About this Author
Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases.
To contact Derek email him directly: derekb.lowe@gmail.com
Twitter: Dereklowe
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February 10, 2012
Posted by Derek
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.
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+ TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History | Drug Prices
February 8, 2012
Posted by Derek
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.”
And that, truly, is a shame.
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February 3, 2012
Posted by Derek
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!"
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February 1, 2012
Posted by Derek
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. . .
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January 31, 2012
Posted by Derek
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.
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January 27, 2012
Posted by Derek
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.
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+ TrackBacks (0) | Category: Biological News | Business and Markets
January 20, 2012
Posted by Derek
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?
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January 19, 2012
Posted by Derek
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?
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January 17, 2012
Posted by Derek
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?
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+ TrackBacks (0) | Category: Biological News | Business and Markets
Posted by Derek
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?
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January 12, 2012
Posted by Derek
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?
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Posted by Derek
English has no word of its own for schadenfreude, so we've had to appropriate the German one, and we're in the process of making it our own - just as we did with "kindergarten", not to mention "ketchup" and "pyjamas", among fifty zillion more. That's because the emotion is not peculiar to German culture, oh no. We can feel shameful joy at others' discomfort with the best of them - like, for example, when people start to discover from experience just how hard drug discovery really is.
John LaMattina has an example over at Drug Truths. Noting the end of a research partnership between Eli Lilly and the Indian company Zydus Cadila, he picked up on this language:
“Developing a new drug from scratch is getting more expensive due to increased regulatory scrutiny and high costs of clinical trials. Lowering costs through a partnership with an Indian drug firm was one way of speeding up the process, but the success rate has not been very high.”
And that, as he correctly notes, is no slam on the Indian companies involved, just as it won't be one on the Chinese companies when they run into the same less-than-expected returns. No, the success rate has not been very high anywhere. Going to India and China might cut your costs a bit (although that window is slowly closing as we watch), but for early-stage research, the costs are not the important factor.
Everything we do in preclinical is a roundoff error compared to a big Phase III trial, as far as direct costs go. What we early-stage types specialize in, God help us, are opportunity costs, and those don't get reported on the quarterly earnings statements. There's no GAAP way to handle the cost of going for the wrong series of lead compounds on the way to the clinic, starting a program on the wrong target entirely, or not starting one instead on something that would have actually panned out. These are the big decisions in early stage research, and they're all judgment calls based on knowledge that is always incomplete. You will not find the answers to the questions just by going to Shanghai or Bangalore. The absolute best you can hope for is to spend a bit less money while searching for them, and thus shave some dollars off what is the smallest part of your R&D budget to start with. Sound like a good deal?
Relative to the other deals on offer, it might just be worthwhile. Such is the state of things, and such are the savings that people are willing to reach for. But when you're in the part of drug discovery that depends on feeling your way into unknown territory - the crucial part - you shouldn't expect any bargains.
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+ TrackBacks (0) | Category: Business and Markets | Drug Development
January 9, 2012
Posted by Derek
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. . .
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January 6, 2012
Posted by Derek
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.
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+ TrackBacks (0) | Category: Business and Markets | The Scientific Literature
January 4, 2012
Posted by Derek
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?
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January 3, 2012
Posted by Derek
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.
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Posted by Derek
A reader in the UK sends along the news that GlaxoSmithKline's CEO, Andrew Witty, made the New Year's Honours list. His knighthood really put the "Sir" in "Sirtris acquisition", doesn't it?
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December 22, 2011
Posted by Derek
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.
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+ TrackBacks (0) | Category: Business and Markets | Diabetes and Obesity | Drug Development
Posted by Derek
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. . .
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December 21, 2011
Posted by Derek
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. . .
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+ TrackBacks (0) | Category: Business and Markets | Cancer | The Central Nervous System
December 19, 2011
Posted by Derek
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. . .
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December 15, 2011
Posted by Derek
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.
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Posted by Derek
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?
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December 9, 2011
Posted by Derek
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.
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+ TrackBacks (0) | Category: Business and Markets | Drug Industry History
December 8, 2011
Posted by Derek
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?
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December 7, 2011
Posted by Derek
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.
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December 6, 2011
Posted by Derek
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.
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+ TrackBacks (0) | Category: Business and Markets | The Central Nervous System
December 5, 2011
Posted by Derek
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. . .
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December 2, 2011
Posted by Derek
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. . .
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December 1, 2011
Posted by Derek
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.
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November 28, 2011
Posted by Derek
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!
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November 21, 2011
Posted by Derek
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?
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+ TrackBacks (0) | Category: Business and Markets | Drug Industry History | Who Discovers and Why
November 17, 2011
Posted by Derek
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. . .
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November 16, 2011
Posted by Derek
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.
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+ TrackBacks (0) | Category: Business and Markets | Drug Industry History | Who Discovers and Why
Posted by Derek
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.
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November 15, 2011
Posted by Derek
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."
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Posted by Derek
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.
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Posted by Derek
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. . .
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+ TrackBacks (0) | Category: Biological News | Business and Markets | Cancer | Cardiovascular Disease | Press Coverage
November 8, 2011
Posted by Derek
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?
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November 3, 2011
Posted by Derek
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!
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November 2, 2011
Posted by Derek
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. . .
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November 1, 2011
Posted by Derek
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.
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October 31, 2011
Posted by Derek
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.
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October 28, 2011
Posted by Derek
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?
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October 25, 2011
Posted by Derek
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?
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Posted by Derek
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?
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October 24, 2011
Posted by Derek
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.
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October 20, 2011
Posted by Derek
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.
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October 19, 2011
Posted by Derek
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?
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October 14, 2011
Posted by Derek
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.
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September 27, 2011
Posted by Derek
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.
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Posted by Derek
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.
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September 19, 2011
Posted by Derek
Is it just me, or is this sort of. . .baffling?
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.
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September 9, 2011
Posted by Derek
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?
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August 31, 2011
Posted by Derek
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.
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August 29, 2011
Posted by Derek
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?
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August 18, 2011
Posted by Derek
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).
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August 16, 2011
Posted by Derek
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. . .
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August 11, 2011
Posted by Derek
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.
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August 10, 2011
Posted by Derek
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).
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+ TrackBacks (0) | Category: Business and Markets | Drug Industry History | Who Discovers and Why
August 5, 2011
Posted by Derek
I've been meaning to link to Matthew Herper's piece on Bernard Munos and his ideas on what's wrong with the drug business. Readers will recall several long discussions here about Munos and his published thoughts (Parts one, two, three and four). A take-home message:
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.
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August 4, 2011
Posted by Derek
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?
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August 3, 2011
Posted by Derek
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.
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August 2, 2011
Posted by Derek
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?
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July 29, 2011
Posted by Derek
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?
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July 28, 2011
Posted by Derek
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.
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July 2, 2011
Posted by Derek
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. . .
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June 30, 2011
Posted by Derek
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. . .
