In a speech last week to the City Club of San Diego, John Lechleiter, chairman and chief executive officer of Eli Lilly, offered very candid remarks about the state of innovation in the pharmaceutical industry, saying that the engine of biopharmaceutical innovation is “broken.” His comments may be a bitter pill to swallow in light of escalating investment in research and development (R&D), but his frankness may just be the remedy the industry needs to reinvent itself.
“At a time when world desperately needs more new medicines—for everything from H1N1 to Alzheimer’s disease—we are taking too long, spending too much, and producing far too little,” said Lechleiter. “Repowering pharmaceutical innovation is an urgent need not only for our company and our industry but for our nation—and for communities like San Diego and Indianapolis [the headquarters of Eli Lilly] that have a huge stake in the life sciences. We remain dependent on a society that welcomes and values new ideas, and public policy that enables innovation to be rewarded for the value it creates. But we also know that we need to change.”
Lechleiter outlines three major challenges for the industry. These include: a loss of trust in product safety and in the honesty of pharmaceutical businesses, for which he said, “we mostly have ourselves to blame;” a risk-averse policy and regulatory environment that has led to hurdles for new drugs; and the pressure of the healthcare system, where the pharmaceutical industry has become an attractive source for policymakers to seek cost savings, even though prescription-drug spending accounts for only 10% of healthcare spending.
Lechleiter suggested using the three “C’s” for pharmaceutical innovation: collaboration among the large pharmaceutical companies with smaller companies, academia, and government; competency by advancing scientific tools to better understand human biology; and culture by developing a mindset that places patients and improved outcomes at the center of the research process. On a company-specific note, Lechleiter said that Eli Lilly is espousing those philosophies. He points to the company’s fully integrated pharmaceutical network (FIPnet) model as a vehicle for external collaboration; the company’s use of advanced analytics and clinical trial designs; and cultural changes to create a greater focus on the patient.
It is clear that the pharmaceutical industry is at a moment of change. In 2008, the US biopharmaceutical industry spent a record $65.2 billion on R&D, according to a report by the Pharmaceutical Research and Manufacturers of America (PhRMA). At the same time, however, the the level of innovation has not appreciably improved. The average number of new drugs approved in the US (as measured by the number of NMEs and new biologic license applications approved by the US Food and Drug Administration’s Center for Drug Evaluation and Research) between 2005 and 2008 was 21. Moreover, only 2 of 10 marketed drugs ever return revenues that match or exceed R&D costs, according to the PhRMA report.
Some pharmaceutical majors have turned to a proven formula in seeking to improve near-term and long-term results, namely building critical mass through mergers and acquisitions (M&A). Pfizer’s $68-billion acquisition of Wyeth, Merck’s $41-billion pending acquisition of Schering-Plough, and Roche’s $47-billion acquisition of Genentech are three large-scale acquisitions in 2009. What remains to be seen is whether the new R&D structures announced by these companies will be able to succeed in improving R&D productivity.
In announcing its integration with Wyeth, Pfizer said it will operate through “patient-centric” business units in its two major areas: biopharmaceuticals and diversified businesses. It formed two R&D groups in biopharmaceuticals, one focused on small molecules and related modalties (the PharmaTherapeutics Research Group) and one on larger molecules and vaccines (the BioTherapeutics Research Group). The individual units within these two research organizations are led by chief scientific officers, who will act as single points of accountability for delivering proofs-of-concept for development.
In acquiring a full stake in Genentech earlier this year, Roche said it hoped to continue its successful relationship with Genentech in drug innovation by allowing Genentech to operate as an independent research and early-development center within Roche, seeking cross-fertilization of technologies and expertise between the two companies as a vehicle for innovation.
As it waits for its acquisition of Schering-Plough to be finalized, Merck announced a new structure for Merck Research Laboratories. Merck says the structure is designed to foster innovation and create greater accountability at all stages of research and development through two core functions: (1) discovery and preclinical development and (2) clinical development and regulatory affairs. In addition, a new central franchise structure focused on portfolio management will be aligned with the company’s global human health division. Also, the new Merck Research Laboratories will include a worldwide licensing group.
The impetus behind M&A activity often leaves companies in a “Catch-22” situation, a problem not unique to the pharmaceutical industry. On one hand, greater critical mass is required to fund product development, but as organizations increase in size, size itself can stifle innovation. Let’s see if the pharmaceutical industry is up to the task in overcoming that challenge.