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.

Reference
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.

PhRMA issued a statement and held a conference call with the media on Mar. 9 to explain the association’s position, which includes support of further guidance from FDA on how drug companies can use the Internet and social media. “PhRMA is proposing that the Food and Drug Administration issue new guidance detailing how biopharmaceutical research companies may use social media to help patients and to improve public health; the guidance eventually could be adopted as regulations,” said PhRMA Senior Vice-President David E. Wheadon in the statement. “… At a time when more than half of adults first turn to the Internet to find health information, the extraordinary volume of dangerous and inaccurate information about medicines on the Web makes the FDA’s leadership on this topic all the more essential.”

PhRMA detailed its proposal to FDA in a 16-page letter dated Feb. 26, 2010. The proposal includes three major recommendations, as outlined in PhRMA’s press statement: the adoption of a universal symbol to indicate a direct link to FDA-regulated risk information online; the allowance of introductory drug-warning information in sponsored search results and similar media with direct links to risk–benefit information; and permitting drug companies to microblog newsworthy regulatory and scientific events for medical products.

PhRMA is seeking the adoption of a universal symbol that could be used in space-constrained media to indicate a direct link to FDA-regulated risk and benefit information. “The use of the FDA’s own logo or other FDA-approved symbol would shine a brighter spotlight on official Web sites of FDA-approved medical products containing reliable and comprehensive information and medicines’ benefits and risks,” said PhRMA in its statement.

PhRMA is also seeking to have introductory warning information in sponsored search results and similar media with direct links to comprehensive risk and benefit information. “The FDA should allow manufacturers to present brief introductions to health information in electronic formats, just as the FDA now does it own tweets,” said PhRMA in its statement. PhRMA recommended that postings in space-constrained media such as sponsored search results would include a standard universal warning that would be approved by FDA such as: “All drugs have risks. Click here for more information from the manufacturer.” The link would then take consumers to more product-specific risk and benefit information.

PhRMA also is looking for FDA to adopt standards for microblogging as done through social media sites such as Twitter, a communication tool that the industry wants to be able to use more fully once appropriate standards are specified. “Given space constraints and consistent with FDA’s own use of such media, the Agency should allow biopharmaceutical manufacturers to serve as responsible stewards of newsworthy information about their products and should permit manufacturers to microblog about significant scientific and regulatory events,” said PhRMA in its statement, emphasizing that such exchange of scientific information should not be advertising-related or promotional.

In expanding its use of online information tools, PhRMA is also seeking protection against erroneous, inaccurate, or misleading content about a company’s products. PhRMA is proposing that a biopharmaceutical manufacturer only be accountable for a website or other content that it controls (i.e., as the manufacturer or through it agents), for which it can add or delete content, or which is funded by the manufacturer or its agents.

PhRMA’s proposals are reasonable and are a good step forward to close a large gap in current federal regulation for online health information. Such standards would at least set a framework of regulation that would recognize the need to keep pace with the fast-changing development and adoption of newer media technologies and tools.

The adoption of these proposals or other standards, however, leads to an equally difficult issue: enforcement. How FDA, other federal agencies such as the Federal Trade Commission, search-engine companies, media companies, drug companies, and other stakeholders tackle the jurisdictional, administrative and operational tasks and responsibilities for effective enforcement, including ways to fund increased regulatory oversight, are additional challenges that will need to be addressed as FDA considers this issue.

FDA’s Office of Criminal Investigations (OCI) conducts criminal investigations into activities such as the manufacture of counterfeit drugs and illegal drug marketing. FDA managers created a plan to evaluate the investigative and administrative procedures at each of OCI’s six field offices at least every three years. GAO found, however, that only about 30% of the required investigations have been performed to date, none of them during the required three-year time period.

The Office of Internal Affairs (OIA), another office within FDA, investigates allegations of misconduct and criminal activity by FDA employees. Like OCI, OIA has policies in place to guide its investigations. Unfortunately, GAO observed that FDA has no formal arrangements to oversee OIA investigations or to monitor OIA’s adherence to its investigative policies. OIA is not even required to inform FDA about its activities.

