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Business and Markets

Against Panic

With the waves of layoffs going on, and all the nasty structural changes we’re seeing in this business, it’s easy to start feeling a toxic combination of fear and despair. And while I understand that, I’m going to try to briefly argue against it.
(1) I think that, in the years to come, that people are most definitely going to need medicines. And by that, I mean new ones, because there are a lot of conditions out there that we can’t treat very well. As the world gets (on the average) older and wealthier, this need will do nothing but increase. In many cases, pharmaceutical treatment is cheaper than waiting and having surgery or the like, so there’s a large scale cost-saving aspect to this, too.
(2) I also think that many of these medicines are still going to be small molecules. Now, biological products can be very powerful, and can do things that we can’t (as yet) do with small molecules – mind you, the reverse is true, too. And I think that biologics will gradually increase their share of the pharma world as we find out more about how to make and administer them. But it is very hard to beat an orally administered small molecule for convenience, cost, and patient compliance, and those are three very big factors.
(3) What we’re witnessing now is a huge argument about how we’re going to make those small molecule drugs, where we’re going to make them, and who will do all those things. And it’s driven by money, naturally. We don’t have enough new products on the market, which means that we have to sell the ones we have like crazy (which leads to all sorts of other problems, legal and otherwise). At the same time, we’re having to spend more and more money to try to get what drugs we can through the whole process. These trends appear unsustainable, especially when running at the same time.
(4) But as Herbert Stein used to say, if something can’t go on, then it won’t. Right now, the only way out that companies can see is to cut costs as hard as possible (and market as hard as possible). Those both bring in short-term results that you can point at. Long-term, well. . .probably not so good. But in that same long term, we’re going to have to find better ways of discovering and developing drugs. If we can improve that process, the fix can come from that direction rather than from the budget-cutting one.
(5) And those improvements don’t have to be incredible to make a big difference. We have a 90% failure rate in the clinic as it stands. If we could just work it to where we only lose 8 out of 10 drug candidates, that would double the number of new drugs coming to the market, which would cheer everyone up immensely.
(6) The questions are: can we improve R&D in time? Can we improve it with the resources we have? I think that the demand (and thus the potential rewards) is too great for a solution not to be found, if there’s one out there. And we still know so little about what we do that I can’t imagine that answers aren’t out there somewhere. Who’s going to find them? How long will it take? Where are they? I’ve no clue. But that looks like the way out to me.

32 comments on “Against Panic”

  1. milkshake says:

    The whole pharma model is flawed. The fish rots from the head

  2. g says:

    Big Pharma has money and experience in clinical trials. They’ve not been so good at the research and discover side. They know this and R and D is expensive. I am guessing that we’ll see more outsourcing of R and D in the future from big pharma.
    Mid- and small-sized companies don’t have the money and so they’ll keep R and D in-house and pay people with stock-options. Big Pharma will swoop in and buy up promising compounds in Phase II/III.
    This may be a good thing for the industry since small- and mid-sized companies are more flexible and innovative. This may be a bad thing for scientists though. More smaller companies paying lower salaries, but using stock options as compensation, will decrease salaries overall. Additionally, these companies will not be around very long. So the scientists will have much less job stability.

  3. Tok says:

    These are all nice points but, what do the people looking for jobs do in the meantime?
    Anyone know of other industries that synthesis skills transfer to?

  4. d says:

    “…As the world gets (on the average) older and wealthier,…”
    Older, I’ll believe, but wealthier?? If jobs keep being outsourced and the remaining jobs are lower paying and with reduced health benefits, where will these older people get their “wealth” from?

  5. Mike G says:

    Derek, in #2 you say it’s hard to beat small molecules for convenience, cost, and patient compliance. One thing the rise of biologicals has shown us is that patients are fine with injectable drugs if they’re superior to existing small molecule treatments. We’ve seen this played out in rheumatoid arthritis. As for cost, the price of recent targeted small molecules for cancer is right up there with biologicals. I think that MS, a disease market traditionally served by biologicals, where a few small molecules are in late PIII, will be the test case for whether innovative small molecule drugs can sustain as high a price as biologicals.
    As to whether we can improve R&D in time, I think the answer is NO. That’s why companies are cutting costs — outsourcing, managing to margin, trimming staff, focusing on fewer diseases, partnering/licensing more, etc. That’s something they CAN control. But also, over time, it may turn out to be the way to improve R&D.