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June 28, 2011
Posted by Derek
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.
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June 20, 2011
Posted by Derek
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.
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June 17, 2011
Posted by Derek
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?
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June 13, 2011
Posted by Derek
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.
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June 3, 2011
Posted by Derek
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.
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May 31, 2011
Posted by Derek
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. . .
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May 26, 2011
Posted by Derek
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. . .
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May 25, 2011
Posted by Derek
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).
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May 19, 2011
Posted by Derek
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).
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May 17, 2011
Posted by Derek
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.
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May 12, 2011
Posted by Derek
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. . .
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May 3, 2011
Posted by Derek
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. . .
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May 2, 2011
Posted by Derek
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.
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April 29, 2011
Posted by Derek
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?
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April 28, 2011
Posted by Derek
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. . .
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April 26, 2011
Posted by Derek
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.
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April 25, 2011
Posted by Derek
"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?
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April 20, 2011
Posted by Derek
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.
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April 18, 2011
Posted by Derek
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?
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April 14, 2011
Posted by Derek
Here's a topic that's not unrelated to that job-loss post below. Venture-capital guy Bruce Booth writes on contract research organizations (CROs):
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. . .
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Posted by Derek
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. . .
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April 11, 2011
Posted by Derek
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.
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April 7, 2011
Posted by Derek
Update: link fixed!
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. . .
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April 6, 2011
Posted by Derek
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.
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March 30, 2011
Posted by Derek
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.
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March 25, 2011
Posted by Derek
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.
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March 21, 2011
Posted by Derek
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?
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March 18, 2011
Posted by Derek
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".
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March 16, 2011
Posted by Derek
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.
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Posted by Derek
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?
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March 15, 2011
Posted by Derek
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.
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March 9, 2011
Posted by Derek
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.
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March 8, 2011
Posted by Derek
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.
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March 7, 2011
Posted by Derek
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.
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+ TrackBacks (0) | Category: Business and Markets | Clinical Trials | Drug Development | Drug Industry History | Drug Prices | Why Everyone Loves Us
March 3, 2011
Posted by Derek
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. . .
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March 2, 2011
Posted by Derek
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.
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+ TrackBacks (0) | Category: Business and Markets | Diabetes and Obesity
March 1, 2011
Posted by Derek
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.
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February 24, 2011
Posted by Derek
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. . .
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February 23, 2011
Posted by Derek
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. . .
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February 21, 2011
Posted by Derek
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.
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February 16, 2011
Posted by Derek
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!"
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February 11, 2011
Posted by Derek
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.
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February 10, 2011
Posted by Derek
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.
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+ TrackBacks (0) | Category: Business and Markets | Drug Industry History
February 9, 2011
Posted by Derek
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. . .
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+ TrackBacks (0) | Category: Business and Markets | The Central Nervous System
February 8, 2011
Posted by Derek
We've talked a lot about outsourcing on this blog, since it's been one of the biggest features of life in this industry over the last few years.
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.
But any idea can be taken too far. Here's Boeing's current CEO, talking about the cost overruns on the 787 Dreamliner project, and how they were made worse by overzealous outsourcing:
. . .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. . .
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Posted by Derek
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.
And there's always this :
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.
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+ TrackBacks (0) | Category: Business and Markets | The Dark Side
February 7, 2011
Posted by Derek
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. . .
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February 4, 2011
Posted by Derek
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.
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February 3, 2011
Posted by Derek
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. . .
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February 1, 2011
Posted by Derek
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?
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Posted by Derek
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. . .
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January 26, 2011
Posted by Derek
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. . .
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January 13, 2011
Posted by Derek
Very bad news today for Merck (and the Schering-Plough people therein). Their thrombin receptor antagonist vorapaxar (formerly SCH 530348) has run into trouble.
A review board monitoring the compound's clinical trials has suddenly halted two of them. All we know at the moment is that the drug is "not appropriate for stroke patients", and it's also being pulled from a study in people who have had mild heart attacks. The best guess, as with any drug in the clotting field, is that it may be causing bleeding instead, but we'll have to see. Problem is, those are two of the more important patient populations that a company would be targeting, and if there's trouble in those groups, then it could be waiting to show up in others as well.
Vorapaxar has an unusual history at Schering-Plough (I wrote about it here, with some personal experiences from my own time at the company thrown in). I'm very sorry to see this news - sorry for the patients involved (and those who won't be helped later on), for the researchers involved (several of whom I've worked with in the past), and for Merck's investors, who are taking about a 6% trim today on the NYSE.
This compound wasn't the whole reason for Merck to buy Schering-Plough, but it wasn't a small part of the deal, either. That other stuff had better work out. . .
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+ TrackBacks (0) | Category: Business and Markets | Cardiovascular Disease | Clinical Trials | Drug Development
Posted by Derek
You'll have noticed that we haven't been hearing a lot about Sanofi-Aventis trying to round up Genzyme shareholders as part of their takeover plan. That's because the two companies seem to have found a way to negotiate with each other, so it doesn't look like we're going to go into full proxy-fight mode. This Bloomberg article gives the impression that a number of issues have been worked out, and that there are just a few figures left to agree on. It's quite possible that Genzyme's executives and board weren't able to find anyone else who agreed with their public assessment of what their takeover price should be, realized that they were probably going to be stuck with this deal, and decided to make the best of it.
So how does that leave that big bet in the options market from last summer? Well, selling October 75 calls worked out just fine; GENZ never made it over that price, so whoever bought the things on the other side of those contracts ended up handing over all their money to the people who wrote them. But using the proceeds to set up a 65-55 put spread for this month, that doesn't look like it's going to work so well. Genzyme's price has hung in the low 70s the whole time, and doesn't look to make the below-65-but-not-below-55 range that those trades need. Oh, well - let that be a lesson to everyone to stay out of the options market unless you're hedging a position somewhere else. I hope that these folks were.
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January 10, 2011
Posted by Derek
Thanks to Jim Edwards at Bnet, we have an example of some of the worst pharma sales techniques imaginable. A lawsuit alleging that Gilead Pharmaceuticals had been illegally pushing off-label indications for their angina medication Ranexa (ranolizine) was dropped recently, which brought a lot of court papers into view. According to the whistle-blower who filed the suit, a director of sales force training at the company said that their mission to, and nothing will do except a direct quote, "sell gobs of dope" and "get those pills into people's mouths any way you can."
The drug's supposed to be used only for refractory angina, but the suit alleges that Gilead's sales people were targeting the larger cardiovascular market. "I do not care what you do to sell the drug," a sales manager is quoted as saying. "I don't see anything and I don't hear anything. Just get those scripts."
Now, I realize that these are papers from only one side of this case. And as it turns out the Department of Justice actually did not get involved in the suit, which is probably why it's been dropped (for now). Furthermore, even if these allegations are true, they may well reflect the culture of CV Therapeutics, the company selling Renexa when Gilead bought them in 2009.
