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
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. Here's Adam Feuerstein with that take - it'll be interesting to see if that's right. Has the price point at which insurance will balk still not been hit?
A number of readers have noted this piece by John LaMattina in Nature Reviews Drug Discovery. He is, of course, a former head of R&D at Pfizer, which makes the title of the article something of an attention-getter: "The impact of mergers on Pharmaceutical R&D". Pfizer, for those of you just returning from a near-lightspeed trip to Alpha Centauri and still adjusting to the effects of relativistic time dilation, has been the Undisputed King of Pharma Mergers over the last ten to fifteen years, growing ever larger and larger in a way that no drug company ever had before. So how has this worked out?
". . .In this article, it is argued that although mergers and acquisitions in the pharmaceutical industry might have had a reasonable short-term business rationale, their impact on the R&D of the organizations involved has been devastating.
Lest anyone think that he's trying to make excuses for his former employer, LaMattina explicitly advances Pfizer as an example of what he's talking about, going over the company's merger and acquisition history in detail, including research site closure and layoffs. How, he asks, are we supposed to discover new drugs in the face of such cutbacks? And what has been the effect on the scientific health of the industry to have so many fewer organizations there to work on new ideas as they come along?
Good questions. The reaction to LaMattina himself asking them, though, has been varied. My first thought is that I agree with his point of view right down to the ground, and have been publicly inveighing against Pfizer-style mergers for over ten years now for the exact same reasons that he details. (Early next year, in fact, will mark the ten-year anniversary of this blog, which hardly seems possible). All such protests have done nothing, nothing at all, as far as I can tell. Pfizer, up through its acquisition of Wyeth, has getting bigger, buying more companies because it needs their pipelines because now it's so big, slashing and burning these organzations after buying them, and then turning around and buying someone else because now its pipeline needs shoring up, because for some obscure reason people haven't been discovering as many drugs as they used to. Yep, that's about the sorry size of it.
Another reaction, though, has been "How dare someone from Pfizer say that mergers aren't a good idea? Now he tells us!" And while I can understand that, I think that you have to realize that in a company the size of Pfizer, the head of R&D is not perhaps in as exalted a decision-making position as you might imagine. LaMattina alludes to this here:
"Indeed, R&D seems to be especially vulnerable to the negative impact of mergers and acquisitions. Having a sense of how mergers occur in R&D organizations is helpful for understanding this impact. R&D organizations will be the last part of the companies to begin merger discussions before regulatory approval because of the commercial sensitivity of the pipeline and the intellectual property of the company. . .
I would say that in many of these cases, the job of the R&D executives has been to roll over and take it once the higher-ups have decided an acquisition is going to happen. "Your job is to make this work - and if you don't want to do it, we'll find someone that does". After reading that alarming Fortune piece on the goings-on in the upper ranks of Pfizer, I find this view particularly believable. (And I would find LaMattina's view on the events in that article extremely interesting, although I doubt we'll ever hear them).
So, although I don't want to put words in anyone's mouth, my take is that LaMattina finds his part in Pfizer's M&A activities to be regrettable, and that he's now advancing the arguments against them - arguments that never gained any traction inside Pfizer. His own book skirted the topic - the word "mergers" only appears twice in the text, as far as Google Books can tell. But he's not skirting it any more.
And while we're on the topic of Merck, I note that they're closing their RNAi facility in Mission Bay, the former Sirna. That was a pretty big deal when it took place, wasn't it? The piece linked to in that earlier post also talks about the investment that Merck was making in the very facility that they're now closing down, but if I got paid every time that sort of thing happened in this industry, I wouldn't have to work.
This isn't going to help the Bay Area biotech/pharma environment, nor the atmosphere around RNA interference as a drug platform. Merck says that they're not getting out of the field, and that they've integrated the technology for use in their drug discovery efforts. But they paid a billion dollars for Sirna, which is not the sort of up-front price you generally see for add-on technologies that can help you discover other drugs. At the time, it looked like Merck was hoping directly for some new therapeutics, and we still don't know when (or if) those will emerge.
There's another player in the field right next door to me here in Cambridge, Alnylam. Not long after I last wrote about the state of the RNAi area, they actually invited me over to talk about what they're up to - a bit unusual, since I'm not just a blogger, but a scientist working at another company, which is a combo that's caused some confusion more than once. But they gave me a nice overview of what they're working on, and it was clear that they understand the risks involved and are doing whatever they can to get something that works out the door. They have several approaches to the drug-delivery problem that besets the RNA world, and are taking good shots in several different disease areas.
But they (and the other RNAi shops) need more money to go on, which in this environment means partnering with a larger company. Merck, Roche, and Novartis have (in various ways) shown that they feel as if they have pretty much all the RNAi that they need for now, so it'll have to be someone else. Maybe AZ or Lilly, the companies with the biggest patent-expiration problems?
This is not good, not good at all: Merck is out this morning with earnings, and they're saying that they're going to cut at least 12% of their work force over the next four years. That's up to 13,000 jobs, and the word is that 35 to 40% of those cuts will be in the US.
This is after they'd already done a fair amount of restructuring after the Schering-Plough deal. And it makes a person wonder: was that deal such a good idea? Has Merck really gotten their money's worth out of it, or have they just brought on a big upheaval that could have been avoided? Going down the list of Schering-Plough assets that were advanced at the time of the acquisition, and the shape that they're in now, I really don't think it looks like something that just had to be done. Hindsight?
Here's a fascinating account at Fortune of the departure of Jeff Kindler as Pfizer's CEO. The magazine says that they interviewed over 100 people to round up the details, but some of these meetings only feature four or five people in a room, so that narrows things down a bit. It's also a back-room history of Pfizer over the last ten or fifteen years, and there's a lot of high-level political stuff that wasn't widely known at the time:
McKinnell kept boosting R&D budgets, maintaining Pfizer's "shots on goal" approach -- the more compounds you explored, in theory, the more drugs you'd generate. But drugs can take a full decade to be developed and approved, and nothing big would be ready for years.
So McKinnell fell back on the refuge of the desperate pharma CEO: In July 2002 he announced the acquisition of Pharmacia, the industry's seventh-largest company, for $60 billion in stock. But even as Pfizer struggled to digest this latest meal, McKinnell seemed to spend less and less time at headquarters, becoming head of industry trade groups, funding an institute in Africa to combat AIDS, even writing a book about reforming health care.
That left a power vacuum, and Bill Steere, the former CEO, seemed more than willing to fill it. . ."He says almost nothing," says a person familiar with Pfizer's board. "But people look to him to see how he nods and how he moves, because he knows the company better than anyone."
With Pfizer no longer soaring, internal squabbling intensified. Vexed by what he viewed as Steere's meddling, McKinnell even tried to terminate his consulting contract. Steere fended off that move. Support for him ran deep on the board: Later, when Steere turned 72, the mandatory retirement age for directors, the board raised it to 73 so he could stick around, then amended the provision again when he hit that limit.
Steere and McKinnell, former friends and colleagues, became mortal enemies. . .
Read the whole thing, if you're interested in either Pfizer or the way that human beings behave at this level of a large corporation: anonymous letters, secret meetings, all varieties of intrigue. 14th-century Florence can offer little more in the way of power politics. There are those who swim in such waters like fish, but I've devoted time and effort trying to stay away.
Here's another look at the productivity problems in drug R&D. The authors are looking at attrition rates, development timelines, targets and therapeutic areas, and trying to find some trends to explain (or at least illuminate) what's been going on.
Their take? Attrition rates have been rising at all phases of drug development, and most steeply in Phase III. (This sounds right to me). Here are their charts:
And when they look at where the drug R&D efforts have been going, they find that comparatively more time and money has been spent on targets with lower probability of success. That means (among other things) more oncology, Alzheimer's, arthritis, Parkinson's et al. and less cardiovascular and anti-HIV.
That makes sense, too, in a paradoxical way. If we were to get drugs in those areas, the expected returns would be higher than if we found them in the well-established ones. The regulatory barriers would be smaller, the competition thinner, the potential markets are enthusiastic about new therapies - everything's lined up. If you can find a drug, that is. The problem is the higher failure rates. We knew that going in, of course, but the expectation was that the greater rewards would cancel that out. But what if they don't? What if, for a protracted period, there are no rewards at all?
The paper also has a very interesting analysis of European firms versus US ones. Instead of looking at where companies might be headquartered, the authors used the addresses of the inventors on patent filings as a better location indicator. Over 18,000 projects started by companies or public research organizations between 1990 and 2007 were examined, and they found:
Although at a first glance, European organizations seem to have higher success rates compared with US organizations, after controlling for the larger share of biotechnology companies and PROs in the United States and for differences in the composition of R&D portfolios, there is no significant gap between European and US organizations in this respect. Unconditional differences (that is, differences arising when no controls are taken into account) are driven by the higher propensity of US organizations to focus on novel R&D methodologies and riskier therapeutic endeavours. . .as an average US organization takes more risk, when successful, they attain higher price premiums than the European organizations.
The other take-home has to do with "me-too" compounds versus first-in-class ones, and is worth considering:
". . .both private and public payers discourage incremental innovation and investments in follow-on drugs in already established therapeutic classes, mostly by the use of reference pricing schemes and bids designed to maximize the intensity of price competition among different molecules. Indeed, in established markets, innovative patented drugs are often reimbursed at the same level as older drugs. As a consequence, R&D investments tend to focus on new therapeutic targets, which are characterized by high uncertainty and difficulty, but lower expected post-launch competition. Our empirical investigation indicates that this reorienting of investments accounts for most of the recent decline in productivity in pharmaceutical R&D, as measured in terms of attrition rates, development times and the number of NMEs launched."
So, rather than being in trouble for not trying to be innovative enough, according to these guys, we're in trouble for innovating too much. . .
Pfizer now says that it's not going to completely close the Sandwich research site in the UK. 350 people will remain - which isn't too many compared to the fully staffed number (well over 2,000), but a lot better than zero. Between that and the attempt to make the site an enterprise zone, perhaps something can be salvaged. But the local economy is, as you'd expect, feeling the effects.
It's too early to say if this is an example of a drug company that feels as if it's outsourced enough and can stop now - let's watch the news over the next few months and see. . .
I hate to be such a shining beacon of happiness today, but this news can't very well be ignored, can it? For the first time ever, total drug R&D spending seems to have declined:
The global drug industry cut its research spending for the first time ever in 2010, after decades of relentless increases, and the pace of decline looks set to quicken this year.
Overall expenditure on discovering and developing new medicines amounted to an estimated $68 billion last year, down nearly 3 percent on the $70 billion spent in both 2008 and 2009, according to Thomson Reuters data released on Monday.
The fall reflects a growing disillusionment with poor returns on pharmaceutical R&D. Disappointing research productivity is arguably the biggest single factor behind the declining valuations of the sector over the past decade.
This is not good - although, to be sure, we've had plenty of warning that this day would be coming. But looking at it from another perspective, you might wonder what's taken so long. Matthew Herper has a piece up highlighting the chart below, from the Boston Consulting Group. It plots new drugs versus R&D spending in constant dollars, and if you're wondering what the Good Old Days looked like, here they are. Or were:
What's most intriguing to me about this graph is the way it seems to validate the "low-hanging fruit" argument. This looks like the course of an industry that has, from the very beginning of its modern era, been finding it steadily, relentlessly harder to mine the ore that it runs on. But that analogy leaves out another key factor that makes that line go down: good drugs don't go away. They just go generic, and get cheaper than ever. You can also interpret this graph as showing the gradual buildup of cheap, effective generics for a number of major conditions (cardiovascular, in particular).