  6. Hap says:

    I think biologics derive much of their advantage from effectively infinite patent life. The chemistry/biology to make them will probably improve, particularly with large investments from pharma, but eventually there will be biosimilars legislation, and even if the legislation gives 14 years exclusivity for biologics, their protection will expire. The cost of goods and limited set of companies with qualifications for making them will limit the cost competition at first, but competition will come.
    I still haven’t figured out how outsourcing will improve R+D – if the people we’re outsourcing to know how to do our jobs well, then they will eat our companies for lunch before long. If they don’t, then the effectiveness of downsizing/outsourcing R+D depends on management knowing what the problems are and how to solve them (how to deploy less resources to the same ends), and being able to guide them effectively, which seems not be consistent with recent history. (Also, if you could guide your R+D effectively with fewer resources, you could make a lot more money keeping what you have and using it effectively to grab market share from companies that can’t use their R+D as well.) As a bonus, they need to recognize the capacities and limitations of the R+D they buy, which will be more difficult when you don’t have much R+D of your own (or you don’t care what your R+D says).

  7. Mercury says:

    I do think we can improve the success rate of small molecule R&D. In fact I think we can improve it greatly — because Big Pharma is guilty of gross mismanagement of its R&D efforts. There will be no miracles, but progress is possible.
    The science itself is changing. We now need to absorb the lessons from what almost amounts to a next-generation, systems-oriented cell biology, which for the most part we are in the process of discovering. And also the complex variability of pharmacogenomics. This will partially displace the too reductionist approach of targeting single proteins, which has often been misleading. (Such targeted studies will remain useful.) The implications of that are more far-reaching than most people are taking into account, for it means that pharma R&D teams will have to structurally change. Chemists are not obsolete but the teams will have to go much deeper in fundamental biology, as well as mathematics and computing if they want to make some sense of the additional complexity. Unfortunately, many of our managers learnt all they know in the Good Old Times.
    Far too many scientific opportunities have remained unused because R&D teams lacked the necessary skills. For example the study of Peter O’Brien that demonstrated that hepatoxicity can be predicted much more accurately by imaging techniques than by animal tests–Occasionally, even Pfizer gets something right. The interest in this has failed to be commensurate with the enormous potential usefulness to the industry, because it is a moderately complex technique and the field of toxicology is so conservative. Recently, a instrumentation vendor has tried to dumb down the concept to a level where every lab might be able to use it: I applaud the initiative, but dumbing down is the one thing that ought to be unnecessary.
    The other thing that needs to significantly improve is team management. Seriously. I think many of our R&D groups would easily be four times as productive if they were given a genuinely motivating and stimulating environment. That demands a leadership that really cares about people and their individual talents and characteristics. To get the best performance out of every single person, and simultaneously assemble the people into well-oiled teams, takes great attention to detail and a long-term investment in people. The current restructuring efforts are of course enormously damaging in this regard, and will achieve nothing whatsoever in improving the productivity of pharma companies.
    The problem is that Big Pharma is clueless about managing R&D teams properly, and bad management is so routine that everybody has accepted it as normal — it isn’t. Small biotechs appear more productive because there is less opportunity for committing gross management errors in a small company, and if you do the company doesn’t survive. Large pharma companies apparently can afford to mismanage their scientists for decades.

  8. bbooooooya says:

    So I see this alot: “Big Pharma has money and experience in clinical trials. They’ve not been so good at the research and discover side.”
    Does any body have any actual evidence to support this?
    I agree this sounds like a nice notion, but it seems this is one of those “well everybody knows” types of arguemnts that don’t hold much water.

  9. Sili says:

    This suggestion is likely not going to be popular here, but if you had proper socialised healthcare, I’d imagine that far more start-ups would be able to … well, start up, and more chemists would be willing to go out on a limb and work for them, when they don’t have to fear for their health.
    I hope that someone will point them out to me, when a sensible business comes along, that doesn’t merge for the sake of merging. I think I’d be willing to put my money (what little I have) in a company that was willing to aim for the 25 year goals. I don’t need to get rich quick, but I’d like a decent shot at ensuring my retirement. Can I really be the only one?

  10. Hap says:

    Socialized healthcare would probably help lots of things, but I don’t know if being in drug startups is one of them. Single-payer or insurance-run healthcare will probably still limit how much is paid for drugs, limiting the profit to be gained from a new one, and so the benfit of starting a business. Since a lot of what startups are paying is promises of potential future profit, it might lower the pay that would be present (though having portable health care would help, it might be overwhelmed by the loss of profit opportunity).
    I think startups appeal to people with lots of confidence and ability and who don’t mind significant risks – which isn’t everyone (or even most people). In other businesses, where health care is a cost and not a source of profit, portable health care might decrease the risk of startups and so make them more appealing to potential employees, but probably not for drugs or for medical care and equipment.
    I keep saving money for a retirement, but I don’t know if I’m going to be able to retire. Particularly if I’m laid off in middle age (which keeps growing in likelihood). Retirement appears to have been the fantasy of one of two generations, disappearing when the bills come due.

