PRIMING THE PIPELINE | February 16, 2004 Issue - Vol. 82 Issue 7 | Chemical & Engineering News
Volume 82 Issue 7 | pp. 23-36, 38-42
Issue Date: February 16, 2004

Cover Stories

PRIMING THE PIPELINE

Major drug firms have marshaled new technologies and business practices in discovery and development--have they jump-started the machine?
Department: Business

When GlaxoSmithKline (GSK) held a meeting for stock analysts in New York City three years ago, the company's R&D roster foretold a steep drop in new drug prospects for the next several years. However, newly appointed chief executive officer Jean-Pierre Garnier said he had a plan for jump-starting the pipeline. He promised the group he would not convene a meeting to discuss the issue again until he had turned things around.

Credit: ROCHE PHOTO
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Credit: ROCHE PHOTO

Garnier and other drug industry leaders found themselves in a tight spot in 2001. The sector had slumped precipitously following a boom period in the 1990s, when high profits and fat margins were sustained by a succession of drugs with sales over $1 billion per year. Industry observers began questioning the "blockbuster" business model in pharmaceuticals and accusing the major drug companies of spending too much on protecting patents while allowing their pipelines to dry up. Prescriptions for fixing the industry piled in from management consultants and business analysts.

Meanwhile, the public's ire grew in response to skyrocketing health care costs--drug costs in particular. The industry was lumped with big oil and tobacco in what Al Gore, in his 2000 run for the presidency, characterized as an axis of vastly wealthy and morally challenged industries. On the defensive, drugmakers repeatedly justified their position with statistics on the high cost and risks involved in discovering, developing, and commercializing new drugs.

To the outside world, pharmaceutical firms appeared to be making few changes, but behind the scenes the pressure on profits was forcing them to reorganize. R&D departments, traditionally treated as untouchable empires, were subjected to the kinds of business process reorganization that the automobile, finance, chemical, and other major industries tackled when their businesses went into tailspins in the early 1990s.

As they absorbed new tools for discovery and development--such as high-throughput screening and combinatorial chemistry--R&D departments were also developing strategies for managing attrition, cutting costs, and partnering. They set ambitious goals for filing New Drug Applications (NDAs), initiating Phase III clinical trials, and commercializing drugs.

Two months ago, Garnier came back to New York City to discuss progress at GSK, laying out what he characterized as significant advances over the past three years. Tadataka (Tachi) Yamada, GSK's head of R&D, was on hand to describe how R&D had been segmented into seven "entrepreneurial" research teams focused on specific therapeutic areas, thus establishing an agile "small-company culture" within the big corporation. The heads of the teams, called centers of excellence for drug discovery (CEDDs), each delivered a progress report.

The bottom line: GSK now has 147 products in clinical trials, including 82 new chemical entities--a 46% increase in NCEs in two years. Also in development are 20 vaccines and 45 drugs on which the company is developing variants for new indications. GSK has 12 candidates in Phase III clinical trials, a 75% jump in two years. Garnier promised a record number of Investigational New Drug (IND) filings between 2004 and 2008, including a healthy number of drugs with "pioneering" mechanisms culled from genomics and biotechnology to address underserved therapeutic categories.

Analysts are still not convinced that GSK has jump-started its pipeline. They point out that the company has introduced only three new medicines since it was formed in the 2000 merger between Glaxo and SmithKline Beecham--a merger that, like others in the industry, had been accompanied by claims that R&D synergies and sheer size of operations would jet-propel innovation.

In fact, GSK's poor new product output is typical throughout the sector. Only 17 new drugs were introduced across the industry in 2002, down from 53 in 1996, despite major industry consolidation.

Still, chief executive officers and directors of research uniformly deny a crisis in R&D. Some view the new product drop-off as merely a normal business down cycle complicated by all of the changes introduced with the bourgeoning of biotechnology, the decoding of the human genome, and the introduction of high-speed and high-volume tools for discovery--all of which were accompanied by some level of as-yet-unfulfilled promise.