But this should really be an alarm bell for the management at Gilead. If they have people in their sales organization with this worldview, then it's only a matter of time before some of them do enough, say enough, present enough, and write down enough evidence to allow a successful whistle-blower case. And if that's what's going on, then such a suit would be richly deserved. This sort of stuff is idiotic, and it's wrong, and it's a big reason why the public opinion of our industry has been relentlessly sliding down over the years.
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January 7, 2011
Posted by Derek
We've had the too-many-doctorates discussion around here a few times, from different angles. The Economist has a good overview of the problem - short on solutions, naturally, but an excellent statement of where things are:
Whining PhD students are nothing new, but there seem to be genuine problems with the system that produces research doctorates (the practical “professional doctorates” in fields such as law, business and medicine have a more obvious value). There is an oversupply of PhDs. Although a doctorate is designed as training for a job in academia, the number of PhD positions is unrelated to the number of job openings. Meanwhile, business leaders complain about shortages of high-level skills, suggesting PhDs are not teaching the right things. The fiercest critics compare research doctorates to Ponzi or pyramid schemes.
One thing for those of us in the sciences to keep in mind is that we still have it better than people studying the humanities. Industrial jobs are in short supply right now, that's for sure - but at least the concept of "industrial job" is a valid one. What happens when you take a degree whose main use is teaching other people who are taking degrees?
roponents of the PhD argue that it is worthwhile even if it does not lead to permanent academic employment. Not every student embarks on a PhD wanting a university career and many move successfully into private-sector jobs in, for instance, industrial research. That is true; but drop-out rates suggest that many students become dispirited. In America only 57% of doctoral students will have a PhD ten years after their first date of enrolment. In the humanities, where most students pay for their own PhDs, the figure is 49%. Worse still, whereas in other subject areas students tend to jump ship in the early years, in the humanities they cling like limpets before eventually falling off.
(See this post for more on that topic. And this inevitably leads to the should-you-get-a-doctorate-at-all discussion, on which more can be found here and here). In the end, what we seem to have is a misalignment of interests and incentives:
Academics tend to regard asking whether a PhD is worthwhile as analogous to wondering whether there is too much art or culture in the world. They believe that knowledge spills from universities into society, making it more productive and healthier. That may well be true; but doing a PhD may still be a bad choice for an individual.
The interests of academics and universities on the one hand and PhD students on the other are not well aligned. The more bright students stay at universities, the better it is for academics. Postgraduate students bring in grants and beef up their supervisors’ publication records. Academics pick bright undergraduate students and groom them as potential graduate students. It isn’t in their interests to turn the smart kids away, at least at the beginning. . .
And I'm not sure how to fix that. Talk of a "higher education bubble" may not be idle chatter. . .
Update: more on the topic this week from the Chronicle of Higher Education.
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January 5, 2011
Posted by Derek
Here's a business idea for a nonprofit drug company, sent along by reader and entrepreneur Matt Grosso. I don't necessarily think that it would work (see below), but it's worth talking about, since some of its features are worthwhile. Others, though, illustrate what may be some common misperceptions of how drug development works. Here's the key feature:
The idea here is to create a non-profit which would accept contributions for testing and bringing to market specific drugs. . .Members would vote with their contribution dollars for specific drugs. Paid staff would curate a wiki that supported periodic comparisons between various candidates approaching readiness for a specific market, which would ensure that that member votes had the benefit of the best available information and expert opinion.
This could create an alternate route for drug startups focused on particular compounds to get their product to market.
I think that the ability to specifically take in contributions is a good one - people and organizations are more likely to fund defined aims that they agree with. One big problem, though, is that there's a limit to which we can define such things in this business. And that might make the whole idea break down.
To be honest, if a nonprofit really took in contributions for the development of specific drugs, they'd run a great risk of disappointing and enraging their donation base. That's because the honking huge majority of specific drugs in development never make it. The success rates in the clinic are pretty well known: roughly 90% of everything that goes into clinical trials never makes it to market. That's a hard sell for contributors! And if you moved the point at which you asked for donations back into the preclinical stage, the situation would get much, much worse. At the "Hey, we just thought of a neat new target" step, you'd be offering your contributors worse odds and payoffs than they could get in the state lottery.
For new compounds and new modes of action, the risks decrease in roughly the following order. At the same time, the time it takes to get an answer increases in the roughly the same way:
1. Specific single compound with a defined mechanism. Hold your breath, and good luck!
2. Defined chemical class of compounds targeting the same mechanism. Now you've got some fallback, although it might not be enough to help in case of trouble.
3. Specific mechanism, with several chemical series. This gives you several shots, although if your mechanism of action is off, all will still be in vain.
4. Phenotypic readout with a range of compounds (that is, they seem to do the right thing, but you're not sure how). Risk varies according to how realistic your assays are, and how many different compounds you've picked up.
5. Targeting a broad class of related mechanisms - for example, "reduce LDL", "disrupt bacterial membranes", "interrupt inflammatory cascade". Note that we're now getting farther and farther away from individual compounds.
6. Targeting one specific therapeutic area: antivirals, Alzheimer's, osteoporosis, etc.
7. Trying to balance things out with several therapeutic areas, with projects in each one at varying levels of risk.
Note that we've also illustrated the progression from "wing and a prayer startup" to "fully integrated drug company". That follows exactly from the levels of risk involved, which correlates with the amount of money on the table as well, in exactly the way the ranking of poker hands correlates with how likely they are to occur. Note also that even in that final stage, we apparently still have not mitigated the risks enough, given our cost structure. (Look at the state of the industry).
To get back to the nonprofit idea, another thing that might work out less well in practice than it does in principle might be that wiki for the potential investors/donors. This is what companies try to do internally: comparing their programs by the same criteria, head to head, then determining how to resource them. 'Taint easy. I don't know of any organization that truly thinks that they do as well at this as they should. Even a bunch of perfectly clear-headed and honest assessments (which, by the way, cannot be universally assumed) are still complicated by unquantifiable risks. I think that people might be alarmed by the number of times you just have to push things ahead to see what's going to happen.
Even after all these qualifications, though, I think that there's merit in the idea of breaking out individual drug development programs. I've long kicked around the idea of whether a company could fund programs by essentially selling shares in its various clinical candidates, with a cut of the profits coming if things work out. It would be an accounting mess, and everyone would have to keep those failure rates in mind, but there are still people who'd be willing to take a crack at it, for a given level of possible return. Those donors/investors might even be less put out than the charitable/nonprofit ones - everyone's had investments go bad, but no one wants to feel like their charitable donation was wasted. Thoughts?
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December 17, 2010
Posted by Derek
And here's the recap for the jobs roundtable week, up at ChemJobber. There's been a lot of interesting stuff posted, and I'm glad to have been able to help call attention to it all. . .