  11. NJ formulator says:

    I actually think that had the ‘safety bar’ stayed in the same place as it was 10 to 15 years ago, Pharma would only have an 8 out of 10 failure rate. As it stands, we live in a litigous society where the safety to efficacy standards have become extemely difficult to meet.
    Had society/FDA/the court system maintained a more realistic notion of balancing the value of a drug’s intended purpose vs. side effects (especially the 1 in 1000 or 1 in 10000 type risks) our success rates would likely be >10%.

  12. MTK says:

    #8, see the fda report which studied factors that are important in first cycle approvals.

  13. pete says:

    #6 Hap “..they need to recognize the capacities and limitations of the R+D they buy, which will be more difficult when you don’t have much R+D of your own (or you don’t care what your R+D says)”
    Well said. Seems that remaining in-house R&D folks will be under even more pressure in trying to do a creditable job of triaging outside drug prospects. Curtailed expertise, nervous timelines, anxious suits — the beat goes on.

  14. doctorpat says:

    I keep thinking that the solution is going to be national in scope.
    Some large market (maybe Japan, maybe someone to the near west of that country, probably not Europe) is going to realize that if the cost of bringing a drug to market was say… reduced by 75%… then it might be worth developing all the drugs for THAT market, and not the USA.
    All the pharma research starts concentrating there, and the number of new drugs starts shooting up again, and everything is cool. Except the USA has lost it’s position. Well it was their choice.
    The Americans get the new drugs after they’ve been on sale elsewhere for years and have got sufficient data to satisfy the FDA and litigation cautious distributors.
    The other thing that concerns me is the constant tales of drugs that look good in the lab, look great in rats, but prove terrible in humans.
    If they work in rats but not in humans, how many work great in humans but not in rats? How many fantastic drugs were dropped because of an irrelevant rodent reaction? If someone gets a cheap way of testing these, and then goes through the last 20 years of failed rat trials what % may be revived?

  15. bbooooooya says:

    “#8, see the fda report which studied factors that are important in first cycle approvals.
    yes, a good article, thanks. Exhibit 7 seems to suggest that the minority of approved drugs were in-licensed.

  16. Anonymous Big Pharma Researcher says:

    Quotes that seem to fit the behavior of many corporate managers, in pharma and elsewhere, today:
    Fanaticism consists of redoubling your effort when you have forgotten your aim.
    George Santayana
    Insanity: doing the same thing over and over again and expecting different results.
    Albert Einstein

  17. Robert says:

    How does short-term vs. long-term development play in the role of treatments vs. cures?

  18. Jose says:

    After watching the lemming-like decision behaviour of big pharma in relation to combichem and the ‘omics (“Hurry! Or we’ll be left behind and never, ever catch up!”) I fear this move by PFE will only induce others to implement similar research matrixes.

  19. petros says:

    Very much the theme of a Meeting at the SCI yessterday – Hot Topics in Drug Disovery- finding the next lead.
    Several of the presentationsare being made available on the web.

  20. David Fleck says:

    The Americans get the new drugs after they’ve been on sale elsewhere for years and have got sufficient data to satisfy the FDA and litigation cautious distributors.

    Except Americans can no longer afford them, because there aren’t enough jobs as Realtors, nail salon workers, and diversity trainers to go around.

  21. MTK says:

    I wouldn’t read too much into that. by that, I mean if you think that supports in-house efforts over in-licensing, I think it’s a reach without more info.
    First, you’d have to know how many compounds within the industry are in-house vs. in-license. Next you’d also have to know how much was spent on average getting the in-house vs. in-license compounds up to that point.
    One thing actually in the in-license compounds favor that I interpret from Exhibit 7 is that in-license compounds have a higher first cycle approval rate, probably because marginal in-house compounds are harder to kill than in-license compounds.
    Exhibit 40 is interesting in that it basically confirms that bigger is better at least when it comes to getting first cycle approvals. So the “Big Pharma better at clinical and marketing, and small better at R&D” is not just a myth.

  22. Cloud says:

    #2- Salaries aren’t bad in the small to mid-size companies. No one with any experience (or sense) thinks of the stock options as anything but a lottery ticket, so we tend to expect fair compensation for our time. I’ve worked at small and large companies over the course of my career, and the pay scales seem roughly similar. Benefits are much better at large companies, though. I’m at a small company now- no 401k match, fewer and less generous options for health care….
    As for job security- it doesn’t seem that jobs are so secure in big pharma right now. I’d say job security is a thing of the past. But you can come to terms with that if the salary is sufficient. My financial plans include the possibility of a relatively lengthy period of unemployment.

