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Productivity Over the Years

The last couple of years have been very good for the number of drug approvals, reversing a rather worrying trend. But are these data points themselves enough to qualify as a reversal? That’s what John Carroll is asking here, pointing out that even the traditional end-of-the-year flurry of approvals doesn’t look likely to rescue the numbers for 2016. (Does anything, in general, look like it’s going to rescue 2016 on any front? Just a thought.) John LaMattina is a bit less pessimistic, but it does look as if 2014/15 will be a sort of outlying burst of activity.

To the question of where this productivity is coming from, I can recommend this article by Bruce Booth. He’s gone back and looked at the 170 approvals of new drugs since 2011 (imaging agents and fixed combinations are excluded from that total). What he finds is that only 35% of these originated with the top 25 drug companies (although most of these end up marketed by them). Looking at the origins of the companies, about 46% of the approvals originate at “traditional” pharma companies (of whatever size), about 25% come from 1980s and 1990s VC-backed startups, and 29% from post-2001 VC-backed companies, which seems like a pretty respectable total.

The general run of the business these days, then, can probably be summed up this way: the large companies develop internal programs of their own – no one has yet made a success of the oft-speculated “virtual research” insourcing shop on any kind of large scale. But they don’t generate enough new drugs to fill out their own portfolios; every large company is interesting in acquisitions or inlicensing to fill out its roster. Meanwhile, smaller companies are (frantically) developing their own drugs, too, but if it looks like something is going to be a huge success, they generally will have to partner with a larger company or be bought by one outright. A lot of these big markets are too big for a smaller company to make the most of, in both clinical development and marketing/regulatory terms.

But this is the way it’s been for a long time. I don’t recall a time when the large players didn’t bring in drugs and drug programs from outside, and I don’t recall the small ones ever (for the most part) being able to completely capitalize on huge opportunities all by themselves. One thing that did change since 1990 was the consolidation in the ranks of the large companies (as Pfizer bought up everyone, although there were other offenders). In the end, though, these mergers don’t seem to have produced much of a change in the way the industry works, because the statements I made above would have applied equally well in 1990 as they do today.

What all the big mergers did do, unfortunately, was narrow the ecosystem down at that level – the big companies are still buying programs and companies to fill out their rosters, but there are just fewer big companies around in general to do that. And the big merger era also demonstrated that you can’t merge and expand your way into some sort of critical-mass pharma nirvana, either, where you finally have so much scientific talent and so much marketing and so big a portfolio that nothing can ever slow you down. Doesn’t happen. Your problems scale with you, and some of them get worse.


28 comments on “Productivity Over the Years”

  1. There is an additional explanation: big pharma invested heavily in pipelines 2004-2008, some of them to overcome the coming 2012 patent cliff. We saw the boost in approvals 2012 onward because of this. During the financial crises, as well as the parallel pessimism over R&D productivity, R&D pipelines were heavily pruned to save cost and improve probabilities of success. This was well expected to start reducing drug approvals by 2015-16.

  2. Pformer Pfizer Pfellow (did I spit on you?) says:

    I spent the first decade of my professional life at Pfizer in the 1990s in the days of Bill Steere. The irony was, as Merck and others were buying companies, Pfizer stood still on that philosophy, preferring instead to grow organically and reinvest profits heavily in R&D. The Pfizer of the new millennium has taken the exact opposite tack, starting with the acquisition of Warner Lambert (we couldn’t let Lipitor escape our clutches, now, could we?) and Pharmacia/UpJohn, and then and playing hardball with the State of Michigan as they receded/recalibrated from those acquisitions. This new Pfizer, insatiable for M&As for growth (as they reduce the size and innovation capabilities of our industry), I dont recognize as the company I joined and cut my teeth in a couple of decades ago. But at least it debunked the myth of scale breeding innovation. And with big pharma shedding what was previously considered “core” to their business, they’ve created opportunities for others to do those things better, and saved more money to partner with yet others who are innovating better than they have.

