Veterans of big biopharma must have been a little surprised at the news that the hallowed halls of MIT were home to a biopharmaceutical innovation project titled “New drug development paradigms” [1]. This initiative, involving big pharma and federal health authorities, has as its goals: to identify and fix “root causes of bottlenecks” in the drug R&D process; to “create new prediction models; share information about disease biology and; establish a new inclusiveness that involves the earlier participation of regulators, health care providers and patients.”
From R&D to S&D in Biopharma Drug Development
Greater surprise may have been elicited by the report, “Exit Research and Create Value” from Morgan Stanley (MS), a company from an industry better known for “regulatory arbitrage and arcane financial engineering . . . than business innovation” [2]. This limited distribution report has, according to those with access, recommended [3,4] that biopharma cease its internal research efforts — to many its historical lifeblood — and instead look to externalizing research and in-licensing compounds with clinical proof of concept. This strategy advocates replacing R&D with “S&D” — search and development. Beyond the suggestion of exiting research completely, the S&D strategy seems not terribly different to what biopharma already has been doing (whether it’s doing it well is a subject of ongoing debate) with some 1,300 million S&A deals costing nearly $700 billion in the past decade [5].
The MS report also views external research as having the potential for a three-fold higher value-added scenario with what was described as “greater predictability.” While it certainly can be argued that external research organizations have a greater motivation with less bureaucracy and complacency than big biopharma, that such research could be more predictable in its outcomes represented yet another surprise to R&D scientists responsible for evaluating in-licensing opportunities.
Once licensed, frequently against the advice of these scientists, 80 percent to 90 percent of compounds, especially those involving new chemical entities (NCEs, as contrasted to the repurposing of known drugs or of reformulations) then crashed and burned — fully in line with historical industry R&D metrics and with Gary Pisano’s analysis, albeit dated, that the biotech approach to drug discovery has not been terribly successful [6].
The keen interest in a new business model for biopharma R&D emanating from academia and Wall Street coincides with the continuing deluge of articles in the popular press and drug discovery journals over the past five years bemoaning the poor productivity of the current R&D model. This has culminated in several insightful commentaries [7-9] that conclude that the system as currently configured may be self-perpetuating in its productivity limitations, and that without real change to replace sound bites and enabling technology “add-ons” with new systems unique to the drug discovery process [9], is doomed to repeat itself.
Putting aside the obvious fact that neither academia nor Wall Street actually have any hands-on experience in the drug discovery process, it is worthwhile considering why, over time, biopharma has looked for outside advice to aid in conducting its business.
Consulting the ‘Masters of the Biopharmaceutical Universe’
From around the mid-1970s on, R&D management at many large biopharma companies apparently felt the constant need for a reality check on their in-house activities. In doing this, they could introduce successful concepts from other businesses (e.g., banking, electronics, automobile manufacturing, information technologies, waste management, etc.) to ensure they were as visionary, efficient and productive as could be. To do this, they engaged management consulting companies, the various “Bs” and the Big M that did not come with fries, for advice.
To those with a cynical perspective, the outcomes of these expensive and time-consuming activities often were viewed as exercises in assembling or even creating the necessary data to support changes that management already had decided on but lacked the self-confidence to impose. And certainly hindsight would argue, given the current state of the industry, that consideration of these “best practices” has, in the words of Kurt Vonnegut’s Kilgore Trout, done “doodly-squat” for productivity.
But it was a heady time. Plucked from the day-to-day humdrum of making and testing compounds, scientists were tasked with helping set the direction for their future. Visits to key opinion leaders at Harvard, Stanford, Yale, the Royal Marsden, the institutes Whitehead, Karolinska, Pasteur and Clarke etc., etc., were followed by intense debriefs with the consultants to distill the wisdom received for regurgitation to R&D management in sound bites that could be used all the way up to the CEO. “Not only are we the best, but we’ve benchmarked ourselves with the thought leaders and THE experts in management consulting” — many unfortunately still fresh from their MBAs. The off-site meetings, the frequent flyer miles, the 10,000-calorie days with breakfasts, lunches and dinners on the fly — were a mixture of Andy Warhol and Tom Wolfe — everyone a “Master of the Biopharmaceutical Universe” for the requisite 15 minutes.
And what if the strategies and the final, stylish reports appeared strangely similar to what the consulting company (or your own consultants) had recommended to your competitors down the street? Or were 180 degrees different to what the same consultants had recommended to management the last time they’d visited leaving the R&D budget $5 million lighter? Or if the strategy was almost a word-for-word recapitulation of what your scientists had told them should be done?
