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

Derek Lowe The 2002 Model

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

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

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April 22, 2014

Shuffling the Departments

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Posted by Derek

So word comes this morning of some big transactions between Novartis, GlaxoSmithKline, and Eli Lilly:

Novartis said it had agreed to buy GlaxoSmithKline's oncology products for $14.5 billion, while selling to GSK its vaccines, excluding flu, for $7.1 billion plus royalties and creating a joint venture with GSK in consumer healthcare.

Novartis also said it had agreed to sell its animal health arm to Eli Lilly for approximately $5.4 billion.

The global pharmaceuticals sector has seen a flurry of deal-making recently as large companies seek to focus on a small number of leading businesses, while smaller specialty and generic producers seek greater scale.

Coming right after that Pfizer/AZ news the other day, this makes a person wonder what else is in the works. What's not clear (in what I've seen so far) is how this will work - for example, is Novartis just buying the existing drugs and the pipeline, and incorporating those into its existing research? What happens then to all the people in GSK's oncology? And so on. We'll see what details emerge. Any info on this is welcome in the comments, as well as speculations on why GSK is giving up the whole oncology area.

Comments (33) + TrackBacks (0) | Category: Business and Markets

April 21, 2014

Pfizer Walks Again By Night

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Posted by Derek

So the Sunday Times came out with a story saying that Pfizer has attempted a bid for AstraZeneca. This is something of a surprise, at least for me. Pfizer has most certainly done things like this in the past, but I was under the impression that current CEO Ian Read had sworn off the practice. He's been talking for some time now about how the company needs to be the right size, to focus on drug discovery, and so on, and swallowing AZ just seems to be a return to old habits.

But the Bloomberg follow-up story on this scoop does mention how Read's answers to merger questions seems to have shifted a bit over the last year or two. The Sunday Times piece says that AZ is believed to have been unenthusiastic, and that talks are no longer continuing. But the whole thing makes a person think that Pfizer is hungry for a big deal again, and that means that no one is safe.

Update: more follow-up from the Guardian.

Comments (25) + TrackBacks (0) | Category: Business and Markets

April 15, 2014

Novartis Gets Out of RNAi

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Posted by Derek

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

Comments (13) + TrackBacks (0) | Category: Business and Markets

April 9, 2014

AstraZeneca's Cambridge Move

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Posted by Derek

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

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

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

I liked this part of the article as well:

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

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

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

Comments (29) + TrackBacks (0) | Category: Business and Markets | Business and Markets

AstraZeneca's Cambridge Move

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Posted by Derek

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

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

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

I liked this part of the article as well:

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

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

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

Comments (29) + TrackBacks (0) | Category: Business and Markets | Business and Markets

April 8, 2014

Biotech Boom, Biotech Bust?

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Posted by Derek

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

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

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

April 7, 2014

Outsourcing Everything

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Posted by Derek

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

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

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

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

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

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

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

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

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

April 4, 2014

GSK Dismisses Employees in Bribery Scandal. Apparently.

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Posted by Derek

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

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

April 3, 2014

Reality-Based Biotech Investing

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Posted by Derek

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

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

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

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

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

March 31, 2014

Where The Hot Drugs Come From: Somewhere Else

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Posted by Derek

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

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

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

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

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

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

March 27, 2014

A Look Back at Big Pharma Stocks

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Posted by Derek

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

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

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

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

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

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

It is not a good idea (to "undiversify") because, at the moment, we do not have good tools to mitigate risk in drug R&D, which is a problem at the macroeconomic level, because capital does not flow to this industry as it should. Too many investors have been burned too badly and are now investing elsewhere or sitting on the fence, so we need to somehow get better at that. . .we've got to live with the situation where risk in the pharmaceutical industry cannot really be mitigated adequately. You can do portfolio management. Every company has done portfolio management. It has failed miserably across the board. That was supposed to protect everybody against patent cliffs, and everybody has fallen down patent cliffs, so clearly portfolio management has not worked.

Mind you, "undiversifying" is exactly what Pfizer is trying right now. They're not only trying to undo some of the gigantism of all those mergers, they're shedding whatever they have that is Not Pharma. So they're running that experiment for us, as they have some others over the years. . .

Comments (14) + TrackBacks (0) | Category: Business and Markets

March 19, 2014

Another Whack at the Stem Shortage Myth

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Posted by Derek

Over at The Atlantic, Michael Teitelbaum has another crack at demolishing the "STEM shortage" myth. Looking over actual employment data, he finds:

All have concluded that U.S. higher education produces far more science and engineering graduates annually than there are S&E job openings—the only disagreement is whether it is 100 percent or 200 percent more. Were there to be a genuine shortage at present, there would be evidence of employers raising wage offers to attract the scientists and engineers they want. But the evidence points in the other direction: Most studies report that real wages in many—but not all—science and engineering occupations have been flat or slow-growing, and unemployment as high or higher than in many comparably-skilled occupations.

Right on all counts. I have taken many, many cracks at this subject myself. Heck, I've even said so in pieces at The Atlantic's own web site. But the "critical shortage of scientists and engineers" idea just refuses to go back into its hole, no matter how many times it's hit on the head. In this article, Teitelbaum doesn't go into the reasons for this, but he's been clear about it in recent appearances:

So from where does the STEM hype stem? According to Teitelbaum — who has written a book on the subject, due out in March, titled “Falling Behind?: Boom, Bust and the Global Race for Scientific Talent” — some of it comes from the country’s longtime cycle of waxing and waning interest in science; attention seems to focus on science every 10 to 15 years before slacking off.

The only forces pushing the idea of STEM doom, he said, are those that have something to gain from it. Mostly those are STEM employers — the tech industry, for example — that want to pack the labor force with people to suppress wages, he said, as well as lobby for looser immigration laws so that they can bring in less expensive overseas workers. Joining the chorus are universities that want more funding for science programs, as well as immigration lawyers who see the potential for handling large numbers of work visas.

Those are, I'm sad to say, pretty much the same conclusions I've come to. I don't like sounding like a 1920s IWW organizer or something - it goes very much against my usual tendencies. And I continue to think that unionism in the sciences would be a bad idea. But drumming up cheap labor by pretending that there's a shortage of it is a bad idea, too.

As mentioned above, Teitelbaum has a book out on this subject - here it is. Next time you run across someone going on about scientist shortages, hit them over the head with it.

Comments (42) + TrackBacks (0) | Category: Business and Markets | Current Events

March 11, 2014

Always Insist on Error Bars

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Posted by Derek

That's the take-home of this post by Adam Feuerstein about La Jolla Pharmaceuticals and their kidney drug candidate GCS-100. It's a galectin inhibitor, and it's had a rough time in development. But investors in the company were cheered up a great deal by a recent press release, stating that the drug had shown positive effects.

But look closer. The company's bar-chart presentation looks reasonably good, albeit with a binary dose-response (the low dose looks like it worked; the high dose didn't). But scroll down on that page to see the data expressed as means with error bars. Oh dear. . .

Update: it's been mentioned in the comments that the data look better with standard error rather than standard deviations. Courtesy of a reader, here's the graph in that form. And it does look better, but not by all that much:

Comments (39) + TrackBacks (0) | Category: Business and Markets | Clinical Trials

March 10, 2014

Startups vs. Big Pharma

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Posted by Derek

Bruce Booth has opened up the number of authors who will be posting at LiveSciVC, and there's an interesting post up on startups now from Atlas Ventures' Mike Gilman. Edit: nope, my mistake. This is Bruce Booth's! Here are some of his conclusions:

here’s a list of a few of the perceived advantages of Pharma R&D today:

Almost unlimited access to all the latest technologies across drug discovery, ADME, toxicology, and clinical development, including all the latest capital equipment, compound libraries, antibody approaches, etc
International reach to support global clinical and regulatory processes to fully enable drug development programs
Deep and insightful commercial input into the markets, the pulse of the practicing physician, and the payors on what’s the right product profile
Gigantic cash flow streams that provide 15-20% of the topline to support a largely “block grant” model of R&D (fixing R&D spend to the percentage of sales)
Decades of institutional memory providing the scar tissue around what works and what doesn’t (e.g., insight into project attrition at massive scale)
This is a solid list of advantages, and they all have real merit.

But like the biblical Goliath, whose size and strength appeared to the Israelites as great advantages, they are also the roots of Pharma’s disadvantages. All of these derive their value as inward and relatively insular forces. Institutional memory in particular can serve to either unlock better paths to innovation or to stifle those that want to explore new ways of doing things. Lipinski’s Rules, hERG liabilities, and other candidate guidelines derived from legacy “survivor bias”-style analyses are case examples of this tension – unfortunately the stifling aspects rather than the unlocking ones often triumph in big firms.

