and I know that I'm going to hear about this from some people - you might assume that different companies are putting different things under the banner of R&D for accounting purposes. But there's a limit to how much of that you can do. Remember, there's a separate sales and marketing budget, too, of course, and people never get tired of pointing out that it's even larger than the R&D one. So how inflated can these figures be? Second, how can these numbers jibe with the 800-million-per-new-drug (recently revised to $1 billion), much less with the $43 million per new drug figure (from Light and Warburton) that was making the rounds a few months ago?
Well, I tried to dispose of that last figure at the time. It's nonsense, and if it were true, people would be lining up to start drug companies (and other people would be throwing money at them to help). Meanwhile, the drug companies that already exist wouldn't be frantically firing thousands of people and selling their lab equipment at auction. Which they are. But what about that other estimate, the Tufts/diMasi one? What's the difference?
As Herper rightly says, the biggest factor is failure. The Tufts estimate is for the costs racked up by one drug making it through. But looking at the whole R&D spend, you can see how money is being spent for all the stuff that doesn't get through. And as I and many of the other readers of this blog can testify, there's an awful lot of it. I'm now in my 23rd year of working in this industry, and nothing I've touched has ever made it to market yet. If someone wins $500 from a dollar slot machine, the proper way to figure the costs is to see how many dollars, total, they had to pump into the thing before they won - not just to figure that they spent $1 to win. (Unless, of course, they just sat down, and in this business we don't exactly have that option).
No, these figures really show you why the drug business is in the shape it's in. Look at those numbers, and look at how much a successful drug brings in, and you can see that these things don't always do a very good job of adding up. That's with the expenses doing nothing but rising, and the success rate for drug discovery going in the other direction, too. No one should be surprised that drug prices are rising under these conditions. The surprise is that there are still people out there trying to discover drugs.
Announcing layoffs along with a stock buyback - let's think about what that means. AstraZeneca did that just the other day, and they're far from the only ones in this industry (or others) spending billions to buy back their own shares while they're cutting costs elsewhere.
We already know what the companies have to say about what it means. All you have to do is say "shareholder value" and you're most of the way there. Mix in "continued commitment" and "cost containment", fit 'em all together with a verb or two, and you've got yourself an instant press release. And we also know what the investment community thinks: they like it. Go back over the news stories that have come out when a buyback is announced, and all the quotes will be about how large the amount is, whether it's in line with what people were expecting, or if it's one of those good moments when the company is spending even more to buy back its shares. No one would be so foolish as to announce a truly inadequate-looking stock repurchase.
That's a key point. As far as I can tell, share buybacks have two purposes. There's the obvioius one of trying to provide some steady buying activity in the stock and (in theory) a floor for its price, while retiring shares to decrease the float (and increase earnings-per-share). But the other reason is signaling. "We think our stock's worth buying at this price", the company is saying, "and so should you. We care enough about our existing shareholders to spend money tending the share price for them. Please don't sell us, or downgrade us. We'll buy back even more - promise!"
Signaling is, I think, the greater of those two. There's a lot of room to question the actual financial effectiveness of stock buybacks. As one person in that link notes, if you want to reward current shareholders with cash, you should pay them a dividend. Trying to keep your stock price up (even if the plan were to work) only really rewards the people who sell your stock and realize the gains. (See below for who some of those people are, though).
That signaling had better be worth something. It goes without saying, or should, that the money being used to buy back shares could also be put back into a company's actual business. That's another signal, one that makes me grit my teeth. To me, a stock buyback has always said "We're willing to tell the world that we think that buying our own shares will provide a better return than investing in what we're supposed to be doing for a living." And why would you tell the world something like that? Isn't that also saying "We can't think of much else to do with this cash, what with our business in the shape it's in, and parking it in an investment fund would be sort of embarrassing, So we might as well use it to bribe the Street. God knows it's the only language they understand."
There are other people willing to put it in just those terms. That "Marketplace" link above features a quote from William Lazonick of UMass-Lowell (note: affiliation fixed after original post), who's not keeping his views bottled up:
"Here we have all these companies obsessed, basically with keeping their stock prices up, and saying the best thing that they can do with their money is spend billions of dollars on stock. And my view of that is, any company that says that they have nothing to better do with their money, the CEO should be fired."
A CEO's reply to that might well be that this attitude is why Lazonick's a professor rather than a CEO himself. But is he wrong? Here's a recent paper of his, which contends that the problem is that share buybacks are all too effective. Lazonick says that the problem is tied to the increasing compensation of top executives in shares and options, and that using company money to prop up the stock price is, basically, market manipulation to reward the executives.
He has some figures from our own industry: From 1997 to 2009 "Amgen did
repurchases equal to 99 percent of R&D expenditures, Pfizer 67 percent, Merck 62
percent, and Johnson & Johnson 57 percent." It could be worse - companies in the IT sector have often managed to spend even more than their R&D budgets on repurchases, partly because they increased the number of shares outstanding so hugely during the dot-com boom years.
One complication with the market-manipulation view is that stock buybacks don't correlate very well with total stock returns. If anything, the correlation is negative: companies (and sectors) that spend the most on repurchases have lower returns. Of course, there's a correlation/causation problem here - perhaps those returns would have been even lower without the buybacks. But there's clearly no slam-dunk financial case to be made for repurchases.
Except one: that they're often the easiest and least controversial use of the money. Companies get criticized if they sit on cash reserves, and they get criticized for missing earnings-per-share numbers. Why not try to address both at the same time? And without having to actually think very hard about what to invest in? I think that Pfizer's Ian Read is being truthful when he says things like this:
Pfizer declined to make an executive available to discuss its policy. But in a statement, the company said it “remains committed to returning capital to shareholders through share buybacks and dividend payments.”
As for the cut in research spending in February, Pfizer said it has “accelerated our research strategy and made important changes to concentrate our efforts to deliver the greatest medical and commercial impact.”
In a conference call with analysts this month, Pfizer’s chief executive, Ian C. Read, said his company would “continually look” for acquisitions that would increase revenue growth. But in deciding how to use the proceeds from recent asset sales, he said “the case to beat is share repurchase.”
From several reports, here's what I have on AstraZeneca's plans in Waltham: they've told people there that cuts are coming. But they haven't gotten very specific on when, or who, or how many. All those questions (that is, all the questions there could be) are under review.
Pfizer has done this to their people before, as have other companies in the throes of layoffs, and it's the only way I know to actually push morale and productivity down even further in such a situation. You come to work for weeks, for months, not knowing if your, your lab, or your whole department is heading for the chopping block. All you're sure of is that someone is. And will your own stellar performance persuade upper management to keep you, when the time comes? Not likely, under these conditions - it'll more likely be the sort of thing where they draw lines through whole areas. Your fate, most people feel at these times, is not in your own hands. A less motivating environment couldn't be engineered on purpose.
But that's what AZ's management has chosen to do at their largest research site in North America. I hope that they enjoy the results. But then (and more on this later), these are the people who have chosen to spend billions buying back their own stock rather than put it into research in the first place. It's not like the score isn't already up there on the big screen for everyone to see.
Update: as mentioned in the comments, this does at least give everyone a warning bells, and a chance to explore other options, as they say. And that's true. AZ employees, though, have been seeing nasty cuts for a while now, and have been well aware that they're not in a stable environment. It's hard to make the decision to leave, but there have been plenty of chances to think about it in the last two or three years.
But I was actually arguing against the company's Waltham strategy from the viewpoint of upper management, on their terms. It's better for employees to have some warning, but I think it's better, for a company, to cut if you're going to cut, and get it over with. If you say that deep cuts are coming, you should do the actual deed as soon as you can. Then you tell the departments that are left, "OK, the storm has passed. Let's try to turn this thing around". But this current situation is the worst of both worlds. "All right, people, here come the big cuts: this site's closed, that site's closed. But your site, well, we don't really want to close it, but we still haven't had time to work out how much to shrink it. Yeah, this was supposed to be the big announcement, but it's just been really busy - you know how it is. We're going to get around to you. Pretty soon. And pretty deep. But we don't know which parts to lop off, not just yet. Back to work, everyone!"
Update: it's all true. 7,300 job cuts in total. Montreal and Soedertaelje (Sweden) to close. And AZ seems to be all but getting out of pain/CNS, cutting down to a few dozen people who will do external collaborations. Oh, and they're buying back 4.5 billion dollars worth of stock, instead of spending that money on what the company tries to make a profit on. So there is that. If you'd like to hear AZ tell you how all this is making them more productive, here's the press release.
I've been hearing reports, which I hope are incorrect but as yet have no reason to doubt, that the AstraZeneca site in Montreal is set to close as a result of this latest round of layoffs. The official announcement is coming in a few hours - I wanted to put up this post so that more details can be added in the comments as people get them.
This will be bad news for the Montreal research community, which has already been taking it pretty hard over the last few years. As that link shows, though, they least had a number of employers to start with, as opposed to some of the UK sites (and others) that had been R&D monocultures when their closures hit. But there's no way to really put a bright face on this stuff. . .
OK, this is one of those less-than-cheerful mornings on the blog, apparently. Word is in the British press that AstraZeneca is preparing to announce thousands more job cuts later this week. No more concrete details yet - all the company has said is that "clear focus on cash and value creation will continue", and isn't that just about the most encouraging thing you've ever heard? More as this develops.
Roche is not only a big drug company, it's a big diagnostics company. And that's what's driving their unsolicited bid for Illumina, a gene-sequencing company from San Diego. Illumina has been one of the big players in the "How quickly and cheaply can we sequence a person's entire genome" game, and apparently Roche believes that there's something in it for them.
