Pharma In Flux

John Lamattina is as methodical as you would expect the head of research and development at the world's largest drug company to be. Talking to C&EN at Pfizer's New York City headquarters, he is prepared with informative anecdotes catered to dismissing criticism of the industry point by point. High prices, dried-up R&D pipelines, me-too drugs, safety problems—all off the mark, he says, in a congenial, no-nonsense manner, illustrating each response with an industry success story or feedback from patients.

He has his act down pat until the interviewer strays from the script: "Are you personally affronted by the current level of criticism of the industry?"

LaMattina pauses for a second, then he lets fly. "Affronted? Absolutely," he says. "We all entered this industry—all of us, people like Liz [he points to Elizabeth Power, the Pfizer communications manager sitting in on the interview], people like myself—because we thought the kind of work that's done by the pharmaceutical industry will benefit millions and millions of people around the world. To have that work minimized by people who say we aren't innovative, to have that work minimized by people who say we don't address major medical needs is ridiculous. It's ridiculous."

What's more, LaMattina says, he's heard it before, specifically in the early 1980s. At that time, he says, the industry simply dismissed public concerns. "It was so ludicrous that we didn't take it seriously," he says. "We said, 'How could anyone question the value of the pharmaceutical industry? Who else is bringing new medicines to extend the lives of cancer patients? How was AIDS changed from a death sentence to a manageable disease?'"

LaMattina admits that patient advocacy groups helped bring focus to issues such as HIV, Alzheimer's disease, and breast cancer and that ACT UP (AIDS Coalition To Unleash Power) in particular was a catalyst for getting experimental AIDS medicines into patients. But, he says, the drug industry did the heavy lifting. "We made the medicine, not them."

He enumerates the breakthroughs of the 1990s, the era of blockbuster drugs (those with annual sales of more than $1 billion), noting that hidden behind the current criticism of the industry are patients whose lives were changed by new therapies and who are big fans of big pharma. "Patients want us to do more research. They want more drugs," he says. "It's the most powerful thing we hear in our organization, and it motivates us. Then for us to get denigrated by people in very influential places like Harvard Medical School is an outrage."

The industry does have its critics, ranging from Marcia Angell, a senior lecturer in the department of social medicine at Harvard Medical School and the former editor-in-chief of the New England Journal of Medicine, to filmmaker Michael Moore. Angell's none-too-subtly titled book, "The Truth about the Drug Companies: How They Deceive Us and What To Do about It," is a severe and comprehensive critique, slamming the industry as a price-gouging, noninnovative cabal at the root of Hydralike conflicts of interest (C&EN, Jan. 31, 2005, page 42). And when Moore zeroes in on you-his new film "Sicko" aims broadly at the U.S. health care system, especially managed health care-there is reason to believe that popular opinion is dead set against you.

LaMattina's refutations notwithstanding, he concedes that perception is reality and that the drug industry is going to have to take its critics seriously, just as the nuclear industry did after Three Mile Island and the chemical industry after Bhopal. He notes that big pharma is already making some big changes in how it does business and how it discovers and develops drugs.

Although some of these changes entail reorganization with an eye toward improving efficiency—the kind of cost-cutting measures taken by most other industries in the 1990s when the pharmaceutical industry was at its most profitable—many of the changes accompany a major transition in pharmaceuticals marked by the rise of biotech processes in drug discovery and development and the advent of genomics and personalized medicine.

A review of the pipelines of the major companies indicates that development portfolios are filling up again. Although some drugs in development, like many that have been introduced in recent years, are new formulations of products already on the market, many of the changes to these drugs arguably deliver significant value, such as allowing a decrease in dosage. A new class of AIDS drug is on the horizon, as are biologics and novel vaccines for cancer and other scourges. On the other hand, the decoded human genome has not yet led to breakthrough medicines for unmet medical needs, thereby adding to the perception that a once-innovative industry is bogging down on me-too drugs and spinning its wheels on new science.

Meanwhile, industry critics and even some research directors within industry agree that the method by which drugs are discovered, developed, and brought to market is inefficient and that this inefficiency is reflected in high prices. Some see the process as simply wrong. The question is whether the industry is going to increase efficiency in such a way that it moves into a new discovery, research, and clinical paradigm that many argue needs to emerge: one in which rewards for researchers are tied directly to results for patients; collaboration among individual researchers, drug companies, academia, and government reaches new levels; and genomic and other research is tied to an emerging battery of information technology (IT). In short, some say more change than is currently under way will have to take place.