Further, these impressive corporate R&D “advantages” are of course the product of Big Pharma’s path-dependency: single blockbuster successes discovered in the ‘60s-70s led to early mergers in the ‘80-90s, and bigger mega-mergers in the late 90s-00s, to form the organizations of today. Bigger and bigger R&D budgets buying up more and more “things” in the quest for improved productivity. In a sense, the growth drivers underlying these mergers acted like the excessive hGH coming from Goliath’s pituitary – the scale and constant growth pressure was a product of a disease, not a design.

He makes the point earlier on that constraints on spending, while they may not feel like a good thing, may actually be one. More money and resources often leads to box-checking behavior and a feeling of "Since we can do this, we should". There's some institutional political stuff going on there, of course - if you've checked off all the boxes that everyone agrees are needed for success, and you still don't succeed, then it can't be your fault. Or anyone's. That's not to say that all failures have to be someone's fault, but this sort of thing obscures those times when there's actual blame to go around.

The post also goes into another related problem: if you have all these resources, that you've paid for (and are continuing to pay for to keep running), then if they're not being used, things look like they're being wasted. They probably are being wasted. So stuff gets shoveled on, to keep everything running at all times. It's certainly in the interest of the people in those areas to keep working (and to be seen to be keeping working). It's in the interest of the people who manage those areas, and of the ones who advocated for bringing in whatever process or technology. But these can be perverse incentives.

The main problem I have with the post is the opening analogy to the recent Mars mission launched by India. I have to salute the people behind the Mangalyaan mission - it's a real accomplishment, and if it works, India will be only the fourth nation (or group of nations) to reach Mars. But going on about how cheaply it was done compared to the simultaneous MAVEN mission from the US isn't a good comparison. Yes, the Indian mission is eight times cheaper. But it has one quarter the payload, and is targeted to last about half as long, and that's leaving out any consideration of the actual instrumental capabilities. It's also worth noting that the primary goal of the Mangalyaan mission is to demonstrate that India can pull it off; any data from Mars are (officially) secondary. I'd find the arguments about small and large Pharma more convincing without this comparison, to be honest.

But the larger point stands: if you had to start discovering drugs from scratch, knowing what's happened to other, larger organizations, are there things you would do differently? Emphasize more? Avoid altogether? A startup allows you to put these ideas into practice. Retrofitting them onto a larger, older company is nearly impossible.

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

March 6, 2014

Biggest US Cities for Biopharma Funding, Versus Whole Continents.

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Posted by Derek

FierceBiotech has their roundup of the top areas of the US for venture capital funding in biopharma in 2013, and naturally, San Francisco and the Boston area are fighting it out for the top spot. But Oakland the the east Bay region are in a separate category, and if those are wrapped into the rest of SF, the whole Bay area wins out by a pretty good margin.

But, as was pointed out by Nick Taylor on Twitter, San Francisco (not even counting Oakland, etc.) and Boston together raised more biopharma VC funding than all of Europe put together.(See slide 10 here). SF raised $1.15 billion, and Boston $0.93, while all of Europe was about $1.9 billion.

And then there's the rest of the Bay area, San Diego, Seattle, NY/NJ/Philadelphia, the Research Triangle and everyone else. In medical research, the US is the startup capital of the world.

Comments (10) + TrackBacks (0) | Category: Business and Markets

March 4, 2014

Novartis's Stealthy Headcount Reductions

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Posted by Derek

Novartis has always been very, very quiet about their re-orgs and layoffs, to the point that when I and others write about them, we get hits from people at Novartis trying to find out what's going on. John Carroll at FierceBiotech has experience this as well, and he now has this story, from a reporter at the Swiss Tages-Anzeiger newspaper, that says that the company has actually eliminated between 3,000 and 4,000 jobs since last fall.

That comes to about a thousand in Europe (500 of them in Basel), 760 in the US (mostly in the sales force), and 400 during the closure of Horsham in the UK. My impression is that many of the others represent various manufacturing sites. Congratulations to the Zürich newspaper's Andreas Möckli for digging all this out - it could not have been easy. Here's my translation of the introductory paragraph:

It's a proven pattern for the drug company - Novartis is built up, worldwide, from various sites, but the whole extent of its actions are never communicated. While other companies inside (and outside) the industry announce their staff reductions with concrete numbers, Novartis is often content just confirming local media reports. At its Group level, the company has never announced any job cuts, even though jobs are lost in different locations. . .

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

March 3, 2014

A Bit More Realism in Consulting

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Posted by Derek

That McKinsey piece I mentioned the other day, the one saying that big drug mergers have pretty much worked out just fine, has been pretty thoroughly torn apart in the comments section. A reader has sent along another report from one of their competitors in the high-priced consulting game, this overview from Deloitte.

Most readers won't find much in there that's new. But at least you won't find so many things in there that make you wonder what's in their water supply. And there are some non-rosy parts, for sure:

While, the U.S. Food and Drug Administration (FDA)
approved 39 new molecular entities in 2012, up from 31 in 2011 and the highest number since 199644 (Figure 4), a Deloitte United Kingdom Centre for Health Solutions analysis of the late-stage pipelines of the leading 12 life sciences companies indicates that R&D returns have been declining since 2010. Life sciences innovators are feeling the impact of rising costs and a decline in forecasted sales revenues driven by an age of austerity and the patent expirations of many blockbuster drugs. The cost of developing an asset from discovery to commercialization has increased by 18 per cent, from $1,094 million in 2010 to $1,290 million in 2013. Over the same time period, the forecasted peak sales (highest-value sales in a single year) of an asset have declined by over 40 percent, down from $816 million in 2010 to $466 million in 2013. Total forecast sales over the lifetime of a product have also declined since 2010 and, in 2013 are estimated to be $4.6 billion.

I don't know how much those estimates jump around under normal conditions, but those are certainly not good trends. The overall picture, while not relentlessly gloomy, is certainly not relentlessly happy. You can extract some combinations out of the report that sound good, though, sort of like those Hollywood movie-deal pitches - you know, "Ocean's 11. . .in space!". In this case, I think the pitch would be "Biosimilars. . .in China!".

Comments (13) + TrackBacks (0) | Category: Business and Markets

February 26, 2014

The Instructive Case of Galena Biopharma

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Posted by Derek

If you're in the mood for another reason why you should always be cautious about your biopharma investments, look no further than Galena Biopharma (GALE to its many clueless fans). I've been following this story over the last couple of weeks, and what a mess it is. Galena is a small company in Oregon with a few assets, including a cancer vaccine candidate. Its stock hovers in the low single digits, as is appropriate. But in December and January, it began to trade up, and up. From $2/share to $4. Then to $6, and then higher. And this on no particular news or change in the company's prospects, which for a stock like this is often a sign of "momentum" players getting involved. "Momentum" investing is a fancy name for "I'm buying this because it's going up", and the people who do this sort of thing are understandably anxious for you to buy some, too. They're also very, very unwilling to hear about anything that might cause the stock to go back down, because the proper direction for stocks, we must remember, is up. They only go down because of evil short bashers; everyone knows this.

Adam Feuerstein of delivered a great big dose of that evil stuff (known to the rest of us as "reality") on February 12 with this article, which showed why the stock had been rising. The company was paying a PR firm to beat the drums for it, said drum-beating going as far as having people post multiple supposedly-independent articles on sites like Seeking Alpha under a list of pseudonyms.

An outfit called the "DreamTeam Group" was hired for the promotion. They run a stable of stock-touting web sites, full of wonderful tales about the companies that are paying them to say these wonderful things. And they spread the word on other sites (as above), and on Twitter, by e-mail and whatever means come to hand. If carrier pigeons come back into fashion, you can count on one fluttering down with a hot stock tip for you. And if you're greedy and stupid, you could see all this hype and convince yourself that a Great Opportunity is spawning right in front of you - why, all these people are buzzing about this hot little company, and money is right there for the taking. The only reason not to get in on a deal like this would be a lack of vision.

Galena's insiders do not lack vision. Indeed, they have proven beyond any doubt that money was in fact there for the taking. GALE peaked at nearly $8/share, but its directors and officers were unloading millions of dollars worth of shares into that market. And who could blame them? These are legal financial transactions between consenting adults, and if one set of those adults know what's going on and the other set doesn't, well, it's that kind of world, isn't it? A look at any jungle will show the larger predators eating the smaller ones, and God knows the Street isn't any different.

Yesterday GALE closed at about $4, and many of its "investors" are hopping mad about that, as a look at Feuerstein's mailbag will show. But here are some cynical people who figure that the company is actually worth about seventy-two cents a share. Reasonable observers can disagree about that figure. But if you want to argue that the company is cruelly undervalued at $4, you are probably not a reasonable observer. Or you bought at $7. Same thing.