"Several have argued--Hank McKinnell, the CEO of Pfizer among them--that it's a temporary lull based on a change in discovery technology," says James C. Miller, president of PharmSource Information Services. "They say that, as pharmaceutical companies changed over to new technologies such as proteomics, genomics, and high-throughput screening, it caused a lull in new candidates in early-stage development."

THE PHARMACEUTICAL industry does recognize that it is not effective at moving things through the pipeline, Miller says. "Their organizational processes slow them down." The response has been to restructure R&D, he says, pointing to GSK and Wyeth as two firms that stand out as making significant changes to their operations.

TEAM PLAYERS
Self-directed research groups hope to speed up development in the laboratories of huge pharmaceutical companies.
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TEAM PLAYERS
Self-directed research groups hope to speed up development in the laboratories of huge pharmaceutical companies.
Credit: ROCHE PHOTO

It is still too early to determine whether such moves will accelerate drug development and commercialization. The swell of activity in the early development stages that some companies have experienced in the past two years is not a particularly good barometer, Miller says. "The early stage is very fishy. Things winnow quickly because the system is set up to kill projects that won't make it as early as possible."

Nevertheless, most industry analysts see more than a temporary lull. In a recent report, Bain & Co. consultants Jim Gilbert, Preston Henske, and Ashish Singh argue that the pharmaceutical industry has become "a prisoner of past successes" as R&D efforts shift from producing blockbusters to protecting them. The largest companies can continue to leverage their size, they say, but without changes beginning with drug discovery and development, the prevailing business model cannot deliver sustainable growth.

The report is notable in that it gives by far the highest estimate to date of the cost of bringing a new drug to market--about $1.7 billion, which Bain says is 55% higher than the average for the five years from 1995 to 2000. The industry is currently on a course to deliver only a 5% return on investment, significantly lower than its risk-adjusted cost of capital, according to the report.

Bain prescribes a shift in drug development and commercialization from an opportunistic approach--where it is assumed that pushing a broad array of compounds through the system will inevitably score a big seller--to a focused approach that targets promising areas of science and urgent, unmet medical needs.

Large firms should drop their "fully integrated" business model and begin to rely more on partners to manage risk at all stages of discovery, development, and commercialization, the report says. Overall, Bain sees benefit in the establishment of distinct business units within large companies in order to distribute decision-making and assign responsibility for the consequences of decisions.

In another study, consultants at Wood Mackenzie analyzed the clinical pipelines of leading pharmaceutical companies to answer the question posed by the study's title: "Who Will Emerge from the Current R&D Productivity Crisis?" Authors Iain Clark and James Featherstone gauged advances by counting the number of new molecular entities (NMEs) identified by major companies.

The three leaders, Pfizer, GSK, and Roche, have size working for them. But all of them--even Pfizer, the number one drugmaker after acquiring Warner-Lambert and Pharmacia--have started to make some strategic changes other than growing through acquisition.

At GSK, Wood Mackenzie says, extensive licensing has boosted both early- and late-stage R&D efforts. Roche's position has been advanced by partnerships with Genentech and Chugai Pharma. And Pfizer is cited as gaining primarily through its two big acquisitions, though selective licensing and targeted acquisitions, such as its recent purchase of biotech firm Esperion Therapeutics, have helped as well.

The report assessed publicly available R&D data, and Wood Mackenzie acknowledges that the data are not indicative of pipeline quality, value, or likely success. They may not even be a good indicator of quantity, given that not everything in the works is public. Some firms tell C&EN that their numbers are higher than those reported by Wood Mackenzie.

Discussions with directors of R&D and discovery reveal that companies throughout the industry are moving to streamline drug discovery and development--whether or not they recognize a crisis in R&D productivity. In many cases, they are already doing what the Bain report prescribes.

Big changes began at Wyeth, for example, when Robert R. Ruffolo became president of R&D three years ago. Ruffolo, who had been senior vice president of worldwide research at SmithKline Beecham, says Wyeth was in the middle of a successful period in the lab at that time. Wyeth had introduced several new drugs, including Enbrel (etanercept), Protonix (pantoprazol sodium), Prevnar (pneumococcal 7-valent conjugate vaccine), and Effexor (venlafaxine HCl).