What the polls say

Results from several recent surveys by the Kaiser Family Foundation and Harris Interactive Polls reveal a public that appreciates but is suspicious of the pharmaceutical industry. A 2005 Kaiser survey reports that although most people said drugs themselves are having positive effects on their lives, the big drug companies appear to be motivated more by profits than by delivering lifesaving and life-improving medicines.

Kaiser found that 78% of 1,200 people surveyed believed that drugs have had a positive impact on their lives. Despite recent bad news about drug safety and Merck's removal of its arthritis drug Vioxx from the market in 2004, 80% of those surveyed said they feel confident about the safety of the drugs they take. And according to 91% of respondents, drug companies make an important contribution to society by researching and developing new drugs.

But half of the respondents said they have an unfavorable view of drug companies, ranking them ahead of oil and tobacco companies on their general benefit to society but behind hospitals, airlines, and banks. According to 70% of respondents, drug companies put profits ahead of people; only a quarter of those surveyed say drug firms are more concerned with saving lives and improving the quality of life than with profits. And while eight in 10 respondents to a 1997 Harris Interactive Polls survey said the industry generally does a "good job" of serving customers, the results of a 2004 poll of 1,000 showed, for the first time, that more respondents, 48%, felt the industry delivered poor service; that year, only 44% said drug companies do a good job in the service category.

Much of the concern centers on drug prices. Seven in 10 respondents in a 2004 Kaiser survey of 1,200 people said high profits made by drug companies are responsible for rising health care costs. Nearly a quarter of those surveyed said drug company profits are the most important reason for the high cost of drugs, ahead of greed and waste in the system and malpractice suits, each suggested by 20% of respondents.

The survey indicates that the industry's primary defense for drug prices is not resonating with the public. Most survey respondents dismissed drugmakers' traditional justification for high prices: the cost and risk of bringing a drug to market. Three-quarters of survey respondents said marketing costs and profit margin maintenance are the main factors behind the high prices of prescription drugs. Even more, 81%, believed that high drug costs are not justified, that drug companies simply price their products higher than necessary. Survey respondents were also skeptical of industry claims that prescription drugs decrease overall medical costs by reducing the need for other services; 59% of respondents say prescription drugs increase the overall cost of health care.

Meanwhile, according to the federal Centers for Medicare & Medicaid Services, total U.S. expenditures on health care were nearly $1.9 trillion in 2004, or 16% of gross domestic product, and more than two-and-a-half times the $717 billion spent in 1990. In the same period, 1990 to 2004, retail sales of prescription drugs increased from $40.2 billion, or 5.6% of total health care spending, to $190 billion, or 10.0% of the total.

"The 10% number is based on old data and does not include drugs dispensed in hospitals, clinics, and other nonretail settings," says Stephen W. Schondelmeyer, an economics professor at the University of Minnesota who studies drug pricing. "The data today show that prescription drugs in all settings account for about 19% of total health care dollars."

As would be expected with the rapid rise in sales, profits in the prescription drug sector have been huge. In 2005, Pfizer earned $15.0 billion on sales of $51.3 billion, for a profit margin of 29.2% (C&EN, March 20, page 26). For 2005, the combined return for the nine largest U.S. drug producers tracked by C&EN was 20.5% on sales of $218 billion, nearly the same as the margin in 2004, 20.6%. No other major U.S. manufacturing sector has such a large profit margin. The oil and gas sector, for example, has enormous sales but a return of only about 8%.

Yet in terms of growth, the global drug industry slipped to about 7% in 2005, down from the run of double-digit annual growth figures in the 1990s that has become the standard by which the industry is judged on Wall Street. This slowdown, according to industry analysts, has the natural effect of focusing drugmakers on growth and boosting profits, even though the pharmaceutical industry is extremely profitable and has been so for more than two decades.

"Profits in the industry need to be high," says Kenneth I. Kaitin, director of the Tufts Center for the Study of Drug Development. "No other industry deals with such a level of failure and such a long timeline to bring products to market. If you take away large profits, investors won't invest."

In contrast, Janet Woodcock, deputy commissioner for operations at the Food & Drug Administration, says rapidly rising drug prices are a real problem: "The upward spiral of pricing on drugs cannot continue indefinitely. We may have exceeded the ability of some groups to tolerate it."