There's one other factor that ties in with those thoughts - the therapeutic areas that we've been able to address. Look at that spike in the 1990s, labeled PDUFA and HIV. Part of that jump is, as a colleague theorized with me just this morning, the fact that a completely new disease appeared. And it was one that, in the end, we could do something about - as opposed to, say, Alzheimer's. So if you want to be completely evil about it, then the Huey Lewis model of fixing pharma has it wrong: we don't need a new drug. We need a new disease. Or several.
Well, that's clearly not the way to look at it. I don't actually think that we need to add to the list of human ailments; it's long enough already. But given all the factors listed (and the ever-tightening regulatory/safety environment, on top of them), another colleague of mine looked at this chart and asked if we ever could have expected it to look any different. Could that line go anywhere else but down? The promise of things like the genomics frenzy was, I think, that it would turn things around (and that hope still lives on in the heart of Francis Collins), even though some people argue that it did the reverse.
You hear a lot of talk about the "patent cliff" in the industry these days. Patent expirations you shall always have with you, but there are a number of big-selling drugs that are all coming out of patent protection in a fairly short period. The biggest single drug in this category is, of course, Lipitor, and that expiration has been looming up on Pfizer year after year.
But Eli Lilly has even worse problems: they're not losing their single biggest seller; they're losing up to 50% of all their sales. AstraZeneca's not in much better shape, it should be added. Jim Edwards at BNET goes into the numbers, courtesy of a Bernstein study. Here, from the analyst's work, is the estimate of "base" revenues (from currently existing drugs) normalized to 2010, (via Edwards and BNET):
Not too encouraging. And Lilly doesn't have enough coming online to offset this (who would?) If you read Edwards' post, you'll find a graph that attempts to show the same group of companies, with projected revenues for new drugs factored in as well. GSK and Novartis come out looking pretty good - AZN and LLY, well. . .have a look and see what you think.
What I found very interesting was the Bernstein analyst's comments on the plan that Pfizer's CEO Ian Read has been floating, to divest everything except the core drug business. That post took off from a piece by Matthew Herper at Forbes, who spoke with an analyst who was surprised at how serious Read seemed to be. The reason he was surprised is that this is the same analyst we're talking about - Tim Anderson of Bernstein. When he runs the numbers on a "core Pfizer" strategy, it actually makes things look even worse.
So Pfizer has options, but it had better think them through carefully. Lilly and AstraZeneca, on the other hand, seem as if their backs are inexorably being pushed to the wall. The only way out, as the BNET headline has it, would seem to be to acquire someone or be acquired in turn. It's hard to see how either company makes it through in their current state.
From the Financial Times, here's a look at our industry from a business perspective:
A big justification for the mergers that have consolidated the global pharma industry was that overhead costs would be cut, reducing the impact to profits of the patent-expiration wave. Has consolidation delivered on this promise?
Note that we're already seeing things from a different angle here than we're used to thinking about. From an investor's perspective, all this outsourcing/site closure upheaval is probably a good thing, because it cuts costs that apparently need to be cut. And the question is, has it done what it's supposed to do?
The FT editorial gives a "conditional yes" answer, but they worry that cutting costs is a tactic that's run about as far as it can, and that may not be far enough, financially:
Much overhead has already been removed, and expanding into emerging markets, essential for all the global pharmas, will cost money. Cost of goods and research and development expense ratios have mostly stayed put, and it is hard to see why that would change now. If the savings story is petering out, the industry needs revenue growth more than ever.
That we do, and where we're going to get it is the answer. If there's a bright side to all this, it might be that we're close to the end of the relentless cut-cut-cutting that's characterized this business in recent years. The dark side, though, is that one answer to "what's next?" is more mergers, since that's one way to get back to cutting costs. And let's face it - cutting costs, that's something that managers know how to do. Improving R&D productivity, well, not so much. Stick with what you know, eh?
Now here's a biotech investing strategy that I haven't come across before. Adam Feuerstein reports on a hedge fund manager, Martin Shkreli of MSMB Capiral, who's very much short the the stock of a small company called NeoProbe. They're developing a contrast agent for lymph nodes called Lymphoseek, and Shkreli doesn't think very much of their data - thus the short trade.
Not leaving anything to chance, though, he's filed a "citizen petition" with the FDA, maintaining that there are severe problems with the regulatory filings for Lymphoseek and asking the agency to deny a review to the product. At issue is the concept of "standard of care". There's a blue dye that's FDA-approved for this lymph-mapping purpose, but it seems that in actual practice, almost everyone uses it along with a radiosulfur tracer (even though the sulfur colloid isn't specifically approved for that purpose). Lymphoseek's Phase III trials are controlled against the dye alone, which has some people wondering just how meaningful its data will be.
Shkreli discloses his investment position in his FDA position - there's really nothing underhanded about what he's doing. And as Feuerstein notes, "Citizen petitions are rarely if ever filed for altruistic reasons." But although companies have used them to throw elbows during the regulatory process, this is the first time I've ever heard of a short-seller trying this move.
It's not just the US where these single-digit-employee drug companies are going - here's an article from Cambridge (UK) on Sareum, which has two. Unfortunately, they got that way by shedding three dozen other employees, so it's not quite the same situation as I was talking about the other day, but it's interesting that the outsource-the-whole-thing model is alive in so many places.
If this is going to work, I think this is the scale it's going to work at. With a handful of people (and only one or two projects), you can keep a close eye on things, especially if you source as much of the crucial work as possible closer to home. I worry, though, that this is yet another idea that doesn't scale well, which is why I think Pfizer is asking for trouble.
My local NPR station had this report on this morning, on one-person drug companies. Can't outsource much more than that!
Here are the two companies profiled: LipimetiX and Deuteria. The former is using helical peptides to affect lipoprotein clearance, and the latter is (as you'd guess) in the deuterated-drug game, which I've most recently blogged on here. (That one's run by Sheila DeWitt, who used to work down the hall from me in grad school 25 years ago). And there are several other outfits that they could have mentioned - some of them are not quite down to one person, but you can count the employees on your fingers. In all of these cases, everything is being contracted out.
There are downsides, of course. For one thing, these are, almost by necessity, single-drug companies. It's enough of a strain just getting one project through under those conditions, let alone running a whole portfolio. So the risk is higher, given the typical failure rates in this line of work. And you have to trust your contractors, naturally. That's a bit easier to do in the Boston area (and a few other places), since you can get a lot of work sourced locally. That doesn't make it as much of a Bargain, Bargain, Bargain as it might be overseas, but at least you can drop in and see how things are going.
Another thing the NPR piece didn't address was where these projects come from. Many of them, I'd guess, are abandoned efforts from other companies that still have some possibilities. Those and the up-from-academia ideas probably take care of the whole list, wouldn't you think? Has anyone heard of one of these virtual-company ideas where the lead compound came from some sort of outsourced screen? And is an outsourced screen even possible? Now there's a business idea. . .
OK, here's how I understand the way that medicinal chemistry now works at Pfizer. This system has been coming on for quite a while now, and I don't know if it's been fully rolled out in every therapeutic area yet, but this seems to be The Future According to Groton:
Most compounds, and most actual chemistry bench work, is apparently going to be done at WuXi (or perhaps other contract houses?) Back here in the US, there will be a small group of experienced medicinal chemists at the bench, who will presumably be doing the stuff that can't be easily shipped out (time-critical, difficult chemistry, perhaps even IP-critical stuff, one wonders?) But these people are not, as far as I can tell, supposed to have ideas of their own.
No, ideas are for the Drug Designers, which is where the rest of Pfizer's remaining medicinal chemistry head count are to be found. These are the people who keep trac of the SAR, decided what needs to be made next, and tell the folks in China to make it. It's presumably their call, what to send away for and what to do in-house, but one gets the sense that they're strongly encouraged to ship as much stuff out as possible. Cheaper that way, right? And it's not like there's a whole lot of stateside capacity, anyway, at this point.
What if someone working in the lab has (against all odds) their own thoughts about where the chemistry should go next? I presume that they're going to have to go and consult a Drug Designer, thereby to get the official laying-on of hands. That process will probably work smoothly in some cases, but not so smoothly in others, depending on the personalities involved.
So we have one group of chemists that are supposed to be all hands and no head, and one group that's supposed to be all head and no hands. And although that seems to me to be carrying specialization one crucial step too far, well, it apparently doesn't seem that way to Pfizer's management, and they're putting a lot of money down on their convictions.
And what about the whole WuXi/China angle? The bench chemists there are certainly used to keeping their heads down and taking orders, for better or worse, so that won't be any different. But running entire projects outsourced can be a tricky business. You can end up in a situation where you feel as if you're in a car that only allows you to move the steering wheel every twenty minutes or so. Ah, a package has arrived, a big bunch of analogs that aren't so relevant any more, but what the heck. And that last order has to be modified, and fast, because we just got the assay numbers back, and the PK of the para substituted series now looks like it's not reproducing. And we're not sure if that nitrogen at the other end really needs to be modified any more at this point, but that's the chemistry that works, and we need to keep people busy over there, so another series of reductive aminations it is. . .
That's how I'm picturing it, anyway. It doesn't seem like a particularly attractive (or particularly efficient) picture to me, but it will at least appear to spend less money. What comes out the other end, though, we won't know for a few years. And who knows, someone may have changed their mind by then, anyway. . .
What on earth is happening over in Pfizer's cardiovascular department? CVMED, as it's called there, went through a nasty round of cuts in April, with many layoffs and many transfers to the Boston site. Now I'm hearing that so few people have accepted those transfers that the company has changed course and said that these people now are still going to work in Groton, which is news to the ones who have their houses on the market. . .
This sort of thing has happened before with Pfizer - I'm thinking of the people who moved to Connecticut from Michigan a few years ago, some of whom were then laid off what, six months later? But if anyone has details on this latest mess, tell us in the comments. (I've also heard that there's more layoff news there this week - details there are welcome, too).
Hmm. Remember when the Nobel Prize came out for telomere research? Now there are competing companies offering telomere-length screening, and one of them (Telome Sciences) was partly founded by Elizabeth Blackburn, one of the Nobel awardees. That isn't going down well with. . .one of the other awardees:
But among the critics of such tests is Carol Greider, a molecular biologist at Johns Hopkins University, who was a co-winner of the Nobel Prize with Dr. Blackburn.
Dr. Greider acknowledged that solid evidence showed that the 1 percent of people with the shortest telomeres were at an increased risk of certain diseases, particularly bone marrow failure and pulmonary fibrosis, a fatal scarring of the lungs. But outside of that 1 percent, she said, “The science really isn’t there to tell us what the consequences are of your telomere length.”
Dr. Greider said that there was great variability in telomere length. “A given telomere length can be from a 20-year-old or a 70-year-old,” she said. “You could send me a DNA sample and I couldn’t tell you how old that person is.”
Grieder is also a former student of Blackburn's, which makes things even messier. I can see why she's uneasy. Looking over the news accounts, there's an awful lot of noise and hype - all kinds of stuff about "Test Predicts How Long You'll Live!" and so on. The hype has been building for some time, though, and I'll bet that we're nowhere near the crest. As for me, I'm not rushing out to check my telomeres until I know what that means (and until I know if there's anything I can do about it).