  3. Me says:

    Any figures on $$$ spend between those groups?

  4. Barry says:

    It’s unfair to conclude that “smaller companies are (frantically) developing their own drugs, too, but if it looks like something is going to be a huge success, they generally will have to partner with a larger company or be bought by one outright. A lot of these big markets are too big for a smaller company to make the most of, in both clinical development and marketing/regulatory terms.” No small publicaly-owned company will ever get that chance. The big companies–who don’t generate sufficient novel IP internally–will buy anything that smells like it might be a $billion/yr property, whether as a drug candidate as a package acquiring the whole operation

    1. tangent says:

      Well they’re not being bought at the point of a gun. They’re being offered more money than their investors think they can make by doing the drug themselves, because of what Derek said.

      (Okay, sure, you can argue the investors also have an excessive preference for money soon and risk-free, and that’s probably true, but that doesn’t need big pharma specifically to buy you, that just needs any institutional investor with a long time horizon and a big portfolio. And big pharma has been more into this bidding than investment banks have, which implies big pharma gets more out of it, or is stupid about money (and they’re stupid about things but money is their core competence these days).)

  5. steve says:

    I think what you’ve left out is where innovation comes from. Here’s what Booth’s article said. “As was discussed on this blog previously, 75% of the most “transformational” pipeline drugs in big pharma 2014 were externally sourced via business development (mergers with other larger players, acquisitions of small companies or licensing deals).” Large pharma is no longer a source of innovation. This is a direct result of the control of large pharma switching from being entrepreneurial and science-driven to risk-adverse and market-driven. This trend will continue until all that’s left in large pharma is sales and marketing and there will be total reliance on small entrepreneurial companies to take all the risk and develop new technologies.

    1. Anon says:

      Good luck to Pharma with their new marketing-only business model model.

      Those that can create any value with innovation will capture all that value. Everyone else will get exactly what they pay for (or less, when everyone is desparate to take a slice).

  6. Any figures on $$$ spend between those groups?

  7. Gunter Hartel says:

    It seems there is an increased focus on orphan indications so maybe thst is helping drive the success of smaller players

  8. Druid says:

    With an estimated 1000 new entities entering clinical trials this year, how much “productivity” do you want? There is little enthusiasm to pay 1/3 of the price of a house every year for each new medicine, so surely it is better efficiency that is needed, not more volume output. IMHO, there is still an over-supply of research and development, generously funded by governments, charities and high-odds investors and R&D needs to contract to be truly sustainable. Too many companies are chasing the small number of good targets. This is why scientists’ jobs are in constant jeopardy. I do not agree with most M&A deals – they are disruptive and wasteful – but like most of you have said, they don’t actually make much difference. This is the way industries decline when supply exceeds the market.

    1. steve says:

      There is a difference between productivity and innovation. As you said, too many compounds all hitting the same targets. What’s stifling big pharma is an institutional bias against thinking out of the box.

      1. Druid says:

        … and that’s why there are so many start-ups. Even in this tough financial climate, it’s easier to do it yourself than convince dozens of over-paid corporate men on safe bonuses to react quickly.

      2. withheld says:

        Steve, in my big pharma company this is very far from the truth. I’d argue there’s an institutional bias against the tried and tested in favor of the risky and unproven, but shiny and exciting – a strategy driven largely by “opinion leaders” who’ve never done much drug discovery for themselves…

        1. Druid says:

          Do you mean “tried and tested” targets or technologies?

        2. gollum says:

          Upper management is definitely obsessed with bright, shiny things and “opinion leaders”. This begs the question: if their opinions are so precious, why is productivity apparently so poor? Industry needs to account for return on opinions since this usually translates to return on investment. Unfortunately, the opinion leaders are off formulating “new” opinions by the time their old ones are tested, while upper management excels at covering their tracks and their derrieres.