And certainly dissent was not appreciated. If the heated and unresolved debate that had occurred the previous evening had ended up as a finalized consensus document at the crack of dawn the very next day — thanks to on-call 24/7 word processing support — that did not reflect the dissenting viewpoint, why make waves? “Let’s move on — don’t split hairs — WE all know the outcome anyway.”
There were however, those rare instances where the outcome from a consultant-aided strategic reassessment led to an unequivocal agreement for major change. Yet the plan often was not advanced because if something new and different was obviously better than what was going on currently, why had it not been done before? Who was going to take the blame for that? Heads must certainly roll — better to keep them down.
More seriously, attempts to apply productivity lessons from industries whose research endeavors, if existent, were focused on less risky products, in hindsight, were perhaps naïve. To compare the risk proposition of a new drug for the treatment of hypertension, pain or cancer acting via a novel target was very different to launching a new car where the basic engine, chassis, gearbox and wheels would certainly perform the intended job with the ability to capture the buyer’s imagination representing the outstanding risk. A case in point is the development of new pain medications. The basic science of pain has advanced exponentially over the past 20 years, and the preclinical models are among the most robust in the drug discovery process. Yet again and again, compounds with outstanding drug-like properties and preclinical efficacy have failed to work in human pain states. Similar examples in the auto industry are few and far between.
The Not Invented Here Syndrome and Other S&D Realities
So, if the basic premise of S&D is true — that acquiring compounds externally is cheaper with a lower failure rate than doing it internally — what has been the success rate of this business model? It’s a difficult question to answer since, for every successful compound, there have been many more failures, few of which are ever publicized. Exceptions to this have been two recent clinical candidates in the Alzheimer’s disease area, Myriad/Lundbeck’s tarenflurbil and Medivation/Pfizer’s Dimebon (latrepirdine), both which failed to show Phase III efficacy and would clearly argue against the MS proposition that external research has greater predictability. (See BioWorld Today, July 1, 2008, and March 4, 2010.)
Current in-licensing approaches — S&D with an R component — can create considerable antipathy between R&D scientists and the business development (BD) function in many companies due to very different and often incompatible goals. This has led to the suggestion [10] that vertical disintegration, where research and commercial activities are separated, may be a necessary strategy to improve biopharma productivity, both scientific and commercial.
Using in-house scientists to conduct due diligence on outside opportunities can be a flawed exercise. In addition to taking scientists away from internal R&D efforts for considerable periods of time, their feedback, when less than enthusiastic, usually is dismissed as a reflection of an NIH (Not Invented Here) syndrome such that it is ignored or becomes the basis for an inversely proportional level of interest in an outside opportunity. And if the BD function is populated by MBAs instead of experienced scientists (no Virginia, the earth is not flat despite what these other guys would have you believe), the risk in project and compound acquisition is exponentially increased to absurd levels. The acquisition of later-stage, clinical compounds also can make the priority for advancement of internally developed compounds into the clinic, logistically and financially, problematic.
Additional confounds for a company relying on S&D are the actual compound sources, their stage of development and their cost. Ideally, compounds should have been de-risked to the extent of having clinical proof of concept. This marketplace is very competitive, being a seller’s market divided into NCEs and compounds that other companies may have dropped for strategic reasons, the “wallflower drugs” [11] — both risky. The up-front costs and royalty streams — even when expressed as biodollars — can effectively double the cost of bringing a successful compound to market, which, in an emerging era of health cost containment will result in compounds that will never recoup the investment of the NDA-sponsoring company. This then requires moving further back in the value chain to those compounds designated — at least in the view of their sponsor — to be ready for clinical prime time. Compounds originating from outside of biopharma, however, usually have limited pharmaceutics (e.g., PK) data, and are far from optimized with clinical candidates being selected from a pool of 10-50 compounds rather than the 300-1,000 originating from a dedicated lead optimization project — hardly an example of risk reduction. And when the candidate has pharma origins, the perennial “wallflower,” the mantra must certainly be “buyer beware” with some concern that its availability for purchase is indicative of issues that others have noted and already passed on.
Whether the radical changes embodied in the “pharmaceutical value equation” analysis of R&D productivity [9] can reverse the downward trends in research productivity will take time to assess. But as the industry decimates its research resources [12] or moves them to China, [13] it is debatable if time is on the side of R&D. It is noteworthy, however, that among the efficiency and effectiveness metrics and proposals for FIPNets (fully integrated pharmaceutical networks) [9], that the potential contributions of individual intuition — the drug hunter perspective — are acknowledged.
As to Morgan Stanley’s enthusiasm for the S&D model, it would no doubt be churlish to think that this might be yet another short-term revenue generator strategy benefiting Wall Street at the expense of longer term value for the biopharma industry and the patient.
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