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December 16, 2010
Posted by Derek
The Thursday installment of the science jobs roundtable is up over at ScienceGeist. This time the topic is how to fund research so that it has a greater chance of generating new employment - a tough topic, and I'm not sure I agree with all the possible cures proposed, but check it out and see what you think.
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December 15, 2010
Posted by Derek
The latest post in the week-long blog roundtable on chemistry jobs is up over at Chembark, and it looks at the academic side: is tenure useful? If so, do its disadvantages outweigh the benefits? What would happen if we ditched it (and could we)?
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December 14, 2010
Posted by Derek
Part Two of the week-long blog roundtable on chemistry jobs is up over at Just Another Electron Pusher. This one is a data-rich post on the topic of whether there are too many science PhDs being turned out. Or are there just too few jobs for them? Can we tell the difference between those two situations, and does it matter? Well worth a read.
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December 13, 2010
Posted by Derek
Talking about Pfizer's stock price the other day let several people to note in the comments that it's not just PFE stock that's had a bad ten years: a lot of other big drug companies have, too, including some (like Lilly) that have very much declined to grow by merging. And it's true, as this chart will show.
This is a sampling of some big US-based pharma companies that have been around during the whole ten-year span. Note that J&J is actually ahead of the index (in red), and it and Abbott are the only two that can claim that distinction. (They're also the only two on the list with a significant medical devices/diagnostics presence - coincidence?)
The pure drug plays have all been pretty rough. Merck, Bristol-Myers Squibb, and Lilly are right down there with Pfizer. What I was trying to get across the other day, though, was not that Pfizer had been awful relative to its peers, but that it's been just as bad. All that merger activity, all that turmoil, has come down to this: same lousy performance as the other big companies. What, from an investing standpoint, has it done for anyone?
Now (as was also pointed out in the comments last week), these charts neglect reinvested dividends, but an S&P index fund's performance would also show some effect from that, too (although not as large as for some individual stocks, for sure). Another big point: we'll never be able to run the control experiment of dialing back the time machine and letting Pharmacia/Upjohn, Warner-Lambert, and Wyeth all stay un-Pfizered. (Not to mention what Pfizer might be were it to have remained un-super-sized). There are too many variables. All we can say is that there's no evidence that any of the big boardroom-level strategies have been superior to any other.
But given the way drug discovery has been going the last ten or fifteen years, it's hard to see anything making such charts look good, mergers or no mergers. That brings up a causality problem, too - it's important to remember that while mergers don't seem to have been doing any favors for drug research, the existing problems of drug research are what have led to many mergers. What was it that David Foster Wallace once said - that the definition of a harmful addiction is something that presents itself as the cure for the problems it's causing?
Update: in case you're wondering if this is just an effect of starting ten years ago (when the market was much livelier), you can use that Google Finance link to move the starting point back. From what I can see, you have to go back to 1994 or 1995 to find a point at which most of the drug stocks would have outperformed the S&P 500 (and as that last-ten-year chart shows, all of that happens early). Merck lags for a long time, and Bristol-Myers Squibb and Lilly still aren't above the line even if you start in the mid-1980s.
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Posted by Derek
I'd like to call attention to a week-long blog roundtable on scientific jobs and hiring that's starting today. The first installment is up at Chemjobber, and it's excellent reading. How did the employment picture in chemistry get into this shape? And are there any reasonable ways out of it?
We've talked about that over here in the past, but today I encourage everyone with an interest in these topics to head over to ChemJobber and add their ideas to the comments. I'll be putting up pointers to the other posts in the series during the week as well.
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December 10, 2010
Posted by Derek
It's taken a while, but have Pfizer's long-suffering investors finally had enough? FiercePharma has a roundup of stories that suggest that some of the institutions are upset over the abrupt departure of Jeffrey Kindler this past weekend. The quote that leaps out is one from an unnamed hedge fund manager who calls the current board "value destroyers".
Who'd disagree? But who would think that it would take this long for such people to realize the value that's been shredded over the years by Pfizer's acquire-acquire-acquire strategy? Here's ten years of Pfizer versus the S&P500. Up until 2004, with a couple of brief excursions, Pfizer stock basically tracks the index. After that, it lags badly. Over a decade of hard work on Wall Street, analyzing Pfizer's prospects, peering into their books, assessing their portfolio, weighing the chances for each drug, the ramifications of each acquisition: in vain. All in vain, because you'd have done far, far better with the money by parking it in an index fund and walking away to do something more meaningful with your time. Not that you wouldn't have lost money doing that; the S&P 500, damn it all, is down over a ten-year span. But you'd have lost a lot more if you'd listened to Pfizer's press releases or anyone who recommended that you buy their stock.
I've been complaining here about Pfizer's strategy since at least 2003, but it's not like I'm happy about being right. So many people have had their lives disrupted by Pfizer's acquisitions, and there's been so little return on all of it that it's hard to feel good about anything associated with the company's recent history.
And now that all these gigantic deals have been done, the employees have been jerked around, and the facilities closed, what are these big investors proposing to do about it? An angry committee has been formed to discuss strategic barn-door-closing initiatives, but the horses are over the horizon.
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December 6, 2010
Posted by Derek
Came the sudden news over the weekend that Jeff Kindler is stepping down as CEO of Pfizer. Actually, it's not so sure that "stepping down" is the right verb phrase to use. No one knew that he was retiring, and the departure of a CEO is usually given a bit more foreshadowing. (It's also usually press-released during the working week, for that matter).
No, this looks sudden. Honestly, though, I'd be surprised if Kindler doesn't feel a sense of relief stealing over him. Pfizer's had a horrendous time of it under him, but a lot of the horrendousness was already in motion when he took over. He's done nothing (given the Wyeth deal) to slow down the horrendous momentum, but Pfizer seems to have decided on its runaway-train corporate model many years ago.
So it's hard to see how changing CEOs is going to affect things much. The company is way too huge, and Lipitor is still going off patent. Even if the new guy (Ian Read) were to have an absolute magic wand effect on research productivity (and research luck), he won't be in the job long enough (ten years? twelve?) to see the effects at the other end of the pipeline. And if he wants to reverse course, to stop trying to acquire-your-way-out-of-trouble, that's going to be very difficult. In fact, given how Pfizer's unloaded various facilities (and people) after these acquisitions, it's going to be like trying to unbake a cake.
I wish Read luck. But I wouldn't run Pfizer, not for what twice they're paying him.
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December 1, 2010
Posted by Derek
Here we have a Reuters story from November 21: "Novartis Says No Plans to Cut Thousands of Jobs". This was in response to a Swiss newspaper article that said the company was planning something similar to what Roche has done.
And here we have an article from nine days later: "Novartis Plans to Cut 1,400 Drug Sales Jobs in US". To be sure, this isn't, technically, "thousands". And Novartis may well not be thinking along exactly the same lines as the Roche plan. But still.
