Does the industry need an entirely new R&D strategy?
Lately the biopharmaceutical industry’s classic research and development strategy resembles the patient in Monty Python’s plague sketch. While it keeps insisting that it’s not dead yet, it’s “not at all well.”
There are any number of ways to plot the industry’s productivity, but all of the graphs show curves going the wrong way. R&D spending is up, way up, and the number of new chemical or molecular entities approved as drugs is way down.
“We all know how bad the numbers are: I think the real numbers may even be worse than that,” said Corey Goodman, a member of the National Academy of Sciences who has held executive roles at Pfizer and at several small biotech companies. Take the phenomenally successful Genentech out of the count, he suggested, and the industry average plummets.
“Put Genentech as the outlier and just look at big pharma and biotech, and consider this notion that one entity in 10 makes it through approval and it costs a billion dollars. Those numbers are a decade out of date. The reality is more like one in 25, one in 30 for all those other companies put together. That puts the cost up; I think it’s significantly over USD 2.5 billion. Things have gotten much worse. At that rate, I think that what had been the model is going to lead to extinction.”
On a more optimistic note, Marc Tessier-Lavigne, Genentech’s executive VP Research and CSO said that advances in biological science had dramatically increased the number of potential targets with which a new therapy could intervene, while new tools and technologies have made it easier to validate targets and to design appropriate drugs. Genomics has just begun to usher in an era of personalized medicine, in which a drug, like Genentech’s own Herceptin, is only administered to those patients whose genetic make-up shows that they will benefit.
“It comes down to the the right target, the right molecule, and the right patients,” Tessier-Lavigne said. “The first one is about biology. Our understanding of animal models and human genetics are galloping ahead. We’ve also seen a tremendous improvement in picking the right molecule. But figuring out which patients are going to benefit is the biggest hurdle. Figuring that out is still in the early stages.”
Even as the science and technology advance by leaps and bounds, the finance hurdle has become even more difficult to clear. Investors have lost the appetite for risk that allowed Genentech to go public in 1980 and that funded the genomics revolution of the late 1990s. In the absence of public capital, biotech companies scramble to find partners with deep pockets among big pharma, but this can be very expensive money in the long run.
George Scangos, President and CEO of Exelixis, said that while current investors cheer partnership deals because they do not dilute existing share positions, they are laboring under a delusion. “We can’t go to the capital markets right now. So the alternative source is pharma partners. Our investors are happy because they consider that non-dilutive money, but down the road that’s probably the most dilutive money I could get because I’ve given away such a large percentage of sales.”
As the financial crisis of 2008 showed all too painfully, unsustainable models will not be sustained. The days of swing-for-the-fences, multi-billion programs with uncertain pay-offs are clearly over. Panelists said the new reality means innovations will be smaller, and the organizations that pursue them will be smaller, so they will have to partner sooner.
“For small companies, the focus is going to be getting an early jump on exciting new biology, because that’s where the real power is,” said Scangos. “There is some good that comes out of the financial pressure because it forces everybody to be more pragmatic.”
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