"We were the tail end" of the 1990s drug boom, Ruffolo says, because most of the majors had their most fruitful stretch in the first half of the decade. "We all agreed we had a good R&D group, but like any group, without change it becomes a dinosaur," he says.

Ruffolo targeted big improvements in efficiency, and he set tough goals for every step in discovery and development. The plan called for Wyeth to introduce 12 new drugs to early-stage development, up from an average of about three per year; to file eight IND applications per year, up from an average of two; to begin Phase III clinical trials on three new candidates per year; and to market two new drugs per year.

He based these goals on industry averages of a 70% success rate in moving early-stage compounds to IND application, a 40% success rate in moving into Phase III, and a slightly better than 50% success rate coming out of Phase III. "It was all simple math," Ruffolo says. "And it was all theoretical, too."

In 2001, Wyeth hit the mark on early-stage development and IND filings. He says the firm brought Phase III starts up to three last year and should achieve the goal of two new drugs per year starting in 2006 or 2007. According to Ruffolo, Wyeth, having put 36 NMEs into development and having filed 31 INDs over the past three years, has a full pipeline.

Part of Wyeth's challenge in meeting its goals is that Ruffolo stipulates that only NMEs count--no "life-cycle management" or reworking of already-commercialized drugs. Another challenge, one shared by all large pharmaceutical companies, is getting discovery and development operations around the world to work together and getting researchers to accept big changes in the way they work.

EARLY IN THE PROCESS, Wyeth hired the business management consulting firm Accenture, one of the lead practitioners of reengineering in the chemical industry, to guide and assist in the introduction of what Ruffolo calls gut-wrenching change to R&D. "We started with discovery and redefined every single process from governance to the criteria molecules would have to hit to enter into development," he says. "Everything was changed." The goal was to institutionalize one process for discovery at five sites around the world, each of which had been operating independently when Ruffolo arrived at Wyeth.

MULTITASK
Drugmakers are putting a bank of high-tech tools into place in order to reap the benefits of genomics in discovery and development.
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MULTITASK
Drugmakers are putting a bank of high-tech tools into place in order to reap the benefits of genomics in discovery and development.
Credit: WYETH PHOTO

In one year, discovery output increased fourfold, Ruffolo claims. He attributes this to one of the key precepts of reengineering. "I know it sounds kind of 'touchy-feely,' but I'm going to say it anyway: organizational alignment," Ruffolo says. "The first thing we did was something R&D scientists don't like at all: We set up an R&D vision. Again, a little touchy-feely."

Scientists got over their resistance fairly quickly, however, when it became apparent that their performance would be measured against metrics for productivity, innovation, and business growth established in the vision statement. Most important in getting scientists on board, Ruffolo says, are the metrics--tangibles, measurable criteria that scientists can relate to.

The plan addressed quality by establishing absorption, solubility, potency, and other criteria that compounds need to meet before moving into development. To make that move, candidates are now reviewed by a newly established development council, made up of executives from R&D, marketing, legal, and regulatory departments. "Quite frankly," Ruffolo says, "this group isn't about to cut R&D any slack. When we hit 12 compounds, they are compounds that the company has agreed to, not just the R&D department. No one has ever come back to me to tell me that my compounds are crap, or that I just put them in to hit a number."

A year later, Wyeth and Accenture moved on to reorganize downstream development and clinical trials, achieving a big increase in successful Phase I trials in one year. Wyeth, in fact, outsourced its entire clinical data management operation to Accenture. The focus now is on the use of genomics profiles and biomarkers in expediting drug discovery and development.

Among the most promising candidates in Wyeth's pipeline are a new broad-spectrum IV antibiotic, Tigecycline (GAR-936), for treating polymicrobic and other infections. And a new human- and animal-derived protein-free formulation of ReFacto Antihemophilic Factor, the first recombinant Factor VIII for hemophilia A, is in Phase III trials.