But as that Reuters link above shows, a lot of other people don't agree, and would rather partner than acquire (Chris Viehbacher, CEO of Sanofi, seems to have been waiting for the opportunity to unburden himself of thoughts to that effect). He may well be right. Sequencing has been a can-you-top-this field for some time, and I don't think that the process is finished yet. What if you buy a technology that's superseded before it has the time to pay off? What if the market for sequencing doesn't get as large, as quickly, as you're hoping? Those were Illumina's worries, and now they're going to be Roche's; you can't buy the promise without buying those, too.
Matthew Herper at Forbes is having very similar thoughts, and points out that Roche has done this sort of thing before. For now, we'll see what Illumina might be able to come up with to avoid being Roched.
The news is that Alnylam, the RNAi company just down the street from where I'm writing, is cutting about a third of its workforce to try to get its best prospects through the clinic. This is a familiar story in the small-pharma world; there's often money to try to get things through the clinic, or to pay everyone in the earlier-stage R&D - but nowhere near enough money to do both. There are companies that have gone through this stage several times, sometimes rehiring the same people when the money began flowing again.
You could see this coming, what with the news in that research space over the last couple of years. It's going to be a race to see if Alnylam can get something that will bring the income before time and resources get too tight. I wish them luck - I think there's really something there in their pipeline, but is it going to be enough, and will it be ready soon enough?
2,800 over the next four years. More of them are in Europe than in the US (via the Nycomed acquisition), but there are hundreds of positions to be lost in this country, too. For now, the company seems to be just saying that they'll be in all parts of the organization, without much in the way of details. Those will, in time, become all too apparent.
Add that to last week's Novartis announcement (about 2,000 jobs, mostly in sales and marketing), and we're not off to a great 2012 on this front, are we?
There are small drug firms and there are small drug firms - if you know what I mean. Which category is Warp Drive Bio going to fall into?
If you've never heard of them - and that name is rather memorable - then don't worry, they're new. Its founders are big names on the industry/academic drug discovery border: Greg Verdine, Jim Wells, and George Church. Here's the rundown:
Warp Drive Bio is driving the reemergence of natural products in the era of genomics to create breakthrough treatments that make an important difference in the lives of patients. Built upon the belief that nature is the world's most powerful medicinal chemist, Warp Drive Bio is deploying a battery of state-of-the-art technologies to access powerful drugs that are now hidden within microbes. Key to the Warp Drive Bio approach is the company's proprietary "genomic search engine" and customized search queries that enable hidden natural products to be revealed on the basis of their distinctive genomic signature.
Interestingly, they launched with a deal with Sanofi already in place. I've been hearing about cryptic natural products for a while, and while I haven't seen anything that's knocked me over, it's not prima facie a crazy idea. But it is going to be a tricky one to get to work, I'd think. After all, if these natural products were so active and useful, might they not have a bit higher profile, genomically and metabolically? I'm willing to be convinced otherwise by some data; perhaps we'll see some as the Sanofi collaboration goes on. Anyone with more knowledge in this area, please add it in the comments - maybe we can all learn something.
One other question: with Verdine founding another high-profile company, does this say something about how his last one, Aileron, is doing in the "stapled peptide" business? Or not?
Looks like the former Merck site in Newhouse is beginning to get some tenants as part of "Biocity Scotland". I wish everyone involved good luck - we need more smaller firms, because that's the only way to get larger firms. Isn't it?
Someone in a position to know has told me that Sanofi's Bridgewater, NJ site, which has long been a focus of layoffs, is now closing even faster than people thought. Originally, it was supposed to be "by the end of 2012". According to my source, though, they told everyone there yesterday that the last day would be Friday (!). No buyer for the site is known - rumor have had it that Allergan is interested, but that would seem to be far off, if indeed it's happening at all. Any more details out there?
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.
The JP Morgan Healthcare Conference is underway this week out in San Francisco, so there are a lot of biotech/pharma headlines to come out of that. Luke Timmerman over at Xconomy has "Five Myths" to come out of the conference. Unfortunately, two of them are that biotech IPOs are picking up, and that the general mood is upbeat. . .
If you had SciFinder access, but are now unemployed and would like to use it during your job hunt, CAS now has a program to make that possible for free. I'm glad to see them taking this step; a lot of people have asked for something like this for some time now.
The topic of whether stem-cell therapies are overhyped - OK, let me show my cards, the topic of just how overhyped they are - last came up around here in November, when Geron announced that they were getting out of the business. And yesterday had a good example of why people tend to hold their noses and fan away the fumes whenever a company press-releases something in this area.
I'm talking about Osiris Therapeutics, who have been working for some time on a possible stem cell therapy (called Prochymal) for Type I diabetes. That's certainly not a crazy idea, although it is an ambitious one - after all, you get Type I when your insulin-producing cells die off, so why not replace them? Mind you, we're not quite sure why your insulin-producing cells die off in the first place, so there's room to wonder if the newly grown replacements, if they could be induced to exist, might not suffer a similar fate. But that's medical research, and we're not going to figure these things out without trying them.
This latest work, though, does not look fit to advance anyone's understanding of diabetes or of stem cells, although it might help advance ones understanding of human nature and of the less attractive parts of the stock market. Osiris, you see, issued a press release yesterday (courtesy of FierceBiotech) on the one-year interim analysis of their trial. The short form: they have nothing so far. The release goes on for a bit about how well-tolerated the stem-cell therapy is, but unfortunately, one reason for that clean profile might be that nothing is happening at all. No disease markers for diabetes have improved, although they say that there is a trend towards fewer hypoglycemic events. (I think it's irresponsible to talk about "trends" of this sort in a press release, but such a policy would leave many companies without much to talk about at all).
It's only when you look at Osiris and their history that you really start to understand what's going on. You see, this isn't Prochymal's first spin around the track. As Adam Feuerstein has been chronicling, the company has tried this stem cell preparation against a number of other conditions, and it's basically shown the same thing every time: no adverse effects, and no real positive ones, either. Graft-versus-host disease, cardiac events, cartilage repair, Crohn's disease - nothing happens, except press releases. You'd never know anything about this history if you just came across the latest one, though. The company's web site isn't a lot of help, either: you'd think that Prochymal is advancing on all fronts, when (from what I can see) it's not going much of anywhere.
So if you're looking for a reason to hold on to your wallet when the phrase "stem cell therapy" comes up, look no further. The thing is, some stem cell ideas are eventually going to work - you'd think - and when they do, they're going to be very interesting indeed. You'd think. But are any of the real successes going to come out of fishing expeditions like this? You don't want your clinical research program to be so hard to distinguish from a dose-and-hope-and-sell-some-stock strategy - do you?
Looking over the startup funding landscape, Bruce Booth finds some reasons for optimism. I hope he's right. There's a notch cut out of the small pharma/biotech ecosystem, a gap representing all the companies that didn't get formed in the last few years. Filling that has to be a good thing.
You may remember the mention of Hua Pharmaceuticals here back in August, and the follow-up with details from the company. They're trying to in-license drugs from other companies and get them approved as quickly as possible in China. The original C&E News article made them sound wildly ambitious, while the company's own information just made them sound very ambitious.
Now we have some more information: Roche has licensed their glucokinase activator program (for diabetes) to Hua (that's a development effort I wrote about here). And that's an interesting development, because the Hua folks told me that:
"Hua Medicine intends to in-license patented drugs from the US and EU, and get them on the market and commercialized in the 4 year timeframe in China. This is about the average time it takes imported drugs (drugs that are approved and marketed in the US or EU but are coming newly into the Chinese market) to get approved by the SFDA in China."
And that's fine, but Roche's glucokinase activators haven't been approved or marketed anywhere yet. In fact, I'm not at all sure of the lead compound ever even made it to Phase III, so there's a lot of expensive work to be done yet, and on a groundbreaking mechanism, too. The only thing I can say is that approval in the US for diabetes drugs has gotten a lot harder over the years - the market is pretty well-served, for one thing, and the safety requirements (particularly cardiovascular) have gotten much more stringent. Perhaps these concerns are not so pressing in China, leading to an easier development path?
Easier or not, these compounds have a lot of time and money left to be put into them, which is not the sort of program that Hua seemed to be targeting before. One wonders if there just weren't any safer bets available. At any rate, good luck to them, and to their financial backers. Some will be needed; it always is.
I believe that this story has been mentioned in the comments here, but since I've heard from the actual person involved, I thought I'd pass on the canonical version. Someone I used to work with at Schering-Plough found himself (like many others in his position) out of a job in late October. He had a previously scheduled trip to Florida the next day, and as he boarded the plane, who should he see sitting in first class but Fred Hassan, the CEO of Schering-Plough who'd helped engineer the deal with Merck?
As the chemist involved put it, "After quickly scanning to make sure there wasn’t a body guard looking guy near him", he said "Hi, Fred!" Hassan looked up and asked "Do I know you?" "Well," said the chemist, "no, probably not, but I'm a medicinal chemist with Schering-Plough, and now Merck". Hassan smiled and said "Great, so how are you?" The response, in a loud voice, was "Well, I just got laid off!". He then walked on down to his seat in coach, and heard Hassan saying something about being sorry about that. And as he told me, he sat there in coach, smiling at the picture of Hassan thinking about this irate ex-employee on the plane with him for the next 2 and a half hours. . .
Not exactly a load of happy holiday news from AstraZeneca here - they're already facing one of the nastiest patent cliffs in the industry (second only, and arguably, to Eli Lilly), and now they've had still more development compounds crash out on them.
There's olaparib (AZN-), which is an inhibitor of the DNA repair pathway enzyme PARP, Poly-ADP ribose polymerase. There are a number of PARP inhibitors making their way through the clinic, but olaparib's performance can't be giving comfort to anyone else in the field. It looked promising a couple of years ago in an ovarian cancer trial, but that, folks, was only progression-free survival. As time went on, it became clear that there wasn't going to be any benefit in overall survival, and that's what the world cares about, as it should. The compound's still in trials against other forms of cancer, and who knows, it might have better effects there. Oncology is a crap shoot if ever there was one. But ovarian cancer was the big first hope for AZ, and that's been written off.