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November 30, 2010
Posted by Derek
Andrew Witty of GSK has a one-page essay in The Economist on the problems of the drug industry. None of the background he gives will be news to anyone who reads this site, as you'd imagine - lower rates of success in discovery, higher costs, patent expirations, etc.
Here's his take on research and development:
. . .it is clear that the size of the industry will continue to contract in the drive for efficiency. For some players, more mergers and acquisitions are likely, but others will plan to shrink, and all parts of the value chain from R&D through to production and sales and marketing will be affected. . .
. . .In the past the problem of R&D in big pharmaceutical companies has been “fixed” by spending more and by using scale to “industrialise” the research process. These are no longer solutions: shareholders are not prepared to see more money invested in R&D without tangible success. If anything, based on a rational allocation of capital, R&D should now be consuming less resource.
Yikes. I'm not sure where that last sentence comes from, to be honest with you. Does Witty think that we now know so much about what we're doing that it shouldn't cost so much for us to do it? Or that it shouldn't cost so much to comply with the regulatory authorities, for some reason? I'm a bit baffled, and if someone can explain that "rational allocation" that he speaks of, I'd be grateful.
And I'd like to say that the rest of the piece advances some useful ideas, but I can't do that with a straight face. (To be fair, if Andrew Witty has some great ideas for making GSK more productive, he's most certainly not going to lay them out for everyone in The Economist). So it's all innovative business models, dynamic partnerships, recapturing creative talent in the drug labs, and so on. That last line will no doubt inspire a lot of bitter comment, considering what things have been like at GSK in the last few years.
His main pitch seems to be that drug companies need a "fair reward for innovation", and that's one of those things that's hard to disagree with on the surface. But unpacking it, that's the tough part, because everyone involved will start disagreeing on what's innovative, what might constitute a reward, and (especially) what's fair. Witty has been giving speeches on this for a while now, and I'd say that this latest article is just the condensed version.
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November 23, 2010
Posted by Derek
We talked a little while back here about "Lean Six Sigma" as applied to drug discovery organizations, and I notice that the AstraZeneca team is back with another paper on the subject. This one, also from Drug Discovery Today, at least doesn't have eleventeen co-authors. It also addresses the possibility that not everyone in the research labs might welcome the prospect of a business-theory-led revolution in the way that they work, and discusses potential pitfalls.
But I'm not going to discuss them here, at least not today. Because this reminds me of the post last week about the Novartis "Lab of the Future" project, and of plenty of other initiatives, proposals, alliances, projects, and ideas that are floating around this industry. Here's what they have in common: they're all distractions.
Look, no one can deny that this industry has some real problems. We're still making money, to be sure, but the future of our business model is very much in doubt. And those doubts come from both ends of the business - we're not sure that we're going to be able to get the prices that we've been counting on once we have something to sell, and we're not sure that we're going to have enough things to sell in the first place. (There, that summarized about two hundred op-ed pieces, some of them mine, in one sentence. Good thing that I'm not paid by the word for this blog.) These problems are quite real - we're not hallucinating here - and we're going to have to deal with them one way or another. Or they're going to deal with us, but good.
I just don't think that tweaking the way that we do things will be enough. We're not going to do it by laying out the labs differently, or putting different slogans up on the walls, or trying schemes that promise to make the chemists 7.03% more productive or reduce downtime in the screening group by 0.65 assays/month. This is usually where people trot out that line about rearranging deck chairs on the Titanic, but the difference is, we don't have to sink. The longer things go on, though, the more I worry that incremental improvements aren't going to bail us out.
This is a bit of a reversal for me. I've said for several years that the low success rates in the industry mean that we don't necessarily have to make some huge advance. After all, if we made it up to just 80% failure in the clinic, that would double the number of drugs reaching the market. That's still true - but the problem is, I don't see any signs of that happening. If success rates are improving anywhere, up and down the whole process from target selection to Phase III, it's sure not obvious from the data we have.
What worries me is that the time spent on less disruptive (but more bearable) solutions may be taking away from the time that needs to be spent on the bigger changes. I mean, honestly, raise your hands: who out there thinks that "Lean Six Sigma" is the answer to the drug industry's woes? Right. Not even all the consultants selling this stuff could get that one out with a straight face. "But it'll help!" comes the cry, "and it's better than doing nothing!". Well, in the short term, that may be true, although I'm not sure if there is a "short term" with some of these things. If it gives managers and investors the illusion that things are really being fixed, though, and if it takes mental and physical resources away from fixing them, then it's actually harmful.
What would it take to really fix things? Everyone knows - really, everyone does. Some combination of progress on the following questions would do just fine:
1. A clear-eyed look at target-based drug design, by which I mean, whether we should be doing it at all. More and more, I worry that it's been a terrible detour for the whole project of pharmaceutical research. There have been successes, of course, but man, look at the failures. And the number of tractable targets (never high) is lower than ever, as far as I can tell. If we're going to do it, though, we need. . .
2. The ability to work on harder target classes. The good ol' GPCRs and the easy-to-inhibit enzyme classes are still out there, and still have life in them, but the good ideas are getting thinner. But there are plenty of tougher mechanisms (chief among them protein-protein interactions) that have a lot of ideas running around looking for believable chemical matter. Making some across-the-board progress in those areas would be a huge help, but it would avail us not without. . .
3. Better selection of targets. Too many compounds fail in the clinic because of efficacy, which means that we didn't know enough about the biology going in. Most of our models of disease have severe limitations, and in many cases, we don't even know what some of those limitations are until we step into them. Maybe we can't know enough in many cases, so we need. . .
4. More meaningful clinical trials. And by that I mean, "for a given cost", because these multi-thousand-people multi-year things, which you need for areas like cardiovascular, Alzheimer's, osteoporosis, and so on, are killing us. We've got a terrible combination of huge potential markets in areas where we hardly know what we're doing. And that leads to gigantic, expensive failures. Could they somehow be less expensive? One way would be. . .
5. A better - and that means earlier - handle on human tox. I don't know how to do this one, either, but there are billions of dollars waiting for you if you can. Efficacy is the big killer in the late clinic these days, but that and toxicity put together account for a solid majority of the failures all the way through. (The rest are things like "Oops, maybe we should sell this program off" kinds of decisions).
There are plenty of others, but I think that improvements in those would fix things up just fine. Don't you? And maybe I'm just slow-witted, but I can't see how changing the way the desks face, or swapping out all the business cards for new titles, or realigning the therapeutic area teams - again - are going to accomplish any of it. At best, these things will make the current process run a bit better, which might buy us some more time before we have to confront the big stuff anyway. At worst, they'll accomplish nothing at all, but just give the illusion that something's being done.
To be fair, there are some initiatives around the industry that address these (and the other) huge problems. As I said, it's not like no one knows what they are. And to be fair, these really are difficult things to fix. Saying that you want to get a better early read on human tox in the clinic, the way I just did so blithely, is easy - actually doing something about it, or even finding a good place to start doing something about it, is brutally hard. But it's not going to be as brutal as what's been happening to us the last few years, or what's we're headed for if we don't get cracking.