New drugs in clinical trials include CCI-779, a cell-cycle inhibitor developed for a variety of tumors and neurological diseases including multiple sclerosis, and recombinant human bone morphogenetic protein-2 (rhBMP-2) for treating bone fractures, which is already approved for long-bone fractures in Europe and is awaiting Food & Drug Administration approval for that indication. The product is already approved for spinal fusion in the U.S.

Wyeth's pipeline does include some extensions of important marketed drugs such as Effexor XR, a once-a-day version of its serotonin norepinephrine reuptake inhibitor for major depression and anxiety disorders. The company is exploring other indications for Effexor XR, such as panic disorder.

Like Wyeth, GSK undertook a thoroughgoing reorganization of drug discovery and development with its establishment of the CEDDs. The move took direct aim at the tendency of size to slow down innovation in a large swath of discovery and development.

The intent, according to Yamada, the R&D head at GSK, is to establish a small-company culture by putting autonomous groups to work on drugs in distinct therapeutic areas such as cardiovascular disease, neurology, respiratory and inflammatory diseases, and metabolic and viral diseases. This heightens accountability on the part of the CEDD leaders, who are the key decisionmakers on drug candidates for much of the time the candidates are in development. GSK also had to improve the "raw material" going into the CEDDs--the lead compounds.

"Very big organizations have been created over the past few years through acquisition, and companies require new processes to sustain growth," says Allan Baxter, director of research in charge of the CEDDs. "Whether or not there is a crisis in the industry pipeline, there is a reduction in the number of drug approvals, which is an issue that needs to be addressed."

Baxter says putting the CEDDs in place required reorganization of clinical trials and the early stages of discovery, where having a sizable, monolithic organization offers some benefit. The reorganization included the incorporation of new technologies to generate better information on clinical safety, toxicology, and general "drugability" at the earliest stages of discovery. Genomics tools have been applied in discovery and also in clinical trials, where the principles of personalized medicine are employed to get a precise read on the mechanism of the drug with as much information about a patient's genetic makeup as possible.

Peter Goodfellow, head of the GSK discovery research group that feeds compounds to the CEDDs, explains that his team acquires background work on appropriate targets developed in genomics research, then performs screening and chemistry to the point where they believe compounds are likely to yield new drug candidates. The CEDDs pick them up and take them through to proof of concept.

Goodfellow says the advantage of scale and the advent of technologies such as high-throughput screening are paying off. He claims that in the past five years there has been a 10-fold improvement in the quality of molecules handed over to the CEDDs. "There is a way of approaching the world that says if you can generate large amounts of data, handle that data, and extract knowledge from that data, then you can make the process more predictable," he says.

Baxter claims that GSK has been successful in putting the new system in place because the company was able to invest cash generated in the merger of Glaxo and SmithKline into operations. A smaller firm, he says, may not have been able to keep R&D on track while building a comparable infrastructure. "The trick," he says, "is to work for a company that doesn't have to choose between pursuing drug discovery and investing in new equipment."

Ruffolo
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Ruffolo
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At Pfizer, size matters more than anything. If the company has held off on a major restructuring of R&D, it has certainly kept busy integrating the research resources attained through the acquisitions of Warner-Lambert and Pharmacia.

Goodfellow
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Goodfellow
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Martin Mackay, senior vice president for global R&D, says that, although it is normal for most pharmaceutical companies' pipelines to experience periodic "gaps," these gaps tend to close up as companies expand. "We have a full pipeline from the earliest stages right through to late-stage compounds," Mackay says. "This is partly due to our size. Replenishing the pipeline is not really an issue for us." Pfizer claims its pipeline currently contains 101 NMEs and 60 new product enhancements.

According to Mackay, the breadth of Pfizer's operations has helped in the battle against compound attrition. "We now have a database of failures, if you want to call them that, that is second to none based on the sheer number of compounds we've been able to look at," he says. Pfizer set up a task force to analyze the life and death of every compound that has died between discovery and launch.