I think these lapses are alarming. If OCI violates its policies for conducting investigations, it risks compromising evidence and enabling counterfeiters to escape conviction. And without monitoring, how can we be assured that OIA will investigate FDA employees’ alleged criminal acts properly, or at all? This lack of oversight within FDA clearly jeopardizes public health.

The story offers a ray of hope, though. In a letter to Senator Grassley (R-IA), FDA agreed with GAO’s findings and described the ways that it would adopt the Office’s recommendations for establishing regular oversight. I applaud FDA for taking the report seriously and taking steps to correct the problems it cited.

Once again, I’m thankful for GAO, which seems to be a vigilant and nonpartisan body with the public interest in mind. When it comes to our well being, we should expect no less from public officials.

Two goals of the consortium are now getting underway. First, Rx-360 announced earlier this week that its members are beginning to share existing sponsor audits through its shared-audit pilot program. The pilot involves 30 suppliers around the world. Because the number of audits a drug sponsor is required to conduct can be in the thousands, obtaining information from other companies who have already conducted an audit at a particular facility may provide very useful information. With this additional information, a company may be able to conduct a shorter, less-intrusive audit on its own—or forego one altogether—thus, saving time and money.

During Rx-360 talks, some industry members have said it’s no problem to look at other companies’ audits—everyone likes free stuff—but the idea of handing out their own audits is a bit more challenging, especially in an industry so flooded by IP rights and patent protection. It will be interesting to see in the coming months how useful the sharing of audits is and whether more companies become more wiling to share their information.

The second achievement for the consortium, also announced by the group this week, involves the adoption of audit standards. Since the beginning, Rx-360 has said it intends to adopt already existing, qualified standards and guidelines rather than setting its own. The consortium will only develop standards in areas where it feels there is a need. For example, groups such as IPEC already have many useful guidelines related to the supply-chain that have received input and approval from FDA and are being used by industry.

The consortium has an Audit Standards Working Group with 27 participants, representing 19 companies and organizations. The group is looking at standards for APIs, excipients, supply-chain security, basic chemicals, packaging, and print. The standards will be used in a pilot to prove the auditing process, according to Mar. 3 Rx-360 release.

See related blog posts:

Is Industry Ready to Share Supplier Audits? Rx-360 Takes a Shot

Rx-360 Takes on Europe, Talks to PharmTech in Podcast Series

Unlike counterfeits, which have been much more widely discussed, substandard pharmaceuticals have been legally authorized for manufacturing and, more often than not, approved for market and sale by a national or regional drug regulatory authority. Despite this, these medicines nevertheless do not meet the required quality or safety requirements for that particular drug or treatment, compromising safety and efficacy.

It may appear that this is more likely to be a problem affecting developing countries such as China, India or Latin American countries, and indeed these countries are certainly affected. But this issue is not just one that affects developing countries. Especially now that global supply chains bring medicines quickly and easily from one country to another, substandard medicines can reach also American or European patients. While safety regulations may look good on paper, several countries are still failing to meet the required standards and the consequences for public health are worrying. Regulators need to take a closer look at what is happening on the ground.

A new report by the Stockholm Network, Keeping Medicines Safe cites examples and case studies from China, India, Brazil, Argentina and Turkey to demonstrate the lethal effects that counterfeit and substandard drugs can have on public health. It shows how bad, non-existent or unenforced regulations can play a serious part in this process.

For instance, current regulations in India divide regulatory responsibilities between state and national authorities. The delegation of inspecting and enforcing Good Manufacturing Practices (GMP) to the state level has resulted in substantial variation in the quality of medicines produced, despite all manufacturers having been certified by the relevant authorities. Some Indian states do a good job of maintaining high levels of manufacturing practices but other states do not. As a result, substandard medicines can easily move from one state to another.
In Argentina, the government and national drug regulator actively promote the prescription and use of a category of medicines called ‘similars.’ These drugs are advertised as being generic drugs, but in actual fact ‘similars’ have not been tested for bioequivalence — a prerequisite in much of the developed world for labelling a drug a generic.

