Pharma R&D: Where will the new drugs come from?

*Andrew Tolve reports on how pharma R&D departments will have to embrace collaboration to reclaim their role as engines of innovation*

Andrew Tolve reports on how pharma R&D departments will have to embrace collaboration to reclaim their role as engines of innovation

Its been a bleak year for pharma R&D.

In February, Pfizer announced plans to shave $3 billion from its R&D budget, a move CEO Jeffrey Kindler explained bluntly: The days of a monolithic approach to either research or commercialization are behind us.

GlaxoSmithKline followed by trimming thousands of jobs from its R&D division and outsourcing some of its scientists and patents into a separate company specializing in pain relief.

Its lab in Verona, Italy, lost 500 scientists; its facility in Harlow, England, which included the largest chemistry lab in the UK, was snuffed out altogether.

Meanwhile, AstraZeneca announced plans to shutter its research labs in Charnwood, England, and Lund, Sweden, before 2012.

Astellas Pharma in Japan announced that it, too, would significantly scale back its R&D budget.

One could argue that this downward trajectory for R&D simply mirrors that of the overall industry.

The firm Challenger, Gray & Christmas, which keeps a running tab on job cuts across various industries, reports that 37,010 jobs have been lost in pharma this year, from sales managers to marketing specialists to scientists in goggles and white coats.

Those scientists, however, used to be seen as the lifeblood of the industrythe untouchables who kept the pipeline brimming with future blockbuster brands.

In 2010, thats changed. (For more on the effects of outsourcing, see Will big pharma become a collection of marketing and distribution firms?.)

Broken R&D models

Everyone has come to the opinion that the current model is broken and isnt going to continue in its current format, says Nathan Collins, executive director of drug discovery in SRI Internationals biosciences division.

Something has to happen, and were at the cusp of whatever thats going to be, but nobody has a clear roadmap of where were going or how thats going to play out in the future.

Tyrone Edwards, president and CEO of IMAR Life Sciences, a pharma industry consulting business, believes many of R&Ds recent struggles can be pinned to one word: growth.

All of these big pharma companies have the same profit challenge, which is How am I going to grow my business by double-digits to be considered a growth company? Edwards explains.

If youre looking for five billion in growth, its difficult to accomplish when your current products are stagnant and you havent been able to launch new mega brands. (For more from Tyrone Edwards, see The pharma sales rep repair kit.)

One reason R&D has failed to deliver new blockbuster brands is because innovation is more difficult in todays market.

Products that exhibit significant innovationas Edwards puts it, new products in new therapeutic classes to treat diseases that will save large numbers of peopleare increasingly rare.

GlaxoSmithKlines CEO Andrew Witty recently disclosed that GSKs R&D division failed to produce a single new molecular entity from 1998 to 2007, and other big pharma companies are singing a similar tune.

A second reason big pharma is struggling to produce blockbuster brands is because regulatory bodies are making it more difficult for them to do so.

The FDA and NICE have been really raising the bar on efficacy, on safety, and particularly in Europe on economic outcome, Edwards says.

So pharmaceutical companies are finding it tough to find new products that represent new technology that affect large numbers of people. (For more on the drive for efficacy, see Health data and comparative effectiveness and HTAs go global: What it means for market access.)

Even if pharma companies manage to get a drug to market, the amount of time sunk into development and regulatory approval means their patents only give them eight to 10 years of market exclusivity.

Patent law really isnt working well for R&D these days, particularly in pharma companies, says Collins.

With the growing necessity to do really good drug discovery and development, the time frame is actually getting longer for the R&D process, so [pharma companies are getting less time on market.

Short-term solutions

To date, big pharmas primary answer to the R&D challenge has been mergers and acquisitions.

If you arent developing enough drugs out of your own pipeline, the logic has been to go out and buy another one, thus creating the double-digit growth shareholders want to see.

Pfizer and Wyeth, Merck and Schering-Plough, and Roche and Genentech are arguably all examples of this phenomenon.

Sanofi-Aventis recently made an $18.5-billion bid for Genzyme.