"Think about the benefit of being able to look at the databases of Warner-Lambert and Pharmacia, and, of course, our own database," Mackay says. "We really have taken a root analysis of all the things that are killing compounds--efficacy, safety, and all the other variables. I would say that has had a profound effect on the governance of our process over the past few years."

Mackay argues that the company can remain nimble despite its size by operating on a site-based model for discovery and preclinical development. Major labs in Sandwich, England; La Jolla, Calif.; and Ann Arbor, Mich., are self-sufficient, and researchers operate in local teams. Clinical trials, however, are run as a global operation.

He admits, though, that attaining synergies between acquired operations has been a struggle. Warner-Lambert, Pharmacia, and Pfizer all had work going on in the area of inflammatory disease, for example, and Pfizer had to make some "hard decisions" on how to structure work in this area. The research is now handled at three sites, and Mackay says there has been an effective exchange of information and talent sharing between the groups.

The Warner-Lambert acquisition forced the company to establish a global coordination of local R&D operation. "It came at a good time in our evolution," he says. "We basically had two major research sites in Sandwich and Groton, Conn., and they didn't really need to harmonize their protocols, processes, and procedures. They basically worked together by osmosis."

It was clear, however, that with Warner-Lambert research added, the laissez-faire approach would collapse. "We had the luxury of some time on our hands when we made that acquisition--time to look at the processes and governance," Mackay explains. "As the consultants say, an acquisition puts you into an unfrozen state. So before it freezes up again, you want to make all the changes you need."

THINGS DIDN'T BECOME unfrozen last year with the Pharmacia acquisition, however. "We weren't prepared to go through all that again," Mackay says. "This time, we said, 'Here are our processes, and this is how we work.' " The changes were more along the line of project transfers as opposed to any process redesign, he notes. After the Pharmacia acquisition, Pfizer announced it would close discovery research facilities in Skokie, Ill.; South San Francisco; Kalamazoo, Mich.; and Fresnes, France, that together employ a total of about 2,000 people.

Pfizer has set a goal of filing 20 NDAs in the next five years, which Mackay says is based on what the company needs to do to sustain growth. Here again, scale is an advantage: The company's compound library is expected to grow to 3 million this year, boosted greatly by genomics.

For the next three years, Pfizer will be focusing on small-molecule therapeutics, Mackay says, but further out, there will be a greater mix of small- and large-molecule therapies in the pipeline. Mackay maintains, however, that the firm has no targets for the levels of small and large molecules in its portfolio.

Pfizer is also beginning to pursue the kinds of partnerships and acquisitions that industry watchers say will be essential in order to keep up with biotechnology and to support growth. Recently, for example, Pfizer acquired Esperion, a biotech firm that specializes in high-density lipoprotein--so-called good cholesterol--bolstering Pfizer's position in heart disease, where its Lipitor (atorvastatin calcium) statin for reducing low-density lipoprotein is the market leader. Some industry watchers suggest that Pfizer may market Esperion's lead drug candidate as an initial therapy for some patients on Lipitor to reduce arterial plaque.

At Roche, work processes in R&D were tackled several years ago following some painful late-stage failures, according to Jonathan Knowles, president of global research. "About six years ago, we began making sure all scientists understood what medicines they were trying to make and for whom," Knowles says. This sounds rather basic, but it was not a traditional approach in the mid-1990s, he says.

"There is this idea that innovative science somehow leads to medicine," Knowles says. "We feel strongly that innovation is very important, but it has to be in the context of what patients need. That is difficult, because you have to envisage what patients will need in 10 to 15 years." This meant opening greater lines of communications with partners, with the medical community, and between labs and business divisions within Roche.

The company established cross-functional teams focused on specific drugs and therapeutic target areas. Knowles says the teams remain largely intact through the entire process of bringing a compound through the pipeline, though they "evolve" with leadership roles passing from, say, a discovery researcher to a drug development chemist as the candidate proceeds. "You add people and people fall off, but the integrity of the team remains constant."