Venture capitalist Bruce Booth has moved his blog over to the Forbes network, and in his latest post he has some solid advice for people who are preparing to pitch him (and people like him) some ideas for a new company. It's very sensible stuff, including the need to bring as much solid data as you can possibly bring, not to spend too much time talking about how great everyone on your team is, and not to set off the hype detectors. (Believe it, everyone who's dealt with early-stage biotech and pharma has a very sensitive, broad-spectrum hype detector, and the "off" switch stopped working a long time ago).
He also has some advice that might surprise people who haven't been watching the startup industry over the last few years: "Unless you are really convinced you have a special story that Wall Street will love, please don’t use that three-letter word synonymous with so much value destruction: I-P-O." That's the state of things these days, for better or worse - the preferred exit strategy is to do a good-sized deal with a larger company, and most likely to be bought outright.
And this is advice that I wish that more seminar speakers would follow, not just folks pitching a company proposal:
It's annoying when an entrepreneur touting a discovery-stage cancer program has multiple slides on how big the market is for cancer drugs, what the sales of Avastin were last year, what the annual incidence of the big four cancers are, etc… These slides give me a huge urge to reach for my Blackberry. We know cancer is huge. Unless you’ve got a particular angle on a disease or market that’s unique or unappreciated, don’t bother wasting time on the macro metrics of these diseases, especially when you’re in drug discovery.
Yes indeed, and that goes for anyone who's talking outside the range of their expertise. If you're giving a talk, it should be on something that you know a lot about - more than your audience, right? So why do we have to sit through so many chemists talking about molecular biology, molecular biologists talking about market size, and so on? My rule on that stuff is to hold it down to one slide if possible, and to skip through it lightly even then. I've even seen candidates come in for an interview and spend precious time, time that could be spent showing what they can do and why they should be hired, on telling everyone things that they already know and don't care to hear again.
So how well has raiding the biotech sector (Biogen, Genzyme) worked out for Carl Icahn? According to this estimate in the Boston Globe, he's made a lot of money. But (and here's a big point that the article doesn't, in my view, make enough of). . .he hasn't really made more than he would have made by investing in the biotech sector as a whole.
Naturally, he's beaten the S&P all to pieces, as private equity fund darn well should if it can. But the Biotech stock index has been on a tear, too, and he hasn't beaten it by much. So how would it have been if he'd just stayed home with his money and bought the basket of stocks, eh? Not nearly as much fun, and not much chance to influence the directions of whole companies, which is what a mover and shaker like Icahn lives for. But still. . .
Now here's a comparison that you don't get to see very often: how much do two large pharma compound collections overlap? There's a paper going into just that question in the wake of the 2006-2007 merger between Bayer and Schering AG. (By two coincidences, this paper is in the same feed as the one that I highlighted yesterday, and that merger is the one that closed my former research site out from under me).
Pre-merger, Bayer had over two million structures in its corporate collection, and Schering AG had just under 900,000. Both companies had undertaken recent library clean-up programs, clearing out undesirable compounds and adding both purchased and in-house diversity structures. Interestingly, it turns out that just under 50,000 structures were duplicated across both collections, about 1.5% of the total. Almost all of these duplicates were purchased compounds; only 2,000 of them had been synthesized in-house. And even most of those turned out to be from combichem programs or were synthetic intermediates - there was almost no overlap at all in submitted med-chem compounds.
Various measures of structural complexity and similarity backed up those numbers. The two collections were surprisingly different, which might well have something to do with the different therapeutic areas the two companies had focused on over the years. The Bayer compounds tended to run higher in molecular weight, rotatable bonds, and clogP, but then, a higher percentage of the Schering AG compounds were purchased with such filters already in place. As for undesirable structures, only about 2% of the Bayer collection and 1% of the Schering AG compounds were considered to be real offenders. I hope none of those were mine; I contributed quite a few compounds to the collection over the years, but they were, for the most part, relatively sane.
The paper's conclusion can be read in more than one way:
Furthermore, an argument that might support mergers and acquisitions (M&A) in the pharmaceutical sector can be harvested from this analysis. Currently, M&As in this industry are driven by product portfolios rather than by drug discovery competencies. With the current need for innovative drugs, R&D skills of pharmaceutical companies might again become more important. The technological complementarity of two companies is often quoted as an important factor for successful M&As in the long term. If compound libraries are regarded as a kind of company knowledge-base, then a high degree of complementarity is clearly desirable and would improve drug discovery skills. Based on our data, the libraries of BHC and SAG are structurally complementary and fit together well in terms of their physico-chemical properties. However, it remains to be proven if this leads to additional innovative products.
Not so sure about that, myself. I don't know how good a proxy the compound collections are, since the represent an historical record as much as they do the current state of a company. And that paragraph glosses over the effect of mergers on R&D itself - it's not like just adding pieces together, that's for sure. The track record for mergers generating "additional innovative products" is not good. We'll see how the Bayer-Schering one holds up. . .
Matthew Herper has a good piece over in Forbes on the speculation that Pfizer might devolve. Here's his breakdown of how five (or so) separate Pfizer-derived companies could be worth substantially more than the current entity.
But, as he notes, we're talking about several different things here. Were I a long-suffering Pfizer shareholder (which, outside of index funds, I have tried not to be), I would have one perspective on this, similar to this one. It would all be about the stock price:
“The stock can only go up if they break up the company and cut research and development,” says Jami Rubin, a pharmaceuticals analyst at Goldman Sachs who has been pushing a Pfizer breakup for three years. “When Read was announced as the new chief executive Wall Street was skeptical, but he’s listening and he’s responding to what we have been saying. My sense is he’s already made up his mind.”
As an observer of (and participant in) the drug industry, though, I have other views, and they're more like these:
Not everyone agrees that a breakup is the right fix for Pfizer, which has struggled to invent new blockbusters even as it acquired Warner-Lambert for $114 billion in 2000, Pharmacia for $60 billion in 2003 and Wyeth for $68 billion in 2009. Those big mergers sidetracked its researchers and salespeople and created baroque management structures—at one point there were 17 layers between the chief executive and the lowest employee. Critics say undoing them risks similar distraction. As one fund manager said, a breakup would just mean the investment bankers and lawyers who got rich putting Pfizer together will now get richer taking it apart, without improving its ability to invent and market drugs, already a struggle. “I think it’s financial engineering. I think it makes the stock more valuable,” says Les Funtleyder, a fund manager at Miller Tabak. “From a strategic point of view, would it solve the problem? No.”
That's the problem, all right. I've made this point in various ways over the years, but let me be as blunt as possible: I think that Pfizer's consolidation, both of large companies and of small ones, has been a disaster for drug discovery in general. Just the sheer loss of intellectual diversity is enough to call it that. And the resulting huge, ugly omelet cannot be unscrambled. The disruptions in all those research organizations can never be undone, not without a fleet of fully powered time machines.
It will give many people (I'm one) some cold satisfaction to see the company reverse course, admit that the mega-merger strategy has been a mistake all along, and painfully retrace its steps. But that's not much compensation, is it? Not compared to what's been lost.
So Merck has announced that they're spending another $5 billion to buy back their own stock. How does this square with the CEO's recent refusal to give detailed earnings guidance, on the grounds that R&D spending comes first and is inherently unpredictable?
"Not too well" is my first response. Wall Street liked the news, taking it as a sign that the company has put its J&J problems behind it, and has (let's lapse into Streetspeak) "the visibility to deploy its capital". And stock buybacks help keep up the share price, and help the earnings-per-share, so what's not to like, if you're holding the stock?
Well, what's not to like is that there are other places for the company to deploy all that capital, now that it's so visible and everything. Like, for example, on their business. (Note that I'm not just saying that they should spend it on R&D alone - I've addressed the whole "how come Big Pharma spends so much on marketing" question, and if Merck wants to spend some of this on marketing, that's fine by me. Short explanation: marketing is supposed to bring in even more money; if it doesn't, you're doing it wrong).
I think that if Ken Frazier really wanted to stand out from the crowd, he could say that Merck is not going to spend all this money buying their own stock - that he feels that the best thing that they could do for their shareholders is to redouble their efforts to find, discover, buy, in-license, develop, and sell drugs. That, after all, is what they're on this planet to do, when you get down to it. Isn't it?
I'm hearing that yesterday and today Pfizer has been handing out notices - today it appears to be in the cardiovascular area. Word is that the small-molecule people are especially hard hit, but anyone in a position to know, please feel free to add details in the comments. . .
Well, this takes things along another step - AstraZeneca has looked over its Wilmington-area site, which has a lot of empty space in it now, and decided that the best thing to do is: start tearing buildings down:
AstraZeneca will demolish 450,000 square feet of laboratory space in three buildings at its North American headquarters campus off Concord Pike in Fairfax as part of its global restructuring, the drug giant has confirmed.
The three buildings account for a major chunk of the company's Fairfax campus and house all of the company's Delaware-based research efforts. The huge complex west of Concord Pike is only about a decade old.
But as this article clarifies, the buildings that are coming down are generally 30 years old and more. In this climate, leasing them out to someone else is probably almost impossible, even if it were physically feasible. And it's not easy to turn a lab building into much of anything else. So what else to do? I hate to see this, but I can't come up with a better answer, either.
The first research site I worked at (Schering-Plough in Bloomfield, NJ) was torn down, after repeated attempts to find a buyer for it in the early 1990s. A Home Depot (and its parking lot) occupies the space now. That one was an even harder sell, with cramped and still older buildings, and in the end, the company couldn't even give the place away. But this is a sad thing to see, no matter what.
"Big Pharma should get smaller". Now that's something that most readers around here will have heard or thought several times in recent years. But what if you were hearing it from Pfizer's former head of global development?
You are now. Peter Corr, formerly of Parke-Davis/Warner Lambert, had a chance to see how things worked from the inside at Pfizer. And as he tells Xconomy, it wasn't a thing of beauty:
Warner Lambert/Parke Davis was a larger company “but decisions were still made fast,” he says.
It was not until 2003, when Dr. Corr was Pfizer’s executive vice president of global research & development and president of worldwide development, that he realized the old model was not sustainable.
The company was spending about $8 billion on R&D but only producing about four products a year, a whopping $2 billion per drug, Dr. Corr says.
“That doesn’t work,” he says. “We needed to go out and license (drug candidates) and keep smaller (R&D) sites and let them go on their own. Let them be funded independently. Let them define how they can work best at their particular site as opposed to manage all of these sites around the world and pretend that we knew what was actually going on.”
Of course, this is basically what a lot of people were saying at the time, as they watched productive research organizations being shaken, shuffled, and shuttered. And it's just what many of us have wondered over the years, what the various companies that Pfizer has acquired might have done if they'd just been left alone. Could they possibly have been less productive than they were after they were absorbed?
There's an interesting follow-up over at SciBX to Bruce Booth's piece on the reproducibility of academic research. Booth, in his position as a venture capital purse-string holder, advocated caution and careful verification of exciting academic discoveries before starting the company-formation process.
The SciBX folks followed up with him and with several other VCs. Booth sticks to his position, and says that his firm, Atlas Venture, has allocated money to allow CROs to do reality checks on the new ideas that they see. Daphne Zohar at PureTech Ventures takes a similar line, but says that they do this sort of work with the originators of the technology, giving it a quiet shakedown before talking to investors. They do use CROs when appropriate, though.