The real problem is that [these companies are] looking for short-term gain through acquisitions and are cutting operating costs primarily in the R&D area, says Collins.

The danger is that this is being mirrored by the VC community, which doesnt want to fund early stage discovery because its high-risk.

Indeed, venture capitalists now prefer late-stage drugs, phase 3 or even on-market, Collins says.

So who is going to fund R&D? he asks.

Its already been severely impacted. I think well see 10 years from now, when the next set of drugs are supposed to be there, theres going to be [a significant gap].

Edwards agrees that in the short-term the current flagging of investment in pharma R&D could hurt medical advancement.

In the long-term, however, hes confident it will recover.

Big pharmaceutical companies that are in the business of growing their business based on introducing new technologies and new products will continue to have to innovate, he says.

But in the short-term there will be some products that will not be supported.

Time for a phase change

If pharma R&D departments are to reclaim their role as engines of discovery, medical advancement, and profit, theyll have to embrace collaboration.

As Jeffrey Kindler suggested, the days of monolithic labs with darkly curtained windows are behind us.

Decentralization is absolutely critical, Collins says.

This is such a complicated business that having good access to innovation, and innovation outside your own walls, ensures that youve got lots of ideas coming in at any one moment. Pharma definitely needs to embrace that model.

The industry has begun to.

Andrew Witty has unveiled a plan to shift away from an industrialized approach to R&D at GSK.

Instead, he wants to personalize drug discovery with scientists working in smaller units.

AstraZeneca recently signed an agreement with the UKs Medical Research Council to share much of its proprietary library with a focus on early-stage science.

The goal is to test the efficacy of potential future drugs against a broader range of disease targets.

Meanwhile, Pfizer has divided its Sandwich Lab in Kent, England, into a collaboration of 20 smaller units that can freely interact with each other and with other business units within the company.

The goal there is to determine from an early stage the true commercial potential of targets.

It is all about collaboration, Dennis Van Liew, senior director and site head for strategic management at Sandwich Laboratories, Pfizer EU, said at the Pharma Forecasting Excellence Summit in Zurich this June.

We believe very strongly that the power of social networking and the power of collaboration is going to unleash the scale that a company like Pfizer has.

The smaller units at the Sandwich lab are also expected to interact with the ecosystems that surround them.

Twenty-five percent of Pfizers research budget is now spent on outside collaborations with academics, small biotechs, platform companies, and non-governmental organizations.

The company currently supports 900 active collaborations in the EU alone.

Were using this new network to bring [drugable targets] to market much more quickly than we ever have before, Van Liew said.

Were working with science outside our walls, and we have a devolved operating model so that people can make decisions locally. (For more from Dennis Van Liew, see Forecasting for pipeline products.)

External innovation hubs

This wave of external collaboration has meant that organizations like SRI International, a nonprofit research institute, have found themselves increasingly busy.

While the entire industry is in chaos and upheaval and its really not clear where its going, places like SRI offer potential beacons of light for where a lot of R&D may be done in the future, Collins says.

During the past five years, SRI Internationals biosciences division has grown by an average of eight percent each year.

Much of the non-profits contract research has come by way of the US government, which is trying to make up for the lag in pharma research with investments in pre-clinical drug discovery and development through the National Institutes of Health.

But a growing share of SRI Internationals work has come from pharmaceutical companies themselves.

In November 2009, for instance, SRI International acquired some of Roches strategic technology with cognitive research, and then partnered with Roche to study procedures and treatments for cognition impairments in neurological and psychiatric conditions like Alzheimer's disease, depression, and schizophrenia.

This research is ongoing at SRI Internationals laboratories in Menlo Park, California.

Collins says that deals like this, which essentially outsource R&D to external innovation hubs, is bound to continue in the years ahead and will help to fill the development gap.

The reality is that weve got an opportunity here, he concludes.

I believe that from within this chaos, good things will come out of it for the industry and, ultimately, the primary beneficiaries will be the patient. But the industry is going to feel a lot of pain in going through that transition.

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