  23. Bored says:

    Single-payer will inevitably lead to the government dictating behavior based on cost of care. It sounds silly now, but there will come a day when it will be illegal to smoke, drink, go anywhere without a helmet or get too exited about anything because those things are risky. We will all be forced to sit and stare at government-produced safety and health videos. This will be called “full employment.” Sometime after that Congress will re-name itself “The Borg.”
    The upside is if we do get sick, we won’t have to pay a dime for healthcare.
    P.S. There won’t be any food shortages either, because on your 50th birthday you become Soilent Green.
    I wish I were trying to be funny here. The Road to Hell is paved with good intentions.

  24. Sgt. Nerdy Hartman says:

    To all the new PhD’s facing this situation, a creed:
    This is my PhD! There are many like it, but this one is mine! My PhD is my best friend. It is my life. I must master it, like I master my life. Without me, my PhD is useless. Without my PhD, I am useless. I must apply my PhD true! I must work faster than my enemy who is trying to scoop me. I must scoop him before he scoops me! I will! Before the ivory tower, I swear this creed…My PhD and myself are defenders of my narrow subject. We are the masters of our enemy. We are the saviors of my life! So be it! Until there is no enemy! But Peace!

  25. Farhat says:

    @23 There are a number of countries with single-payer health care in which such a thing has not happened. Why do you think US is so special when it comes to this?

  26. Bored says:

    In the future, we will have less freedom and more choices. Those are not contradictory, but the natural outgrowth of government control. This is the path we are on. There is a black side to socialism that most intellectuals cannot grasp, because they are caught up in the ideal. There is no heaven on Earth, and there never will be.
    Government must inevitably control individual behavior.

  27. Bored says:

    The more Government you have, the more control over individual freedom. The only solution to this problem is to have the smallest amount of government possible to maintain social order. This healthcare crap is just an attempt to grow Government. It has nothing to do with taking care of sick people.

  28. Hap says:

    Except under a private insurance system, the insurers and employers do it (example: Scotts, who’s being sued over their policy of firing smokers). In theory, you can choose another employer or health insurance plan much more quickly than a government, and have more options in suing employers to make them reverse their policies, but in practice, the rate of finding a job is only slightly faster than that of emigration, and the rate of finding another insurance plan is probably significantly slower. You’d also have expected the portion of the world that does gov’t-run health care to have done that, but they don’t in fact seem to have.

  29. Pharma Giles says:

    Derek: I admire your optimism but find it naive. The US/UK pharmaceutical industry is now largely run by people who are not the slightest bit concerned with future medical need. It is all about “more money for us and our investors, NOW”. Long-term needs of customers counts for nothing. When the pharmaceutical industry has been milked dry, asset-stripped and then off-shored, the “investment” locusts will move on to another industry, probably software.
    “Quality” and “retention of skills” does not matter to the money-men, just short-term returns. We sell our skill sets to sources of cheap labour and pour our investment dollars into them rather invest at home, just to keep the margins and the profits up. We then forget how to make things overselves, and are subsequently surprised and resentful when the “cheap labour” eventually becomes “smart labour” as well.
    It has already happened with textiles, heavy engineering, automobiles etc. Not only have these industries been largely eradicated in the US/UK, but the skill-sets that drove them have also been lost. We could not quickly re-establish these industries even if we had to: we just don’t know how to “do” them any more. They were sold off and sold out for short-term gain and now it’s pharms’s turn.
    To pretend this isn’t what’s happening in the pharmaceutical industry now is just so much “head in sand”. It’s just capitalism at work. Open your eyes, take an honest look around you and say it ain’t so…
    The next generation of small-molecule medicines will be discovered, developed, manufactured, tested and packaged in the Far East. If we are lucky, some may not be all that harmful, and they may even let us buy them. At a price.
    I would suggest that your readers jump the sinking “trad-pharma” ship as soon as they can. You have transferable skills – develop and hone them, and get your bosses to pay for that if you can. The smarter ones already have.

  30. Thomas McEntee says:

    #29 has hit the nail on the head…if anyone’s still focused on this discussion. Read his words carefully…”It has already happened with textiles, heavy engineering, automobiles, etc…” I jumped ship from the pharma-chem industry ship 20+ years ago…it was not particularly my choice, but in retrospect it was a very good thing I did.

  31. SD scientist says:

    I totally agree with #29 & 30. Questions is what’s the other ship to jump to. Patent agent and attorney are one of them. Is it too late now with unemployment >10%?

  32. seenitall says:

    “Can we improve R+D in time”!!??
    HA, the real issue is that pharma hardly spent any money on R+D!
    It will come back, there are few things, if any, that can generate the kind of revenue, that a simple little pill can.

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