The other compound that's hit the skids recently was TC-5214, mecamylamine, a nicotinic antagonist, which would have been a new mechanism for depression. But not if it doesn't work, and the compound missed its primary endpoint in the clinic, as I wrote about here last month. That one came in from Targacept, as olaparib came in from KuDOS, and these results have people wondering in the press about what this says about AstraZeneca's whole inlicensing strategy.
The problem is, these are two fields (cancer and depression) that have very high failure rates no matter who's doing the inlicensing. And while it's true that AZ seems to have had a lot of bad luck, some of that might just be the normal course of events if you're targeting these conditions. Having it happen while your other patents are expiring is bad, of course, but being in a position to have to depend on these therapeutic areas is a tough place to be to start with. (Not that there are a lot of safe places to work, true, but these are especially tricky). And it leads to things like this:
“AstraZeneca seems to have had more than its fair share of misfortune when it comes to the development pipeline,” analysts at Barclays Capital in London wrote in a note to investors today. “Additional development failures increase the probability that management will reassess the likely return on investment from additional R&D investment and cut costs further.”
Well, that'll really make R&D more productive. . .
Over at InVivoBlog, they're running down their picks for "Deal of the Year" in various categories, so if that's one of your interests, you should have a look. I hadn't realized that when Abbott split off their pharma business that the blog had run a poll suggesting a new name for the drug company. The winner? Costello.
Too bad it won't happen. Reality also interfered with Bayer a few years back when they were introducing Levitra, their Viagra competitor (and very close chemical cousin). Alas, the name "Bayagra" was not seriously considered - that would have been fun to watch. . .
Well, a lot of comments have come in about the last post on Chinese industrial espionage - some temperate, some not. I wanted to fill out another post responding to some of these, so, in no particular order:
1. "Everyone does this all the time". Indeed. Espionage is a constant fact of international relations; the "gentlemen do not read each other's mail" comment was wildly out of sync with reality even in its own time. I don't mean to suggest that I'm shocked by the fact of Chinese intelligence-gathering, although its scope and thoroughness is impressive. But I think that everyone should be aware that it goes on - and that pointing out that it's going on is also a move in the same game. We're not hearing so much about this from the US government now for no reason; someone thinks that there's an advantage in making these accusations public in such detail.
2. "More to the point, the US does this too, and thus has no room to talk". This is merely a tu quoque argument, and as such doesn't address any underlying issues. Of course the US engages in espionage, and I hope that we're good at it. But for the most part, we're doing it for a different purpose than some of the Chinese activity that's been revealed. I tend to think that more of ours is national-security related, and less pure economics - more "How can we figure out what these guys are up to?" and less "How can we jump-start our aerospace industry?"
Now, one big reason for that is that the US is not as far behind anyone else in the world as China feels itself to be behind in some key industries. They have more to gain. I'm sure that China does plenty of national-security spying, but for a country whose economy is as export-driven as China's, economic reasons and national security reasons are even more tangled together than usual. And yes, other countries have done just this sort of thing in the past. See the story of how the British got rubber-tree seeds to plant in Malaysia. Or earlier, how they learned the details of tea production and got that going in India, and that's not even mentioning their strategy of smoothing out the trade imbalance with opium sales. We shouldn't allow ourselves, though, to think that this stuff is just for the history books.
3. "OK then, what's more, the US did just this kind of economic/industrial snooping back when it was an up-and-coming nation".. This is another tu quoque, but the facts are as stated. In the 19th century, the US was generally a backwater compared to the European powers, and we did indeed have a reputation as the Kings of Shoddy Unauthorized Knockoffs (even of our own inventions). Charles Dickens was enraged when he visited to find how many pirated versions of his works were for sale, and this tradition took a long time to die out. (See, for example, the saga of how Donald Wollheim unilaterally decided in the 1960s that Tolkein's publishers had not properly secured the US copyright for The Lord of the Rings).
But while we were at our peak as intellectual property buccaneers, we were not simultaneously considered both a world power and a huge financial market. China is not to the rest of the world as the US of the 1850s was. Our big exports were agricultural products; we did not have huge factories on which many of the world's largest corporations were depending. China, in catch-up mode though it may be, is not a technological backwater. It has nuclear weapons and a manned space program - mind you, both of those were developed partly through just the sort of short-cutting we're talking about.
4. OK, that means that every Chinese post-doc is a spy. Or a potential spy, right? Here's where I flip over to the other side. Now, there surely has been intelligence gathering by such routes. But it appears that a lot of work is being done from back home, by large groups associated with the People's Liberation Army and various Chinese intelligence agencies. And when you consider what a lot of postdocs end up working on, you can see that most of it isn't going to confer much of an advantage on anyone - what are they going to do, steal K. C. Nicolau's strategy for an 89-step synthesis? I think it would be a lot more useful for US institutions to spend their time hardening their security against wholesale data-scooping than giving their foreign postdocs the fish-eye. Most of them are just trying to make better lives for themselves.
So where does this leave us? I think that China's position is unique. They're an enormous country of huge economic and political importance. And their economy is a mixture that might be called "authoritarian capitalist", no matter what they call it themselves. So for a country like the US, they're simultaneously a vital trading partner, and a potential political adversary and rival. (And the US is the same thing to China, naturally). It's a tricky balance, and there are a lot of conflicts of interest.
We're seeing one in the drug industry. No major company can afford to ignore the Chinese market. The financial advantages of pharma outsourcing have been hard to ignore, too (leaving aside the question of its effectiveness, which varies). But no company can afford to ignore the possibility that Chinese industry (or the Chinese government itself) might rip them off. These things exist simultaneously, and it's very much worth the effort keeping both of them in mind.
That's a pretty blunt headline, but this is a pretty blunt article in Businessweek. It will do nothing to allay the concerns people have about all the pharma collaborations being done in China. The article claims that hundreds of US corporations have had data stolen in what appears to be a deliberate program:
China has made industrial espionage an integral part of its economic policy, stealing company secrets to help it leapfrog over U.S. and other foreign competitors to further its goal of becoming the world's largest economy, U.S. intelligence officials have concluded in a report released last month. . .Intelligence documents obtained by Bloomberg News show that China-based hackers have hunted technology and information across dozens of economic sectors and in some of the most obscure corners of the economy, beginning in 2001 and accelerating over the last three years.
Here's a report (PDF) from McAfee on cyber-intrusions. It doesn't mention China by name, but the author confirmed to the Bloomberg people that that's who he's talking about (not that it took any great powers of deduction). And this is not just about defense and electronics:
In the biotechnology sector, their victims include Boston Scientific, the medical device maker, as well as Abbott Laboratories and Wyeth, the drug maker that is now part of Pfizer Inc.
The hackers also rifled networks of the Parkland Computer Center in Rockville, Maryland, according to documents provided to Bloomberg News by a person involved in government tracking of the cyberspies, who declined to be identified because the matter isn't public. Parkland is the computing center for the Food and Drug Administration, which has access to drug trial information, chemical formulas and other data for almost every important drug sold in the U.S.
Now that's worth thinking about. By the time a drug gets to the FDA, everyone knows what its structure is, and can figure out how to make it. But there's a lot of clinical information in the system that doesn't necessarily get disclosed in detail, and that certainly has value. It should go without saying, though, that the files from inside a drug company could be quite valuable indeed.
And this does put the recent pharma emphasis on the Chinese market in an interesting light, doesn't it? As I say, I hate to be so direct about it, but you can't get much more direct than hacking into someone's files and ransacking them, either. Right?
Here's a report from Science Careers on "A Pharma Industry in Crisis". Readers here will find much of what's said to be familiar - partly because they interviewed people like me and Chemjobber for the piece (!) But it's worth a look as a where-we-are-now perspective.
This report on a speech by Roche's CEO, Severin Schwan, will surprise no one. He's forecasting that the pharma world is heading for a bimodal distribution. On one end, you'll have the companies that have managed to find things new enough and efficacious enough to convince regulatory agencies and payers that they're worth the price. And on the other, you'll have the generics. The in-between stuff, the me-too drugs and line extensions and things that don't work as well as anyone had hoped - that's going to get squeezed, and if that's all you have in your product portfolio, you're going to get squeezed, too. It's not that those things have no value, but they don't have enough to keep R&D efforts going at their current attrition rates and expenditures.
The analogy to the people doing this work is pretty close, too. Look at Pfizer's plans (which as far as I know are still in effect) to have a smaller number of "drug designers" and a bunch of lower-cost people cranking out the compounds in the lab. That's the same bimodal landscape, right there. You have a smaller, highly compensated group at one end of the scale, and a larger, less costly group at the other. What disappears are the folks in the middle.
The problem is, you can assign marketed drugs to the expensive-or-generic categories pretty rationally, based on efficacy and pricing. But assigning the people, well, that's a different matter. How exactly do you identify your star "drug designers"? Even after you narrow down to only the smarter and harder-working people, there are still more of them around than you need under that Pfizer system. So where do they go? Well, we've all been seeing the answer that question. Out on the street, and out into the job market, there to take their chances.
And at the other end, there are probably a lot of people in the make-this-list-of-analogs labs who are capable of much more than that, but haven't had the chance to prove themselves. The whole situation seems like a real misuse of human capital, and we really have to find conditions that don't lead to such wastes. But what conditions are those, and how do we get to them?
So Merck now says that they're going to spend 1.5 billion dollars to build a new research center in China, eventually employing 600 people. Considering the number of people they've laid off here in the US, this news is not going to make a lot of people here very happy. Mind you, I believe that they've let a lot more than 600 positions go in R&D over here, so it's not like a zero-sum game - given the state of the drug industry, it's a lot worse than a zero-sum game. And it's worth remembering that this is actually a very small part of Merck's research budget.