Pricing conundrum

Pricing is complicated given that drugs represent a technological revolution in health care, according to marketing consultant Niko Canner, cofounder of Katzenbach Partners. "Ever since the industrial revolution, one sees in every field that technological advances lead to a substitution of intellectual capital for labor," he says. "In health care, you should expect and want to see a larger and larger piece of the spending pie going to innovative products that are enabled by investment of intellectual capital, rather than to the direct labor of delivering the care." Gains made by pharmaceuticals as a percentage of overall health care spending are a good thing, he says. "But there are separate questions on the price of any given drug," Canner says. "How prices are determined and supported is very complex."

Harvard economist David Cutler agrees that pricing is extremely complex, and he notes that the drug price issue has an important social component. "Are prices high on an absolute level, high enough that people can't afford them? Before the Medicare drug benefit, that was the case," he says. "It's not the case that the overall cost is bankrupting us. It's that we let cost bankrupt certain people. The new Medicare drug benefit will help many people, but it is pretty bad in a lot of ways" (see page 80).

The issue of social safety nets has an international dimension as well, wherein the U.S. can be seen as carrying an inordinate burden. The biggest point of contention is between the U.S. and Canada and other developed countries where drug prices are controlled by the government. It can be argued that consumers in the U.S., where there is no price control, are underwriting the cost of R&D for the rest of the world.

"Should the U.S. be paying more than other countries?" Cutler asks. "Everybody agrees the U.S. should be paying more than Zimbabwe. Most everybody agrees the U.S. shouldn't really be paying more than Canada."

In an ideal situation, Cutler says, all developed countries would bear the fixed costs of the drug industry through open-market pricing. While the U.S. is pushing for this through trade agreements, it has little leverage over other countries. "At the moment, we have a situation where many countries like having the free ride off the U.S.," he says. "That's a shame, and it contributes to the tremendous hype out there."

Cutler believes the cost of R&D is a key factor determining the price of drugs. "Because it's so expensive to develop a drug, I think it's correct that most of the high prices are making up for R&D cost," he says. "But if you magically reduced R&D costs by 20%, I don't think prices would fall by 20%. It's an oligopoly." Marketing and direct-to-consumer advertising costs, which together exceed R&D, are another serious component, he says. But much of it comes down to a free-market pricing strategy: Drugs are priced at what the market will bear.

"Drug companies have determined that the thing to do is to set relatively high prices and push the use through marketing and detailing [the industry term for marketing to physicians] rather than setting lower prices and pushing the use through low prices," Cutler says. "That is a business decision that the industry has made. Some people think we would be better off as a society if it had made the other decision; I have mixed views about it." He says the situation may be changing. Payers' price sensitivity may be increasing, and drug companies may have to go further in demonstrating the value of drugs to patients.

"It's a weird industry in that all of the profits come from just a few things," Cutler says. "One of the biggest fears in the industry is what happens if they can't—either because of the market or because of government regulation—make up the money they invested in developing a new drug. Most economists looking at this industry would say, 'Oh my God! This is going to fall apart because nobody is going to pay for all the fixed cost.' "

Cutler suggests that a shift from risky "oligopoly pricing" strategies might entail some reengineering. "If I were running the industry, I'd say the thing to protect it from something potentially really bad is to find out how to lower the cost of producing the drugs," he says. Efficiency improvements would buffer the impact of having to charge less for drugs, allowing companies to move away from "a cost structure that says you spend a gazillion dollars before you even know if your product is going to do anything and then price it incredibly high, even though people are going to feel bad about it."

Notwithstanding the effect of spiraling prices on consumers, the industry remains committed to meeting Wall Street expectations and must contend with other trends that are threatening its ability to do so.

At IMS Health's annual presentation on the state of the global pharmaceutical industry, Graham Lewis, vice president for strategy at IMS, pointed to key trends putting pressure on Western drug producers. He noted that emerging markets now account for 50% of global growth in gross domestic product—a key to pharmaceutical sales—at the same time that generic drug producers in these markets are surging. Turkey, for example, will be a top 10 player in the world pharmaceutical market by the end of the decade, according to Lewis, and China and India are already major forces. IMS estimates that by 2009, China will be the seventh largest pharmaceutical market and the second largest market for generic drugs. India could dominate the entire production chain for generics by the end of the decade and also become a major brand producer, Lewis says.