China’s national drug regulations are comparable to those of Europe or North America, but the lack of implementation and enforcement is glaring. China is one of the world’s largest producers of both substandard and counterfeited medicines. One of the main reasons for this is wide-spread and pervasive corruption, even among government regulators. Indeed, only five years ago the head of the national medicines regulator was executed on charges of corruption.

All of these circumstances are causes for concern, but there is a further wrinkle in the ointment. The development of biological drugs makes the problem of substandards potentially far riskier — especially when it comes to similars. As the use of this type of drug increases, patients and policymakers can expect to encounter more problems with defective medicines than they did before.

Policymakers and regulators need to acknowledge the problem of substandard drugs and improve the regulation of drug manufacturing and the enforcement of good manufacturing processes. If they fail to do so, some patients who faithfully take a seemingly innocuous white pill could be doing themselves more harm than good.

Helen Disney is Chief Executive and Founder of the Stockholm Network, a pan-European think tank.

Leahy did not specify details of the agreement, but said in a prepared statement that “in principle [it] preserves the core of the compromise struck in committee last year…We wanted to improve patent quality and the operations at the PTO [US Patent and Trademark Office] and address runaway damage awards that were harming innovation. We are close to a compromise that will address these issues. No one will think this a perfect bill, but we are close to a comprehensive patent-reform bill that benefits all corners of the patent community.“

Although the House passed a patent-reform bill in 2007, efforts to pass a Senate version have stalled, with the Senate trying to reach some consensus over the past several years. Recent attempts in 2009 included when the Senate Judiciary Committee introduced the Patent Reform Act of 2009. Areas of contention have included damages, venue, and post-grant review. A press report by Reuters indicates that the compromise would allow judges hearing patent-infringement cases to play a role in identifying appropriate damages and in evaluating the importance of an infringed patent as part of a product as well as allowing the patent office to set its own fees. The debate over patent reform has divided industries broadly speaking, with industries such as the pharmaceutical and biotechnology industries seeking greater protection and the computer and electronic industries seeking reform.

At the moment, the exact details of the patent-reform compromise is still conjecture until official information is released and is embodied into legislative proposals. But it will be an important matter for the pharmaceutical industry to watch in the coming weeks and months.

To answer that question, we should first consider the tenure of Tauzin. Tauzin joined PhRMA in 2005. He was formerly chair of the House Energy and Commerce Committee, where he was instrumental in securing passage of the Medicare prescription drug bill. He served in the House of Representatives from 1980 to 2005, first as a Democrat from 1980 to 1995, and later switching to the Republican party in 1995. He left Congress in 2005 to join PhRMA.

Tauzin perhaps will be best known for the position that PhRMA took on healthcare reform, a position that has drawn both praise and criticism depending on one’s policy position. PhRMA was an early supporter of healthcare reform and offered a policy commitment of $80 billion over 10 years to close the so-called “donut hole” or gaps in Medicare prescription drug coverage. Some say that position was well-taken given the once-considered inevitability of passage of healthcare reform. But with the future of healthcare reform now murky, some critics would argue that it was too large a concession for the industry to make. On the opposite side, however, critics of PhRMA would argue that the group’s policy commitment of $80 billion was too small a concession and precluded other possible measures in healthcare reform such as pricing controls and related mechanisms. Notwithstanding healthcare reform, important policy victories from a PhRMA perspective under Tauzin’s tenure include blocking passage of a legislative proposal that would have approved prescription drug re-importation and data exclusivity provisions under biosimilars legislation.

But what should the next head of PhRMA consider? The list undoubtedly includes healthcare reform and the different shape final legislation will take as the House and Senate work to reach consensus on measures and/or perhaps restart the legislative process as well as policies relating to intellectual property, patent reform, and biosimilars. Other important issues include funding for and the future policies of the Food and Drug Administration and other federal agencies such as the National Institutes of Health in supporting pharmaceutical research.

