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About this Author
DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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April 15, 2014

Novartis Gets Out of RNAi

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Posted by Derek

Yesterday brought the sudden news that Novartis is pulling their RNA interference research work. The company is citing difficulties in development, and also the strategic point that not as many disease areas seem to be open to the use of the technique as they'd like. John LaMattina has more here - it's looking more and more like this may be a good field for smaller companies like Alnylam, but not something that's going to feed the beast at a company the size of Novartis (or Merck, who exited a while ago). If there's some sort of technology breakthrough, that could change - but you get the impression that Novartis was hoping for one before now.

Comments (6) + TrackBacks (0) | Category: Business and Markets

April 9, 2014

AstraZeneca's Cambridge Move

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Posted by Derek

Here's more on AstraZeneca's move to Cambridge (UK). They've set up an agreement with the Medical Research Council to have MRC people working "alongside" AZ people, although details seem pretty short on how that's going to happen in practice. Here's some of it, though:

Within the AstraZeneca MRC UK Centre for Lead Discovery, the academics will get access to more than 2 million compounds in AstraZeneca's library and have the use of high-tech screening equipment to study diseases and possible treatments.

Their research proposals will be assessed by the MRC, which will fund up to 15 projects a year and AstraZeneca will have the first option to license any resulting drug discovery programs.

I liked this part of the article as well:

Other large drugmakers have built research outposts in life science centers like Cambridge, Boston and San Francisco - but none have undertaken such a wholesale move of operations.

The strategy is not without risks, especially if the upheaval disrupts current research projects or results in key staff leaving the company. A smooth transition is seen as a key test for CEO Soriot as he tries to change the culture at AstraZeneca to put science at the center of its activities.

What was at the center of AZ's operations before?

Comments (28) + TrackBacks (0) | Category: Business and Markets | Business and Markets

AstraZeneca's Cambridge Move

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Posted by Derek

Here's more on AstraZeneca's move to Cambridge (UK). They've set up an agreement with the Medical Research Council to have MRC people working "alongside" AZ people, although details seem pretty short on how that's going to happen in practice. Here's some of it, though:

Within the AstraZeneca MRC UK Centre for Lead Discovery, the academics will get access to more than 2 million compounds in AstraZeneca's library and have the use of high-tech screening equipment to study diseases and possible treatments.

Their research proposals will be assessed by the MRC, which will fund up to 15 projects a year and AstraZeneca will have the first option to license any resulting drug discovery programs.

I liked this part of the article as well:

Other large drugmakers have built research outposts in life science centers like Cambridge, Boston and San Francisco - but none have undertaken such a wholesale move of operations.

The strategy is not without risks, especially if the upheaval disrupts current research projects or results in key staff leaving the company. A smooth transition is seen as a key test for CEO Soriot as he tries to change the culture at AstraZeneca to put science at the center of its activities.

What was at the center of AZ's operations before?

Comments (28) + TrackBacks (0) | Category: Business and Markets | Business and Markets

April 8, 2014

Biotech Boom, Biotech Bust?

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Posted by Derek

Here's a good one by Matthew Herper on "Three Misplaced Assumptions That Could End the Biotech Boom". Given the way the biotech stock index has been performing lately, with a horrendous March and April that's taken it into negative territory for the year to date, something definitely seems to be causing a change of mind.

I'll let you see what Herper's three assumptions are, but I can tell you already that they sound valid to me. I think that his points are particularly relevant to investors who may have been jumping on the stocks in the area without having a clear idea of what the industry is really like. As he says, ". . .investors should avoid thinking that the drug business has undergone a fundamental change in the past few years. It hasn’t." It's the same fun-filled thrill ride as ever!

Comments (2) + TrackBacks (0) | Category: Business and Markets

April 7, 2014

Outsourcing Everything

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Posted by Derek

Here's an article in Drug Discovery Today on "virtual pharmaceutical companies", and people who've been around the industry for some years must be stifling yawns already. That idea has been around a long time. The authors here defined a "VPC" as one that has a small managerial core, and outsources almost everything else:

The goal of a VPC is to reach fast proof of concept (PoC) at modest cost, which is enabled by the lack of expensive corporate infrastructure to be used for the project and by foregoing activities, such as synthesis optimization, which are unnecessary for the demonstration of PoC. . .The term ‘virtual’ refers to the business model of such a company based on the managerial core, which coordinates all activities with external providers, and on the lack of internal production or development facilities, rather than to the usage of the internet or electronic communication. Any service provider available on the market can be chosen for a project, because almost no internal investments in fixed assets are made.