Update: if you'd like to know why people are so skeptical of the prospects for Galena's vaccine, look no further than this comment. It's right on target.

Comments (64) + TrackBacks (0) | Category: Business and Markets | The Dark Side

February 25, 2014

InterMune Comes Through

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Back in 2010, I wrote about InterMune's drug for idiopathic pulmonary fibrosis, pirfenidone. The company's stock shot up on hopes that the compound would make it through the FDA, and then went straight back down when those proved ill-founded. The agency asked them for more data, and I wondered at the time if they'd be able to raise enough cash to generate it.

Well, they did, and the effort appears to have been worth it: the company says it met all its endpoints in Phase III, and is headed back to the FDA with what appears to be a solid story. Note that this press release, as opposed to the Pfizer one that I was mentioning earlier today, is full of data.

The company's stock has shot up, once again. If you've been an InterMune investor over the last few years, your fingernails are probably in bad shape and your combover is no longer plausible. The stock has had wild moves on rumors of takeovers (or lack of same) and anticipation of these clinical results. But good for them: they stuck with their compound, and it looks like it's paid off. And, just as a side note, good for people with fibrosis, too, eh?

Comments (4) + TrackBacks (0) | Category: Business and Markets | Clinical Trials

February 24, 2014

Big Drug Mergers: So They're OK, Right?

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Posted by Derek

Several people sent along this article from McKinsey Consulting, on "Why pharma megamergers work". They're looking (as you would expect) at shareholder value, shareholder value, and shareholder value as the main measurements of whether a deal "worked" or not. But John LaMattina, who lived through the Pfizer megamerger era and had a ringside seat, would like to differ with their analysis:

The disruption that the integration process causes is immeasurable. Winners and losers are created as a result of the leader selection process. Scars form as different research teams battle over which projects are superior to others. The angst even extends to one’s home life as people worry if their site will be closed and that they’ll be unemployed or, at best, be asked to uproot their families halfway across the country to a new research location. In such a situation, rumors are rife and speculation rampant. Focus that should be on science inevitably get diverted to one’s personal situation. This isn’t something that lasts just a few weeks. Often the integration process can take as much as a year.

The impact of these changes are not immediate. Rather, they take some years to become apparent. The Pfizer pipeline of experimental medicines, as published on its website, is about 60% of its peak about a decade ago, despite these acquisitions. Clearly, a company’s success isn’t assured by numbers, but one’s chances are enhanced by more R&D opportunities. I would argue these mergers have taken a toll on the R&D organization that wasn’t anticipated a decade ago.

Well, there have been naysayers along the way. "I think the Pfizer-Wyeth merger is a bad idea which will do bad things". "I'm deeply skeptical" is a comment from 2002. And here's 2008: "Pfizer is going to be having a rough time of it for years to come".

But here's where McKinsey's worldview comes in. Look at that last statement of mine, from 2008. If you just look at the stock since that date, well, I've been full of crap, haven't I? PFE has definitely outperformed the S&P 500 since the summer of 2008, and especially since mid-2011. There's your shareholder value right there, and what else is there in this life? But what might they have done, and what might the companies that they bought and pillaged have done, over the years? We'll never know. Things that don't happen, drugs that don't get discovered - they make no sound at all.

Comments (37) + TrackBacks (0) | Category: Business and Markets | Drug Industry History

February 13, 2014

Jobs, He Says

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Posted by Derek

If you want to hear the most perfectly conventional wisdom about STEM jobs, then come and pay heed to John Lechleiter, the CEO of Lilly. He's been giving speeches and writing op-eds for some time about the issue, and he has another one out in Forbes. It's the same one. It's always the same one:

Right now, there are over 600,000 unfilled manufacturing jobs in America.

Many employers are eager to hire. They’ve got capital set aside specifically to invest in expanding their workforce. And they have applicants — problem is, many of them simply don’t have the training and education needed to perform the work.

Largely to blame is the “STEM” skills gap, so-called after the core subjects of science, technology, engineering and math. It’s real and it’s growing. If we’re going to retain America’s greatest competitive advantage — our genius for innovation — we must inspire more kids to pursue STEM skills through education that’s engaging and effective.

It's hard to speak up against this without sounding like some sort of villain out of Charles Dickens. "Study science and math? Fah! Filling their heads with nonsense, I call it!". And I really can't argue against the idea that students should be taught these subjects, or against the idea that they certainly could be taught better than they are now. So why is Lechleiter going around saying that he's in favor of apple pie, over and over and over?

My guess is that this is only half the speech. Here's the other half, where he blames tax and immigration policy. Lilly, as is well known in the industry, has been shedding employees with relentless energy for many years now. They've offshored jobs, they've ditched whole departments and hired them back as lower-paid contractors, they've reduced head count in just about every way you can imagine short of launching people into space. But given the fix that the company's in, that's still not enough.

This history makes reading any of Lechleiter's editorials a bit hard to take. For example:

And just like other STEM-centric industries, biopharmaceutical firms face a scarcity of incoming talent. Nationally, private industry is expected to add about one million new STEM positions over the next decade. But there aren’t even enough qualified applicants to replace the Baby Boomers retiring right now.

How about the people who have been "retiring" from Eli Lilly over the past few years? How about the ones that are going to feel the recently-announced billion-dollar cutback in Lilly's R&D budget? They're going to do that without laying more people off? And that's after vast reductions have already taken place. In July 2004, the company had 45,835 employees. Now they say that they have "over 37,000", and keep in mind that they've added several thousand people just by acquisitions (i.e., not by creating new positions). So the total loss of jobs since 2004 is probably around 12,000.

And their CEO goes around talking about having trouble hiring people.

Comments (85) + TrackBacks (0) | Category: Business and Markets

February 11, 2014

Drug Discovery in India

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Posted by Derek

Molecular biologist Swapnika Ramu, a reader from India, sends along a worthwhile (and tough) question. She says that after her PhD (done in the US), her return to India has made her "less than optimistic" about the current state of drug discovery there. (Links in the below quote have been added by me, not her:

Firstly, there isn't much by way of new drug development in India. Secondly, as you have discussed many times on your blog. . .drug pricing in India remains highly contentious, especially with the recent patent disputes. Much of the public discourse descends into anti-big pharma rhetoric, and there is little to no reasoned debate about how such issues should be resolved. . .

I would like to hear your opinion on what model of drug discovery you think a developing nation like India should adopt, given the constraints of finance and a limited talent pool. Target-based drug discovery was the approach that my previous company adopted, and not surprisingly this turned out to be a very expensive strategy that ultimately offered very limited success. Clearly, India cannot keep depending upon Western pharma companies to do all the heavy lifting when it comes to developing new drugs, simply to produce generic versions for the Indian public. The fact that several patents are being challenged in Indian courts would make pharma skittish about the Indian market, which is even more of a concern if we do not have a strong drug discovery ecosystem of our own. Since there isn't a robust VC-based funding mechanism, what do you think would be a good approach to spurring innovative drug discovery in the Indian context?

Well, that is a hard one. My own opinion is that India only has a limited talent pool as compared to Western Europe or the US - the country still has a lot more trained chemists and biologists than most other places. It's true, though, that the numbers don't tell the story very well. The best people from India are very, very good, but there are (from what I can see) a lot of poorly trained ones with degrees that seem (at least to me) worth very little. Still, you've still got a really substantial number of real scientists, and I've no doubt that India could have several discovery-driven drug companies if the financing were easier to come by (and the IP situation a bit less murky - those two factors are surely related). Whether it would have those, or even should, is another question.

As has been clear for a while, the Big Pharma model has its problems. Several players are in danger of falling out of the ranks (Lilly, AstraZeneca), and I don't really see anyone rising up to replace them. The companies that have grown to that size in the last thirty years mostly seem to be biotech-driven (Amgen, Biogen, Genentech as was, etc.)

So is that the answer? Should Indian companies try to work more in that direction than in small molecule drugs? Problem is, the barriers to entry in biotech-derived drugs are higher, and that strategy perhaps plays less to the country's traditional strengths in chemistry. But in the same way that even less-developed countries are trying to skip over the landline era of telephones and go straight to wireless, maybe India should try skipping over small molecules. I do hate to write that, but it's not a completely crazy suggestion.

But biomolecule or small organic, to get a lot of small companies going in India (and you would need a lot, given the odds) you would need a VC culture, which isn't there yet. The alternative (and it's doubtless a real temptation for some officials) would be for the government to get involved to try to start something, but I would have very low hopes for that, especially given the well-known inefficiencies of the Indian bureaucracy.

