Pfizer announced this week that following a successful completion of its $68-billion acquisition of Wyeth, it will divide its research activities into two separate organizations, one for small molecules and one for biologics and vaccines. The reorganization is but a microcosm of Big Pharma’s larger strategic interest to strengthen its position in biologics with the hopes of improving its return on research and development (R&D). But is the calculus of intensifying R&D into biologics correct?
Big Pharma is banking on an unequivocal “yes” to that question as evidenced by its mergers and acquisitions activity during the past several years. In addition to the pending Pfizer-Wyeth deal, some notable recent deals with a biologic component include Roche-Genentech ($47 billion, completed in 2009), Merck-Schering Plough ($41 billion, pending), AstraZeneca-MedImmune ($15.6 billion, 2007), Novartis-Chiron ($5.4 billion, 2006), and Merck-GlycoFi ($400 million, 2006). Big Pharma is also proceeding with large, capital projects in biologics such as Bristol-Myers Squibb $750-million bulk biologics manufacturing facility in Devens, Massachusetts, Novartis’s $700-million cell-culture production facility in Singapore, and Eli Lilly’s $1-billion investment in biologics research and production capacity since 2004, including its acquisition of Applied Molecular Evolution in 2004.
But will biologics be the profitable panacea that Big Pharma hopes they will be? After 25 years, the biotechnology industry as a whole is still not profitable although its financial fortunes have improved. In 2007, the global biotechnology industry (as measured by publicly trade companies) posted a net loss of nearly $2.7 billion compared with a net loss of $7.4 billion in 2006, according to an Ernst & Young analysis. In 2007, US public biotech companies posted a net loss of $277 million, which was the closest the US biotech industry has come to reach aggregate profitability.
Biopharmaceuticals account only for approximately 10% of the global prescription drug market, based on a 2007 global prescription drug market of $712 billion, but are considered an important engine for growth for Big Pharma. The compound annual growth rate (CAGR) of prescription drug sales from Big Pharma is expected to be only 1.8% through 2013, increasing from $366.6 billion in 2007 to a projected $407 billion in 2013, according to a recent analysis by Life Science Analytics. As small-molecule drug sales are pressured, sales of biologics from Big Pharma are expected to rise, with biologics expected to account for 20% of Big Pharma’s prescription drug sales by 2013. At the same time, sales from its core products are expected to fall by nearly 50% to $47 billion by 2013.
The clinical efficacy of a drug, whether a small molecule or biologic, and its ability to improve clinical outcomes ultimately determines the market success of a drug. As the industry’s understanding of the targeted mechanisms of macromolecules increases and therefore, prospects for improved clinical efficacy brighten, the future of biologic-based therapeutics bodes well. But such optimism does not come without caveats.
I recall a speech that I covered in 2000 from Juergen Drews, former head of R&D for Roche and author of a landmark analysis of the innovation deficit in the pharmaceutical industry and a book, In Quest for Tomorrow’s Medicines. At that time, Drews observed that medicinal chemistry is as much art as science. He commented on the limitations of combinatorial chemistry and high throughput screening (HTS) as a tool to improve R&D productivity. At its introduction two decades ago, combinatorial chemistry and HTS were seen as the next paradigm shift to increase R&D productivity. The approach involves the rapid synthesis of a large number of separate, but structurally related molecules that can be assessed against disease screens. To paraphrase, he said, if we are asking the same or wrong question, but doing so just 1000 more times, should we really expect a better result?
Recalling his comments makes me ponder whether a more measured view of biologics should also be applied. Do biologics simply represent the R&D approach du jour or will they truly meet the mark of fundamentally shifting the pharmaceutical industry? Time will tell.