Racing the Red Queen the hunt for the next next big thing in pharma
It is a little sobering to find so many of what are thought of as problems of modern life reflected in books like Alices Adventures in Wonderland, published well over a 100 years ago. For example, the musings of the Cheshire Cat sound suspiciously like an excerpt from a business self-help book, while the image of the Red Queen, running ever faster on the spot just to stay in the same place, will strike a knowing chord in many involved in corporate life.
This is not to say that the problems facing commercial sectors, such as the pharmaceutical industry, are quaint or trite. It has been recognised by many that big pharma is facing massive challenges, and the various facts and figures derived from pharmaceutical industry performance over the past 10 or 20 years can make grim reading. For instance, the number of new drugs approved by the FDA in the US has dropped markedly, with the 20 new drugs approved in 2005 representing about half the number that were approved in 1996(1).
Also, more and more drugs are now failing their final tests before market release, the Phase III trial, with the current rate of 40% of drugs not meeting the Phase III hurdle compared to about 20% a decade ago. Reports contend that pharma revenue forecasts are down, and losses due to the sale of generic drugs are increasing as more and more valuable drug assets come off patent(2).
Added to this are some very public pharmaceutical withdrawals, the most obvious being the recall of Mercks previously star product Vioxx, which sent the entire company running for cover beneath a steady downpour of lawsuits. However, the most consistent complaint about the current state of affairs in pharma is the apparent reduction in the number of new drugs being developed. Pharma are churning out fewer and fewer potential drugs from their R&D pipelines, despite the often heavy R&D spend.
There are a number of reasons why the number of really interesting new drugs emerging from pharma R&D pipelines are falling. The simplest reason is that all the easy drugs have been made already. The major diseases facing the world today, such as cancer, obesity, asthma, and diabetes, tend to be complex diseases that feature subtle interplays between environmental factors, including diet, pathogens and/or other environmental insults, and a growing array of genetic factors that shift from person to person, dependent on individual genomes. Complex and multifactorial causes do not lend themselves easily to silver bullet type approaches, and it is telling that comparatively rare disease targets are still seeing significant improvements in terms of drug therapies simply because they often represent more simple cases of causative events or exacerbating factors.
However, along with greater understanding of disease processes come tools and techniques that might one day lead to cures. Pharma is now placing great hopes into new -omic approaches, such as genomic technologies that may lead to personalized medicine. This is where drug therapies might one day be targeted to particular subgroups in the population based on scrutiny of an individuals genome sequence. Using knowledge of a persons genetic make-up, it may be pre-determined what particular drugs would likely be effective and what drugs would not therapies would be tuned or tailored to each individual.
While this approach holds much promise, general applications of personalized medicine have yet to hit mainstream and significant technical and research hurdles remain. It also remains unclear what affect this approach will have on business models within the pharmaceutical industry.
Adding to the confusion and uncertainty around future products is the very real pressure on profit margins experienced today. Sales and marketing staff numbers have increased markedly over the last 10 years, and marketing budgets seem to have spiralled upward even faster. The rise in the number and scope of generic products has also contributed to the pressure on profit margins. Most of the big pharmaceutical companies have responded by attempting to reduce costs as a means to offset reduced income.
Classically, R&D has been a target of such streamlining initiatives. In some ways, R&D is the broccoli of pharma. Everyone knows R&D is a good thing to have around and there is plenty of literature and case studies supporting its benefits, but when push comes to shove, and hard choices have to be made, then there is a habit for R&D to be pushed to the side of the plate. A related problem is that the focus of R&D can change such that R&D becomes more r&D, with more emphasis on the development of current targets, and less on research into new applications or targets.
However, the news is not all bad, and indeed, some commentators have asserted that it all depends on how you look at it. The R&D pipeline has not shrunk, it has just gotten chunkier, that is, the model by which most of the big pharmaceutical companies operate has evolved. Where pharma once provided a suite of drugs that offered incremental benefits over previous offerings with occasional game-changing block-buster drugs as a star performer, modern pharma has become a block-buster orientated industry, whereby just about every product launched carries the expectation of being the next big thing. If a block-buster drug is defined as one that makes at least 1 billion dollars in revenue, then recent figures support the idea that pharma has embraced the age of the block-buster.