Overall, I'm not sure if there's a way for most countries not to rely on foreign companies for most (or all) of the new drugs that come along. Honestly, the US is the only country in the world that might be able to get along with only its own home-discovered pharmacopeia, and it would still be a terrible strain to lose the European (and Japanese) discoveries. Even the likes of Japan, Switzerland, and Germany use, for the most part, drugs that were discovered outside their own countries.

And in the bigger picture, we might be looking at a good old Adam Smith-style case of comparative advantage. It sure isn't cheap to discover a new drug in Boston, San Francisco, Basel, etc., but compared to the expense of getting pharma research in Hyderabad up to speed, maybe it's not quite as bad as it looks. In the longer term, I think that India, China, and a few other countries will end up with more totally R&D-driven biomedical research companies of their own, because the opportunities are still coming along, discoveries are still being made, and there are entrepreneurial types who may well feel like taking their chances on them. But it could take a long longer than some people would like, particularly researchers (like Swapnika Ramu) who are there right now. The best hope I can offer is that Indian entrepreneurs should keep their eyes out for technologies and markets that are new enough (and unexplored enough) so that they're competing on a more level playing field. Trying to build your own Pfizer is a bad idea - heck, the people who built Pfizer seem to be experiencing buyer's remorse themselves.

Comments (30) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History | Who Discovers and Why

February 10, 2014

How the New BioPharma IPOs Have Been Doing

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Posted by Derek

Bruce Booth has an update on how all the recent biotech IPOs have been doing for their investors. Overall, pretty well - which is surely why the market still seems to be humming along, despite several predictions of a dip. Now, that word "investors" covers a lot of ground. You have founders, you have people involved in the various venture capital financing rounds, you have people who bought at the IPO price, and people who've bought in afterwards. These groups are going to have profoundly different returns, but in many cases, there's been something for people to be glad about all the way down the list. Here are some of Booth's conclusions:

Big winners are well represented. There are a number of very attractive “Top 10%” returns in this IPO window. Top decile in venture capital has historically been a >5x return across any sector, including tech. These are the 1 in 10 outcomes every VC would love to have, and any LP would love their managers to deliver.

The spread of outcomes is considerable. There are as many top decile outcomes as there are money-losing investments. There are a good number of companies that got public at valuations that are significant fractions of their total invested capital. These are clearly the laggards whose shareholders hope the public markets will somehow rescue over time.

Post-IPO performance has been a big contributor to returns. The returns into the pricing of most IPOs have been modest – but a majority of the offerings have traded up, a few of them even doubling or tripling since their offerings. . . It's clear to see many of the high flier IPOs have driven the bulk of their “on paper” returns in the after-market. The hope of course is many more biotechs will outperform in future post-IPO trading.

There's a lot more data over at Bruce's site. Those post-IPO performance numbers are, naturally, subject to constant revision every trading day, and no one's made any money at all until they've said "sell". But overall, this is probably better performance than a lot of people would have predicted.

Comments (3) + TrackBacks (0) | Category: Business and Markets

February 6, 2014

Crowdfunding Independent Research

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Posted by Derek

I've written about Ethan Perlstein's work here before, and now I note that the Wall Street Journalhas an article about his crowdfunding research model.

Ethan O. Perlstein for years followed a traditional path as a scientist. He earned a Ph.D. in molecular biology from Harvard, spent five years doing postdoctoral research at Princeton and led a team that published two papers on pharmacology.

But last year, Dr. Perlstein was turned down by 27 universities when he sought a tenure-track position to set up his own lab. Hundreds of candidates had applied for a small number of positions, the universities said, a situation made worse by cuts in federal research funding.. . .

. . .Still, Dr. Perlstein's approach is unusual because he isn't raising money to support a discrete project or product. "Ethan is doing basic research," said Jessica Richman, co-founder of Ubiome, a health and wellness startup that raised more than $350,000 through crowdfunding on a site called Indiegogo. "He is selling the idea that he is an independent scientist doing research."

Dr. Perlstein plans to launch his public appeal for Perlstein Lab this week on a site called AngelList. Perlstein Lab will focus on finding drugs to treat lysosomal storage diseases, in which cells fail to produce and recycle waste. The materials accumulate in cells and can cause a range of problems, including death.

Here's his profile page on AngelList, which seeks money from what the SEC calls "qualified" investors (high net worth individuals). I think that's probably a good idea - anyone who's done "angel" type investments before will have a more realistic idea of the chance of any return (you'd hope). Crowdfunding research, in general, is something that interests me a great deal, although it's easy to think of potential problems.

Comments (12) + TrackBacks (0) | Category: Business and Markets | General Scientific News

AstraZeneca Cutting Back - Some More

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Posted by Derek

AstraZeneca has announced that they're cutting back, yet again. 550 more jobs are being shed, but (unhelpfully) they're not saying what divisions of the company will shrink. More details as they arise - I would assume (or at least hope) that the folks working at AZ have more details, but you can't be sure of that, can you? This company and Eli Lilly continue to be in the worst shape among the big pharmas.

Comments (18) + TrackBacks (0) | Category: Business and Markets

February 4, 2014

Overqualified For the Job

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Posted by Derek

Here's an uncomfortable (but necessary) topic in the chemistry job market: a reader tells me that his company's search for someone with 2 to 5 years experience brought in (as you might expect) a flood of applications from people with much more than that (10 to 15 years). The problem is, the job (as it stands) isn't going to use most of the skills and knowledge that they've built up. It's a junior position, and they're not junior to anyone.

So here are the questions: is it OK to even apply for positions in this way? Is it (on the other end) appropriate to offer someone a "downgraded" position like this? Can it even work out if you do, or will the person taking the job not be able to fit into that role?

I'm not sure I have any good answers. My guess is that most people would have trouble fitting in this way, and that the situation would eventually result in a lot of discomfort on both sides. But on the other hand, a job is a job, and there aren't too many of them out there. On the gripping hand, though, (old science fiction reference there), less-experienced people need jobs, too, and shouldn't they be able to compete for the ones that they're best qualified for?

I've seen a variant of this situation, one that I most certainly do not recommend. At a company I know of, a person was hired into a Master's level position, and did fine. They eventually revealed, though, that they had had a PhD all along, and applied for a vacant position at that level. This strategy got them fired, though, for having lied on their original application (the company's position, which I can understand, was that if they didn't fire someone for this, how could they fire the next person who lied about something else?) In the end, people found this person a job at another smaller company in the area, so the exit wasn't as hard as it could have been, but it was still a mess.

But the questions above don't apply to stealth resumés - these are people who are being completely open about their overqualifications. So what to do?

Comments (77) + TrackBacks (0) | Category: Business and Markets

February 3, 2014

Novartis Does A Big, Quiet Reshuffle

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Posted by Derek

That AstraZeneca news about cutting back in India should be balanced against this report that Novartis is doing the opposite. It looks like the company is (A) telling everyone that their global head count will remain roughly the same, and (B) opening up a center in Hyderabad that can employ up to 8,000 people.

These jobs don't look like bench positions, though - more IT, clinical trial monitoring, HR and other office positions. But if both of those conditions hold, there's going to be a lot of reshuffling going on, from higher-wage areas to Hyderabad. Economically, it makes sense, as long as there aren't too many inefficiencies introduced along the way. And like every other arbitrage opportunity, it will go on until the price differential closes, which I hope, for everyone involved, is more a matter of wages going up as India's economy improves.

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January 31, 2014

How Not to Invest in Biopharma

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Posted by Derek

Did these people really take their life's savings and load them into a tiny biotech stock on the basis of a rumor? That's what these Provectus investors say, and they're writing to blame Adam Feuerstein when things went bad. If true, these are the investing equivalent of the "Hey, hold my beer and watch this!" stunts that win Darwin Awards. I can't even imagine.

Comments (16) + TrackBacks (0) | Category: Business and Markets

January 29, 2014

AstraZeneca Closes a Lab - In India This Time

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Posted by Derek

Now here's a story that you might not have expected to see a few years ago: AstraZeneca is closing a research site in Bangalore, with some of its functions (tropical disease work) to move back to the UK. I'm not sure what this says about Bangalore, tropical diseases, or AstraZeneca (who have plenty on their agenda), but it does have a dog-bites-man man-bites-dog feel to it, rightly or not. Edit: I apparently am confused about who is normally gnawing on whom.

Comments (24) + TrackBacks (0) | Category: Business and Markets

What STEM Shortage? Where? How?

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Posted by Derek

Most readers here know how brutal the employment situation is for chemists (especially those involved in drug discovery). Knowing that and seeing constant headlines about the crippling shortage of so-called STEM workers is always hard to take, but there's always the danger of extrapolating chemistry (especially organic chemistry) to science and engineering in general. Surely the electrical engineers are finding jobs, right?