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November 17, 2010
Posted by Derek
So Roche is (as long rumored) going through with a 6% headcount reduction, worldwide. That's bad news, but not unexpected bad news, and it certainly doesn't make them stand out from the rest of big pharma. This sort of headline has been relentlessly applicable for several years now.
What surprised me was their announcement that they're giving up on RNA interference as a drug mechanism. That's the biggest vote of no-confidence yet for RNAi, which has been a subject of great interest (and a lot of breathless hype) for some years now. (There's been a lot of discussion around here about the balance between those two).
That's not the sort of news that the smaller companies in this space needed. Alnylam, considered the leader in the field, already had over $300 million from Roche (back in 2007), but so much for anything more. The company is already putting on a brave face. It has not been a good fall season: they were already having to cut back after Novartis recently thanked them for their five-year deal, shook their hand, and left. To be sure, Novartis said that they're going to continue to develop the targets from the collaboration, and would pay milestones to Alnylam as any of them progress - but they apparently didn't feel as if they needed Alnylam around while they did so.
Then there's Tekmira, who had a deal with Roche for nanoparticle RNAi delivery. They're out with a statement this morning, too, saying (correctly) that they have other deals which are still alive. But there's no way around the fact that this is bad news.
What we don't know is what's going on in the other large companies (the Mercks, Pfizers, and so on) who have been helping to fund a lot of this work. Are they wondering what in the world Roche is up to? Looking at it as a market opportunity, and glad to see less competition? Or wishing that they could do the same thing?
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November 11, 2010
Posted by Derek
From reader Jose, in the comments thread to the most recent post:
"Published I find it ironic that so many pharma sites who hired hotshot architects to design labspaces that foster as much personal interaction as possible, are now pumping the virtues of collaborations across 10 time zones."
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November 10, 2010
Posted by Derek
A reader from a large company sends this along - it's the text of a letter that he's wanted to send to C&E News, but since, as he puts it, "they don't publish anonymous letters and I still need to work", he decided that it would never see the light of day. I offered to help him out with that.
I've written many times on this blog about outsourcing, mainly on the theme of "it isn't going away, so we're going to have to learn to deal with it". And I've seen companies use it well, but there's no doubt that there are companies that are either (a) using it poorly, or (b) taking the idea further than it can go. Outsourcing to a cheaper country is not a magic wand, for sure - the problem is, perhaps, that to an accountant it might look like one. At any rate, here's the letter.
In a recent edition (25th Oct 2010 “The Grand Experiment”) you state that Merck &Co targets 25% external R&D and that AstraZeneca is striving for 40%. I recently talked to all the project managers which oversee our current collaborations. The stories of naivety, incompetence and missed deadlines by the outsource companies were legion. The managers I talked to mostly used in-house resource and expertise to paper over the cracks. Why?
When asked whether they had reported these problems up the chain of command, the answer was always no. The reasons?
1 “If we have four collaborations and mine is the only one reporting problems, which three project managers do you think will get a bonus?”
2 “They won’t believe me, they will just think I am trying to protect jobs here”.
3. “You can’t swim against the tide”.
4 “When it goes bad here, I might be able to get a job with the collaborator”.
5 “My next job will be outside chemistry as a project manager. The last thing I need is any negative vibes around this collaboration”.
6. “I want to be the out-sourcing manager when that is all that there is left here. Do you think I want any trouble to become visible”
So, as far as senior management know, it is all going very well.
Unfortunately I can’t attach my name and organization. I need a job too and telling the truth is not always that popular, as many out-sourcing managers will have experienced. . .
These are valid points, and any company that is using (or thinking of using) a significant amount of outsourcing should pay attention. Just as with internal efforts, Something Upper Management Wants can too easily turn into Something Upper Management Is Going To Do No Matter What. And with outsourcing, the problems can be both harder to detect and potentially more severe. Because what you don't want is Something Upper Management Will Be Told Is Going Great, if it's really not.
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November 9, 2010
Posted by Derek
The same paper I was summarizing the other day has some interesting data on the 1998-2007 drug approvals, broken down by country and region of origin. The first thing to note is that the distribution by country tracks, quite closely, the corresponding share of the worldwide drug market. The US discovered nearly half the drugs approved during that period, and accounts for roughly that amount of the market, for example. But there are two big exceptions: the UK and Switzerland, which both outperform for their size.
In case you're wondering, the league tables look like this: the US leads in the discovery of approved drugs, by a wide margin (118 out of the 252 drugs). Then Japan, the UK and Germany are about equal, in the low 20s each. Switzerland is in next at 13, France at 12, and then the rest of Europe put together adds up to 29. Canada and Australia put together add up to nearly 7, and the entire rest of the world (including China and India) is about 6.5, with most of that being Israel.
But while the US may be producing the number of drugs you'd expect, a closer look shows that it's still a real outlier in several respects. The biggest one, to my mind, comes when you use that criterion for innovative structures or mechanisms versus extensions of what's already been worked on, as mentioned in the last post. Looking at it that way, almost all the major drug-discovering countries in the world were tilted towards less innovative medicines. The only exceptions are Switzerland, Canada and Australia, and (very much so) the US. The UK comes close, running nearly 50/50. Germany and Japan, though, especially stand out as the kings of follow-ons and me-toos, and the combined rest-of-Europe category is nearly as unbalanced.
What about that unmet-medical-need categorization? Looking at which drugs were submitted here in the US for priority review by the FDA (the proxy used across this whole analysis), again, the US-based drugs are outliers, with more priority reviews than not. Only in the smaller contributions from Australia and Canada do you see that, although Switzerland is nearly even. But in both these breakdowns (structure/mechanism and medical need) it's the biotech companies that appear to have taken the lead.
And here's the last outlier that appears to tie all these together: in almost every country that discovered new drugs during that ten-year period, the great majority came from pharma companies. The only exception is the US: 60% of our drugs have the fingerprints of biotech companies on them, either alone or from university-derived drug candidates. In very few other countries do biotech-derived drugs make much of a showing at all.
These trends show up in sales as well. Only in the US, UK, Switzerland, and Australia did the per-year-sales of novel therapies exceed the sales of the follow-ons. Germany and Japan tend to discover drugs with higher sales than average, but (as mentioned above) these are almost entirely followers of some sort.
Taken together, it appears that the US biotech industry has been the main driver of innovative drugs over the past ten years. I don't want to belittle the follow-on compounds, because they are useful. (As pointed out here before, it's hard for one of those compounds to be successful unless it really represents some sort of improvement over what's already available). At the same time, though, we can't run the whole industry by making better and better versions of what we already know.
And the contributions of universities - especially those in the US - has been strong, too. While university-derived drugs are a minority, they tend to be more innovative, probably because of their origins in basic research. There's no academic magic involved: very few, if any, universities try deliberately to run a profitable drug-discovery business - and if any start to, I confidently predict that we'll see more follow-on drugs from them as well.