But perhaps more than anything, the new head of PhRMA has to realize that the pharmaceutical industry of 2010 is not the pharmaceutical industry of years past. In fact, even the term, “Big Pharma,” a phrase commonly used to describe the membership of PhRMA, is, itself, becoming anachronistic. The “Big” still applies in terms of the financial strength and revenues of individual companies, but the “big” blockbuster drug model that supported those revenue positions is eroding and is being supplanted by a changing paradigm for drug development that is focused on products for smaller and more targeted patient populations. This shift in focus in product development parallels an intensification of biologic-based drug development.

PhRMA and its member companies now describe themselves collectively and individually as “biopharmaceutical” companies, reflecting the increased importance of biologic-based drugs in their strategies. The defection of Roche from PhRMA to the Biotechnology Industry Organization, which represents biotechnology companies, including small companies, following Roche’s acquisition of Genentech in 2009, reflects the changing nature of the industry. PhRMA’s decision in 2009 to form a committee and broaden its membership to include small biopharmaceutical companies also reflects this focus. The next head of PhRMA has to understand these industry dynamics in developing policy and adapting the association in order to maintain its relevance.

Also, the new head of PhRMA will have to take into consideration trade, tax, and regulatory concerns that will affect the industry’s position internationally, specifically in emerging markets, which are a source of strong growth and a strategic focus for the large drug companies. The new head of PhRMA should not only consider the economic implications of US policy but has to broaden his/her focus to better understand the pharmaceutical industries in emerging markets and better engage and work with the stakeholders—other trade associations, regulatory agencies, scientific and healthcare associations, and companies in those markets—on behalf and with its membership.

So perhaps the question is not who will lead PhRMA, but more importantly what “Big Pharma” wants its next leader to be?

This is not an argument against controls, or against the democratic system that erects them. But just as new medicines or new services are subject to scrutiny before they are released, so too should a critical eye be passed over new developments in the controls that are introduced. Recently, there has been a striking example meriting some review.

The European Ombudsman — a relatively new function in the European Union — has just opened an investigation into how the European Commission conducted a study into the use for research purposes of non-human primates, such as chimpanzees. The role of ombudsman is well recognized in Europe as a buffer against state or bureaucratic abuse. It gives the ordinary citizen a right of appeal. But like any valuable instrument, it requires some precision in use. In this case, the ombudsman has launched an inquiry into what an animal rights lobby group has described as a ‘deeply flawed and biased’ Commission report about monkeys in research.

The European Coalition to End Animal Experiments alleges that the Commission working group that drew up the report “lacked expertise in the area and that it failed to take certain evidence into account.” The ombudsman has asked the Commission for its opinion. P. Nikiforous Diamandouros, who has just been re-appointed to the post by the European Parliament, is clearly determined to assert his renewed authority. “The Ombudsman has a vital role to play in promoting effective and transparent policy-making in the EU institutions,” he says in announcing his new inquiry. And he goes on: “I expect this role to become even more important in light of the Lisbon Treaty, which strengthens the right of citizens and associations to participate in the democratic life of the Union.”

Would it be inaccurate to discern the sound of someone scrambling onto a bandwagon in this declaration of self-importance? And would it be inappropriate to speculate that the ombudsman is now determined to seize on any grist might be brought to the mill of self-aggrandisement?

Many European pharmaceutical executives will be aware that the EU is currently in the process of updating its 20-year-old rules on the use of animal in experiments. The European Commission proposed a revision last year, and the European Parliament has already given its view, and the Council of Ministers is scheduled soon to adopt its position.

It is, of course, a tangled debate, because of the inherent ethical problems posed by research using animals. It combines profound technical and scientific complexity with high emotion — heightened by the increased sensitivity to biodiversity and sustainability of recent decades. But no-one in the industry is in any doubt as to the stakes in this debate: it affects the future of research and the future of medical science. It is too important to hijack for other motives.