Surely not. The number of employed electrical engineers in the US went down by 10% last year. And according to Ron Hira at the Rochester Institute of Technology, there's more:

The number of employed software developers, the largest IT occupation segment, increased by only 1.75%, to 1.1 million, a gain of 19,000. The unemployment rate for developers last year was 2.7%, which is still elevated, according to Hira.

Jobs for computer systems analysts increased by 35,000, to 534,000, an increase of 7%, but Hira said it is the most common H-1B occupation and that nearly all those gains went to H-1B visa holders. . .

. . .Claims of shortages of STEM (science, technology, engineering and math) workers "have no support in fact and no connection to reality, " Hira said. "The NASDAQ is at its record high in more than a decade, only at the height of the dot-com bubble was it higher." adding that hiring for electronics engineers should be booming.

There are plenty of other numbers that say the same thing: there is no shortage of scientists and engineers in this country. There may still be some specialties where it's hard to find good people, although I don't know what they are and I'd like to see proof of that first, but overall there is no STEM shortage. Unless, of course, you ask the head of PhRMA. Or Eli Lilly's CEO. Or Bayer. Or the schools that profit by driving more people into science and engineering studies. Or the President's Council of Advisors on Science and Technology. Or Accenture. Or Mark Zuckerberg.

We have a serious disconnect here. Is there a shortage of skilled labor, or just a shortage of really cheap skilled labor? Some of that disconnect may be on display later this afternoon, as David Harwell of the ACS Career Management and Development office starts taking questions live over at Reddit Science. Might be worth a look. . .

Comments (50) + TrackBacks (0) | Category: Business and Markets

January 22, 2014

Novartis Continues Closing and Rearranging

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Posted by Derek

Novartis says that it's cutting about 500 positions in Switzerland, in what they're saying are support and pharma development roles. They're also closing a plant in Suffern, NY. The company is famously tight-lipped about this sort of thing, so there really aren't any details on whether this is a continuation of last year's rearrangements or what. More information if any shows up!

Comments (1) + TrackBacks (0) | Category: Business and Markets

January 17, 2014

Abandoning the Chinese Drug Market

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Posted by Derek

Here's one of those stories that makes you wonder: one-off or beginning of a trend? A generic drug company, Actavis, has decided to get out of the Chinese market. Too much hassle for too little money, and that last part is something you don't hear about China all that often. (For centuries, entrepreneurs of all kinds have dreamed about "What if just one out of a thousand of them bought my stuff. . .")

“It is not a business friendly environment,” Bisaro said at the JPMorgan Chase & Co. health-care conference in San Francisco. “If we’re going to allocate capital, we’re going to do so where we can get the most amount of return for the least amount of risk. And China is just too risky.”

. . .Given Actavis’s small presence in China, “it wasn’t worth the aggravation, the frustration or the concern,” he said.

Bisaro said there doesn’t appear to be a level playing field, which makes it hard for companies to compete. “You need a certain consistency in application of rules, and I’m not certain China has achieved that consistency yet.”

Generic profit margins are lower, so you won't see the research-based drug companies coming to this conclusion any time soon. But neither is it impossible. Companies would hate to pass up the Chinese market, but there's a set point for everything.

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January 15, 2014

"We Had to Clear Out Some Chemists"

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Posted by Derek

Matthew Herper at Forbes got a phone interview in with Merck's Roger Perlmutter, and some interesting things came up:

Perlmutter has praised chemistry – the ability to synthesize new drug molecules, as one of Merck’s core strengths. Which is why rumors that he’s been laying off chemists came as a surprise. And the rumors are true.

“It is the case that we have a superb chemistry organization, and having coming back I’m impressed with the progress the chemistry organization has made in terms of the compositions of matter,” he says. In hepatitis C, in particular, he notes that molecule are 700 to 1,000 daltons, way bigger than the company would have previously considered using. But he says he needed to clear out some chemists to hire more biologists.

“The reality is, as every chemist knows, you need great biologists to identify where to focus and we need to strengthen our biology capabilities and that just requires a different kind of investment. and we need to make headroom — it’s kind of a zero sum game. I was not happy, I don’t want to fire people, but on the other hand I know we have to live within our means.”

It seems that he could drop the "kind of" in front of "zero sum game", if that's what's really going on (and it may well be). It's true that you can have the wrong balance of chemists to biologists, and you can have it in either direction. We can argue (and people do) about what the proper settings are, but I don't think that anyone would dispute that it's possible to go too far. Whether Merck's research organization was, in fact, that imbalanced is open to argument, too, of course.

But when I hear this sort of rationale, I can't help but think of Randall Jarrell's lines: "You can't break eggs without making an omelette / - That's what they tell the eggs."

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A Short Guide to the JP Morgan Conference

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Posted by Derek

The J. P. Morgan conference has been going on this week, with biopharma companies showing their wares to the investment community. Bruce Booth is out there (with many another venture capitalist), and you can tell from this post that he's been around that track before. I'm surprised he stopped at only ten white lies:

6. “We’ve got a ton of Pharma interest in this deal.” Translation: Our next meeting is actually with a Pharma company. Translation #2: You should have seen me work the room at the Pharma Reception last night.

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January 13, 2014

Alnylam Makes It (As Does RNAi?)

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Posted by Derek

I've written about Alnylam, one of the flagship RNA interference companies, a few times around here. A couple of years ago, I was wondering if they'd win the race to come up with results that would keep the doors open.

Well, if you haven't been keeping up with the news in this space, they made it. Sanofi has just bought a large stake in the company, on the strength of the recent clinical results with patisiran, an RNAi therapy for the rare disease transthyretin-mediated amyloidosis (ATTR). Alnylam has a lot on their schedule these days, and the Sanofi deal will provide a big boost towards getting clinical data on all these ideas. Congratulations to them, and to RNAi in general, which has had a lengthy (and often overhyped) growth phase, and now might be starting to realize its promise.

Update: more on the story here.

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January 6, 2014

The 2013 Drug Approvals: Not So Great?

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Posted by Derek

So we finished the year with 27 new drugs approved. Compared to the 39 approvals the year before, is that a reversion to the mean, a sudden downturn, a meaningless fluctuation, or what?

John Carroll seems to be in the "something to worry about" camp at FierceBiotech:

The wave of new drug approvals that had been building at the FDA has broken. According to the official tally of new drug and biologics approvals at the agency, the biopharma industry registered only 27 OKs for new entities in 2013--a sharp plunge from 2012's high of 39 that once again raises big questions about the productivity and sustainability of the world's multibillion-dollar R&D business.

After 2012 some experts boasted that the industry had turned a corner, with the agency boasting that it was outstripping the Europeans in the speed and number of new drug approvals. But for 2013 the numbers look a lot closer to the bleak average of 24 new approvals per year seen in the first decade of the millennium than the 35 per year projected by McKinsey through 2016.

And here's Bernard Munos at Forbes on the same topic. He thinks that looking at the industry as a monolith might be obscuring something:

Overall, 2013 was good or great for half of big pharma, and forgettable for the rest. Is this the beginning of a split in the group that has long dominated the industry? Some companies may counter that approval statistics is a lagging indicator that reflects past performance and not the promise of their pipelines. If one looks at FDA’s Breakthrough Designations, however, which is a leading indicator of pipeline quality, they tend to show the same picture, and cluster around the companies that have been most successful. . .Success seems to beget success, which suggests that today’s winners may also be tomorrow’s winners.

One thing remains worrisome: 11 new drugs per year — the average big pharma output for the last 5 years — is not enough to support these companies’ $370 billion of current sales, especially since only 3 or 4 will become blockbusters. The giddy promises to deliver 2 drugs per year consistently have not materialized, and there is no indication that they will. . .

(You can tell he's never gotten over Lilly's promise some years ago to deliver approvals on that schedule, and who could blame him)? As for me, I wish that I had some sort of crystal-ball insight to deliver, but I don't. Drug discovery (and thus NDA filings and approvals) seems to be such a statistically noisy process that it's hard to draw conclusions from a year or two of data. Let's watch what happens this year and see both what the numbers are and how the FDA and the companies involve try to interpret them. One thing to note already is how some people were ready to use the 2012 approvals as clear evidence that the industry was getting more productive - are the 2013 numbers such clear evidence in the other direction, or not?

Comments (26) + TrackBacks (0) | Category: Business and Markets | Regulatory Affairs

January 2, 2014

Grading the Drug Companies

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Posted by Derek

Here are Matthew Herper's grades for the big pharma/biotech companies in 2013. The bottom two companies will probably not come as a surprise to readers of this site (or to anyone who's been paying attention). Number One, while a reasonable pick, is one that you could have probably surprised folks with a few years ago. . .