Discussing the reasons for all this is another post in itself. But whatever you might think about the idea of American exceptionalism, it's alive in drug discovery.
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+ TrackBacks (0) | Category: Academia (vs. Industry) | Business and Markets | Drug Development | Drug Industry History | Who Discovers and Why
November 4, 2010
Posted by Derek
We can now answer the question: "Where do new drugs come from?". Well, we can answer it for the period from 1998 on, at any rate. A new paper in Nature Reviews Drug Discovery takes on all 252 drugs approved by the FDA from then through 2007, and traces each of them back to their origins. What's more, each drug is evaluated by how much unmet medical need it was addressed to and how scientifically innovative it was. Clearly, there's going to be room for some argument in any study of this sort, but I'm very glad to have it, nonetheless. Credit where credit's due: who's been discovering the most drugs, and who's been discovering the best ones?
First, the raw numbers. In the 1997-2005 period, the 252 drugs break down as follows. Note that some drugs have been split up, with partial credit being assigned to more than one category. Overall, we have:
58% from pharmaceutical companies.
18% from biotech companies..
16% from universities, transferred to biotech.
8% from universities, transferred to pharma.
That sounds about right to me. And finally, I have some hard numbers to point to when I next run into someone who tries to tell me that all drugs are found with NIH grants, and that drug companies hardly do any research. (I know that this sounds like the most ridiculous strawman, but believe me, there are people - who regard themselves as intelligent and informed - who believe this passionately, in nearly those exact words). But fear not, this isn't going to be a relentless pharma-is-great post, because it's certainly not a pharma-is-great paper. Read on. . .
Now to the qualitative rankings. The author used FDA priority reviews as a proxy for unmet medical need, but the scientific innovation rating was done basically by hand, evaluating both a drug's mechanism of action and how much its structure differed from what had come before. Just under half (123) of the drugs during this period were in for priority review, and of those, we have:
46% from pharmaceutical companies.
30% from biotech companies.
23% from universities (transferred to either biotech or pharma).
That shows the biotech- and university-derived drugs outperforming when you look at things this way, which again seems about right to me. Note that this means that the majority of biotech submissions are priority reviews, and the majority of pharma drugs aren't. And now to innovation - 118 of the drugs during this period were considered to have scientific novelty (46%), and of those:
44% were from pharmaceutical companies.
25% were from biotech companies, and
31% were from universities (transferred to either biotech or pharma).
The university-derived drugs clearly outperform in this category. What this also means is that 65% of the pharma-derived drugs get classed as "not innovative", and that's worth another post all its own. Now, not all the university-derived drugs showed up as novel, either - but when you look closer, it turns out that the majority of the novel stuff from universities gets taken up by biotech companies rather than by pharma.
So why does this happen? This paper doesn't put it one word, but I will: money. It turns out that the novel therapies are disproportionately orphan drugs (which makes sense), and although there are a few orphan-drug blockbusters, most of them have lower sales. And indeed, the university-to-pharma drugs tend to have much higher sales than the university-to-biotech ones. The bigger drug companies are (as you'd expect) evaluating compounds on the basis of their commercial potential, which means what they can add to their existing portfolio. On the other hand, if you have no portfolio (or have only a small one) than any commercial prospect is worth a look. One hundred million dollars a year in revenue would be welcome news for a small company's first drug to market, whereas Pfizer wouldn't even notice it.
So (in my opinion) it's not that the big companies are averse to novel therapies. You can see them taking whacks at new mechanisms and unmet needs, but they tend to do it in the large-market indications - which I think may well be more likely to fail. That's due to two effects: if there are existing therapies in a therapeutic area, they probably represent the low-hanging fruit, biologically speaking, making later approaches harder (and giving them a higher bar to clear. And if there's no decent therapy at all in some big field, that probably means that none of the obvious approaches have worked at all, and that it's just a flat-out hard place to make progress. In the first category, I'm thinking of HDL-raising ideas in cardiovascular and PPAR alpha-gamma ligands for diabetes. In the second, there are CB1 antagonists for obesity and gamma-secretase inhibitors in Alzheimer's (and there are plenty more examples in each class). These would all have done new things in big markets, and they've all gone down in expensive flames. Small companies have certainly taken their cuts at these things, too, but they're disproportionately represented in smaller indications.
There's more interesting stuff in this paper, particularly on what regions of the world produce drugs and why. I'll blog about again, but this is plenty to discuss for now. The take-home so far? The great majority of drugs come from industry, but the industry is not homogeneous. Different companies are looking for different things, and the smaller ones are, other things being equal, more likely to push the envelope. More to come. . .
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+ TrackBacks (0) | Category: Academia (vs. Industry) | Business and Markets | Drug Development | Drug Industry History | Who Discovers and Why
October 18, 2010
Posted by Derek
We're going to have to wait to find out of the whole Schering-Plough-buys-Merck charade is really going to allow revenue from J&J's Remicade to stay with the merged company. That merged company is known as "Merck", of course, and is run by Merck people from Merck's headquarters, so it's going to be interesting to see how that dispute goes. But although the first arguments have been made before an arbitration board, the decision doesn't look to be made until sometime next year. It sounds as if Merck is already trying to lower expectations, though. . .
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October 12, 2010
Posted by Derek
I was talking with some folks about this just last night - looks like Exelixis has rounded up some more money by signing a revised deal with BMS. They've been having a rough time out there recently, so I'm glad that there's a lifeline available. More on this as things become clearer. . .
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October 7, 2010
Posted by Derek
Here's a look at the layoff numbers in the drug industry, month by month so far this year. September's numbers jumped up, unfortunately, although the whole industry is not shedding jobs at the rate it was earlier this year. We're also behind last year's count, on a year-to-date basis.
Of course, slowing layoffs (if they are) is one thing. When's the last month that the pharma industry actually added head count? We've had a few months this year with very low layoff totals - did any of those go into positive territory overall, or do we have to go further back? I fear the latter, but I don't have the numbers.
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October 4, 2010
Posted by Derek
Well, this doesn't look encouraging. As part of its restructuring after buying Schering-Plough, Merck announced some time back that it's shedding the former Organon sites in Newhouse in Scotland and Schaijk in the Netherlands.
How's that going? Well, a correspondent forwarded me an unsolicited email he just received from "Partner International", the company hired by Merck to help divest these sites. And apparently Partner's strategy includes. . .spamming people with a one-page brochure touting this "Time Sensitive Acquisition Opportunity" for these "world class research opportunities".
My correspondent, regrettably, finds himself a bit short this month and unable to purchase either of these research sites. Perhaps someone else will idly browse their inbox and take Partner International up on this time-sensitive offer. If the message gets through the spam filter, that is.
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Posted by Derek
As of this morning. It looks like they were getting nowhere with Genzyme's board, so they're taking their same $69/share offer directly to the shareholders.
