It’s hard to get precise figures of how many people have been taken off the payroll at pharma and biotech companies recently. According to staffing firm, Challender, Gray and Christmas, the combined industries shed 58,969 jobs in the first nine months of 2009, 15,000 more than the whole of 2008. In total, that makes around 74,000 redundancies in just 21 months, many but not all of which came from sales forces. Figures from FiercePharma, meanwhile, show just ten companies saw 66,850 jobs go in 2009. And this doesn’t include layoffs from the merger of Roche and Genentech, nor the 860 jobs that were announced at Boehringer Ingelheim in August.
They could do worse than follow the example of Medivation, a Californian company that has more than doubled its workforce, albeit from an extremely low base, from 28 in 2007 to 59 in 2008. Founded by a group of experienced professionals, its business model tries to bridge the gap between early-stage development and product launch. It finds promising compounds in markets with significant unmet needs, adds a bit of value and then sells them on to big pharma in record-breaking deals. In that sense, it is doing precisely what a team of analysts at Morgan Stanley said in January that Big Pharma should be doing, moving away from internal R&D and focus more on in-licensing. To move, in other words, from research and development to search and development.
While well-argued, it is not a particularly original proposal and forecast data from EvaluatePharma shows that while Big Pharma is certainly up for in-licensing, it is also not that keen to give up its central defining activity. Indeed, it is actually spending more on internal R&D as a percentage of sales. In 2008, it spent $69.8 billion, a figure that had grown by 9.3% annually since the turn of the century. And while it is set to slow quite radically to 1.5% CAGR from 2008–2014, when expressed as a percentage of sales, the figure is actually rising, from 15.6% in 2000 to an expected 18.5% in 2014.
Medivation, meanwhile, has done spectacularly well from buying in and partnering on. It had just two pipeline candidates in 2008, both of which have since been bought up by Big Pharma in record-breaking deals. The first was in September 2008, when a $225 million upfront fee from Pfizer for its Alzheimer’s candidate Dimebon was the largest for a single pipeline product that year. The second, in October 2009 with Astellas Pharma, brought in another $110 million upfront for the prostate cancer drug, MDV3100. That was the fourth largest upfront fee in 2009.
A reason for its success may be to do with its size and focused business development team that would confirm another suggestion on how pharma might revamp its ailing R&D model. This comes from the consultancy firm McKinsey & Co, which brought out a report in February that said scientific innovation is only part of pharma’s R&D problem. Better management could also play a part. “Increased attention to costs, speed of development and decision making,” it said, “could increase the internal rate of return (IRR) of an average small molecule from around 7.5% — less than the industry’s cost of capital — to 13%.”1
Without knowing the IIRs on Dimebon and MDV3100, investors are certainly impressed. Shares in this small company initially rose to $27.92 after the deal with Astellas Pharma, giving the company a market capitalization of $935 million, which is not bad for an outfit that has a payroll of just 59 and demonstrating there is life after Big Pharma.
1. The Road to Positive R&D Returns, Eric David, Tony Tramontin and Rodney Zemmel, McKinsey & Co Pharmaceutical and Medical Products Practice, February 2010.
This blog post was written by Jacky Law.