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December 19, 2013

Bristol-Myers Squibb Exits Diabetes

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Posted by Derek

As the Wall Street Journal reported last night, Bristol-Myers Squibb is getting out of the diabetes business entirely, selling its collaboration with AstraZeneca back to AZ.

As part of the transaction, and subject to local consultation and legislation, Bristol-Myers Squibb and AstraZeneca anticipate that substantially all employees of Bristol-Myers Squibb dedicated to the diabetes business will be transferred to AstraZeneca. A number of R&D and manufacturing employees dedicated to diabetes will remain with Bristol-Myers Squibb to progress the diabetes portfolio and support the transition for these areas. Bristol-Myers Squibb will work closely with AstraZeneca to ensure a smooth transition.

What happens once that diabetes portfolio is "progressed"? I haven't heard details yet, and they may not even be available. Given the recent moves by BMS, though, this announcement shouldn't come as a huge surprise. It does say some interesting things about the positions of the two companies. BMS sees big opportunities in its oncology portfolio, and by comparison, the diabetes business looks slow-moving and too expensive for the return it offers. AstraZeneca, by contrast, needs all the help it can get. Actual drugs that are bringing in actual money, and whose patents are not expiring next Tuesday? Not bad.

Comments (21) + TrackBacks (0) | Category: Business and Markets | Diabetes and Obesity

December 17, 2013

A Look Under the VC Hood For 2013

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Posted by Derek

Here's an interesting year-end list - from Bruce Booth at Atlas Venture, it's the list of seed-stage biotech companies that they've funded this year. Unless you're a very, very close follower of the field, you'll never have heard of most (or all) of them, but all the biotech/small pharma companies you've heard of have been at this stage at some point.

What's also interesting is the upfront admission that only about half of these, at the most, are going anywhere, and (as Booth says) some of them are "already trending negative". In that business, if some of your bets aren't "trending negative", then you aren't making enough of them, because no one's good enough just to put money down on the winners.

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GlaxoSmithKline's New Sales Practices

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Posted by Derek

GSK has announced that they're going to change the way their sales and marketing organization does business, and how they compensate people in it. They're removing all individual numerical targets for their sales reps worldwide, for one thing, following up on changes they made to the system in the US a couple of years ago. I don't know how that's worked out here, in the real world, so I can't comment much on that one.

A big change, though, is that the company has announced that it:

". . .will move to end the practice of paying healthcare professionals to speak on its behalf, about its products or disease areas, to audiences who can prescribe or influence prescribing.

GSK will also stop providing financial support directly to individual healthcare professionals to attend medical conferences and instead will fund education for healthcare professionals through unsolicited, independent educational grant routes.

I think that this is a necessary part of getting the industry's image back, to the extent that this can be done. Here's a possibly useful rule of thumb: if the headline about you stopping something looks embarrassing all by itself ("GlaxoSmithKline to Stop Paying Doctors for Endorsements"), you probably shouldn't have been doing it in the first place.

The company says that they will continue to pay people for work on clinical trials and the like (and I don't see how anyone could do otherwise), but the speak-up-for-us-you-key-opinion-leaders stuff will not be missed. Or shouldn't be. But there's another part of the press release I found interesting:

The company has committed to disclose the payments it makes to healthcare professionals and already does so in several countries including the USA, Australia, UK, Japan and France in line with locally agreed government or industry association standards. GSK will continue to disclose the payments it makes for clinical research advisory activities and market research in these countries and will also continue to work towards transparency in other countries as industry associations or governments establish specific guidelines for disclosure.

Now, there's a country that's missing from that list. . .one where payments are not required to be disclosed and "locally agreed" standards might be a bit harder to get a handle on. Where could it be?

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A Year-End Review at Xconomy

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Posted by Derek

Here's another look back at biotech's state in 2013, from Luke Timmerman. He's using the well-known "hype cycle" to evaluate where various topic and companies stood: are they in the Peak of Inflated Expectations, the Trough of Disillusionment, the Slope of Enlightenment, or the Plateau of Productivity? (These always sound like locations out of John Bunyan to me, which is not altogether inappropriate).

I think he's right that the hottest area right now are the immunotherapies, which have been notching up some dramatic results. But much as I'd like them to, I don't think that they're going to be able to march through the rest of the oncology field in similar fashion. (And yes, I know that I'm asking to put small-molecule oncology out of business with a wish like that. Let's put it this way - if I get cancer, will I be glad that someone has a treatment for it, even if it wasn't from my own field?)

I also note that he has Moderna (and messenger RNA-based therapies in general) on the hype list. They made a big splash back in March, and since then things have been pretty quiet (as they probably should be - those guys have a lot of work to do). As I mentioned at the time, my natural wariness at this-changes-everything platforms is cut, in small proportions, with the knowledge that somethings these things do change everything. We'll see, but I'll bet we won't see in 2014.

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December 12, 2013

Eye of the Beholder Stuff

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Posted by Derek

I'm sure that many readers here will be interested to hear that (according to some outfit called the happiest company in America to work for is. . .Pfizer. Probably makes you happy just to hear about it, doesn't it?

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Worst Biotech CEO Time

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Posted by Derek

I always enjoy this one: time to vote on Adam Feuerstein's "Worst Biotech CEO" awards for this year. There are, as is so often the case, some real stinkers on the list. Tough choices await.

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

December 5, 2013

Drug Companies In Great Britain: Ease Up, Won't You?

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Posted by Derek

The tension between drug companies and regulatory agencies is constant. It would be there even if no one cared a bit what drugs cost, because you can talk about safety and efficacy without ever mentioning a price. But since we do care about drug prices, and are coming to care more about them with every passing month, the tension is higher than ever. The questions aren't just "Is this drug safe?" or "Is this drug efficacious", or even "Is this drug relatively safe compared to its level of efficacy". You get into the really hard ones like "Is this drug's level of efficacy worth its price?"

Great Britain's NICE is at the forefront of these arguments, and some of the largest drug companies have recently been arguing back. In a public letter, they're calling on the Prime Minister to do something about the way the NICE approves new compounds:

We all accept there are increasing pressures on NHS spending, but there is a prevailing myth that medicines are expensive. In fact, spend on medicines was less than 10pc of total NHS expenditure in 2011. Britain pays less for its medicines than almost anywhere else in Europe. Over £7bn has already been saved from the medicines bill. No other part of the NHS is saving the taxpayer money on such a scale.
Medicines should not just be seen as a cost. They are an investment and an essential part of improving patient outcomes. Yet, fewer than one in three medicines have been recommended by the National Institute for Health and Care Excellence (NICE) for use in the NHS in line with their licence since 2005. And the proportion of medicines refused by NICE is only increasing.

The last straw seems to have been a recently-announced "voluntary" agreement with drug companies to freeze the costs of supplying drugs to the National Health Service. That was voluntary, in the sense of there would be mandatory price cuts if they didn't comply. That kind of voluntary. In turn, the drug companies' letter also has a part that might be titled "And If You Don't. . ." It goes like this:

. . .At a time when there is fierce global competition to attract investment in life sciences, the commercial environment is critical. The Government must work harder to get this right. It’s important that the impact that our medicines have on saving and improving people’s lives, and the innovation, economic stimulus and jobs that they deliver, is valued.

The key part is the "fierce global competition" phrase. I'd translate that as "You know, we don't have to employ people in this country. There are other places to go." Mind you, at least as far as medicinal chemistry is concerned, most companies in the UK seem to have already made good on that threat, even before the threat was made. But there are plenty of other jobs besides med-chem. We'll see how the UK government reacts.

Comments (31) + TrackBacks (0) | Category: Business and Markets

December 2, 2013

Eisai Cuts Back

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Posted by Derek

Getting the week off to a bad start is this news from Eisai. They're stopping small-molecule work at their site in Andover, and (like everyone else, it seems) chopping med-chem at their UK site as well. Worldwide, it looks like a loss of 130 positions.

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November 26, 2013

The Freshness Index

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Posted by Derek

One way to look at a drug company's pipeline and portfolio is the "Freshness Index" - how much of its sales are coming from products approved within the past five years. Here's Bernard Munos earlier this year on this topic, where he shows that (too much) revenue lately has been coming from older products. At the time, the figures for the big companies started off with Novartis (19% "fresh" sales), GlaxoSmithKline (12%), J&J (11.8%) and Pfizer (10%).

I bring this up because there's a new look at the freshness index. This one has only products from 2010 or later, and year-to-date sales figures. Under those conditions, it's J&J in the lead (23.4% of sales), then Novartis (17.8%), and Novo Nordisk (13.6%). Now, Novo was not in Munos's list, so I can't say if there's been much of a change there or not, but I find the change in J&J's figures interesting. I don't think that's all due to new approvals - is it older stuff slipping off the list? The new list also has GSK down neat the bottom at 2.3% "fresh", which shows you how much the cutoffs matter to these assessments.