On the other end of the spectrum, though, you have Camille Samuels at Versant Ventures:
“I think the best way to prevent yourself from funding biotechs that have a faulty scientific basis is to develop a trusting relationship with the scientific founders,” she told SciBX. “I think that starting a productive, long-term business relationship is hard to do if you use a ‘guilty before proven innocent’ approach.”
Samuels favors vetting the science with a top-notch scientific advisory team before launching a company. “If you hire great scientists to the company you will uncover the ‘over-reaching’ before you’ve spent any real money,” she noted.
I'm not so sure about that myself. While I agree that a good relationship between the VC people and the founding scientists is crucial, I think that any such relationship worthy of the name should be able to stand up to this sort of review. Everyone involved should be wise enough to realize this, and not take it personally. "Guilty until proven innocent", after all, is not such a bad attitude when you're looking at something that's interesting enough to trigger millions of dollars worth of investment. If the idea or technology is strong enough for real money, it's strong enough to handle a good shaking - and if it isn't, you'd want to know that as early as possible.
And to be honest, isn't it the same attitude that greets any big new discovery when it hits the literature? When some hot news comes out in a competitive field, the first thought of all the outside teams is "I wonder if that's real?" A big name or a trusted institution will buy a bit more benefit of the doubt, but not much, as well it shouldn't. I'm willing to believe that interesting results from a reliable research group are probably true, but I'll only put them in the "solid" category when I've seen someone else reproduce them (or have done it myself). That's science.
So the long-delayed settlement between Merck and J&J has finally been announced. The drawn-out process had everyone speculating that some sort of deal was in the works, and so it's proved:
Under the resolution, Merck must relinquish its rights to sell Remicade in Canada, Central and South America, the Middle East, Africa and the Asia Pacific effective July 1. The lost territories represent about 30 percent of Merck’s 2010 Remicade revenues.
Merck retains the ability to sell the arthritis medicine across Europe, Russia and Turkey, where it generated 70 percent of its 2010 Remicade revenue. Beginning in July, however, Merck will begin sharing its profits equally with Johnson & Johnson. . .
In a research note, Tim Anderson, an analyst with Bernstein Research, pointed out that while Merck is retaining most of its ex-U.S. franchise, it is giving up the product in markets where the growth rate has been — and is likely to remain — higher.
Merck's stock went up a bit on the news, probably from relief that the whole issue has finally been worked out. But this really can't be seen as a plus for Merck - back when they acquired Schering-Plough, those Remicade revenues were supposed to be a good part of the package. Thus all that SP-buys-Merck charade, all of which looks pretty ridiculous now.
So was I off base in my prediction that Merck would come out the loser? Matthew Herper has a more positive view of the outcome than I do. At any rate, finally resolving the whole dispute is worth quite a bit to both companies. But what did all this accomplish, in the end, except giving the lawyers something to do?
Contract Research Organizations (CROs) have historically been sleepy fee-for-service partners for the drug industry, widely disregarded as not innovative, and their scientists certainly not treated with the same professional respect as their counterparts in Pharma R&D.
But this is clearly changing. . .Over the past decade, Big Pharma organizations have supported, willingly or not, a huge knowledge and talent transfer to CROs. Many of the project leaders in offshore CROs are Big Pharma trained medicinal chemists. Clinical trial management expertise has also flowed out of Pharma and into CROs. Furthermore, many CROs have recently been attracting some very seasoned executive talent. . .
He has a number of examples, for both companies and for people. His take on this is that the CRO world is (preforce) much more focused on cost containment than the Pharma one, since they've come up in a low-margin world, and that this (overall) could be a good thing for the pharma ecosystem:
An obvious ecosystem trend is that large pharma disgorges itself of more research sites and infrastructure, some of which will be shut down, others absorbed into existing CROs or spun-out into new ones. I also think smaller biotech will follow the same trend: more and more virtual or semi-virtual biotechs will be funded. . .
He could well be right about that - but working under these conditions will be a different experience, for sure, and a bumpy ride. But given the conditions in the industry, a bumpy ride is the absolute least that we can expect. . .
Matthew Herper has the numbers, as tallied up by a consulting firm. Since 2000, there have apparently been about 300,000 layoffs in the drug industry. It's important to remember that a good number of those people have found other jobs in the business - I'm one of them. But there are a lot of people who haven't.
Those exact figures, and the balance between them, are something we'll probably never be able to get a good read on. But there's no way that everyone found a new position, and I don't see any way that new hires could have filled the gap, either. The total head count of the industry is down over this period - not hugely, but it's down, and it's not like we've cured a huge slate of diseases over the last ten years and put ourselves out of business that way.
As you'll see from Matt's table, 2009 seems to have been the absolute worst year so far, with 2010 still in second place. (And since those have come on top of all the cutbacks in prior years, it tends to make them seem even harder). I was one of the 15,638 laid off in 2006; several hundred of my colleagues helped to swell that total. But 2006, in retrospect, looks like an afternoon by the lake compared to what came after. . .
Now here's a piece that I'm looking for good reasons to dismiss. And I think its author, Jim Edwards, wouldn't mind some, too. You've probably heard that Valeant Pharmaceuticals is making a hostile offer for Cephalon, a company that's dealing with some pipeline/patent problems (and, not insignificantly, the recent death of their founder and CEO).
Valeant's CEO, very much alive, is making no secret of his business plan for Cephalon should he prevail: ditch R&D as quickly as possible:
“His approach isn’t one that most executives in the drug business take,” (analyst Timothy) Chiang said in telephone interview last week. “He’s even said in past presentations: ‘We’re not into high science R&D; we’re into making money.’ I think that’s why Valeant sort of trades in a league of its own.”
. . .Pearson’s strategy and viewpoint on research costs have been consistent. When he combined Valeant with drugmaker Biovail Corp. in September, he cut about 25 percent of the workforce, sliced research spending and established a performance-based pay model tied to Valeant’s market value.
“I recognize that many of you did not sign up for either this strategy or operating philosophy,” Pearson wrote in a letter to staff at the time. “Many of you may choose not to continue to work for the new Valeant.”
Valeant does, in fact, make plenty of money. But my first thought (and the first thought of many of you, no doubt) is that it's making money because other people are willing to do the R&D that they themselves are taking a pass on. In other words, there's room for a few Valeants in the industry, but you couldn't run the whole thing that way, because pretty soon there'd be nothing for those whip-cracking revenue-maximizing managers to sell. Would there?
But we don't have to go quite that far. Edwards, for his part, goes on to wonder (as many have) whether the drug industry should settle out into two groups: the people that do the R&D and the people that sell the drugs. This idea has been proposed as a matter of explicit government policy (a nonstarter), but short of that, has been kicked around many times. Most of the time, this scheme involves smaller companies doing the research, with the big ones turning into the regulatory/sales engines, but maybe not:
If you agree that there ought to be a division of labor in the pharma business — that some companies should develop drugs and then sell those products to the companies that have the salesforces to market them — then this says some interesting things about recent corporate strategy moves among the largest companies. Pfizer (PFE) is downsizing its R&D operations and Johnson & Johnson (JNJ) is said to be on the prowl for a ~$10 billion acquisition.
Merck, on the other hand, is doubling down on its own research and stopped giving Wall Street guidance in hopes of lessening the scrutiny paid to its R&D expense base..
The heralds of this restructuring of the industry haven't quite called it this way, but instead splitting from each other, perhaps the big companies will divide into two camps (Merck vs. Pfizer) and the smaller ones, too (Valeant vs. your typical small pharma). Prophecy's not an exact science - Marx thought that Germany and England would be the first countries to go Communist, you know.
For my part, I think that there are game-theory reasons why a big company won't explicitly renounce R&D. As it is, a big company can signal that "Yes, we'd like to do a deal for your drug (or your whole company), but you know, there are other things for us to do with the money if this doesn't work out." But if you're only inlicensing, then no, there aren't so many other things for you to do with the money. Everyone else can look around the industry and see what's available for you to buy, and thus the price of your deals goes up. You have no hidden cards from your internal R&D to play (or to at least pretend like you're holding). This signaling, by the way, is directed to the current and potential shareholders as well: "Buy our stock, because you never know what our brilliant people are going to come up with next". That's a more interesting come-on line than "Buy our stock. You never know who we're going to buy next." Isn't it?
And that's a separate question from the even bigger one of whether there are enough compounds out there to inlicense in the first place. No, I think that big companies will hold onto their own R&D in one form or another. But we'll see who's right.
Anthony Nicholls over at OpenEye really unburdens himself here, in a post that I recommend to anyone in the business (or anyone who wants to see what some of our problems are). Some highlights:
I have come to believe (and I admit that this is only a theory) that as more and more of pharma’s budget was funneled into advertising and direct marketing to both the general public and to doctors themselves, the path to the top in pharma ceased to be via the lab bench and instead was by way of Madison Avenue. . .
. . .I want to end with one of my favorite management insanities- the push within big pharma to remake themselves in the image of biotechs—the reasoning being that biotechs “get things done” and are more productive. Leaving aside the fact that over its history, biotech as a whole has mostly lost money (with only two years of profit in the last twenty-five), I wonder if it occurs to upper management that the principal difference between big pharma and biotech is simply much less upper management. If they are truly serious about making pharma like biotech, then upper management should simply resign. I’m confident that one step would do wonders for innovation.
There's a lot of good stuff in there, on management fads, dealing with the scientific staff, bean-counting, and more. Regular readers of this blog (and its comments section) will find a lot of their opinions reflected, for sure. . .
Hmmm. I see that Christopher Westphal is leaving GlaxoSmithKline, specifically departing his job at the company's venture-capital arm, SR One. He'd been in that position just about a year. InVivoBlog has a good roundup of what this means, and there are several layers to it.
For one thing, Westphal came in as part of the Sirtris deal, which has been the subject of all sorts of comment here and in many other places. We'll say for now that the deal was (a) not cheap and (b) is still in the "wait and see" stage as far as paying off, or even being a good idea in the first place. And he was involved in that bizarre buy-some-resveratrol business last year, at least until GSK brought down the hammer. So there's a lot of interesting history from that angle.
Then, when you look at it from the perspective of GSK's attempts to fund small companies, there are other things to think about. Running their venture arm seems to have been a real hot seat, as that InVivoBlog post demonstrates. Not much seems to have come out of all the time, money, and effort so far - you'd have to think that if you'd mapped out the coming accomplishments of SR One when it was founded, that the company wouldn't have been happy to see that future.
Westphal may well be leaving mainly to concentrate on his own venture fund. Or some other execs at GSK may be glad to see him go. Or GSK in general may be wondering what to do about SR One. . .or all three of these at once.
Ah, insider trading. It's the province of Wall Street types in really expensive shirts, right? Like in the movies? Well, read on.
Even the most clueless know that you're not supposed to trade on material nonpublic information, and the only really fuzzy part is what constitutes material information. A lawyer once told me that if you're an employee of a company, material information is "anything that makes you think about trading the stock". That's a pretty intelligent rule, and one that the recent Matrixx Supreme Court decision would seem to have reaffirmed. If someone could think it's nonpublic material information, odds are that it is.
In the drug business, the hottest potatoes in this category are the results of clinical trials and FDA decisions. People (a very short, well-defined, and well-paperworked list of people) inside a given company know the first news before anyone else, and people inside the FDA get to hear about the second. And there is no way that you can act on such information legally before it's released. Those tempted to try realize that, of course, and act accordingly.