  9. Kelvin Stott says:

    The problem with all these analyses, is that they look at just 1 or 2 years and try to make a trend out of it. Frankly, that’s ridiculous. It’s reading the ransom noise as a signal. I said as much when all the reports came out saying that R&D productivity had turned a corner in 2014-2015, and I’m saying it again now.

    R&D productivity (NMEs per $Bn R&D spend) has been declining by 50% every 9 years across the industry for the past 60 years (Eroom’s Law) – despite all new technologies and efforts to bend the curve during that time. Save for these random annual variations, it has been a near-perfect exponential decay curve, and this is fundamentally due to the law of diminishing returns as each new drug raises the bar for the next. Basically, each new drug improves the standard of care, but this makes it more difficult and expensive to find another drug that can beat it, while reducing the potential scope for improvement.

    Moreover, this downward trend will continue by the law of diminishing returns as long as we continue to depend on the same old bottom-up reductionist target-based approach to drug discovery. If you want to bend the curve, then you have to change the paradigm – completely – because the established model has simply run out of steam.

    1. Kelvin says:

      “random” 🙂

      1. steve says:

        My feeling is that the exponential decay likely reflects the concomitant increase in the size of pharma companies and the need for billion dollar drugs. With lots of small pharma, drugs that weren’t as lucrative were fine and you could make a nice profit with multiple smaller drugs. As pharma increased in size the need to feed the monsters increased and so the drugs serving smaller markets were shunned, resulting in much lower apparent productivity. The only way to reverse this cycle is to either break up the huge monstrosities that pharma companies have become or distribute innovation across many small biotechs, some of which (if they’re smart) will keep the smaller markets to themselves and do quite nicely.

    2. matt says:

      Four years may be too short, though as the time frame expands, the number of influences and confounding factors also expands, making a mockery of ANY statement of “it is due to __”.

      If your statement ” this is fundamentally due to the law of diminishing returns as each new drug raises the bar for the next” were accurate, you should be able to look at diseases for which there is essentially no existing standard of care, like Alzheimer’s Disease or Duchenne’s Muscular Dystrophy etc, and be able to track undiminished productivity, in terms of new drug candidates per million/billion spent, in those fields. Is this the case?

      1. K. says:

        Some oil fields are huge but remain untapped as they are buried miles underground. Productivity falls as we have already exploited what we could find.

        1. matt says:

          Fair enough, though that’s a different argument. Still have two issues, though: one, are you sure that’s not a tautology? That is,
          “We exploited all the easy stuff.”
          “How do you know this other stuff isn’t easy? (That “easy” stuff didn’t look so “easy” back in the day!)”
          “Well, if it were easy, we would have exploited it already.”

          Second, hadn’t we exploited all the easy stuff in the ’50s that we knew how to do, in the ’50s? and so on for any period of time? Isaac Newton had to invent calculus to be able to generate the math to explain his equations of motion and demonstrate the working of gravity, but then after that a whole lot of future calculations could be done.

          Robert Koch said, “If my efforts have led to greater success than usual, this is due, I believe, to the fact that during my wanderings in the field of medicine, I have strayed onto paths where the gold was still lying by the wayside. It takes a little luck to be able to distinguish gold from dross, but that is all.” But this was because the microscope had been invented: i.e., it was “low-hanging fruit” only after (to use Newton’s phrase) climbing on the shoulders of the giants who had gone before. Even so, Koch’s “gold lying by the wayside” required creating an entirely new field; making extremely tedious mass measurements in conditions of infectious, fatal diseases; and uncertainty about whether one’s safety practices were effective and applied to this disease.

          So perhaps productivity can increase, if we try a little fracking, or use some other of the myriad new techniques and discoveries popping up all around us.

          I’m a good bit more sympathetic to Steve’s explanation: it may be time for the big, over-consolidated, excessively (short-term) market-driven pharma dinosaurs to die off or evolve to more agile bird-like form. Long live the mammals! 🙂

          1. Kelvin says:

            Both points I made are really part of the same argument, but me try to explain another way:

            The law of diminishing returns applies because as long as we have and will always continue to pursue opportunities with the greatest expected returns first (a combination of the easiest, cheapest, greatest probability of success and most profitable), then we can always expect to get lower expected returns later. In other words, the real cause of diminishing returns is a direct and unavoidable consequence of *prioritization*.