One thing both lists agree on, though, is Eli Lilly. They're at the bottom in both, showing 0.8% of their sales coming from anything approved since 2010. That can't be good, and it isn't. AstraZeneca, Pfizer, Merck, and Sanofi are all in the single digits as well. So's Roche, but their long-running Genentech-driven biotech products make up for that. AZ and Lilly don't exactly have that cushion.

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November 18, 2013

Cuts at Shire

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Posted by Derek

I'm hearing reports of re-organization and worse at Shire's UK R&D today (Basingstoke). There had been reports in the press earlier this month, but things seem to be underway. The medicinal chemistry situation in the UK is surely the worst it's been in living memory. . .

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November 14, 2013

Layoffs and Personal Finance

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Posted by Derek

A reader sent along a note about some of the recent layoffs we've been seeing across pharma/biotech companies. Different organizations have very different ways of handling things like stock units and options, and in a layoff one of the key variables is the vesting schedule. Remember, if you have compensation of this sort that hasn't vested, it isn't yours. It may show up in your statements (albeit under its own category), and you will have seen the announcements of it being awarded to you, but until this stuff vests that's all provisional.

I think that most people realize that part, although if you don't, it's going to come as a nasty surprise. What seems to have taken some people unaware recently, though, is that companies have different schedules for vesting the employer match contributions in 401(k) accounts. Some companies vest immediately, but those are probably not a majority. The rest follow different schedules, and if you are laid off, that unvested money is going to disappear unless the company specifically changes its mind about that.

Now that said, there's not much you can do about this, but it's worth knowing the real situation in advance so you can plan accordingly. Seeing money disappear from their retirement accounts was something of a shock to people in these recent layoffs, from what I'm told, making a bit situation just that much more painful.

Comments (18) + TrackBacks (0) | Category: Business and Markets

No More Stack Ranking at Microsoft

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Posted by Derek

The topic of "stack ranking" came up around here recently, so I wanted to pass on some news in this area. Microsoft, one of the most notorious practitioners, has apparently decided to stop. It's not clear to me just what they're replacing it with, but whatever system they're trying out could hardly be more demoralizing than what it's replacing. Drawing raises and bonuses out of a bingo cage would be preferable - at least then people wouldn't be at each other's throats.

Even if all members of a team performed well that year, the manager was required to designate a set percentage as underperformers — a practice that drew fire from employees. Many thought the system rewarded internal politicking, withholding of information and back-stabbing, rather than rewarding innovation or cooperation.

That review system has been blamed by some for causing Microsoft to fall behind other tech companies in the past decade in key areas such as mobile computing.

In an email to employees Tuesday, Lisa Brummel, Microsoft’s head of human resources, wrote that the new review process will now have “no more curve.”

“We will continue to invest in a generous rewards budget, but there will no longer be a predetermined targeted distribution,” she wrote. “Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget.”

In addition, she wrote, there will be “no more ratings. This will let us focus on what matters — having a deeper understanding of the impact we’ve made and our opportunities to grow and improve.”

It's a constant struggle, figuring out how to reward people without providing perverse incentives. And it's a problem with a lot of range, too, when you consider how it applies to businesses, schools, welfare policy, and many other areas. It's probably a safe bet that there's no general solution, but that doesn't give people an excuse to stick with something that's worse than neutral. The "two man enter, one man leave" aspect of a rank-and-yank system is definitely that. (As a side issue, it also assumes that the rating process is accurate enough to make calls like this, which is very much debatable in many organizations). Maybe Microsoft will start a trend here. . .

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November 8, 2013

The Other Shoe Drops at Ariad

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Posted by Derek

Ever since Iclusig (ponatinib) (note: fixed that name as an update) ran into trouble with blood-cloting side effects, Ariad has had a huge uncertain cloud blocking out its sunlight. Now that the FDA has told them to take the drug off the market completely, it was clear what was going to happen. Happen it has: the company is laying off a large part of its workforce.

It's very much in doubt whether Iclusig will ever come back. Update: in Europe, the EMA has now said that Iclusig can remain on the market "with increased caution").And if it doesn't, it's very much in doubt whether Ariad will, or how long that might take. There's a large, mostly-completed building around the corner from me covered in blue-green glass that was going to be the home of a larger, more solvent Ariad, and no one knows what's going to happen to that, either. It's a rough business.

Update: turns out the blue-green glass one was going to be Aveo, which cratered earlier this year. Who's going to occupy that, one wonders? Ariad's is the less-complete large framework going up across from the (incongruous) Mormon church. That's a pretty large building, or will be, and you wonder who will end up in there. There are so many biopharma construction sites in this town that you need a guidebook.

Comments (23) + TrackBacks (0) | Category: Business and Markets | Cancer | Regulatory Affairs

Exiting Two Therapeutic Areas

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Posted by Derek

So Bristol-Myers Squibb did indeed re-org itself yesterday, with the loss of about 75 jobs (and the shifting around of 300 more, which will probably result in some job losses as well, since not everyone is going to be able to do that). And they announced that they're getting out of two therapeutic areas, diabetes and neuroscience.

Those would be for very different reasons. Neuro is famously difficult and specialized. There are huge opportunities there, but they're opportunities because no one's been able to do much with them, for a lot of good reasons. Some of the biggest tar pits of drug discovery are to be found there (Alzheimer's, chronic pain), and even the diseases for which we have some treatments are near-total black boxes, mechanistically (schizophrenia, epilepsy and seizures). The animal models are mysterious and often misleading, and the clinical trials for the biggest diseases in this area are well-known to be expensive and tricky to run. You've got your work cut out for you over here.

Meanwhile, the field of diabetes and metabolic disorders is better served. For type I diabetes, the main thing you can do, short of finding ever more precise ways of dosing insulin, is to figure out how to restore islet function and cure it, and that's where all the effort seems to be going. For type II diabetes, which is unfortunately a large market and getting larger all the time, there are a number of therapeutic options. And while there's probably room for still more, the field is getting undeniably a bit crowded. Add that to the very stringent cardiovascular safety requirements, and you're looking at a therapeutic that's not as attractive for new drug development as it was ten or fifteen years ago.

So I can see why a company would get out of these two areas, although it's also easy to think that it's a shame for this to happen. Neuroscience is in a particularly tough spot. The combination of uncertainly and big opportunities would tend to draw a lot of risk-taking startups to the area, but the massive clinical trials needed make it nearly impossible for a small company to get serious traction. So what we've been seeing are startups that, even more than other areas, are focused on getting to the point that a larger company will step in to pay the bills. That's not an abnormal business model, but it has its hazards, chief among them the temptation to run what trials you can with a primary goal of getting shiny numbers (and shiny funding) rather than finding out whether the drug has a more solid chance of working. Semi-delusional Phase II trials are a problem throughout the industry, but more so here.

Comments (58) + TrackBacks (0) | Category: Business and Markets | Diabetes and Obesity | Drug Development | The Central Nervous System

November 6, 2013

Now Novartis-Emeryville?

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Posted by Derek

Novartis, again. The company had already announced some cuts at their Emeryville site, but remarks in the comments section (and communicated to me directly) indicate that something even more serious is underway out there now.

More details as things become clearer. And that brings up another item: the Novartis Horsham closure earlier this week appears (again, by comments here and by personal communication) to have not been announced to the rest of the company at the time. A number of people around the organization seem to have heard about it through this site, which does not make a lot of sense to me. When I went with the blog post on this, I assumed that it was known at least inside Novartis, but apparently not.

That's something for companies to think about. This is 2013. People have phones and they have e-mail, and they've had them for a long time. Word gets out quickly. These things show up here, but they show up in other places, too, and will surely go on doing so. Leaving it to the grapevine when a press release could clear things up seems like an odd decision, but having never had to decide on a site closure myself, perhaps I'm missing something.

Update: here's the Boston Globe with an overview of what seems to be going on.

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BMS Reshuffling

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Posted by Derek

Damn it all, we just got through with Novartis closing down the Horsham site, and now I'm hearing, from several sources, that something is up at Bristol-Myers Squibb. Tomorrow and/or Friday, word has it, some sort of rearrangement is going to be announced, supposedly with loss of head count. Supposedly concentrated by therapeutic area, but who knows in these things? More details will surely be coming along.

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November 5, 2013

Novartis Closing Horsham

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Posted by Derek

The Novartis site at Horsham (UK) appears to be closing down. I heard night that there was to be a (rather sudden) meeting of all the managers there today, and now I'm getting word that they've been told that the entire site will be shuttered. The company had already been talking about "redeveloping" the site, but this would seem to come as a worst-case surprise. More details as they emerge.