And that's why they're doing it. China is, famously, a big market, and for the drug industry it's getting bigger all the time. And while costs are going up there, you can still get more people (and a larger facility) there for the same amount of money than you can get here, and many of those people are going to be hard-working and capable. Most importantly (I think), you're also purchasing clout and goodwill with the Chinese government, by showing that you're serious about their country, and seriously friendly when it comes to spending money there. You'll also get to know a lot of very useful government agencies, and a lot of very useful government people. I'm not overjoyed that it works like this, but it does work like this. Given the tangle of business and government interests there (where does one start and the other stop?), it's really the only way to get anything accomplished.
Now, in the long run, I don't think that this is good for China, doing business this way. But Merck (and the other companies going similar deals, both inside and outside the drug industry) are betting that it'll keep on going like this for some time, and that this sort of money will turn out to be well spent.
Neuroscience is a long-established graveyard for drug discovery - there are a lot of serious disorders there, but it's very hard to do anything about them. So the "unmet medical need" is being exacerbated by both of those factors at once.
And if you need some empirical proof of those assertions, look no farther than the press releases. GlaxoSmithKline and AstraZeneca have already bailed out of the field, and now it looks like Novartis is joining them. That doesn't leave too many big players, and there are two effects to that which come immediately to mind: that progress may slow down, because there's not as much money and effort going on, but that this leaves the door open for smaller organizations who can take advantage of any new discoveries and/or get lucky.
I spent the first eight or nine years of my med-chem career doing CNS, and am not overwhelmed by the desire to do it again - at least, not under standard drug-discovery conditions. But the rewards are still out there - on a high, high shelf - for those who want to try.
For those of you keeping an eye on such things in the biotech investment world, here's a more in-depth profile of former Carl Icahn biotech man Alex Denner. You'll pick up on some of his background, as well as perhaps-less-useful information such as that he eats at Nobu three times a week. People in the industry are mostly wondering what else he feels like having for lunch. . .
Back last year we were talking here about GlaxoSmithKline's R&D makeover. The company had reorganized into "DPU"s (Discovery Performance Units), each of them operating under much more of a "succeed or you're out" atmosphere. Now Bloomberg has a look at how that's going:
Glaxo is conducting one of the industry’s boldest experiments, changing the way it looks for new medicines to emulate biotech companies and spur innovation. The U.K.’s largest drugmaker has broken up research into competitive teams and put scientists back at the center of the process. But freedom carries a price: researchers who don’t adapt must go.
Talent was “buried in the ocean” under the old system, says Moncef Slaoui, Glaxo’s head of research and development and one of the architects of the overhaul. Scientists now “live or die with their project.”
This month, London-based Glaxo completed the first appraisal of its new model. The company is now deciding which teams deserve more funding and which ones don’t. The conclusions will probably be made public in February when Glaxo reports full-year earnings. . .
That will be worth a close look when it happens, for sure. The article goes on to a standard feature of such pieces - what, indeed, would a re-org be like without some bad words for the old system?
(Dave) Allen says he remembers discussions dating as far back as the early 2000s with former Glaxo R&D head Tachi Yamada and Slaoui, who succeeded him in 2006, on the importance of scientists in the drug-discovery process.
The old Glaxo “was arrogant,” says Robin Carr, who heads a DPU looking at ways to treat lung damage. “It had the biggest machine and the biggest hammer and it (thought it) could just grind out success.”
That's funny - I remember the "old" Glaxo advertising itself as being full of nimble, empowered Centers of Excellence for Drug Discovery (as they were called), which supposedly had a free hand to do whatever it took to bring drugs to market. There were several re-re-orgs along the way, and it appears that the current DPUs are supposed to be the smaller units that were inside a lot of the CEDDs.
It's basically too early to tell if this new model is helping - I note that the article mentions that some investors were impressed when the company's CEO, Andrew Witty, talked during at a recent conference call about the number of compounds that GSK has in development. Given the timelines involved, that can't have much to do with the new structure. But eventually its effects should be felt, one way or another, and it looks like February will be the next look under the hood. . .
I would be neglecting my duties if I didn't mention Adam Feuerstein's "Worst Biotech CEO of 2011" voting, which is going on here. If you have a strong opinion on this matter - and opinions on such things tend to be strong - then hop over and make yours known.
That's what this columnist at the Harvard Business Review would like to know. To the question "Was it worth it?", he answers "Probably not", and lists some things that other companies might learn from Pfizer's experience. I doubt that anyone will, though - the Big Acquisition looks so compelling when it comes along, and it's such a once-in-a-lifetime opportunity, and so different from all those other examples from the past, that gee, there's just no alternative. Right?
Here, for reference, is Pfizer stock versus the S&P 500 since the merger was completed in June 2000. Not that the rest of Big Pharma looks much better - for example, Eli Lilly has been an even worse investment over that span (by a bit), and they're never merged with anyone. (Although there is that Imclone business. . .)
No, big drug companies have been horrendous, hair-curling investments over this span, and yes, I'm not fully taking dividends into account. But there are tax consequences to consider on those, too, versus buy-and-hold capital appreciation. The S&P 500 has been paying in the 2% dividend yield range over that span, while Pfizer's dividend payouts have fluctuated (and the yields, too, of course). But is any dividend yield worth taking a 60% principal hit? It's hard to imagine.
At the very least, then, Pfizer's strategy has not allowed it to stand out. Its stock is in the same nasty shape as its brethren - you have to think that nothing would have gotten much worse if they'd never Lipitored themselves, and things might well have been better. Some record!
This piece on Michael Lewis and Billy Beane is nice to read, even if you haven't read Moneyball. (And if you haven't, consider doing so - it's not perfect, but it's well worth the time). Several thoughts occurred to me while revisiting all this, some of them actually relevant to drug discovery.
First off, a quick peaen to Bill James. I read his Baseball Abstract books every year back in the 1980s, and found them exhilarating. And that's not just because I was following baseball closely. I was in grad school, and was up to my earlobes in day-to-day scientific research for the first time, and here was someone who applied the same worldview to a sport. Baseball had long been full of slogans and sayings, folk wisdom and beliefs, and James was willing to dig through the numbers to see which of these things were true and which weren't. His willingness to point out those latter cases, and the level of evidence he brought to those takedowns, was wonderful to see. I still have a lot of James' thoughts in my head; his books may well have changed my life a bit. I was already inclined that way, but his example of fearlessly questioning Stuff That Everybody Knows really strengthened my resolve to try to do the same.
A lot of people feel that way, I've found - there are James fans all over the place, people were were influenced the same way, at the same time, by the same books. It took a while for that attitude to penetrate the sport that those books were written about, though, as that article linked to above details. And its success once it did was part of a broader trend:
Innovation hurts. After Beane began using numbers to find players, the A’s’ scouts lost their lifelong purpose. In the movie, one of them protests to Pitt: “You are discarding what scouts have done for 150 years.” That was exactly right. Similar fates had been befalling all sorts of lesser-educated American men for years, though the process is more noticeable now than it was in 2003 when Moneyball first appeared. The book, Lewis agrees, is partly “about the intellectualisation of a previously not intellectual job. This has happened in other spheres of American life. I think the reason I saw the story so quickly is, this is exactly what happened on Wall Street while I was there. . .”
(That would be during the time of Liar's Poker, which still a fun and interesting book to read, although it describes a time that's much longer ago than the calendar would indicate). And I think that the point is a good one. I'd add that the process has also been driven by the availability of computing power. When you had to bash the numbers by hand, with a pencil, there was only so much you could do. Spreadsheets and statistical software, graphing programs and databases - these have allowed people to extract meaning from numbers without having to haul up every shovelful by hand. And it's given power to those people who are adept at extracting that meaning (or at least, to the people willing to act on their conclusions).
The article quotes Beane as saying that Lewis understood what he was doing within minutes: "You’re arbitraging the mispricing of baseball players". And I don't think that it can be put in fewer words: that's exactly what someone with a Wall Street background would make of it, and it's exactly right. Now to our own business. Can you think of an industry whose assets are mispriced more grievously, and more routinely, than drug research?
Think about it. All those preclinical programs that never quite work out. All those targets that don't turn out to be the right target when you get to Phase II. All those compounds that blow up in Phase III because of unexpected toxicity. By working on them, by putting time and effort and money into them, we're pricing them. And too much of the time, we're getting that price wrong, terribly wrong.
That's what struck me when I read Moneyball several years ago. The problem is, drug research is not baseball, circa 1985. We're already full of statisticians, computational wizards, and sharp-eyed people who are used to challenging the evidence and weighing the facts. And even with that, this is the state we're in. The history of drug research is one attempt after another to find some edge, some understanding, that can be used to correct that constant mispricing of our assets. What to do? If the salt has lost its savour, wherewith shall it be salted?
Since it's end-of-the-year performance review time at many workplaces, I thought it might be an appropriate time to link to this article. It points to some recent research that suggests that traditional promotion strategies in large organizations are, in fact, counterproductive. The null hypothesis - random promotion - would actually be more effective. (Although it's not easy to see how you'd implement that!)
There seem to be several reasons for this. Difficulty in judging the criteria for promotion and picking the wrong criteria in the first place are certainly factors. And you certainly can't ignore Peter-Principle effects, where someone gets promoted to a position where they're less effective than they were before. Here's one of the papers talking about its results:
Notwithstanding the previous discussion on performance, the current study raises the uncomfortable suggestion that all the time and effort put into promotion and selection by HR practitioners doesn’t really matter that much. After all, even though performance went up and down in response to contingency factors, the average difference between promotion systems at a given level could be measured in single digits on a hundred point scale (even random promotion wasn’t that much different from the rest). Could it be that the particular method used for job assignment really has little effect on an organization’s bottom line? This is directly relevant to HR practitioners because they typically spend a lot of time on the job assignment task and such time might be allocated elsewhere if the effort in unproductive or inefficient.