ACCORDING TO KNOWLES, Roche is not particularly concerned about whether a new drug is first-in-class or an improvement over an existing product. Both can lead to beneficial therapies, he says. "Innovation is defined by the patient or clinician, not the newness of a target. A repositioning of an existing drug--reducing dosage, reducing side effects, or finding a new indication--is certainly innovation if it benefits patients."

This was a lesson learned in the early 1990s. "There was a tendency during the genomics hysteria to say the only innovation patients need is new targets," Knowles says. "If I had to characterize the Roche research strategy in the early 1990s, I would say it was very much focused around biological innovation. That is an extremely high-risk strategy, and it ultimately didn't bring as much benefit to patients as we might have hoped. So I think a more balanced portfolio combining chemical and biological innovation is important."

Another problem is the numbers game. Because quality is difficult to measure, Knowles says drug firms have been extraordinarily focused on numbers: the number of candidates in the pipeline, the cost and time involved in developing a lead candidate. "But the relationship of quality to numbers is a bell-shaped curve," he points out. At some companies, an excessive focus on numbers has reduced the quality and thereby led to value destruction. "We have 61 NMEs in our portfolio," Knowles says, "and it's very important for us to understand relative risks and continue to invest in a balanced portfolio."

Mackay
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Mackay
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ROCHE WAS EARLY to form biotech alliances, taking majority positions in Genentech in 1990 and Chugai in 2002. Knowles says 40% of the company's sales are in biologics, with Rituxan (rituximab), a treatment for non-Hodgkin's lymphoma, and erythropoietin, a hormone for treating anemia, the largest volume products.

Knowles
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Knowles
Credit: ROCHE PHOTO

Knowles says antibody therapies are under development in areas such as oncology, inflammation, and central nervous system diseases where antibodies were not considered an option not long ago. Protein-based therapeutics are generally a major growth area. Knowles says Genentech and Chugai operate autonomous R&D programs, while Roche works to facilitate information sharing and puts together project teams with the partner companies. He contrasts this relationship with the more typical "smash and grab, where you buy it, smash it up, and take the cash."

In the biologics pipeline at Roche are treatments for diabetes, oncology, and Alzheimer's disease, Knowles says. "We have an integrin antagonist as a first-in-class for asthma," he says. Roche was also involved with Genentech in the development of Xolair (omalizumab), a biotech asthma drug codeveloped with Novartis.

Reinhardt
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Reinhardt
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Knowles points out that partnerships are an essential means of accessing innovation--Roche entered 45 new partnerships last year, including technology-licensing deals. The company creates competition between in-house and outside R&D. "We can access technologies where we haven't placed bets," he says. "Partnership management is critical to enhancing R&D productivity."

Abbott Laboratories embraced biotech more recently than Roche did, through the acquisition of Knoll Pharmaceuticals from BASF in December 2000. With Knoll, Abbott obtained rights to Humira (adalimumab), a biologic therapy for rheumatoid arthritis.

Alejandro A. Aruffo, president of bioresearch at Abbott, sees no real crisis in pharmaceutical R&D. Instead, he sees growing opportunity, given the number of unmet medical needs that are currently guiding drug development in areas like metabolic diseases and immunology.

In additon to the Knoll acquisition, Abbott began investing heavily in structure-based drug design in the 1990s, according to Aruffo, which led to developments in antiviral agents including Kaletra (lopinavir/ritonavir) and Norvir (ritonavir), an antiretroviral drug for HIV. Kaletra, Humira, and other newly approved drugs such as Depakote (divalproex sodium), a treatment for bipolar disorder, have provided a cushion during a period of reorientation and restructuring, Aruffo says.

Abbott recently reorganized into five major therapeutic areas--metabolic diseases, oncology, immunology, neuroscience/pain, and anti-infection/antiviral--within a centralized global R&D operation. Abbott's late-stage pipeline includes Atrasentan, a first-in-class small-molecule therapy for prostate cancer; new indications for Humira, such as psoriasis and Crohn's disease; and an oral formulation for Zemplar (paricalcitol), an intravenous drug now on the market for kidney disease. In all, Abbott says it has nearly doubled the number of compounds in its pipeline since the late 1990s.