They do, in fact, what Cheng Li Yiang (a chemist, regrettably) and his son Andrew Liang were accused yesterday of doing since 2006: they used the accounts of at least least seven other people to trade on knowledge of FDA approval decisions, pulling in over three million dollars in the process. The single biggest winner (over $1 million) appears to have been front-running the surprise approval of Vanda Pharmaceutical's Fanapt in 2009. It wouldn't surprise me if this was the one that blew up the whole business. That was such an unexpected move by the FDA (after which the stock went up by a factor of six) that the SEC must have gone back and carefully checked to see if anyone had been building up a position beforehand.
Liang got in on most of the big percentage moves of the last few years: Mannkind, Momenta, Pharmacyclics and many others, all small companies whose stocks saw some major action in both directions. If you want more details, here's the SEC complaint (PDF). It's a blueprint for getting caught, I should add. The various friend-and-family brokerage accounts mostly listed Liang's phone numbers as contact information, and almost always transferred money to an account held by Liang and his wife. The trading was done (one account right after the other) from IP addresses associated with his home account or voice lines billed to his name - this for accounts like the one ostensibly held by his 84-year-old mother back in China. Honestly, ten minutes after the SEC got suspicious about this guy and started checking him out, they must have known that they had him by the valuable body parts. It was really just a matter of time - well, time and greed.
Interestingly, Liang worked for the FDA for ten years before he seems to have decided to cash in. It would be interesting to know what went on, but my guess is that it's a familiar story. I think that he watched these decisions being made, watched the stocks jump around, thought about the profits to be made, and didn't act on those desires. Until one day he finally did - and nothing happened. So he probably told himself that he got away with it that time, and really shouldn't do that again for fear of getting caught - until he did it again, and didn't get caught. By this time, from the accounts you read of people in such situations, the hook is well and truly set. There may be a few people who are philosophical enough to take a set amount of money and walk away, but I'll bet that they're mighty scarce compared to the number of people who can't keep themselves from riding the train until, to their surprise, it suddenly pulls into a station.
The Supreme Court came down with a decision the other day (Matrixx Initiatives v. Siracusano) that the headlines say will have an impact on the drug industry. Looking at it, though, I don't see how anything's changed.
The silly-named Matrixx is the company that made Zicam, the zinc-based over-the-counter cold remedy that was such a big seller a few years back. You may or may not remember what brought it down - reports that some people suffered irreversible loss of their sense of smell after using the product. That's a steep price to pay for what may or may not have been any benefit at all (I never found the zinc-for-colds data very convincing, not that there were a lot of hard numbers to begin with).
This case grew out of a shareholder lawsuit, which alleged (as shareholder lawsuits do) that the company knew that there was trouble coming and had insufficiently informed its investors in time to keep them from losing buckets of their money. To get a little more specific about it, the suit claimed that Matrixx had received at least a dozen reports of anosmia between 1999 and 2003, but had said nothing about them - and more to the point, had continued to make positive statements about Zicam the whole way. The suit alleges that these statements were, therefore, false and misleading.
And that's what sent this case up the legal ladder, eventually to the big leagues of the Supreme Court. At what point does a company have an obligation to report such adverse events to the public and to its shareholders? Matrixx contended that the bar was statistical significance, and that anything short of that was not a "material event" that had to be addressed, but the Court explicitly shut that down in their decision:
"Matrixx’s premise that statistical significance is the only reliable indication of causation is flawed. Both medical experts and the Food and Drug Administration rely on evidence other than statistically significant data to establish an inference of causation. It thus stands to reason that reasonable investors would act on such evidence. Because adverse reports can take many forms, assessing their materiality is a fact-specific inquiry, requiring consideration of their source, content, and context. . .
Assuming the complaint’s allegations to be true, Matrixx received reports from medical experts and researchers that plausibly indicated a reliable causal link between Zicam and anosmia. Consumers likely would have viewed Zicam’s risk as substantially outweighing its benefit. Viewing the complaint’s allegations as a whole, the complaint alleges facts suggesting a significant risk to the commercial viability of Matrixx’s leading product. It is substantially likely that a reasonable investor would have viewed this information “ ‘as having significantly altered the “total mix” of information made available.’ "
I think that's a completely reasonable way of looking at the situation. (Note: that "total mix" language is from an earlier decision, Basic, Inc. v. Levinson, that also dealt with disclosure of material information). The other issue in this case is what the law calls scienter, broadly defined as "intent to deceive". As the decision explains, this can be assumed to hold when a reasonable person would find it as good an explanation of a defendant's actions as any other that could be drawn. And in this case, since Zicam was Matrixx's entire reason to exist, and since a link with permanent damage to a customer's sense of smell would surely damage sales immensely (which is exactly what happened), a reasonable person would indeed find that the company had a willingness to keep such information quiet.
But here's the puzzling part - not the Court's decision, which is short, clear, and unanimous, but the press coverage. This is being headlined as a defeat for Big Pharma, but I don't see it. We'll leave aside the fact that Matrixx is not exactly Big Pharma, although I'm sure that they were, for a while, making the Big Money selling Zicam. No, the thing is, this decision leaves things exactly as they were before. (Nature's "Great Beyond" blog has it exactly right).
It's not like statistical significance was the cutoff for press-releasing adverse events before, and now the Supreme Court has yanked that away. No, Matrixx was trying to raise the bar up to that point, and the Court wasn't having it. "The materiality of adverse event reports cannot be reduced to a bright-line rule", the decision says, and there was no such rule before. The Court, in fact, had explicitly refused another attempt to make such a rule in that Basic case mentioned above. No, Matrixx really had a very slim chance of prevailing in this one; current practice and legal precedent were both against them. As far as I can tell, the Court granted certiorari in this case just to nail that down one more time, which should (one hopes) keep this line of argument from popping up again any time soon.
By the way, if you've never looked at a Supreme Court decision, let me recommend them as interesting material for your idle hours. They can make very good reading, and are often (though not invariably!) well-written and enjoyable, even for non-lawyers. I don't exactly have them on my RSS feed (do they have one?), but when there's an interesting topic being decided, I've never regretted going to the actual text of the decision rather than only letting someone else tell me what it means.
Here's a fascinating post from Bruce Booth on the R&D numbers for Big Pharma versus everyone else. If you had to guess, how much would you put big-company spending up against all the privately-financed startups? How many Lilliputians does it take to outweigh Gulliver?
Well, it turns out that the top 20 pharma companies spend about 26 times the budget of all the venture-backed companies put together. In fact, just comparing Pfizer's R&D budget alone to the universe of privately financed companies suggests that one Pfizer equals about 1000 small biotechs, or about 2-and-a-half times the number that exist today. Sheesh.
There are a lot of other interesting numbers to be found in that post - for example, given reasonable assumptions about facility costs, Big Pharma probably spends as much on its utility bills and building maintenance to fund the entire universe of VC-backed companies today. The whole thing looks very much like a steep power-law distribution to me, and that raises the question that Booth raises himself: how much more bang for the buck are we getting from the small companies, relative to the larger ones?
Management fads are truly a bad sign. I don't think that there's anyone out there in the working world who doesn't realize this, on some level, but it's worth keeping in mind. When some higher-up at your company decides "You know, we'd make a huge leap in productivity if we just did everything totally differently than we've ever done them before - I read this great article!", then you really need to hunker down until the fit passes.
Well, some of the folks at GlaxoSmithKline down in Research Triangle are probably looking for somewhere to hide. Because according to this article, the company is (yes!) at the forefront of a movement that's (yes!) sweeping the nation: open office space. No assigned desks, no permanent locations, just everyone floating around in a cloud of happy productivity. Jim Edwards at Bnet is right when he calls this "slightly insane".
Um. . .haven't we been hearing about this wonderful innovation for years now? And haven't several companies tried it and abandoned it, because (strangely enough) their employees didn't like the idea of putting their possessions into lockers every morning, wandering (or scrambling) around for desk space, and being unable to leave the slightest sign of anything personal around their work area? Here are some tempting details:
All employees are assigned a storage unit where they can keep files, a keyboard, a power pack and a mouse. There will also be group storage spaces where files that need to be accessed by more than one person can be kept. Any files that are not accessed regularly will be stored off-site. GSK's document retention policy isn't changing; it just may end up being followed more closely.
Gosh, that does sound like what I've been yearning for all these years. Making the transition to this wonderful environment isn't easy, though:
The larger move will ultimately include an extensive education campaign to prepare employees for their new surroundings.
Employees will work in neighborhoods, each of which includes meeting rooms and quiet areas. They'll attend etiquette workshops, and each neighborhood will adopt a set of policies to deal with hypothetical situations that may come up.
The groups that are moving to the new layout are those whose managers embraced the change. (Admin Shelby) Bryant now sits at a desk directly across from her boss, David Bishop, GSK's director of site operations in RTP.
Bishop said as the move gets closer, more and more departments are expressing interest in unchaining themselves from their desk.
"I don't believe we will ever get to where everybody wants it," he said.
Maybe not! But that'll be their loss, won't it, not having to go through all that education, and attend those etiquette workshops, and then throw out all their stuff. Honestly, I think I'd rather chew on glass than attend a series of workplace etiquette seminars and get re-educated by someone who tells me that I'm not going to have a desk any more. And those meetings to set behavior policies, those will be delightfully excruciating, for sure. What on earth is the company thinking?
Well, they're thinking about how this will allow them to vacate several buildings, because housing the employees this way takes up less room. So once again, this conforms to a rule that has seldom let me down: any question that starts out with "I wonder how come they. . ." can be answered with the word "Money".
As had been rumored, Novartis seems to be drastically cutting back on their site in Horsham, UK. Respiratory research will continue there, but the manufacturing center seems to be out, with a loss of over 500 jobs. . .
The past few years have been bad ones for this industry, but on a per capita basis, it's probably been worse in the UK than anywhere else.
So Pfizer has announced that their antibacterial research is moving to the Shanghai site. Is this the first example of a large/traditional therapeutic area moving to China? And if it is, should we care? After all, there are Swiss, German, British, and Japanese companies, among others, with multinational research sites. Some programs run at one facility, and some at another. When you add China to that list, though, something happens for a lot of people.
That's because the Chinese sites got their start as the inexpensive way to offshore work, for one thing. But Shanghai's not as cheap as it used to be - it's still less expensive than doing the work in the US or western Europe, but the cost advantage is eroding. Another factor is that you don't see companies expanding into new therapeutic areas these days, so much as moving the existing ones around. In that zero-sum game, expanding one site means contracting another.
Here's something to think about, though: does Pfizer's choice here represent a calculation about some future opportunity in China, should they be able to develop any drugs? Would the "discovered and developed in Shanghai" factor help with the regulatory authorities there?
As everyone who follows the industry knows, Pfizer has spent the last twenty years just getting bigger and bigger. Not that they haven't shed people, buildings, and whole research sites - have they ever - but they've shed those resources after buying them first. And as everyone who follows the industry knows, Pfizer's own labs have, either through bad luck or something more systemic, been rather unproductive during that same period. And now Lipitor moves ever closer to its patent expiration. What to do?
Well, this post by Matthew Herper at Forbes has one analyst's answer, and it might just be what Pfizer's CEO is thinking as well. It's something new, all right: get smaller.