But then, the people evaluating such systems and such ideas are generally HR practitioners themselves. . .
And while I'm linking out to other opinion pieces, Ray Firestone has a cri du couer in Nature Reviews Drug Discovery, looking back over his decades in the business. Regular readers of this blog (or of Ray Firestone!) will recognize all the factors he talks about, for sure. He talks about creativity (and its reception at some large companies), the size of an organization and its relation to productivity, and what's been driving a lot of decisions over the last ten or twenty years. To give you a sample:
if size is detrimental to an innovative research culture, mergers between large companies should make things worse — and they do. They have a strong negative personal impact on researchers and, consequently, the innovative research environment. For example, the merger of Bristol-Myers with Squibb in 1989, which I witnessed, was a scene of power grabs and disintegrating morale. Researchers who could get a good offer left the company, and the positions of those who remained were often decided by favouritism rather than talent. Productivity fell so low that an outside firm was hired to find out why. Of course, everyone knew what was wrong but few — if any — had the nerve to say it.
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.
I thought I'd pass on a little motivational managerial story, adapted from the version told in Kingsley Amis' Memoirs. Many of you may have experienced this advanced management technique yourselves, although perhaps in not such a refined form.
There was, the story goes, a pork-pie company over in England that was producing huge numbers of the things. Huge, that is, compared to their number of employees. In fact, on closer inspection, they were cranking out more pork pies than even seemed possible. This began to attract attention, and soon a team of managerial consultants had flown over from the US, eager to learn the secret.
"Do you have Pareto chart analysis?", they asked the owner of the firm. "No, no, nothing like that, he said. "Six-sigma black belt tiger teams?" asked another. "Speak English," said the owner, squinting at the consultant. "Multifactor quality control analysis, then?" came the next question, but that just got another impatient "No, no, never heard of it".
"Look now", said the factory owner, waving them all off, "I'll tell how things work here. Every so often, I just go over to that window there, the one that looks out over the floor, and I stick my head through, and I have a look around, and then I scream FASTER, YOU BASTAAAAARDS! And that's all there is to it."
Well, Carl Icahn may well be through messing with the biotech industry, as speculated earlier this year. His chief biotech strategist has now left his employ - but looks to be starting his own hedge fund. So look out for Alex Denner, folks, because he might just be ready to continue the tradition.
Are stem cells overhyped? That topic has come up around here several times. But there have been headlines and more headlines, and breathless reports of advances, some of which might be working out, and many of which are never heard from again. (This review, just out today, attempts to separate reality from hype).
Today brings a bit of disturbing news. Geron, a company long associated with stem cell research, the company that started the first US trial of embryonic stem cell therapy, has announced that they're exiting the field. Now, a lot of of this is sheer finances. They have a couple of oncology drugs in the clinic, and they need all the cash they have to try to get them through. But still, you wonder - if their stem cell trial had been going really well, wouldn't the company have gotten a lot more favorable publicity and opportunities for financing by announcing that? As things stand, we don't know anything about the results at all; Geron is looking for someone to take over the whole program.
As it happens, there's another stem-cell report today, from a study in the Lancet of work that was just presented at the AHA. This one involves injecting heart attack patients with cultured doses of their own cardiac stem cells, and it does seem to have helped. It's a good result, done in a well-controlled study, and could lead to something very useful. But we still have to see if the gains continue, what the side effects might be, whether there's any advantage to doing this over other cell-based therapies, and so on. That'll take a while, although this looks to be on the right track. But the headlines, as usual, are way out in front of what's really happening.
No, I continue to think that stem cells are a very worthy subject of research. But years, quite a few years, are going to be needed before treatments using them can become a reality. Oh, and billions of dollars, too - let's not forget that. . .
Here's an interesting release from Albany Molecular: they're announcing that they're hiring "more than 40" chemists to work at Eli Lilly's facilities in Indianapolis. They plan to hire them from the surrounding area - that is, I assume, that they plan to hire from the pool of people that Lilly has already let go.
This is interesting on several levels. I assume that AMRI's salaries and benefits are such that it's cheaper for Lilly to hire people this way than it is to hire them as Lilly employees. This is a technique (one could use the word "ploy", depending on one's vantage point) to get the work done without having to actually shell out for it. But then again, that's what outsourcing is, exactly, and this is outsourcing without going to China or India. Instead, the invoices are routed through exotic Albany, NY, while you get to have the chemists right there in front of you, with the corresponding improvements in communication and turnaround.
Thoughts? Is this the beginning of the on-shoring of chemical jobs - albeit at a lower level of compensation? Or is this just a desperate move by a company that's facing a hideous, hair-pulling patent cliff? Or both?
Doesn't this seem just a bit. . .early. . .for an IPO? In this climate?
Chris Westphal, a founder of Sirtris and a fixture of Cambridge/Boston biotech startup culture, helped to launch a company called Verastem in the middle of 2010. They're concentrating on the role of stem cells in cancer, a very interesting field (and one that a lot of other oncology players are interested in as well). And rather to everyone's surprise, they've now announced that they're going public. No, there's no compound, nothing heading for the clinic in the foreseeable future. They're just going public, presumably because the equity markets are in such a placid, welcoming mood or something.
Their plan seems to be to develop assays based on stable populations of cancer stem cells, and then to find compounds that selectively target them and develop these into drug candidates. Each step of that process is very much an open question, and is most definitely not trivial. It's a very worthy area of research, don't get me wrong - but it does seem odd to be going public at this stage with it, when there's so little for potential investors to evaluate. And it's worth noting that Verastem raised $32 million in financing just back in July. Are they already plowing through that? The IPO looks to raise about another $50 million - is that a sum that just couldn't be brought in via private investors?
Those are other questions will get aired out extensively in the weeks to come. We'll see how smoothly this all goes - and a lot of other small companies will be watching as well. One first reaction hasn't been too favorable: over on Twitter, biotech watcher Adam Feuerstein says "Christoph Westphal is why the clubby, VC-back scratching world of private biotech is derided by public investors". They'll soon get their chance to deride in person!
Sanofi seems to have told employees this morning that layoffs are on the way. These will be in both the sales and the R&D organizations, and will be part of some rearranging of the later between the Boston/Cambridge and New Jersey sites. Details aren't very clear at the moment; anyone with more info is welcome to add it to the comments. . .
So what happens when you and the FDA disagree on the clinical trials needed to show efficacy for your new drug? Well, this happens: your stock opens down 40%. That's what's going on with Exelixis today - here are the details. Basically, the company had a fast clinical path in mind, taking their prostate cancer candidate cabozantinib into late-stage patients and using pain reduction as an endpoint. But the FDA wasn't (and isn't) buying that as a marker.
I see their point. Survival is really what you're looking for, and there doesn't seem to be enough evidence that pain reduction is going to translate to that. As that Adam Feuerstein piece notes, all the other prostate drugs have had to show survival benefits. EXEL was planning to follow up with a second trial to show that, but hoped to jump-start things by getting approval just on the pain data. It appears that they're going to stick with their strategy and hope that the numbers are so dramatic that the agency will reverse course. But is that realistic - both for the chances of getting great data and the chances of persuading the FDA? The market doesn't think so. Neither do I.
Over the weekend, it became clear to me that there had been a case of identity spoofing in the comments to this post. A person had left comments while claiming to be a Merck HR employee, but this same Merck employee contacted me, in understandable confusion, when colleagues asked him about this. That's because he'd never posted anything here at all.
I'd wondered at the time about what was going on - neither of the comments were posted from a Merck IP address, but that wasn't necessarily surprising either way. But hearing from the person himself, most definitely from Merck this time, made up my mind very quickly.
There have been occasional games played around here in the comments section, and most of it's harmless. I'll let jokes through that claim to be from various Nobel Prize candidates - that's just the Internet doing one of the things it's good at. But deliberate assumption of identity like this is another thing altogether. The original comments have been deleted, and the responses to them are now "inoperative", as they used to say in Nixon's day.
The cutbacks at Merck seem to have been pretty severe, if the messages that I'm getting from former Schering-Plough people are any indication. A lot of longtime R&D people have been let go, which is no surprise when you see what's been happening over the last few years with Pfizer's acquisitions (just to pick the biggest example). Experience, past accomplishments, and ability are not very high at all on the list of factors being judged when it comes to this point.
It's worth asking just how well that whole Schering-Plough deal is going for Merck, though. Here's a thorough breakdown of all the pipelines at the time the deal was going through. You can see that some of the areas (women's health, respiratory) have worked out as planned, but some others (cardiovascular, hepatitis C) have definitely not. And (as that link makes clear) one of the big variables when the deal went through was how much money would be left from the J&J deal after arbitration. If you look at the company's earnings, it's a mixed bag. Singulair is the biggest on the list, but that one's going off patent next year. Remicade is bringing in some money, after the territories were split up, with Merck holding on to Europe, Russia, and Turkey. The only other product from the Schering-Plough deal on the top-selling list is Nasonex, and that just makes the cut.
I just have to wonder how different this press release would have been if the deal hadn't gone through at all. But sales figures aside, what we don't see is the huge disruption in research and early development, just as you don't see that in Pfizer's deals over the years. You don't notice the drugs that don't get discovered, the early projects that don't quite advance. Was it all really worth it?
Like all the other mergers, this one only makes sense if you factor in big cost reductions - that DataMonitor link above makes this clear. And Merck does indeed look as if they're cutting their expenses as planned, so perhaps these numbers will come out right on target, and earnings-per-share will follow along. But what happened to Ken Frazier's brave attempt to withdraw EPS guidance entirely and focus on rebuilding the company's R&D? Was that just window dressing, was it an honest effort to change things that has now been abandoned, or what?