Daniel W. Norbeck, vice president for global pharmaceutical discovery at Abbott, says the emphasis across the industry is on developing fundamentally new medicines, moving away from overserved therapeutic categories where the value of new drugs, both to patients and to drugmakers, is diminishing. "Think of a mature forest where there is just not enough light getting to the forest floor for new things to grow," Norbeck says. "We have to move to fundamentally new areas of innovation."

AT NOVARTIS, genomic research is growing in importance. New labs are pursuing areas of unmet medical need where the company has a good understanding of disease mechanisms, says Joerg Reinhardt, global head of pharma development. For example, work on Bcr-Abl, an oncoprotein responsible for a range of leukemias, led to the development of Gleevec (imatinib mesylate) for treatment of myeloid leukemia and gastrointestinal stromal tumors. "This is just the first of many medicines we hope to discover as we focus on designing medicines where we know the target and understand the pathway," Reinhardt says.

Novartis is also working to identify successful compounds at early stages by screening the largest possible number of candidates and prioritizing those where the pathway and target are known, according to Reinhardt. The recently created Novartis Institutes for Biomedical Research in Cambridge, Mass., "gives Novartis a bigger window into basic research," he says.

Reinhardt claims the company has tripled the number of NCEs in development since 1997. Novartis' development pipeline now includes 79 projects, 64 of which have progressed to Phase II clinical trials or beyond. This, he says, represents a 40% increase in the number of projects in clinical trials over the year 2000.

Novartis' research effort focuses on diabetes, osteoporosis, arthritis, heart disease, Parkinson's disease, Alzheimer's disease, and cancer. "Many of the current therapies for these diseases do not treat patients adequately, may have unwanted side effects, or may require inconvenient dosing regimens," Reinhardt says. The focus is moving to identifying diseases by mechanism and away from identifying them by therapeutic area, he says, because diseases that are categorized under different therapeutic areas may actually share the same mechanism. "Understanding the structure of proteins has helped us to greatly improve the targeted therapies we are developing."

Novartis does not demand that every new drug it backs be a potential blockbuster, according to Reinhardt. Potential efficacy and the ability to meet unmet needs outweigh sales predictions, he claims, noting that more than 50% of products now in development are new or novel compounds.

Indeed, despite their firms' records through the 1990s, most executives with major pharmaceutical research departments view the notion of a "blockbuster business model" as mostly a myth. As such, few envision a fundamental change in the criteria for moving forward with new drugs. Most agree that the blockbusters of the 1990s were big earners for a good reason--they met significant market needs that aligned with unmet medical needs, a formula that remains the guiding light in research. It is the market, not the marketing plan, that is changing, they say, as new drugs discovered and developed via new technologies address unmet therapeutic needs.

NOR IS THERE LIKELY to be much of a change in how products are priced. "Our focus is on creating the new innovative drugs that will change the direction of medicine," Roche's Knowles says. "If, as with any business, you come up with a product that creates real value, it will be worth more. We create clinically differentiated medicines. We'd like the medicines to speak for themselves."

Changes in the market and advances in technology have, however, pulled R&D into a new mode of doing business characterized by centralized research organizations, closer working relationships with business divisions, and greater access to innovative work done in the biotech sector through partnerships and acquisitions. Amid such changes, the question of whether to pursue billion-dollar blockbusters or drugs with breakthrough potential in niche markets is best answered by GSK's Goodfellow: "Yes to both."

But the industry is also banking on a "yes" answer to bigger questions. Will the current flourish of early-stage activity pan out to the kind of results demanded by patients and Wall Street? Will genomics, high-throughput screening, and other new technologies meet the revised expectations of a market that may, at first, have been too impatient for results? Will the changes currently under way lead to a fundamental shift in the way business is done in pharmaceuticals--the kind of change that is generally forced on an industry when prevailing modes of doing business simply no longer work? Major firms hope to have definitive answers in time for analyst meetings in 2005.

 
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