But the ombudsman seems heedless of the complexities. He takes at face value the complaint from the European Coalition to End Animal Experiments, and “noting that this issue is of great interest for the general public” — a questionable consideration in a matter supposedly of scientific and procedural exactitude — he ploughs on with his demand for a response by 30 April, and his undertaking to “examine whether there has been any maladministration by the Commission.”

The sad truth

The animal activists’ complaint is that the consultation process leading up to the legislative proposal was “unfair,” and that experts drafting the legislation did not take into account “a substantial amount of evidence” they supplied. The sad truth is that if every complaint from every disappointed lobbyist is to be elevated to the level of a formal investigation, the democratic processes on which the EU is built are themselves jeopardised. And when the criterion for elevation to formal investigation status is the degree of public interest in a subject, effective democracy collapses completely. The public have had ample opportunity to make their views heard on the subject. The parliament and the council are the appointed bodies to make decisions in light of all that input — and the process cannot be arrested simply because some people don’t like the way the discussion is going.

Because broader insurance coverage and gap closure will expand drug sales and industry revenue, the Obama plan also increases a proposed “assessment” on pharma from $23 billion in the Senate bill to $33 billion, starting in 2011 to avoid tax problems. Medical device makers also would have to pay $20 billion in fees over 10 years, starting in 2013.

Similar to previously approved Senate and House bills, the plan retains a boost in Medicaid drug rebates from 15 to 23% and authorizes discounts on drugs sold to community hospitals. Drug companies would have to fully disclose financial arrangements with doctors, and pharmacy benefit managers would report rebates and discounts on drugs, along with success in boosting generic drug use.

The proposal also seeks to curb “pay-for-delay” deals between brand and generic drug manufacturers; stipulates that effectiveness research would not influence coverage decisions; and supports establishing a pathway for follow-on biologics.

For these and most of the provisions in the White House announcement, there are few specifics or proposals for implementation.

Many key provisions in enacted Democratic legislation are featured in the plan: an insurance exchange to provide coverage options to the uninsured; tax credits to help individuals and small business pay premiums; curbs on insurance industry discriminatory practices; aid to state Medicaid programs; an individual coverage mandate (with low penalties); and cuts in rates for Medicare Advantage plans.

Most notable politically, there’s no govern-run coverage option. And the plan significantly scales back a proposed tax on high-cost “Cadillac” health plans, making up the lost revenue with a tax hike on high-income individuals. Most notable politically, there’s no govern-run coverage option.

The job cuts are part of the company’s restructuring program that began after the merger with Schering-Plough (Kenilworth, NJ). Certain manufacturing facilities and research and development (R&D) operations will be consolidated, but the company has not yet said which. In addition, positions that are considered “duplicative” will be eliminated.

Job cuts such as these, although unfortunate, are commonplace after mergers. For example, Pfizer (New York) has eliminated positions as part of its own restructuring program since it acquired Wyeth (Madison, NJ). But terminations are occurring even at companies that have not merged with or purchased any competitors.

One case in point is Eli Lilly (Indianapolis, IN), which will cut 5500 jobs worldwide. The cuts are intended to reduce costs and dodge the one-two punch of upcoming patent expirations and competition from generic drug companies. In 2009, the value of Lilly’s stock fluctuated widely and ultimately fell by 11%. The compensation of John L. Lechleiter, Lilly’s top executive, increased, however, by as much as 44%, depending on how you look at the numbers.

And, as I noted previously, AstraZeneca (London) will cut 3500 R&D jobs by 2014 to achieve “flexibility” and “effectiveness.” The company is hunkering down and cutting costs for reasons similar to those given by Merck.

Lean workforces seem to be the order of the day for Big Pharma. As a cost-reduction strategy, job cuts might be effective. Some manufacturing operations might be larger and less efficient than they could be. Yet the industrywide terminations do make me worry about the industry’s future. The cuts to R&D operations are particularly troubling, considering the industry’s recent history of lackluster pipelines.

I hope we are not witnessing Big Pharma cutting its nose off to spite its face. And I hope that laid-off employees can find rewarding work elsewhere and can continue to pursue pharmaceutical innovation.