Bernstein Pharmaceuticals analyst Tim Anderson has a note out this morning suggesting that Pfizer could sell, spin off, or otherwise divest divisions accounting for $32 billion of its $67 billion in sales, reinventing itself as a pure pharmaceutical research firm like Eli Lilly, Bristol-Myers Squibb, or AstraZeneca.
“We recently met with Pfizer’s new CEO Ian Read, and had we not heard it firsthand, we might not have appreciated just how serious he is about potentially splitting up the company,” Anderson writes. He goes on to say that Pfizer may shrink its revenue base by 40%, leaving behind only what Read calls the “innovative core."
The more cynical among you might be saying "Where this innovative core, eh?", but hear the guy out. He's talking about ditching all of Pfizer's non-pharma assets, and cutting back to. . .discovering drugs. Combine that with the recent cutbacks in various therapeutic areas, and you have a Pfizer that's actually turning its back on the strategy of the last two decades. Bigger, as it turns out, has not been better. Who knew?
Well, a lot of people, for sure. I've been complaining about it, genius that I am, for years now, but I'm sure not alone. It's interesting to see someone at the top, though, who's willing to admit this and to act on it. If he does, though, it'll be impossible not to wonder what might have been if the company hadn't made the big round trip through all those acquisitions. The core pharma assets that they're thinking about cutting back to are the pieces and hunks of a lot of other companies, whose people and departments have been shaken and jerked around something fierce. What shape would they be in if they hadn't been Pfizerized? We'll never know.
What's going on over at Slate, anyway? So far this week we've been talking about that Timothy Noah article over there publicizing the bizarre Light and Warburton estimate for drug development. Now one of their house blogs erupts with a geyser of idiocy about the looming patent cliff in the industry:
So this sudden terrible problem has been obvious and on schedule for at least 10 years.
It honestly is that simple and that stupid. The pharmaceutical industry turned all its energy toward wringing as much money as possible out of the drugs it already had, and quit making any sort of plans that would lead to having a new (and, you know: medically useful) batch of drugs under patent in the future, when the patents on the old batch expired.
Now the pharmaceutical companies are laying off tens of thousands of workers because they are worried about their financial future, because although they are officially in the business of producing and selling drugs, they stopped producing drugs.
It goes on in that vein; in fact, it gets even more stupid. And the point isn't that someone wrote something like this, so much as that this reflects, I fear, what a lot of other people think. Writing this blog has exposed me to a lot of smart, interesting people, which is something I really enjoy. But it's also exposed me to a lot of troglodytes who have no idea of what they're talking about. And here we have another one. Unfortunately, if enough people believe something idiotic, those beliefs can have consequences.
Now, we can argue about pharma strategy, which we do all the time around here. Where to spend the time and money, which programs to push and which to walk away from - everyone's got their own opinions. But if the line you're pushing is that drug companies just haven't been doing any research at all for the last ten or twenty years. . .well, then you're a moron. On the evidence of this column, Slate's Tom Scocca is one, at best, and his piece is a waste of electrons.
For one thing, there actually have been a few drugs introduced over the last ten years or so. Not as many as we'd like, or as many as we were planning on, but still. And then there are the failures. I mean, I say a lot of nasty things about Pfizer here, for example, but we can list off the big drug projects that they've had die on them over the last few years. Same for Merck, for Novartis, for BMS and AZ and for everyone else.
Honestly, I really think that we should make a bigger deal out of clinical failures in this industry, so that people realize that (1) we're always trying to do something, (2) it doesn't always work, and (3) it costs a godawful amount of money. As it is now, no one outside of the industry really notices or remembers when the giant multi-year research programs go down in expensive flames. And that leaves the door open for knuckle-dragging stuff as quoted above, and for the fools who believe it.
Some nonplussed Pfizer employees have sent this item along to me. The company may have fewer employees, and fewer therapeutic areas, and fewer research sites - but at least now they have more helicopters. One step at a time.
Note: a follow-up post to this one can be found here.
I've had a deluge of emails asking me about this article from Slate on the costs of drug research. It's based on this recent publication from Donald Light and Rebecca Warburton in the London School of Economics journal Biosocieties, and it's well worth discussing.
But let's get a few things out of the way first. The paper is a case for the prosecution, not a dispassionate analysis. The authors have a great deal of contempt for the pharmaceutical industry, and are unwilling (or unable) to keep it from seeping into their prose. I'm tempted to reply in kind, but I'm supposed to be the scientist in this discussion. We'll see how well I manage.
Another thing to mention immediately is that this paper is, in fact, not at all worthless. In between the editorializing, they make some serious points, and most of these are about the 2003 Tufts (diMasi) estimate of drug development costs. This is the widely-cited $802 million figure, and the fact that it's widely cited is what seems to infuriate the authors of this paper the most.
Here are their problems with it: the Tufts study surveyed 24 large drug companies, of which 10 agreed to participate. (In other words, this is neither a random nor a comprehensive sample). The drugs used for the study numbers were supposed to be "self-originated", but since we don't know which drugs they were, it's impossible to check this. And since the companies reported their own numbers, these would be difficult to check, even if they were made available drug-by-drug (which they aren't). Nor can anyone be sure that variations in how companies assign costs to R&D haven't skewed the data as well. We may well be looking at the most expensive drugs of the whole sample; it's impossible to say.
All of these are legitimate objections - the Tufts numbers are just not transparent. Companies are not willing to completely spread their books out for outside observers, in any industry, so any of these estimates are going to be fuzzy. Light and Warburton go on to some accounting issues, specifically the cost-of-capital estimate that took their estimated cost for a new drug from 400 million to 800 million. That topic has been debated around this blog before, and it's important to break that argument into two parts.
The first one is whether it's appropriate to consider opportunity costs at all. I still say that it is, and I don't have much patience for the "argument from unfamiliarity". If you commit to some multi-year use of your money, you really are forgoing what you could have earned with it otherwise. You're giving it up - it's a cost, whether you're used to thinking of it that way or not. But the second part of the argument is, just how much could you have earned? The problem here is that the Tufts study assumes 11% returns, which is just not anywhere near realistic. Mind you, it's on the same order of fantasy as the returns that have been assumed in the past inside many pension plans, but we're going to be dealing with that problem for years to come, too. No, the Tufts opportunity cost numbers are just too high.
Then there's the tax situation. I am, I'm very happy to say, no expert on R&D tax accounting. But it's enough to say that there's arguing room about the effects of the various special tax provisions for expenditures in this area. And it's complicated greatly by different treatment in different part of the US and the world. The Tufts study does not reduce the gross costs of R&D by tax savings, while Light and Warburton argue otherwise. Among other points, they argue that the industry is trying to have it both ways - that cost-of-capital arguments make R&D expenditures look like a long-term investment, while for tax purposes, many of these are deductible each year as more of an ordinary business expense.
Fine, then - I'm in agreement, on general principles, with Light and Warburton when they say that the Tufts study estimates are hard to check and likely too high. But here's where we part company. Not content to make this point, the authors turn around and attempt to replace one shaky number with another. The latter part of their paper, to me, is one one attempt after another to push their own estimate of drug R&D costs into a world of fantasy. Their claim is that the median R&D cost for a new drug is about $43 million. This figure is wrong.
For example, they have total clinical trial and regulatory review time dropping (taken from this reference - note that Light and diMasi, lead author of the Tufts study, are already fighting it out in the letter section). But if that's true why isn't the total time from discovery to approval going down? I've been unable to find any evidence that it is, and my own experience certainly doesn't make me think that the process is going any faster.
The authors also claim that corporate R&D risks are much lower than reported. Here they indulge in some rhetoric that makes me wonder if they understand the process at all:
Reports by industry routinely claim that companies must test 5000-10000 compounds to discover one drug that eventually comes to market. Marcia Angell (2004) points out that these figures are mythic: they could say 20,000 and it would not matter much, because the initial high-speed computer screenings consume a small per cent of R&D costs. . .
The truth is, even a screen of 20,000 compounds is tiny. And those are real, physical, compounds, not "computer screenings". It's true, though, that high-throughput screening is a small part of R&D costs. But the authors are mixing up screening and the synthesis of new compounds. We don't find our drug candidates in the screening deck - at least, not in any project I've worked on since 1989. We find leads there, and then people like me make all kinds of new structures - in flasks, dang it, not on computers - and we test those. Here, read this.
The authors go on to say:
Many products that 'fail' would be more accurately described as 'withdrawn', usually because trial results are mixed; or because a company estimates that the drug will not meet their high sales threshold for sufficient profitability. The difference between 'failure' and 'withdrawal' is important, because many observers suspect that companies withdraw or abandon therapeutically important drugs for commercial reasons. . .
Bring out some of those observers, then! And bring on the list of therapeutically important drugs that have been dropped out of the clinic just for commercial reasons. Please, give us some examples to work with here, and tell me how the disappointing data that the companies reported at the time (missed endpoints, tox problems) were fudged. Now, I have seen a compound fall out of actual production because of commercial reasons (Pfizer's Exubera), but that was partly because it didn't turn out to be as therapeutically important as the company convinced itself that it would be.
And here's another part I especially like:
Company financial risk is not only much lower than usually conveyed by the '1 in 5000' rhetoric, but companies spread their risks over a number of projects. The larger companies are, and the more they merge with or buy up other companies, the less risk they bear for any one R&D project. The corporate risk of R&D for companies like Pfizer or GlaxoSmithKinen are thus lower than for companies like Intel that have only a few innovations on which sales rely.
Well, then. That means that Pfizer, as the biggest and most-merged-up drug company in the world, must have minimized its risk more than anyone in the industry. Right? And they should be doing just fine by that? Not laying people off right and left? Not closing any huge research sites? Not wondering frantically how they're going to replace the lost revenue from Lipitor? Not telling people that they're actually ditching several therapeutic areas completely because they don't think than can compete in them, given the risks? Not announcing a stock buyback program, because they apparently (and rather shamefully) think that's a better use of their money than putting it back into more R&D? I mean, how can Intel be doing better than that? It's almost like chip design is a different sort of R&D business entirely.
Well, this post is already too long, and there's more to discuss in another one, at least. But I wanted to add one more argument from economic reality, an extension of those little questions about Pfizer. If the cost of R&D for a new drug really were $43 million, as Light and Warburton would have it, and the financial and tax advantages so great, why isn't everyone pouring money into the drug industry? Why aren't VC firms lining up to get in on this sweet deal? I mean, $43 million for a drug, you should be able to raise that pretty easily, even in this climate - and then you just stand back as the money gushes into the sky. Don't you?
Why are drug approval rates so flat (or worse?) Why all the layoffs? Why all the doom and gloom? We're apparently doing great, and we never even knew.
Here's a call to make something different out of the postdoctoral position. Says Jennifer Rohn in Nature News:
". . .we should professionalize the postdoc role and turn it into a career rather than a scientific stepping stone.
Consider the scientific community as an ecosystem, and it is easy to see why postdocs need another path. The system needs only one replacement per lab-head position, but over the course of a 30–40-year career, a typical biologist will train dozens of suitable candidates for the position. The academic opportunities for a mature postdoc some ten years after completing his or her PhD are few and far between. . .
The scientific enterprise is run on what economists call the 'tournament' model, with practitioners pitted against one another in bitter pursuit of a very rare prize. Given that cheap and disposable trainees — PhD students and postdocs — fuel the entire scientific research enterprise, it is not surprising that few inside the system seem interested in change. . .Few academics could afford to warn trainees against entering the ring — if they frightened away their labour force, research would grind to a halt.