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November 1, 2013

Bayer's Here to Tell You That There's a STEM Shortage

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Posted by Derek

So says Chemjobber today. He does a good job taking this apart, and it might not surprise you to find out that the company is actually able to find people when it offers a bit more money. It's like there was some kind of market or something.

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October 31, 2013

Merck's Aftermath

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Posted by Derek

So the picture that's emerging of Merck's drug discovery business after this round of cuts is confused, but some general trends seem to be present. West Point appears to have been very severely affected, with a large number of chemists shown the door, and reports tend to agree that bench chemists were disproportionately hit. The remaining department would seem to be top-heavy with managers.

Top-heavy, that is, unless the idea is that they're all going to be telling cheaper folks overseas what to make, that is. So is Merck going over to the Pfizer-style model? I regard this as unproven on this scale. In fact, I have an even lower opinion of it than that, but I'm sure that my distaste for the idea is affecting my perceptions, so I have to adjust accordingly. (Not everything you dislike is incorrect, just as not every person that's annoying is wrong).

But it's worth realizing that this is a very old idea. It's Taylorism, after Frederick Taylor, whose thinking was very influential in business circles about 100 years ago. (That Wikipedia article is written in a rather opinionated style, which the site has flagged, but it's a very interesting read and I recommend it). One of Taylor's themes was division of labor between the people thinking about the job and the people doing it, and a clearer statement of what Pfizer (and now Merck) are trying to do is hard to come by.

The problem is, we are not engaged in the kind of work that Taylorism and its descendants have been most successfully applied to. That, of course, is assembly line work, or any work flow that consists of defined, optimizable processes. R&D has proven. . .resistant to such thinking, to put it mildly. It's easy to convince yourself that drug discovery consists of and should be broken up into discrete assembly-line units, but somehow the cranks don't turn very smoothly when such systems are built. Bits and pieces of the process can be smoothed out and improved, but the whole thing still seems tangled, somehow.

In fact, if I can use an analogy from the post I put up earlier this morning, it reminds me of the onset of turbulence from a regime of laminar flow. If you model the kinds of work being done in some sort of hand-waving complexity space, up to a point, things run smoothly and go where they're supposed to. But as you start to add in key steps where the driving forces, the real engines of progress, are things that have to be invented afresh each time and are not well understood to start with, then you enter turbulence. The workflow become messy and unpredictable. If your Reynolds numbers are too high, no amount of polish and smoothing will stop you from seeing turbulent flow. If your industrial output depends too much on serendipity, on empiricism, and on mechanisms that are poorly understood, then no amount of managerial smoothing will make things predictable.

This, I think, is my biggest problem with the "Outsource the grunt work and leave the planning to the higher-ups" idea. It assumes that things work more smoothly than they really do in this business. I'm also reminded a bit of the Chilean "Project Cybersyn", which was to be a sort of control room where wise planners could direct the entire country's economy. One of the smaller reasons to regret the 1973 coup against Allende is that the chance was missed to watch this system bang up against reality. And I wonder what will happen as this latest drug discovery scheme runs into it, too.

Update: a Merck employee says in the comments that there hasn't been talk of more outsourcing, If that proves to be the case, then just apply the above comments to Pfizer.

Comments (98) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History | Life in the Drug Labs

October 30, 2013

Totaling Up a Job Search

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Posted by Derek

Here's well known chemistry blogger See Arr Oh totaling up the cost of a job hunt these days. Time does indeed equal money, with a few correction factors thrown in, and it all adds up to a lot of both of them.

But from what he tells me, he hasn't given up on the idea of a job doing drug discovery, hard path though that may be these days. I've had many interactions with him, though, and he does indeed know the field (and can obviously write about it, too). If anyone out there has a need for someone like that, I think he'd be very glad to hear about it. You could staff a productive department pretty quickly with the sorts of people who are available these days. . .

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October 28, 2013

Decision Time at Merck

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Posted by Derek

Actually, decision time was a little while back. But I've heard from more than one source that this week is when everyone in Merck's chemistry hears the details of the job cuts and rearrangements announced recently. Good luck to all concerned. . .

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October 22, 2013

Ariad in Limbo

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Posted by Derek

As feared, the recent trouble at Ariad has indeed put their plans to move into a new site on hold. The Boston Globe has the story here. I go past this construction site all the time - well, to be accurate, if you travel around Cambridge, you past a lot of construction sites, all the time. One would assume that if Ariad has to back out that someone else will find a use for the space. . .

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Size Doesn't Matter. Does Anything?

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Posted by Derek

There's a new paper in Nature Reviews Drug Discovery that tries to find out what factors about a company influence its research productivity. This is a worthy goal, but one that's absolutely mined with problems in gathering and interpreting the data. The biggest one is the high failure rate that afflicts everyone in the clinic: you could have a company that generates a lot of solid ideas, turns out good molecules, gets them into humans with alacrity, and still ends up looking like a failure because of mechanistic problems or unexpected toxicity. You can shorten those odds, for sure (or lengthen them!), but you can never really get away from that problem, or not yet.

The authors have a good data set to work from, though:

It is commonly thought that small companies have higher research and development (R&D) productivity compared with larger companies because they are less bureaucratic and more entrepreneurial. Indeed, some analysts have even proposed that large companies exit research altogether. The problem with this argument is that it has little empirical foundation. Several high-quality analyses comparing the track record of smaller biotechnology companies with established pharmaceutical companies have concluded that company size is not an indicator of success in terms of R&D productivity1, 2.

In the analysis presented here, we at The Boston Consulting Group examined 842 molecules over the past decade from 419 companies, and again found no correlation between company size and the likelihood of R&D success. But if size does not matter, what does?

Those 842 molecules cover the period 2002-2011, and of them, 205 made it to regulatory approval. (Side note: does this mean that the historical 90% failure rate no longer applies? Update: turns out that's the number of compounds that made it through Phase I, which sounds more like it). There were plenty of factors that seemed to have no discernable influence on success - company size, as mention, public versus private financing, most therapeutic area choices, market size for the proposed drug or indication, location in the US, Europe, or Asia, and so on. In all these cases, the size of the error bars leave one unable to reject the null hypothesis (variation due to chance alone).

What factors do look like more than chance? The far ends of the therapeutic area choice, for one (CNS versus infectious disease, and these two only). But all the other indicators are a bit fuzzier. Publications (and patents) per R&D dollar spent are a positive sign, as is the experience (time-in-office) of the R&D heads. A higher termination rate in preclinical and Phase I correlated with eventual success, although I wonder if that's also a partial proxy for desperation, companies with no other option but to push on and hope for the best (see below for more on this point). A bit weirdly, frequent mention of ROI and the phrase "decision making" actually correlated positively, too.

The authors interpret most or all of these as proxy measurements of "scientific acumen and good judgement", which is a bit problematic. It's very easy to fall into circular reasoning that way - you can tell that the companies that succeeded had good judgement, because their drugs succeeded, because of their good judgement. But I can see the point, which is what most of us already knew: that experience and intelligence are necessary in this business, but not quite sufficient. And they have some good points to make about something that would probably help:

A major obstacle that we see to achieving greater R&D productivity is the likelihood that many low-viability compounds are knowingly being progressed to advanced phases of development. We estimate that 90% of industry R&D expenditures now go into molecules that never reach the market. In this context, making the right decision on what to progress to late-stage clinical trials is paramount in driving productivity. Indeed, researchers from Pfizer recently published a powerful analysis showing that two-thirds of the company's Phase I assets that were progressed could have been predicted to be likely failures on the basis of available data3. We have seen similar data privately as part of our work with many other companies.

Why are so many such molecules being advanced across the industry? Here, a behavioural perspective could provide insight. There is a strong bias in most R&D organizations to engage in what we call 'progression-seeking' behaviour. Although it is common knowledge that most R&D projects will fail, when we talk to R&D teams in industry, most state that their asset is going to be one of the successes. Positive data tends to go unquestioned, whereas negative data is parsed, re-analysed, and, in many cases, explained away. Anecdotes of successful molecules saved from oblivion often feed this dynamic. Moreover, because it is uncertain which assets will fail, the temptation is to continue working on them. This reaction is not surprising when one considers that personal success for team members is often tied closely to project progression: it can affect job security, influence within the organization and the ability to pursue one's passion. In this organizational context, progression-seeking behaviour is entirely rational.

Indeed it is. The sunk-cost fallacy should also be added in there, the "We've come so far, we can't quit now" thinking that has (in retrospect) led so many people into the tar pit. But they're right, many places end up being built to check the boxes and make the targets, not necessarily to get drugs out the door. If your organization's incentives are misaligned, the result is similar to trying to drive a nail by hitting it from an angle instead of straight on: all that force, being used to mess things up.