Novartis has had fewer examples of the layoffs and closures that have beset the rest of the drug industry, but no one's immune. Reports are that they're eliminating 1,100 jobs in Europe and about 1,000 here in the US (and here's more from the Basler Zeitung, if you read German). And meanwhile, yes, 700 positions will be added in India and China (not research - data handling and trial management).
This isn't on the scale of some of the Pfizer layoffs, but it's bad enough. And is anyone willing to think that this will be the end?
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?
I wanted to take a moment to highlight this series of posts over at Chemjobber. He's interviewing fellow chemists who have been laid off and asking for practical advice on how it went, how it's going, and what to do. Others are welcome to send along their own stories; see his e-mail contact at the site. It's a painful subject, but boy, is it a real one these days.
Update: there was a case of identity spoofing in the comments to this post, with someone claiming to be a Merck employee. I've removed the original comments, and (after some thought), I've also removed the (faked) name from the replies that they gathered. Those comments were posted in good faith, but I'm trying to get the stolen identity cleaned out.
So Abbott is spinning off the pharma business into a separate company - did anyone see that coming? (I take a day away from the computer, attending a meeting, and this happens). Let's look at this plan and try to figure it out.
First off, this is obviously a reaction to worries about prospects for the pharma side of Abbott's business. The medical devices side is doing fine; it's not like the high-flying pharma organization is trying to toss out a sandbag or something. A lot of that worry is probably centered around the long-term prospects for Humira, which is operating in an increasingly crowded space and accounts for a rather large share of revenues all by itself.
So in that sense, this is a move peculiar to Abbott. But the thinking behind it is common to all the large drug companies, as this Wall Street Journal story details. It's just that various companies are running off in various directions in response. You have some saying "Gosh, we've just got to get back to our core business and do pharma better", while others say "Gosh, we've got to diversify - let's get some consumer products in here, some medical devices, animal health, anything less crazy than drug discovery". And even allowing for the fact that these companies are starting off from different places, with different levels of difficulty, it seems clear that no one really has a strategy that's convincing enough even to themselves. Something Has to Be Done, so everyone's doing Something, and hoping for the best.
But in this case, you have to worry that the (so far unnamed) drug company that Abbott's spinning off will have its work cut out for it. The new company will be getting, what, three quarters of its revenue from Humira? That's a rough situation for any company with any drug, much less a drug that's heading into white water. And how much of the rest of the revenues are from TriCor and Niaspan, both of which face patent expirations? I know that they have things in the clinic, sure, but it's hard to see how this new company doesn't shed jobs at some point. I had a series of worried e-mails waiting for me last night from Abbott pharma people, and I think that they're right to be worried. I'd be very glad to hear counterarguments, let me tell you.
No, when you look at it, the company seems to have decided that amputation is just the cure that they needed. The fact that the Abbott name is staying with the medical devices company is all you need to know.
I haven't had any chance to verify this, but I've heard from a source that I have no reason to doubt that Merck may be announcing details of a reorganization in R&D later this week. Anyone else heard the same?
And on a similar topic, here's a post from John LaMattina asking what many people have at one point or another: how come Wall Street analysts get so much influence over how much a drug organization spends on R&D? His examples are Merck, Lilly, and Amgen, and his take is:
Now, I am all for monitoring R&D budgets to maximize the returns from these investments. And I am all for accountability – asking the R&D organization to deliver new candidates to the pipeline, having formal goals with rigorous deadlines, and for running clinical trials as expeditiously as possible while keeping a close eye on costs. But for Wall Street to reward a company for lowering R&D spending and attack those that want to commit to R&D is absurd. Like it or not, R&D IS the engine that powers a pharmaceutical company. It is also a high-risk endeavor. Furthermore, given all of the hurdles that now exist especially with regard to ensuring safety and having sufficient novelty to justify pricing, R&D is more expensive than ever. But, if you want to succeed, you have to invest – substantially. There are no short cuts.
Wall Street's answer, which may be hard to refute, is that if you want the access to capital that the stock market provides, then you have to accept the backseat driving as part of the deal. But do we get the same degree of it as other industries, or more?
Amgen is out today speaking the sort of language that we've all come to fear. It appears that the local Ventura County Star picked up some rumblings from inside the Thousand Oaks headquarters, and when they asked the company about it, they got this:
"We are currently evaluating some changes within our Research & Development organization to improve focus and to reallocate resources to key pipeline assets and activities. . ."
Details to come on October 24th, when earnings are announced. But I have to say, "improving focus" is rarely a sign of good news.
Now here is a fascinating piece of work for anyone who's invested in the small pharma/biotech sector. The authors looked over the stocks of companies developing cancer therapies, ones that have had critical Phase III results or regulatory decisions announced over the past ten years. And they looked at the trading in their stocks, for 120 days before and after the announcements. What, do you suppose, did they discover in this exercise?
Uh-huh. You have surely guessed correctly:
The mean stock price for the 120 trading days before a phase III clinical trial announcement increased by 13.7% for companies that reported positive trials and decreased by 0.7% for companies that reported negative trials. . .Trends in company stock prices before the first public announcement differ for companies that report positive vs negative trials. This finding has important legal and ethical implications for investigators, drug companies, and the investment industry.
Indeed it does. Interestingly, the authors did not find such a split around announcements of FDA regulatory decisions, suggesting that insider trading there is not as big a problem compared to what goes on from inside the industry.
But wait - there's more, as they say in the infomercials. In a follow-up commentary on the article, Mark Ratain of Chicago and Adam Feuerstein of TheStreet.com (who certainly has seen his share of market shenanigans) find another striking disparity in the data:
This analysis demonstrated a remarkable difference between companies that had positive and negative announcements. Specifically, the median market capitalization was approximately 80-fold greater for the companies with positive trials vs companies with negative trials. . .Furthermore, there were no positive trials among the 21 micro-cap companies (ie, companies with less than $300 million market capitalization, whereas 21 of 27 studies reported by the larger companies analyzed (greater than $1 billion capitalization) were positive.
That makes sense, as they point out: these small-cap stocks had such low valuations for a reason: because investors thought that the drugs weren't going to work, and in most cases, no larger companies had been willing to put up money on them, either. The oncology Phase III success rate for larger companies is comparable to therapeutics areas in the rest of the industry; the Phase III success rate for micro-cap oncology companies is catastrophic.
There's an op-ed piece over at Pharmalot that I think that many readers here will find interesting. It's by Daniel Hoffman, formerly employed in pharma, it appears, and now a consultant. He's writing about the waves of layoffs the industry has experienced over the last few years, but he's not talking so much about the people who are gone, as the ones who are left:
In addition to disrupting tens of thousands of lives, the substantial downsizing in pharma over the past two-and-a-half years has changed many companies for the worse. I previously wrote that the guidelines handed down from finance to HR have eliminated many of the more knowledgeable and experienced people at each layoff round because people over age 50 are among the first targets for separation packages. But the dysfunctional legacy is even more pernicious. The resulting culture has created a workforce that is almost entirely at odds with what pharma needs now.
What sort of workforce is that? Hoffman's take is that the people who have survived under these conditions are disproportionately those who don't rock the boat, who keep their heads down, and who keep the top management as unperturbed as possible:
Many of the people remaining in operations deliberately choose not to ask big or important questions, lest their colleagues perceive any fundamental doubt as a threat. The truly adept manage to avoid taking a position on even the most mundane matters, lest someone else equate perceptive questions with disloyalty. Some even find it wise to feign ignorance concerning the elephants in various rooms. The combination of such simulated ignorance, together with the genuine version among the inexperienced survivors, makes the task of determining the smartest guy in the room a purely theoretical exercise.
I think that these are tendencies built in to most large organizations, but it wouldn't surprise me a bit if the shakeups of the last few years have exacerbated them. Many people, when the pressure is on as hard as it's been, decide that the first thing they have to do is try to hang on to their job. Anything interesting and risky can wait until after the mortgage payment has cleared and the tuition checks have been written. The behaviors most associated with "Don't get laid off" are not the ones that are best associated with "Keep the company going", much less "Discover something new". That last set of behaviors, in fact, might be one of the first to go, along with the people who exemplify them.
Hoffman has an aggressively cynical take on the motives in other parts of large organizations - and while I wish I could say that he's completely wrong, there are indeed places - too many - that operate on these general principles:
. . .At the top, finance sets the strategic direction. The goal of finance, paramount to everything else, consists of keeping senior management in control of the company. Forget the blather about shareholder value, customers, the community and medicine for the people. Everyone outside the boardroom is the enemy. . .Reality for CFOs involves long-term product and business development approaches that would create several quarters of flat or negative earnings. In their doomsday scenario, that would prompt the board to replace management.
And that's the tricky part of capitalism. One of the philosophical reasons that I'm such a free-market kind of person is that I think that it works with human nature as it really is, without needing any magical-thinking schemes to suddenly transform or improve it. People tend to act in their own self-interest? Fine, let's use that to try to derive benefit for more than just one person at a time. But it goes without saying (or should) that not all self-interested actions can be so harvested, which is why I'll never be anything close to an anarcho-libertarian.
Philosophy aside, what we're seeing in some drug organizations is this sort of self-destruction. The fix they find themselves in leads to behavior that makes the problems worse, or at best does little to overcome them. This, taken down to its individual basis, is what Hoffman's piece is arguing. And although his editorial can also be fairly characterized as a bitter rant, that doesn't mean it isn't true. Or at least more true than it should be.
GlaxoSmithKline (GSK) today announced that it has formed a long term strategic partnership with McLaren Group. The partnership, which will run initially until 2016, brings together two UK companies focused on innovation and high-tech research.