            This is the case with every business model in every industry. Unless and until you fundamentally change the paradigm. As we did in moving from horses to cars, analog to digital, and from burning coal and wood to burning oil and gas. The entire world economy is now slowing due to the law of diminishing returns, so we are despatate for another paradigm shift. That applies to pharma as much as every other industry, thus the fundamental problems of pharma are not restricted to pharma.

          2. Kelvin says:

            PS. In my view, a paradigm shift is an entirely new business or R&D model to create value which opens up a whole new field of resources and makes all the existing models obsolete. The shift from drilling to fracking is a good example that I have often used myself. But apart from the shift from small molecules to biopharmaceuticals, I haven’t seen any real paradigm shifts in Pharma. Everything else has been a mere extrapolation of the status quo, which explains the diminishing returns due to prioritization of opportunities in exploiting these two models.

  10. Druid says:

    Kelvin, I like your analogies but you have not mentioned pricing. Fracking is attractive and “disruptive” when the oil price is $120+ per barrel and has successfully brought the price of energy down (also upsetting the renewables industry). But currently pharma is offering helicopters to commuters, or rather cars at the price of helicopters. The justification? “You have to pay for all our failures as well as our one success, and if you don’t, you can stay sick.” Who else gets away with that?

    1. Kelvin says:

      High drug prices are a symptom of the fact that Pharma can no longer create real value (incremental benefits vs cost of development) with innovation, so it is effectively charging patients more to pay for its destruction of value, and the US system does not allow a free market to control pricing so they can get away with it. But of course, all this is unsustainable and will end when the US system either changes or breaks down completely.

    2. Kelvin says:

      And yes, I am saying that Pharma R&D is destroying value, since branded prescription volumes are falling despite the fact that Pharma invests almost 20% of its revenues into R&D. If it wasn’t for US price increases on old drugs the industry would already be shrinking.

      1. Druid says:

        Agreed. It is not a market where competition can work in the consumer’s favor, and conditions are made worse for US scientists as the US freely allows imports of products and IP.

  11. Greg says:

    There’s a bit of irony here in that big pharma, more wary of big risks and expense, looks more to smaller players for novelty and innovation, but who often face a challenging search for available IP space for small molecules in a given therapeutic area as a result of the big guys filing large numbers of massive patent applications claiming virtually every conceivable analog for a given chemical template or range of related templates under the Sun. It’s also not uncommon these cases are later abandoned (though still legally defended) when it’s subsequently determined by the bean counters that the related project wouldn’t produce the target revenue they so desperately need to meet their quarterly bottom line to support the blockbuster business model big pharma adopted some 30 years ago. As a result, some potential avenues are off limits until certain patents are abandoned or expire. I can’t say exactly how serious this issue presently is industry wide, but seems to be something often encountered in the CVS and cancer areas in my experience.

    What’s often under appreciated is that many, if not most, blockbusters are generally the result of serendipitous discoveries or were initially much smaller earners that later became hugely profitable through expanded labeling (eg. Viagra, Provigil).

    Meanwhile, biologicals and biosimilars have garnered more attention lately, whether or not prompted by the above, while some companies seems to be entertaining the development of small molecules having more 3D/chiral character, attempting to address the typical shortcomings seen in the clinic often associated with compounds having largely flat, aromatic character (solubility, selectivity and related ADMET issues). So it’s not all Sturm and Drang, so to speak.

    OTOH, the never ending quest for gold, and a less reliable pipeline, has encouraged some clever if rather insidious business and marketing strategies helping lead to the price gouging we’ve seen with some generics (the Mylan and Turing scandals) and even orphan class drugs. Sensible enforced regulations anyone?

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