And by necessity, such a company lives only to make deals with a bigger (non-virtual) company, one that can actually do the clinical trials, manufacturing, regulatory, sales and so on. There's another necessity - such a company has to get pretty nice chemical matter pretty quickly, it seems to me, in order to have something to develop. The longer you go digging through different chemical series and funny-looking SAR, all while doing it with outsourced chemistry and biology, the worse off you're going to be. If things are straightforward, it could work - but when things are straightforward, a lot of stuff can work. The point of having your own scientists (well, one big point) is for them to be able to react in real time to data and make their own decisions on where to go next. The better outsourcing people can do some of that, too, but their costs are not that big a savings, for that very reason. And it's never going to be as nimble as having your own researchers in-house. (If your own people aren't any more nimble than lower-priced contract workers, you have a different problem).

The people actually doing the managing have to be rather competent, too:

All these points suggest that the know-how and abilities of the members of the core management team are central to the success of a VPC, because they are the only ones with the full in-depth knowledge concerning the project. The managers must have strong industrial and academic networks, be decisive and unafraid to pull the plug on unpromising projects. They further need extensive expertise in drug development and clinical trial conduction, proven leadership and project management skills, entrepreneurial spirit and proficiency in handling suppliers. Of course, the crucial dependency on the skills of every single team member leaves little room for mistakes or incompetency, and the survival of a VPC might be endangered if one of its core members resigns unexpectedly

I think that the authors wanted to say "incompetence" rather than "incompetency" up there, but I believe that they're all native German speakers, so no problem. If that had come from some US-based consultants, I would have put it down to the same mental habit that makes people say "utilized" instead of "used". But the point is a good one: the smaller the organization, the less room there is to hide. A really large company can hol (and indeed, tends to accumulate) plenty of people who need the cover.

The paper goes on to detail several different ways that a VPC can work with a larger company. One of the ones I'm most curious about is the example furnished by Chorus and Eli Lilly. Chorus was founded from within Lilly as a do-everything-by-outsourcing team, and over the yeras, Lilly's made a number of glowing statements about how well they've worked out. I have, of course, no inside knowledge on the subject, but at the same time, many other large companies seem to have passed on the opportunity to do the same thing.

I continue to see the "VPC" model as a real option, but only in special situations. When there's a leg up on the chemistry and/or biology (a program abandoned by a larger company for business reasons, an older compound repurposed), then I think it can work. But trying it completely from the ground up seems problematic to me, but that could be because I've always worked in companies with in-house research. And it's true that even the stuff that's going on right down the hall doesn't work out all that often. One response to that is to say "Well, then, why not do the same thing more cheaply?" But another response is "If the odds are bad with your own people under your own roof, what are they when you contract everything out?"

Comments (28) + TrackBacks (0) | Category: Business and Markets | Drug Development

April 4, 2014

GSK Dismisses Employees in Bribery Scandal. Apparently.

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Posted by Derek

Someone is letting it be known that GlaxoSmithKline has fired some of its employees in China in relation to the long-running bribery scandal there. This is one of those times when it's worth asking the "Cui bono?" follow-up question. Is this some sort of semi-authorized release, designed to show other GSK employees that the company is serious? Or to demonstrate the same, publicly, to the Chinese authorities? Or is someone honestly just letting this information out on their own - and if so, why?

Comments (20) + TrackBacks (0) | Category: Business and Markets

April 3, 2014

Reality-Based Biotech Investing

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Posted by Derek

David Sable has some useful rules for investing biotech stocks (more here). On the surface, many of these may look more applicable to people who are managing larger amounts of money, because he's talking about what to do (and not do) when you're walking around the JP Morgan healthcare conference, and so on. But the lessons behind his advice are sound for everyone - for example:

". . .stop looking for code words, Groucho Marx eyebrow raising, or any other type of "body language" silliness from insiders."