Well, yes, I suppose it does. But one of them makes drugs, and the other runs Formula I races. When you get down to the details, such as they are, you find this sort of thing:
A new state of the art learning facility will also be built as part of the agreement, focused on developing UK engineering skills and processes. Called the 'McLaren GSK Centre for Applied Performance', it will be located at McLaren’s Headquarters in Woking and open in 2013. Employees from both organisations and business partners will be able to use the facility to share ideas and collaborate on joint working projects.
Whatever those might be. I could sit back and make catty remarks for another paragraph or two - it's a temptation - but here's what's behind that impulse: while it's true that both companies are engaged in using technology, they're doing it in very different ways and to different ends. A racing company is working with very fast cars. The general principles of building very fast cars, though, are already known, and the question now is how to make them just a bit faster than the other people's. Testing any ideas and techniques that are developed is also relatively straightforward - you have static testing rigs, you have test tracks, you have numerous Formula I races every year, and all of these things give you direct feedback about just how well you're doing. I'm sure that the McLaren people are quite good at taking these results and turning things around quickly - thus all the talk in the press release about their fast, dynamic decision making.
But the drug discovery process is quite different. If we start out trying to make a Whateverase 3A inhibitor for Disease X, there is no assurance at all that such a compound can exist. There's usually not even as much assurance as you'd like that such a compound will do for Disease X what you think that it'll do - witness the clinical failure rates. And the process of finding, developing, and testing such a compound takes years - given all the problems that have to be solved, and the necessity of human trials, it cannot help but take years. The McLaren people are not faced with a ten-to-fifteen year wait before they can get a single car into a single race, and once there, do 90% of their cars fail to complete the course at all?
Let me try for a wider explanation, because this is all coming very close to what I'll call the Andy Grove Fallacy. The single biggest difference between the two types of R&D is this: McLaren is trying to optimize a technology that was discovered and developed by humans. GSK is trying to optimize against one that was not. Really, really not human, not done with human motives or with human understanding in mind. Living systems, I believe, are the only such technology we've ever encountered, and it's something to see. Billions of years of evolutionary tinkering have lead to something so complex and so strange that it can make the highest human-designed technology look like something built with sticks. To give Andy Grove a tiny break, the devices we've built in the IT industry (and the software used to run them) are the closest approximations, but they're really not very close, because we made them, and what human ingenuity can make, human ingenuity can understand. The body-temperature water-based molecular nanotechnology that's running us (and every other living thing on the planet) is something else again. And it comes with no documentation at all, other than what we can puzzle out ourselves, a process still very much incomplete.
So no, I don't think that a company that races cars can help GSK out all that much with the fundamental problems of its business. But I haven't seen that state-of-the-art learning facility, which will be ready in only a couple of years. We'll check back in and see how things are going.
Can this possibly be accurate? There are photos going around of what is purported to be the inside of the Harbin Sixth Pharmaceutical Plant in northeast China, and it's easy to see why people are interested. They look like a Louis Quatorze-themed casino, a style one might call Vegas Versailles - bizarrely, crazily, relentlessly sumptuous. But don't take my word for it. Have a look:
There, as Dan Akroyd used to say, that wasn't so good now, was it? A little de trop for a state-owned enterprise, hm? You can find more views here, if you need them, but I can assure you that these are representative of the set. My own company is working on a new building; perhaps there's still time for us to hire these folks to do the interior.
When a correspondent sent these to me, my first thought was that this was some sort of Snopesworthy email legend. But perhaps not - Xinhua has picked it up, which makes one think that these shots are either (a) real or (b) something the Chinese government wishes to treat as real. Several stories also quote the weibo (Chinese Twitter/Tumblr-style microblog) of a journalist for state TV, Li Xiaomeng (李小萌), who has apparently also helped spread word of this throughout the Chinese online world.
The only clarification I can find so far is from an AFP story on the matter (and they must have been particularly amused/appalled by all that Sun King styling). This quotes a Beijing business newspaper confirming the photos as authentic, but that an official of the company has claimed that no, these aren't the offices, but the interior of an "art museum" that was constructed in the same new building. But that doesn't match up with other photos of the museum, apparently, so it's hard to say what's going on.
Except, of course, that some batch of lunatics considers this to be an appropriate use of public funds in Harbin (or anywhere). And that's worth thinking about. The connection with a pharmaceutical plant gives me the opportunity to talk about some things that have come up in conversation with various Chinese co-workers recently. The gigantic construction boom in China is well known. But this building, if it's anything like what it's purported to be, can serve as an illustration of the crazy aspect of the whole business. It looks from the outside as if China, in its attempt to come roaring to the top of the 21st-century league tables, is in serious danger of going off the rails. I get the impression that the government is committed to cranking up the GDP figures by any means necessary, and has decided that construction and infrastructure are the quickest and surest means to that end. Private real estate developers are thrilled to assist in this process, as are the owners of building companies and everyone else connected to the business. Need I add that huge construction contracts are, in every country and in every era, a notoriously easy way to hide kickbacks, payoffs, and corruption of every kind?
So I fear that China's incentives are misaligned. You get what you subsidize, and they're subsidizing a huge wave of construction. But how necessary are all these things? And how well are they being built? Will they all start falling apart ahead of schedule, and all at roughly the same time? And how much is being skimmed off the top during the whole process?
I've had a detailed e-mail from John Choi, Chief Strategy and Business Office for Hua Medicine. That's the company that was featured in a bizarre-on-the-face-of-it quote from Chemical and Engineering News that I blogged on here the other day. That, you'll recall, was the one that seemed to suggest that Hua (with eight employees at the time of the article) was going to introduce "breakthrough drugs" within four years, which they'd manufacture and sell themselves. As many readers guessed, what this actually means is "other people's breakthrough drugs licensed in to China".
I'll let Choi tell his side of the story:
There was a lot of commentary generated from people that have not read the CEN article nor have any background to what we at Hua Medicine are doing, so I’d like to clarify and tell “our side of the story” as it were. I am a US trained MD-PhD (my PhD was at Harvard and MD at Cornell Medical), and was formerly a professional Venture Capitalists for the last 10 years in the US before joining Hua Medicine in China. So I am quite aware of the difficulties and timelines for drug development of biotech companies, having funded many of them. It typically takes 12-14 years (if successful) for a company starting pre-clinical work to get their products on the market, and the probability of succeeding in this according to Nature Reviews Drug Discovery is typically less than 10% from phase I to NDA approval. . .With that context, Hua is certainly not proposing that we can do all stages of pre-clinical work, getting through all phases of safety and efficacy clinical trials, and getting approval from the regulatory agencies, all in only 4 years from scratch with no previous work required! In fact, if you are familiar with China’s regulatory pathway, it typically takes LONGER to get regulatory approval in China than in the US or most other countries for that matter. In fact, unlike the US, for even internationally marketed products that have approvals in other countries, in China one must still go through at least a 30 patient Phase I/PK study and at least 100-patients-in-each-trial-arm Phase III clinical study for an imported drug to get approved (even though that drug may have been approved and marketed elsewhere such as the US for more than 10 years… It still doesn’t matter, if it is a compound never marketed before in China, the Chinese SFDA will require at least these minimum trials before approval).
What was taken out of context was that Hua Medicine intends to in-license patented drugs from the US and EU, and get them on the market and commercialized in the 4 year timeframe in China. This is about the average time it takes imported drugs (drugs that are approved and marketed in the US or EU but are coming newly into the Chinese market) to get approved by the SFDA in China. Typically it requires 10-16 months for Clinical Trial Approval (CTA) to be granted by SFDA which is the IND equivalent in the US (and allows a drug’s sponsor to begin trials in China), 2 years for completing the phase I and mandatory Phase III trials, and 12-16 months for an Imported Drug License (IDL) approval which is the equivalent of an NDA submission. Hence 4 years to get these imported drugs to market in China. As a matter of fact, Hua medicine is currently in the final stages of discussions for some of these marketed or later stage assets (for China licensing), and that was what was meant by the CEN article saying “the firm will launch breakthrough drugs in 4 years”. Hua is also backed by a premier set of US Venture capitalists with $50M in initial funding to pursue in-licensing of these marketed and late-stage assets (as you know, drug license rights do not come cheaply, after all), with more capital if needed to acquire more assets.
Well, that makes a lot more sense. I note that their founder (Li Chen) was the head of research at Roche's R&D center in China, so he presumably also knows what he's doing. Here's some of their investment backing, and here's their Board of Directors. I can still wonder a bit why any big outside companies would do these deals, since in many cases they've been making their own efforts in China (or have already signed up with other people trying to do this same sort of thing). But it would seem that the people at Hua have identified room to maneuver.
That said, the company may be getting more early publicity than it's ready for, if their web site is any indication. It would seem to have not been up for long, if the "Some news type here" line under the "News" heading is any indication. And that C&E News article may have been another example, since that part of it gave the impression that Hua was thinking about launching its own internal programs. (J. F. Tremblay, the author's article, was able to comment on that here.
When does China take the next step in drug research? They already have a huge contract research industry, and they have branches of many of the major pharma companies. But when does a Chinese startup, doing its own research with its own people in China, develop its own international-level drug pipeline? (We'll leave aside the problem that not even all the traditional drug companies seem to be able to do that these days). It still seems clear that we're eventually going to have a Chinese Merck, or a Chinese Novartis or what have you - a company to join North America, Western Europe, and Japan in the big leagues. The Chinese government, especially, would seem to find this idea very appealing.
Opinions differ, to put it mildly, about how far away this prospect is. But Chemical and Engineering News is out with an article on homegrown Chinese research that explores just this sort of question. But you run into passages like this:
In a meeting room in a building resembling a residential home in Shanghai’s Zhangjiang Hi-Tech Park, Li Chen and John Choi describe the business plan of their new company. Called Hua Medicine, the firm will launch breakthrough drugs within four years, they predict. Hua will manufacture the compounds and sell them with its own sales force. It will also license its internally developed drugs to multinational companies.