Her proposed solution is to reduce the numbers of people being trained as graduate students, and staff up some permanent non-lab-head research positions. We'll debate the merits of that idea in just a moment, but right off, I have a hard time seeing how this could (or would) ever be adopted. Basically, it's asking academic research departments to act against what they see as their own interests. Those relatively cheap workers that you bring in every year, push along, and move out the door? Why don't you replace them with more expensive people who never leave?
No, even if too many people are going through graduate programs, I think that the only way to see real changes is for the people responsible to believe that those changes are desirable - that they're something they want to do, something that's beneficial for them. If the current system can trundle along, taking in fresh students and excreting PhDs, then it probably will continue doing just that. The whole academic research system runs on bringing in grant money (and its overhead), and for that you need bodies in the lab. Bodies generate results, and results are what you need for grant renewals, which give you money to hire more bodies as the earlier crop leaves.
Leaves for what? Well, "when the rocket goes up, who cares where it comes down?" What the graduate students (and postdocs) go on to is, from the university's perspective, not really their problem. And that's why I don't see this proposal going anywhere: it's asking the academic research establishment to do something for the postdocs of the world, to which the answer will be an eloquent indifference.
OK, even if it's not going to happen, should it (in some other world)? Actually, in several labs I've known, it already does. I think many of us have seen "perpetual postdocs", people who just seem to hang around the labs forever, acting as right-hand-assistants to the boss. To be honest, I've always seen the situation these people are in as sort of sad, but compared to unemployment, I suppose not.
But that brings up another aspect of this proposal - its near-total academocentricity. Read it, and you'd never get the idea that there's anything outside the university research environment. The whole point of life is to become a lab head, bringing in the grant money and taking on graduate students. Right? This is the world view of someone who's been in academia too long (or at least bought too thoroughly into its culture). There are places to do research outside of the ivy-covered walls. Not as many of them as there were a few years ago, true, and that's another whopper of a problem, one that gets discussed around here with great frequency. The traditional answer to "I can't find a faculty position" has been "Go and find a job, then". If that part of the ecosystem is permanently broken, then post-docs have even more trouble than the Nature column is imagining. . .
Back in August, I noted that Mannkind - who have been developing an inhaled insulin product for many years now - had done a stock-swap deal with Seaside 88. That, I thought, was not a good sign. They're an investment group that I profiled (unfavorably) here, in reference to their dealings with Generex (another spray-insulin company, allegedly working on an oral delivery route).
Adam Feuerstein's the guy who put me on to Generex. (Last I heard, was getting sued by them for his comments, although his opinions seemed to me to be well justified. No updates on that, as far as I know). He's also recently updated the Mannkind situation, and it's not looking good. Last month the company fired about 40% of its workforce, and apparently has about enough cash on its books to make it to the end of the year. Its founder, Al Mann, has plowed a lot of his own money into the company, but on a recent conference call, he declined to say if he's going to put in any more. Mann is a real believer, and has given this his best shot. But it may not be enough.
The class-action suits are already fluttering through the air. And the bubbling tar pit that is spray-delivered insulin continues to churn.
Thanks to a reader, here's a committee of Parliament in the UK looking into the closure of the Pfizer site at Sandwich. The first part is mostly background on what shape the industry is in these days, then four executives from Pfizer come on at about the 16:02 mark. Many questions are asked about why Sandwich in particular, why Pfizer's doing what it's doing in general, when it was known that the site was going to close, and so on. I've dug through the hearing in several places, but haven't listened to the whole thing, but UK readers might wish to.
That's the contention of venture capitalist Kevin Kinsella (of Avalon Ventures) as reported in this piece at Xconomy
“There have been numerous instances of what I refer to as bad behavior—combined with short-sighted, brass-knuckle negotiating tactics—by some pharma companies that really go to the heart of whether this partnership between Big Pharma and biotech can really continue,” Kinsella says. He maintains that the pharmaceutical industry is doing enormous damage to the life sciences venture capital ecosystem. “Their predatory business practices,” he says, “are pushing the sector almost to the point of extinction.”
He likens the process to commercial overfishing, and says that some CEOs may not even realize how much damage is being done. He lists several examples of bad behavior (see the article), but the common thread to them (to me) seems to be the attempt to keep every bit of the risk with the smaller company, until there's clearly money about to be made, at which time the money starts flowing to the larger outfit.
Trying to structure things this way, though, is how I've always understood the process to work. I'm not saying it's a good idea, just that it's not a new one. Maybe it's just been getting worse, but the big drug companies have always wanted to jam in those heads-I-win-tail-you-lose clauses. The way I heard it expressed 20 years ago was "So, you need a deal real bad? Well, here's a really bad deal!"
But here's the getting-worse-recently case:
Kinsella sees a confluence of forces that came together after the tech and biotech bubble burst in 2000, and has continued with the mortgage meltdown and ensuing capital crisis. As financial institutions scrambled to save themselves, they shed much of their payroll—including most of the Wall Street banking talent that had focused on the biotech sector. The investment banks that biotech built—Hambrecht & Quist, Robertson Stephens, Montgomery Securities—did not survive, and Kinsella says no “serious” banks remained to serve life sciences startups, or to underwrite biotech IPOs.
Another consequence of the Wall Street meltdown, Kinsella says, is that Big Pharma companies have been hiring the biotech bankers laid off during Wall Street’s financial purges. As he puts it, “The sell-side guys were going to Big Pharma [companies] and saying they can cut better partnerships or buyout deals since they have an ‘inside baseball’ understanding of venture-backed biotechs, and they know how to wring the most concessions from a biotech’s board.”
He may well have a point there, although my first thought after reading that was "GSK should have hired some of those guys before doing the Sirtris deal". But Kinsella goes on to argue that there's not much of an "IPO exit" any more, and hasn't been for several years, so smaller companies are more dependent than ever on doing deals with the larger ones. And his worry is that we're eventually going to end up with fewer small companies, and that disproportionately stocked with outfits trying to go it alone. The chances for mutually beneficial partnerships are, if he's right, going down rather quickly. . .
A reader from the UK passes along this link. If you're wondering what's going to happen to the former Merck site at Terlings Park, well, here would appear to be your answer. The company is now looking to turn the property into a residential development, having apparently (after several years) given up on the idea of ever shifting it as a research facility. Word has been (see the comments here) that the facilities were deterioring at this point, anyway, making such a sale even less likely.
Having worked at a research site that was later paved over and turned into a Home Depot, among other things, I've seen some definitively repurposed facilities before. But considering the state of pharma research in the UK as a whole, this is another bad sign. Terlings Park seems to have had a much better location than Sandwich for doing R&D, so good luck indeed to these efforts. . .
Here's something that not everyone may have considered: there have, of course, been plenty of mergers and takeovers in the drug business over the last few years. These are driven by the need to fill pipelines and cut costs, and one of the biggest cost-cutting moves has been the outsourcing trend. (There are so many links to past discussions around here on these topics that I'm not even going to bother putting them up!)
But think the process through: if drug firms in the US and Europe consolidate, what does that do to the outsourcing suppliers? Well, it hits them, too. That's an article from India's Economic Times (via FiercePharma), and its quotes will sound eerily familiar:
"When global drugmakers cut cost, the pre-clinical and early phase drug development outsourced to Indian firms are among the easy targets," said a Mumbai-based pharma analyst with a global brokerage firm. . .
Yep, it's come to the point that we're cost-cutting the cost-cutting measures. In a way, it's sort of comforting to know that everyone's in the same boat. But what a boat it is.
In light of the two companies reaching an agreement on price yesterday afternoon, a behind-the-scenes participant in the deal asked people to remember what set the whole process in motion.
"If it weren't for me, this never would have gotten off the ground", claimed Vesivirus 2117. "Moving into that facility in Allston was the step that made it all possible", the virus claimed. "Does anyone think that Genzyme wouldn't just be humming along as before if it weren't for me? The stock price, the confidence of the shareholders - all that went down through my efforts, and I just want to make sure that credit is given where it's due".
The virus, which is not known to infect humans, pointed out that you don't have to directly invade the human body to affect human affairs. "Subtlety, that's the thing," the organism stated. "You come in through the front door - nose, mouth, whatever - with all your guns blazing, and sure, you get the press, the headlines. But right from the start, they're trying to bring you down. Now, infecting cell cultures, there's no immune system to worry about, and if they've never seen you before, well, no one knows you're there. Until you're really, really there, if you know what I mean."
The virus went on to say that its tenacity was just as crucial as its element of surprise. "They're been cleaning the place out for a year now", it said with satisfaction. "And are they sure that they've gotten rid of me? Is the FDA sure? I think not." Vesivirus 2117 said that it welcomed the chance to work with whoever Sanofi-Aventis assigned to its area. "Viruses, you know, we're international. Bonjour!"
Is Merck going to hold on to Remicade (and its follow-up) or not? That topic came up around here (and not just here) right after the merger with Schering-Plough was announced - it was the whole reason for the elaborately structured legal charade that Schering-Plough was buying Merck, after all. The issue is in arbitration, and a ruling could come any day now. Or in the spring, or who knows - but Wall Street is starting to bite its nails.
It'll be easy to spot when the decision comes down. Merck stock will suddenly move a good 5 per cent - but in which direction? I'll go ahead and get my prediction down, in case we get word soon: I think Merck will lose out. The best that they can hope for, I think, is a fairly small share of the profits, and they may well not even get that. Whoever advised Merck's executives that this issue could be finessed - and the executives who believed that theory - will, in that case, not come out looking very good at all.
If you haven't seen the "Top 200 Drugs" posters, available as PDFs from this group at the University of Arizona, then give them a look. It's good to have this information in graphical form, with chemical structures attached.
One thing that stands out as you browse through the table is the number of compounds that make you say "Hold it - that's a drug?" I think that's one of the most valuable things about the poster, actually. It's worth seeing how simple some useful compounds are (valproic acid, anyone?), or what functional groups have made it through. The next edition of the poster will surely feature Gilenya (fingolimod), whose structure baffles and offends almost every chemist at first glance.
It's a dose of humility, seeing these things. And while it's true that we get regular doses of humiliation in the research business, our pride is pretty resilient, too.
Poker players in the audience may remember the old story of the guy who lost three cars over the years by drawing to try to fill inside straights - the first two when he came up empty, and the last time when he made his hand. You can have the same experience in drug development, too, for higher stakes.
Remember Fanapt (iloperidone)? That's the antipsychotic compound that bounced around from company to company during the 1990s, and nearly sank Vanda Pharmaceuticals a few years ago when the FDA gave them a "Not Approvable" letter. I predicted at the time that we'd never hear from them again, but to my surprise (and to Vanda's, I'd guess), the FDA reversed itself and let the compound through in 2009.
Novartis signed up to market the drug, and it was launched early last year. Some analysts predicted about $100 million in sales, growing to two or three times that number - not a blockbuster, but very welcome indeed for Vanda (and for earlier developer Titan, who still retained some rights). And now, reports Adam Feuerstein, we have the full-year numbers: $31 million, most of which appears to have been initial inventory stocking. Not good.
I've already tried to teach my kids not to draw to the inside straight. The more advanced player needs to try to work out if the pot offers a payout consistent with the risks, and to figure out what the chances of that payout might be, even if the hand comes through. . .