According to one article, the number of block-buster drugs has increased from 36 in 2000 to 92 in 2006, and are now responsible for around half of the market growth (3). This has led some to suggest that in terms of return on R&D investment, the situation has actually improved since the halcyon days of the 1990s (4). Nonetheless, this growing reliance on the next block-buster around the corner has a number of consequences for pharma that the industry is still grappling with:
1. Behemoths beget behemoths
The trouble with block-busters is that they tend to be very expensive beasts. To be in a position to market a drug as a game-changing product usually requires spectacularly large research investment, not to mention funding the clinical trials and regulatory requirements. Thus, to recoup the investment, a potential drug has to start out with endpoint of being a blockbuster in mind; otherwise the investment would never be repaid. Potential new drugs that offer a benefit over existing products, but thought not to command a large enough premium, may no longer justify continued development. Because of the risk of failure inherent during drug development, this financial hurdle of generating the required return on investment is getting higher all the time. Thus, embarking down the block-buster road has led to an increasing reliance on having block-busters to make profits. This also has a flow-on effect in terms of reduced numbers drugs with low- or mid-level returns reaching the market.
2. Tails wag dogs
Once a pharmaceutical company has its blockbuster, then large amounts of resources must be dedicated so that it continues to be successful. This includes the marketing spend, which is usually large, but also manufacturing and other costs. Production plants may have to be specially built to handle demand created by a true block-buster, which may in turn lead to the rescheduling of transport and distribution systems, with downstream consequences for sales plans. Due to the potential value of the block-buster drug, as well as the large investment in manufacturing and logistics required to maximise that benefit, the launch of new products may be delayed or the development pipeline slowed just to meet the demands of the block-buster. Thus, there is a risk that block-busters may in fact be anti-innovation, and drive the operation of the business rather than the other way around.
3. Death by specialization
Another possible consequence of the block-buster is that given the importance to company fortunes, the company may specialise its systems, from manufacturing to marketing, to support it. Another driver for this is the concurrent trend for cost reduction that may promote specialization to reduce the manufacturing costs. Unfortunately, this specialization, while making good financial sense in the short term, is at the cost of longer-term flexibility. Most successful companies have the ability to adapt to changing market conditions, customer demands, new ideas, or threats, such that flexibility is considered a key attribute to business survival. The danger of the block-buster model is the increasing costs of re-specializing to suit the demand of a new block-buster, further fuelling the need for higher returns and bigger block-busters.
What has not changed is the long and tortuous road that any new drug or treatment faces from initial development, through clinical trials and regulatory approval, and into the market. Pharma has adapted to this process, in response to squeezed profit margins (amongst other things) by concentrating on high-value product opportunities that make it worth their while. The overall market for pharmaceuticals is still growing, and the need for novel, innovative therapies to cure the ills of humankind are as great as ever. What is not clear is whether pharma is able to maintain the stream of next big things required to support the block-buster habit. Given the long lead time required for a new drugs to move from fundamental research to the end of the product development pipeline, it remains a concern that enough effort is being placed on the input end of the pipeline, otherwise pharma will find that it will have to run a lot faster yet, just to stay in business.
(1) Liam Bernal, Why Pharma must go to Hollywood, The Scientist 21(2):42. 2007
(2) Alastair Campbell, Greg Rotz, Ken Worze Getting fit in pharma: from periodic cost-cutting to continuous productivity improvement, Marakon Associates, 2005.
(3) Jon Simons 5 blockbusters to save big pharma, Fortune, Jan 20, 2006
(4) Crisis? What Crisis? A fresh diagnosis of big pharmas R&D productivity crunch
For more information on analytics that show you where to place your focus for the largest returns in pharma, please contact the author, Dr Andree K Bates, at Abates@Eularis.com
Author: Dr. Andree K. Bates, Eularis, www.eularis.com