Meanwhile, Lewis says there are arguably signs of a softening in research among the major drug companies. Work in the area of anti-infection drugs other than for HIV has dropped off considerably, Lewis says, noting that there has been a broad exodus from the area of antibiotics in recent years. And as cancer becomes a chronic disease, Lewis predicts that cancer therapies will gravitate toward becoming a commodity product sector rather than a hotbed of breakthrough therapies—this despite the new cancer vaccines expected to hit the market over the next two years. And Lewis claims that there are even indications that some of the largest drug companies want to lower the prescription drug portion of their portfolios.

"Pharma companies are in strategic disarray," Lewis says. "There is no agreement on future strategies." With continued single-digit growth projected for Western producers and a likely uptrend in prices, he says, there is a question as to whether pharmaceutical manufacturing in the West is in "terminal decline."

He notes, however, that there is much higher growth—21% worldwide—in the area of biopharmaceuticals and that the market for drugs prescribed by specialists, which is growing at about 14%, will make gains at the expense of the primary care drug sector.

Winds of change

The industry is going through difficulties that generally accompany fundamental transformation, according to Canner. "There is significant pressure for change," he says. "From a 20- to 30-year vantage point, we'll look back on it as positive in terms of marking the next round of innovation in the industry." But, he says, the immediate road ahead will be tough.

The pharmaceutical industry faces challenges similar to other industries' when attempting to communicate strategy and growth expectations to Wall Street after a period of extraordinary profitability, Canner explains. These challenges are most daunting in cyclical industries. In pharmaceuticals, cycles are closely related to research and productivity. "Some pharmaceutical companies have been challenged to try to meet investor expectations in the face of pipelines that just aren't going to deliver a growth path that investors have come to expect," he says. The same kind of thing happens at companies like General Electric, according to Canner.

But the drug industry is unique in many ways, and the current transition being undertaken in research at major drug companies will have a big effect on business cycles. For example, one hallmark of the industry is the blockbuster model, whereby drug companies focus R&D on products likely to have annual sales of more than $1 billion and then expend enormous resources to maximize and prolong the high-income-generating power of those products. "Moving away from the blockbuster model is likely to even out the trajectory of financial performance over time," Canner says. Product portfolios, he says, will become "less lumpy," with revenues generated from a growing number of products targeting specialty markets. "In the meantime," he says, "a lot of big companies have very big lumps in terms of the fraction of revenues coming from their largest products and the relatively small number of new launches."

The current downtrend in profitability in the drug sector follows a recent period of big gains in research that patients are taking advantage of today, according to Canner. "What we see now is a reflection of just how powerful the last wave has been," he says. "Drugmakers have taken significant steps forward in the treatment of a number of very important chronic conditions. As good medicines go off patent in these areas, the bar is relatively high in terms of what significant innovation would look like. One might expect from a history-of-science point of view that it will take longer for another equally powerful paradigm to emerge."

Greg Simon, president of FasterCures, a lobbying group supporting efforts to accelerate medical research, sees a need for more than efficiency gains in bringing a drug to market. With the decoding of the human genome, he says, "biology becomes an information science." He points to the overwhelming amount of information that needs to be sorted into knowledge, contending that a new IT infrastructure will be needed in an industry where IT for sharing knowledge gained from research has not kept up. "If we ran financial management the way they run medical research," he told attendees at the Interphex trade show in New York City earlier this year, "we'd have to make thousands of phone calls to banks every day."

IT will pave the way to a global research network, Simon says, noting that the technology already exists to put much of it in place. But a nonproprietary attitude toward research will have to emerge before there is any chance of such a network coming to fruition. Research institutes will need to agree to collaborate in disease areas such as cancer and in developing tools such as biomarkers and shared repositories for biological specimens, so-called biobanks. Individual researchers will need to share information, including information about failures from which others can learn. "We don't have a journal of failure," Simon notes. "And we only discuss science after we get it published."

Anna Barker, deputy director of advanced technologies and strategic partnerships at the National Cancer Institute (NCI), says the current state of industrial, academic, and institutional research lacks an efficient structure. "We really don't have an integrated system of drug development," she says. "It's broken in segments." The lack of an effective collaborative infrastructure for research, she says, is an impediment to the development of a key tool in effective genomic and proteomic research: biomarkers. These, most drug researchers agree, will be essential to gauge the efficacy of drug candidates in development and are critical in pursuing targeted therapies and personalized medicine. "We have to break away from a development approach that isn't based on current science," she says. (For more on biomarkers, see page 56.)

