Repairing the Engine of Drug Innovation
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.
Good blog.
Big pharma is populated by intelligent people who will certainly come up with organizational strategies designed to overcome the issue of internal innovative R&D being smothered by the monsters created by critical-mass building mega-mergers.
Many people suspect that increased patient focus and increased accountability will inevitably mean concentrating R&D on lower risk projects with higher chances of success. What insider would say it should be otherwise in the present embattled climate? Larger pharma companies in Japan have also recently been acquiring bioventures with products in development. For the forseeable future there will be relatively little room in big pharma for research scientists who have a personal ambition to work on breakthrough therapies for unmet needs.
Biopharma ventures will (we hope) seize the opportunity to fill the gap, and this is where visionary and inspired research champions will have to look for exciting future employment. If the ventures don’t rise to the challenge, it is difficult to be optimistic about the prospects for innovative biopharma R&D in 15-20 years time…..
Intuitively, post-merger size and the resultant diversification should reduce risk, even if productivity is not increased. But to maintain returns, diversity has to mean including some higher risk ventures that can pay off big. Just getting big without taking intelligent risks won’t work.
Collaboration with small companies, academia and government is a tricky area. Just as Wall Street foundered by overestimating the smartness of its smart people when it got involved with derivatives, Big Pharma often doesn’t understand what its ’smart people’ are buying into on the outside.
Ron: enjoyed reading your good, thought-provoking comments.
“Big pharma does not understand what its smart people are buying into externally” looks a bit like the beginning of an admission that business admin people do not really understand new technology R & D management. Does this mean that ’science-managers’ might become more responsible for the in-licensing of R & D projects? This is something that this group of people would seem to be very well qualified for but have historically not always handled well, in my experience. To all smart R & D managers out there – be aware of that ‘increased accountability’ rubrik which goes along with empowerment; ‘naturally’ a COO might say!
Patricia,
John Lechleiter brings up some very valid arguments. For as long as the FDA has existed, companies have complained that its regulations and directives have hindered innovation and, subsequently, business growth – and new regulations continue to be introduced.
So the question becomes how can companies work within this framework to continue innovating despite intense regulatory scrutiny? By finding ways to streamline processes and improve compliance to the point where regulations become less of a burden and consumers can develop trust in the safety of their medicines.
The answers for biopharma innovation and drug safety can be simple. Better processes. More efficient regulatory reporting. Streamlined management of quality initiatives to mitigate risk. FDA reform may take the chains off innovation in the short term, it won’t be long before more regulations arise that are deemed a hindrance – it’s just inevitable. By addressing these issues at a process level, companies can be prepared to confront them and continue their innovation regardless.