I'm not sure if that's going to be enough for them, but I presume that Sanofi-Aventis has already sounded out some of the institutional investors before going ahead. This isn't one of those questions you ask unless you're reasonably sure of the answer. But hostile bids do fail (or get their terms sweetened along the way). We've got until midnight, December 10, which is a long enough window for a lot of things to happen. Plenty of time to get some popcorn and find a good seat. . .
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September 10, 2010
Posted by Derek
Despite a number of reports yesterday and over night that Sanofi-Aventis had raised their offer for Genzyme shares, they're saying now that they've done no such thing. It's the same $69/share offer that was made public, and they're apparently lobbying the larger Genzyme shareholders to make them see the wisdom of the offer.
So if it's not going to be a bidding war, then most of the interesting stuff is going to be taking place behind the scenes. Will some of the big investors decide that S-A's offer is better than trusting Genzyme's management? Or will hang with the current team? Or (most likely, in my opinion) will they make no commitments to anyone while they wait to see if the offer gets higher (after more pressure is applied)?
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September 9, 2010
Posted by Derek
I've been waiting for over a year now to find out what's going to happen between Merck and J&J. The Schering-Plough acquisition was ludicrously structured as an acquisition of Merck in order to try to finess the rights to Remicade (infliximab) and its follow-up golimumab. These lucrative TNF-alpha antibodies were part of a deal with Schering-Plough, but under a provision that if the company experienced a "change in control" that the rights would revert back to J&J.
Thus the eye-rolling it's-SP-buying-Merck stuff. (Never mind that Fred Hassan was able to exercise parts of his own contract that related to a change in control of Schering-Plough). Well, as Jim Edwards writes, the issue is now going to arbitration. Merck has filed a disclosure on this with the SEC, apparently in response to repeated questions from investors.
Most everyone has expected the two companies to come to terms somehow, but that doesn't seem to be happening. According to that filing from Merck, the arbitration process started in late May of last year, so both companies have known that this was coming for quite some time. The fact that J&J hasn't blinked makes one think that they expect to prevail, and thus have no interest in agreeing to any deal that's more favorable to Merck.
Well, the language says "late September", and the whole process should go on for a couple of weeks at most. Some very expensive lawyers are donning their ceremonial armor as we speak. Let the games begin!
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September 8, 2010
Posted by Derek
Yesterday's note on the increasing costs in China led several commenters to mention that the cost savings of outsourcing work are never exactly what the percentages might lead you to think. Time zone problems, miscommunication, supply problems, and all the other things that can slow down work at a distance take their cuts. You have to keep a close eye on such factors, and also on what tasks you're asking your outsourcing partners to do.
So, what about the companies that are trying the project-leaders-here lab-workers-there approach? With all the chemistry being done overseas, you really have to keep on top of things. In fact, I've recently heard that some of the people in Merck's outsourced-chemistry area have been asked to consider relocating to China in order to keep things going smoothly.
I have this secondhand, so I'd be glad to get more (or more correct) details. But from what I heard, these requests have not gone over well, as you might imagine. Anyone on the ground at Merck want to fill the rest of us in?
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September 7, 2010
Posted by Derek
Back in May of this year, I wrote that:
. . .Everyone keeps mentioning that "China isn't as cheap as it used to be". And that's going to continue, I think - I'm not expecting them to reach US/EU cost levels any time soon, but the bottom-line advantages of doing contract work there, which a few years ago were immediately apparent, are starting to become more of a matter for thought. . .
I went on to wonder if some of the big investments in China might turn out to come on line about the time the cost advantages disappeared. Well, it's happening right on schedule. Via FiercePharma, we have this piece from Life Science Leader:
A 30% to 50% cost savings was the main driver for sourcing starting materials, intermediates, APIs, and (to some extent) finished drugs. Cheaper labor, tax advantages, undervalued currency and lower capital, and overhead costs all contributed to this. All of these advantages are expected to erode in the coming years as inflation in China rises, currency appreciates, and tax rebate structures start to evolve. . .
. . .With these changes China’s current gross cost advantage of 30% to 50% could easily go down to 13% to 25%. Factor in supply chain complexity (lead times and inventory implications), rising costs of quality assurance, and upcoming stringent environmental regulations, and Western pharmaceutical companies will start to rethink their China outsourcing strategies. Accommodating for these factors, the net cost advantage for some pharmaceutical firms could easily vanish.
This does not mean, of course, that pharma outsourcing is going away. It's just going to keep moving to the cheapest suppliers that can deliver the goods. India may well pick up some of this business (although their costs will be increasing as their wages rise), and other countries could well move into this space. (Thailand? The Philippines?) And then their costs will gradually grow, as they get richer, and someone else can move in. No, no one gets to sit back, set things on automatic pilot, and watch the money roll in, which is how it should be.
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August 30, 2010
Posted by Derek
A Swiss newspaper reported over the weekend that Roche is planning large cuts, across much of their multinational organization. Here's the original article, for those of you who read German.
Looking it over, it seems to depend on the word of one Roche insider - or, more accurately, someone the newspaper describes as having the "best contacts" there. This person says that a decision will be made this week on cuts in research and other parts of the organization, and that Roche has been trying for some time to work out a large cost-cutting program.
The company denies any specific plans, but makes the appropriate noises about always looking for ways to do things more efficiently. Anyone heard anything else?
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Posted by Derek
Well, so much for my fantasy of Sanofi-Aventis walking away from their attempt to buy Genzyme. They went public yesterday with a $69/share offer - even lower than most people were thinking - and just a little while ago, Genzyme publicly turned them down.
What's more, this is apparently the same price at which Genzyme (privately) balked earlier in the summer. The big difference now, of course, is that the dollar figures are out in the newspapers. And the only reason to do it that way, at least as far as I can figure, is if you're going to try to wage a hearts-and-minds battle for Genzyme's shareholders: a hostile offer, or at least the credible threat of one.
I'm in no position to say how well that'll work out. Sanofi-Aventis has, presumably, been sounding out the larger institutional investors to see if they can get something going, while Genzyme has surely been telling them to stick with the current management for a better deal. The big issue is the uncertainty about when the company is going to get its manufacturing problems taken care of. No doubt that's going to be one of the selling points for a hostile bid: "Do you really want to stick with the people who let this happen? And do you really trust them to get it cleaned up when they say that they will?" But that same uncertainly clouds the pricing of the hostile offer itself. Thus. . .$69/share.
If I had to guess, I'd say that the two sides, after a lot of fist-waving, will reach some sort of face-saving figure in the mid-70s. Will the guy that sold all those October $75 calls make out or not?
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August 27, 2010
Posted by Derek
Here's a roundup of the latest reports on the potential Genzyme takeover. For one thing, it looks as if people on the inside are talking again, after a good period of silence. And for another, it looks as if Sanofi is applying the pressure: no deal above $70/share.
Either Genzyme's board agrees to entertain such an offer, or they get
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