It's not hard to see why. Costs. We spend too much money finding drugs (which don't always make it back even when they succeed). Anything that cuts costs more than it cuts productivity is going to be tried.
. . .the 787's global outsourcing strategy — specifically intended to slash Boeing's costs — backfired completely.
"We spent a lot more money in trying to recover than we ever would have spent if we'd tried to keep the key technologies closer to home," Albaugh told his large audience of students and faculty.
Boeing was forced to compensate, support or buy out the partners it brought in to share the cost of the new jet's development, and now bears the brunt of additional costs due to the delays.
Read the whole article; it's extremely interesting, and especially so for those of us in the drug industry. There was a Boeing employee who specifically criticized this process some years ago, and the whole return-on-net-assets view of the business world, and the company seems (belatedly) to be giving him his due. His line about how the biggest return would come from having someone else build the plane and then slapping a tiny Boeing decal on the nose is funny, but in a painful way.
So here's the question: have companies in our industry reached this point? And if so, which ones? Reports like this one make me think that some organizations have crossed that invisible line, and will regret it. I think that "zero outsourcing" is probably a bad idea. But "way too much outsourcing" could be worse. . .
A former prosecutor says that the huge payouts in some recent whistleblowing cases in the drug industry have gotten out of hand. The law, says Michael Loucks, was never intended to reach up into these sorts of figures, and he's suggesting a cap of $2 million as a reasonable incentive.
I'm not sure if I agree with that or not. It's true that a New England Journal of Medicine report last year found that most pharma informants in such cases say that they were not motivated by the money involved:
Although the relators in this sample all ended up using the qui tam mechanism, only six specifically intended to do so. The others fell into the qui tam process after seeking lawyers for other reasons (e.g., unfair employment practices) or after being encouraged to file suit by family or friends. Every relator we interviewed stated that the financial bounty offered under the federal statute had not motivated their participation in the qui tam lawsuit. Reported motivations coalesced around four non–mutually exclusive themes: integrity, altruism or public safety, justice, and self-preservation.
And that seems believable. But what I'm thinking about is the motivation for the people who are promulgating the behavior that the whistles get blown on. These are not people for whom personal integrity is as strong a motivating factor (although self-preservation would certainly still rank high). Many of them, I'd venture to guess, are in fact people who would fear that others might be motivated mostly by a large payout. And if that's true, the publicity around the large whistleblower awards might help restrain them.
Why don't such people just take the money and run, themselves? Several reasons, I'd say, not least of which is the fact that they're generally quite implicated in the very behavior that the Department of Justice would like to prosecute. But another motivation for that sort of personality is the loss of status and position that such a decision would mean. I'm convinced that having power is a strong motivator for most people, and for some it's the primary one. Money is great, and the other benefits are great, too - but for many people, it's being the boss that is the sweetest part of the job (along with the prospect of working one's way up to being an even bigger boss, of course). Blowing the whistle means saying goodbye to that, irrevocably.
As an aside, people for whom personal power is the prime motivation do not tend to turn out well if they get their wish, to put it mildly. This is a good time to quote Lord Acton. I also recall Gore Vidal's essay "Robert Graves and the Twelve Caesars", pointing out what a depressing spectacle they tended to make once the experience of empire got through with them:
Yet what, finally, was the effect of absolute power on twelve representative men? Suetonius makes it quite plain: disastrous. Caligula was certifiably mad. Nero, who started well, became progressively irrational. Even the stern Tiberius's character became weakened. In fact, Tacitus, in covering the same period as Suetonius, observes: 'Even after his enormous experience of public affairs, Tiberius was ruined and transformed by the violent influence of absolute power.' Caligula gave the game away when he told a critic, 'Bear in mind that I can treat anyone exactly as I please.' And that cruelty which is innate in human beings, now give the opportunity to treat others as toys, flowered monstrously in the Caesars.
The Party seeks power entirely for its own sake. We are not interested in the good of others; we are interested solely in power. Not wealth or luxury or long life or happiness: only power, pure power. . .Power is not a means, it is an end.
It is, fortunately, a long way from Mr. O'Brien there (or Tiberius) to a typical hard-charging, rule-bending executive. But it's a difference of degree - not of kind.
Let's hope that this works out - there's an attempt going on to bring in as many small-company investors as possible to keep parts of Pfizer's former Sandwich site open (and employing scientists):
George Freeman, the Tory MP and biotech expert, is calling on the Government to open Pfizer's site in Sandwich to venture capitalists and biotech angels in a bid to save as many of the 2,400 jobs, due to be axed when the plant closes, as it can.
Mr Freeman is in contact with top UK entrepreneurs, including Hermann Hauser, who founded Acorn computers, and serial biotech businessman Andy Richards, about how best to help the Pfizer scientists recycle their knowledge and skills into spin-outs or other similar ventures.
The problem with such efforts is that getting them off the ground after a site closure has been announced can be difficult. Even at their best, they won't be able to keep as many people discovering drugs as the old site did - but it's still much, much, better than nothing. Any UK readers with knowledge of what's going on, feel free to add details in the comments. . .
Here's an interesting contrast after all the Pfizer discussion here over the last few days. Merck's CEO, Ken Frazier, has actually pulled the firm's earnings-per-share guidance, saying that the recent trouble with vorapaxar and regulatory concerns in general make it impossible to say for certain what EPS growth will be. He also says that he'd rather have a freer hand to pay for both sales and research, in the interest of long-term growth.
Not everyone's buying it:
Analysts on Merck’s conference call were skeptical about the reasoning behind the guidance change. Catherine Arnold of Credit Suisse, who called the change “befuddling” in her note to investors, told Frazier that investors expected Merck to “share the pain” of shareholders and noted that vorapaxar, launching in 2012, should have been a “drag on earnings, not a positive.” Frazier replied that Merck’s cost-cutting efforts were ahead of schedule, but that he was faced with a decision to either withdraw guidance or commit to cutting projects that could make money in the future. He also argued that because Merck’s sales reps already visit cardiologists to sell heart drugs, selling vorapaxar, too, would not cost much more.
Well, if he's sincere in this, I have to salute the guy. I don't think that the Schering-Plough merger was a good thing, and Merck has certainly laid off people and disrupted a lot of things because of it. But if they're not going to pull a Pfizer - which I will define for now as "Keep cutting to make the numbers, and when you can't do that any more, then go out and buy someone else who has things to sell and then cut them" - then good for Merck. This topic came up explicitly during the earnings conference call:
Jami Rubin - Goldman Sachs Group Inc.: More of a strategic question. Just given the setback that you've faced with vorapaxar, I'm just wondering if you can provide us with your view of the research model going forward? I mean, might it make sense for some of these the very large, very expensive, very risky outcomes trial such as vorapaxar, how do you buffer these trials? I mean, might it have made sense to isolate some of these subgroups before pursuing a large trial, and I know that it's obviously what's happening with anacetrapib. Maybe if you could talk just in terms of how you see the R&D spend going forward. Also, it's interesting that yesterday or the day before Pfizer announced a significant cut to its R&D. And I'm just wondering if you can talk about your R&D spend going forward, and if you see opportunities to really rethink that budget and to improve the R&D output. . .
Kenneth Frazier You asked some very typical questions in that set of questions. Let me start with vorapaxar. So I assume that what you're essentially asking is in hindsight, could we have done two separate trials. One in the ACF population, one with essentially the prevention population. I can't comment on the trial design. It was so long ago, but what I can say is that as we, as a committee with Peter and Adam and Peter Kellogg and myself, what we do regularly in the company is try to assess all the programs that we're relying on. We try to look at them from a science and technical and medical standpoint. We also try to look at them from a commercial standpoint. So we try to engage each program one by one, in addition to having the kinds of tough metrics we have in place around ROI and value creation in the pipeline. What I would also say is that we recognize that our strategy comes with it a certain amount of complexity, lengthiness and unpredictability because we are seeking innovative medically important therapies. And with vorapaxar, we know the risk of trying new mechanisms and approaches. I still continue to have optimism because the DSMB continued in 2P, we will see what the data shows. If the data shows a benefit to that population, this could still be a very important drug going forward.
On the Pfizer question, obviously, I can't comment on anyone else's view of their particular pipeline or the investment requirements that they face at this time. But I will tell you that we are mindful of the need to drive productivity, greater productivity in our R&D program. Peter Kim and his colleagues understands that we are focused on it. We are trying to take cost out. We're trying to increase the probability of success as we go forward. But as a company, I think we are saying that we are committed to innovation as a strategy, and we believe that over the long term it will pay off. And if you'll indulge me one minute, last week I attended the funeral of John Horan, who was the CEO of Merck a number of years ago before Roy Vagelos. One of the things he was proud us of was that he kept the focus on research during a fallow period for Merck Research in the 70s, and that's exactly what led to a state of innovation that has made the modern-day Merck. So I am not blind to what investors want us to do. They want us to invest in prudent ways and ways that actually drive ROI and productivity. But we, as a company, believe that the only sustainable strategy in the health care environment that we're in is real innovation that makes the difference to patients and payers. . .
As I said above, I can disagree with some of the ways that Merck is trying to run its R&D business, not that they're asking for advice from me. But it at least appears as if their heart - and their head - might be in the right place. Or they at least want to make it appear as if they're in the right place. And that they're willing to tick off some Wall St. analysts in order to be seen to be doing that. Which should count for something - you'd think.
If you'd like to hear Pfizer's CEO, Ian Read, try to explain what's going on a the company, Matthew Herper has his recent Q-and-A with the press here. As you might imagine, he's got a story to tell you about how cutting the company's R&D again is going to make it even more innovative.
But I particularly was struck by this part:
One of the main goals of the changes is to try and prevent any repeat of Pfizer’s disastrous investment in Exubera, the inhaled insulin, which the company spent years developing before it hit the market and bombed. Without accountability, Read says, projects were handed off from one team to the next without demands that they actually be ready.
Now, I'm someone looking in from outside, but accountability doesn't seem to me to be the biggest problem that the Exubera project had. I took at crack at the subject myself, and I still think the biggest problems were groupthink, self-deception, and a feeling that the penalties for speaking up against the trend were too great. Ian Read's press conference, on the other hand, has a tone of "Now we're really going to come down on anyone who screws up like this, and you know what? That isn't going to help with any of those factors. It might even make them worse.
But hey, at least it's not costing Pfizer as much to aim people out onto the sidewalk as it used to. The standard severance package was cut just a few months ago. . .
Not only is Pfizer wielding the ax in England, but they're cutting 1,100 jobs back at HQ in Groton, while moving some therapeutic areas around. My neighborhood (Cambridge) is going to get more Pfizer-y as a result, but it's for sure that several others are getting less so.
The company's getting out of allergy, urology, respiratory diseases and other areas completely. Who out there can imagine that this is the end of the process?
Just today, Pfizer's announced that they're closing the longtime research site in Sandwich, Kent. 2,400 people work there, and although the company says that perhaps several hundred may find positions elsewhere, this is a major blow to drug discovery operations in the UK. No, we're not off to a good start in 2011 at all. . .
Abbott is announcing 1,900 layoffs, about 2% of the company's work force. That's on top of the 3,000 that had been announced last fall, and this is not getting 2011 off to a very good start, is it? I'm told by primary sources that there have been cuts in research as a part of this latest round, but I don't have any firm numbers yet. . .