Yet right now, Hua is a modest operation that employs eight people. Hua doesn’t have an R&D lab yet, let alone a manufacturing facility. It operates in a loaned building formerly used by the administrators of the industrial park...
It can be easy to dismiss such ambitious business plans as simply talk aimed at gullible investors or government officials handing out subsidies. Except several start-ups are led by people who have long track records of success. Moreover, the money financing these start-ups comes not from relatives and friends, but from savvy investors knowledgeable about the drug industry.
Well. . .yeah. Let me join those who dismiss business plans that are as ambitious as that one. The way I understand the drug industry, if you're planning on launching a breakthrough drug within four years, you must have that drug in your hand right now, and it has to have had a lot of preclinical work done on it already (and in most therapeutic areas, it needs to have already hit the clinic). And note, these guys aren't talking about their one pet compound, they're talking about launching drugs, plural. Drugs that they discover, develop, manufacture and sell. And they have 8 people and no labs.
No, something is off here. I get the same feeling from this that I get from a lot of leapfrog-the-world plans, the feeling that something just isn't quite right and that the world doesn't allow itself to be hopped over on such a deliberate schedule. Thoughts?
A reader passes along this request for comment by the NIH. The "Advisory Committee to the NIH Director Working Group on the Future Biomedical Research Workforce" is asking for thoughts on issues such as the length of time it takes to get a PhD, the balance between non-US and US workers, length of post-doctoral training, the prospects for employment after such is completed, general issues relating to whether people choose biomedical research as a career at all, and so on.
These are, of course, issues that have come up here repeatedly (as well they should), so if you want to have a shot at influencing some NIH thinking on them, they're asking for anyone's thoughts by October 7. (Use this form).
The latest regulatory filings show that Carl Icahn appears to have sold his Biogen position out completely as of the end of June, although he had still held over 8 million shares a week or so earlier. And he also appears to own no Amgen at present, and has sold out of Regeneron.
We last discussed Icahn's biopharma investments here, but it looks as if he's exiting the sector. And while I can't say that I'll miss him, it's perhaps food for thought if he's finding no positions worth taking over here, either. . .
Danish CNS specialists Lundbeck reported good financial numbers for the quarter, but they also announced how they're hoping to keep them up: by cutting R&D jobs across the company. This is affecting their US site in Paramus, NJ, as well as the main operation in Denmark.
I've heard that it's affecting both particular disease areas as well as cross-project groups like PK and the like. The company says that it's going to outsource more of this work, and use some of the money to hire. . .more sales staff. The state of the current industry, right there.
I wanted to extract and annotate a comment of Bernard Munos' from the most recent post discussing his thoughts on the industry. Like many of the ones in that thread, there's a lot inside it to think about:
(Arthur) De Vany has shown that the movie industry has developed clever tools (e.g., adaptive contracts) to deal with (portfolio uncertainty). That may come to pharma too, and in fact he is working on creating such tools. In the meantime, one can build on the work of Frank Scherer at Harvard, and Dietmar Harhoff. (Andrew Lo at MIT is also working on this). Using simulations, they have shown that traditional portfolio management (as practiced in pharma) does achieve a degree of risk mitigation, but far too little to be effective. In other words, because of the extremely skewed probability distributions in our industry, the residual variance, after you've done portfolio management, is large enough to put you out of business if you hit a dry spell. That's why big pharma is looking down patent cliffs that portfolio management was meant to avoid. Scherer's work also shows that the broader the pipeline, the better the risk mitigation. So we know directionally where to go, but we need more work to estimate the breadth of the pipeline that is needed to get risk under control. Pfizer's example, however, gives us a clue. With nearly $9 billion in R&D spend, and a massive pipeline, they were unable to avoid patent cliffs. If they could not do it, chances are that no single pharma company can create internally a pipeline that is broad enough to tame risk. . .
That's a disturbing thought, but it's likely to be correct. Pfizer has not, I think it's safe to say, achieved any sort of self-sustaining "take-off" into a world where it discovers enough new drugs to keep its own operations running steadily. And this, I think, was the implicit promise in all that merger and acquisition growth it undertook. Just a bit bigger, just a bit broader, and those wonderful synergies and economies of scale would kick in and make everything work out. No, we're not quite big enough yet to be sure that we're going to have a steady portfolio of big, profitable drugs, but this next big acquisition? Sure to do the trick. We're so close.
And this doesn't even take into account the problems with returns on research not scaling with size (due to the penalties of bureaucracy and merger uncertainty, among other factors). Those have just made the problems with the strategy apparent more quickly - but even if Pfizer's growth had gone according to plan, and they'd turned into that great big (but still nimble and innovative!) company of their dreams, it might well still not have been enough. So here's the worrisome thesis: What size drug portfolio is big enough to avoid too high a chance of ruin? Bigger than any of us have.
Here's de Vany's book on the economics of Hollywood, for those who are interested. That analogy has been made many times, and there's a lot to it. Still, there are some key divergences: for one thing, movies are more of a discretionary item than pharmaceuticals are (you'd think). People have a much different attitude towards their physical well-being than they have towards their entertainment options. Then again, movies don't have to pass the FDA; the customers get to find out whether or not they're efficacious after they've paid their money.
On the other hand, copyright lasts a lot longer than a patent does (although it's a lot easier along the way to pirate a movie than it is to pirate a drug). And classic movies, as emotional and aesthetic experiences, don't get superseded in quite the same way that classic pharmaceuticals do. Line extension is much easier in the movie business, where people actually look forward to some of the sequels. Then there's all the ancillary merchandise that a blockbuster summer movie can spin off - no one's making Lipitor collectibles (and if I'm wrong about that, I'd prefer not to know).
So how can companies avoid tossing away billions on medicines that won’t work? By picking better targets. Munos says the companies that have done best made very big bets in untrammeled areas of pharmacology. . .Munos also showed that mergers—endemic in the industry—don’t fix productivity and may actually hurt it. . . What correlated most with the number of new drugs approved was the total number of companies in the industry. More companies, more successful drugs.
I should note that the last time I saw Munos, he was emphasizing that these big bets need to be in areas where you can get a solid answer in the clinic in the shortest amount of time possible - otherwise, you're really setting yourself up with too much risk. Alzheimer's, for example, is a disease that he was advising that drug developers basically stay away from: tricky unanswered medical questions, tough drug development problems, followed up by big huge long expensive clinical trials. If you're going to jump into a wild, untamed medical area (as he says you should), then pick one where you don't have to spend years in the clinic. (And yes, this would seem to mean a focus on an awful lot of orphan diseases, the way I look at it).
But, as the article goes on to say, the next thought after all this is: why do your researchers need to be in the same building? Or the same site? Or in the same company? Why not spin out the various areas and programs as much as possible, so that as many new ideas get tried out as can be tried? One way to interpret that is "Outsource everything!" which is where a lot of people jump off the bus. But he's not thinking in terms of "Keep lots of central control and make other people do all your grunt work". His take is more radical:
(Munos) points to the Pentagon’s Defense Advanced Research Projects Agency, the innovation engine of the military, which developed GPS, night vision and biosensors with a staff of only 140 people—and vast imagination. What if drug companies acted that way? What areas of medicine might be revolutionized?
DARPA is a very interesting case, which a lot of people have sought to emulate. From what I know of them, their success has indeed been through funding - lightly funding - an awful lot of ideas, and basically giving them just enough money to try to prove their worth before doling out any more. They have not been afraid of going after a lot of things that might be considered "out there", which is to their credit. But neither have they been charged with making money, much less reporting earnings quarterly. I don't really know what the intersection of DARPA and a publicly traded company might look like (the old Bell Labs?), or if that's possible today. If it isn't, so much the worse for us, most likely.
Dendreon has made a lot of news over the last few years with its Provenge prostate cancer therapy. This is the immunological "cancer vaccine" treatment that had such a wild ride through the FDA (and gave DNDR and its investors such a wild ride in the stock market, including some weirdness that I'm not sure ever was explained).
Well, the company is back in the news, and not in a good way. They've been selling Provenge for a while now, but have had all kinds of manufacturing woes (as you might expect from something as complex as personalized immunology). But they've apparently been working through all that, so investors were very much anticipating the company's earnings report yesterday. Unfortunately, they got one.
The company missed all the earnings forecast by an ugly margin, which has really caught everyone by surprise. Worse for them, the reason for the miss is reimbursement. Health insurance companies, in other words, are balking at paying Dendreon's price. And you know, they have a right to. The tug-of-war between drug companies and insurance is the closest thing we have to a free market in the whole drug business, and we might as well get what benefits from it we can.
You can fill in the arguing points: "I'm a prostate cancer patient, and I want to be treated with Provenge" "Fine, but as your insurance carrier, I'm telling you that it's too expensive for what it does. We're not paying for it - if you want it, buy some yourself." "But I can't - you know that - and should my own health be held hostage to how much I can afford to pay?" "Should we be held hostage to how much you want us to spend on you?" "Fine, let's get the government involved - don't I have a right to health care?" "Not seeing that in so many words in the Constitution - but even so, would it give you the right to the most expensive health care there is? Who pays for that? If you want to get the government involved, make them whack the company until they lower their price." And so on.
No, this is what bending the infamous cost curve really looks like. If a company finally prices its products over what the market will bear (and remember, the market in this case is made up of insurance providers), its sales will fall, and it'll either have to persuade its customers that the price is worth it, or it'll have to find a way to offer its good more cheaply (most likely by accepting lower profits). No one wants to give in, no one's particularly happy. But it's probably the only way to arrive at something approaching a right answer.
Update: There's also a theory on Wall Street that the real problem is that demand for Provenge isn't strong enough, and that the company is spinning this as a reimbursement problem.