The corollary to that is that if you're thinking about investing in a small company that acts as if it's doing this sort of thing, or has been touted to you on the basis of such, turn around and look somewhere else. (Even worse, if you find yourself working for a company like this, you'd better start making plans). This is a sign of what I think of as the "professional wrestling" school of investing - it's the world of the people who see the market as a titanic battle between Good and Evil, the Good being the people who own the wonderful company's stock, and the Evil, naturally, being the Evil Shorts and Paid Bashers. As with other forms of conspiratorial thinking, it's easy for someone with this attitude to dismiss good advice (if exposed to same) by saying that the person offering it is naive - not clued in, wised up, or verb-prepositioned in general. If you knew how the world really works, you'd realize that the recent moves in the stock are all so transparent - it's the money managers, you see, who are trying to shake the shares from the weak hands so they can accumulate it in front of the Big Announcement.

The world doesn't work that way, I think, or not at the retail market level, at any rate. It's not a show, and there's no script. Many people investing in small biotech stocks have a reality-TV view of the world, when reality would serve them far better.

Comments (9) + TrackBacks (0) | Category: Business and Markets

March 31, 2014

Where The Hot Drugs Come From: Somewhere Else

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Posted by Derek

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

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

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

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

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

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

March 27, 2014

A Look Back at Big Pharma Stocks

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Posted by Derek

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Four years ago, I wrote about what I called "Big Pharma's Lost Decade" in the stock market. I thought it would be worth revisiting that, with some different time points.

At the top is the performance of those same big drug companies since I wrote that blog post. Note that Bristol-Myers Squibb has been the place to be during that period (lots of excitement around their oncology pipeline, for one thing). Pfizer has beaten the S&P index over that time as well. And they've done it while paying a higher dividend than the aggregate S&P, too, of course - I'd like to find a way to include dividends into charts like these for an even more real-world comparison. Everyone else is behind.

The next chart shows a ten-year time frame. Bristol-Myers Squibb is still on top, although you'll note that the overall gain is basically the same as the gain since 2010 (that is, it's all come since then). And now J&J is right behind them, and they're the only two whose stock prices have beaten the S&P index over this period. Note that Pfizer and Lilly are actually down from this time point.

Then we have performance since 2000, the twenty-first century chart. Since this was during the Crazy Years in the market, just about everyone is down when measured from here, except for J&J (which is at about the same gain as if you'd started in 2004). The most dramatic mover is Bristol Myers-Squibb - if you bought in at the start of that last chart, you're up 109%. If you bought in at the start of this one, you're down 21%.

And that brings us to the last chart, which is basically "Since I started working in the drug industry". I'd been on the case for about three months by the end of 1990, which is where this one starts. And there are many interesting things to note - first among them, what a big, big deal the latter half of the 1990s were in the stock market. And more specifically, what a big, big deal they were for Pfizer's stock. Holy mackerel, will you look at that chart - compared to the rest of the industry, Pfizer's stock was an absolute monster, and there you have a big driver for all of the company's merger-rific behavior during that period. It paid. Not so much in research results, of course, but it paid the shareholders, and it paid whoever had lots of PFE stock and options. (And it paid the firms on the Street who did the deals with them, too, but that's always the case for them). A really long-term Pfizer shareholder can't be upset at all with the company's performance versus the S&P over that time period. How many have held it, though?

But the other thing to note is J&J. There they are again - it's only in that first chart that they're lagging. Longer-term, they just keep banging away. That, one would have to assume, is at least partly because they've got all those other medical-related businesses keeping them grounded during the whole time. Back when I worked for Bayer, at the Wonder Drug Factory, analysts were forever banging on about how the company just had to, had to break up. Outdated conglomerate model, holding everyone back. So much hotness waiting to be released. But Bayer hasn't been holding up too badly, either, and Bernard Munos has some things to say about both them and J&J.

It is not a good idea (to "undiversify") because, at the moment, we do not have good tools to mitigate risk in drug R&D, which is a problem at the macroeconomic level, because capital does not flow to this industry as it should. Too many investors have been burned too badly and are now investing elsewhere or sitting