The National Institutes of Health, NCI's parent agency, and FDA each launched programs in recent years aimed at identifying roadblocks and gaps in technology that impede the development of new drugs. NIH's Roadmap for Medical Research has identified bioinformatics, molecular libraries and imaging, and nanomedicine as new technological frontiers in drug research. The initiative has also set the goal of "reengineering" the clinical phase of drug development, which is widely viewed as a costly, time-consuming, and overly formulaic regimen ripe for an efficiency overhaul.

FDA's Critical Path to New Medical Products, also known as the Critical Path Initiative, sets similar goals. FDA's involvement in overhauling clinical trials is of special importance given that it is the agency that regulates practices and finally approves new drugs. (For more on clinical trials, see page 80.)

FDA's Center for Drug Evaluation & Research, which is charged with ensuring the availability of safe and effective drugs, is forming consortia and workshops to coordinate clinical trial redesigns with changes in regulatory oversight. "We are providing guidance designed to let big pharma companies do science on their drugs before putting them into typical drug development," Woodcock says. "We believe that will help screen out a lot of compounds before they go forward."

One such consortium was formed earlier this year by the Critical Path Institute (C-Path), a nonprofit research group started last year by FDA, the University of Arizona, and consulting group SRI International. C-Path joined with eight major drug companies to form the Predictive Safety Testing Consortium, which aims to share internally developed laboratory methods to predict the safety of new treatments before they are tested in humans. Members include Bristol-Myers Squibb, GlaxoSmithKline, Johnson & Johnson Pharmaceutical Research & Development, Merck, Pfizer, Roche Palo Alto, and Schering-Plough Research Institute.

The Massachusetts Institute of Technology Center for Biomedical Innovation also hosts a consortium that is developing practices in clinical trials, research, and manufacturing. The group was convened by Frank Douglas, director of the center and former head of R&D for Aventis. Douglas says it is hoped that pooling experiences of big pharma companies, academic research, and biotech companies, all of which are represented in the group, will result in industry-wide productivity and efficiency gains. The group is also studying the impact on R&D funding of personalized medicine, an approach unlikely to produce blockbuster drugs at the rate they debuted in the 1990s.

Reengineering research and development

As one would expect, however, drug companies are far from counting the blockbuster drug out. Most firms claim there are potential billion-dollar sellers in development. They are, however, making big changes in discovery, research, and clinical trial management to move beyond the pharmacological low-hanging fruit that catapulted R&D productivity in the 1970s, '80s, and '90s in pursuit of more targeted therapies. Innovation and efficiency are major themes. And research management is taking on the difficult task of bringing business discipline into the laboratory.

GlaxoSmithKline began to change its research organization in 2001, after the merger of Glaxo and SmithKline Beecham. Recognizing that most of its research facilities had strengths in specific therapeutic areas, the company opted to establish research hubs called Centers of Excellence for Drug Discovery (CEDDs), each focused on one therapeutic area such as oncology or respiratory disease.

According to Kenneth Batchelor, head of the CEDD for metabolic and viral diseases, the system of specialist hubs has given research the kind of focused expertise required in an era of genomics and personalized medicine. "We had actually been very opportunistic in how we picked up in different disease areas," Batchelor says. "I don't think there was the sort of therapeutic depth that we now have. With everyone thinking about metabolic and viral diseases, for example, there is a tremendous opportunity to come up with new ideas."

And new ideas were badly needed. Batchelor says the reorganization of research had little to do with cutting costs and everything to do with spurring innovation. "When the merged company was formed, the pipelines were really meager," he says. "We didn't have as much going on as we needed to keep our business afloat in the long term. The new model was required for us to maximize innovation and productivity."

In addition to the therapeutic area focus, he says, GSK empowered the CEDDs to make their own decisions on which candidates generated at the company's three discovery research facilities to pursue in development, taking responsibility for all decisions all the way through proof of concept. This empowerment is partly a timesaving scheme. "It makes a lot of difference when you can make your own decisions rather than having to go to some central body that has to agree that you can progress," Batchelor says. "I can select which drug candidate I want, I can decide when to go for the first time into humans, and I can start Phase II without recourse to any other body." All decisions are made locally by a committee that Batchelor chairs. The committee includes members from marketing; the focus, however, is on the patient, Batchelor claims, and the objective is the development of drugs for unmet medical needs.

GSK has not set targets for individual CEDDs on numbers of new molecular entities or numbers of compounds moving into the clinic. "Each group generates the business we can based on our portfolio," Batchelor says. "At the moment, there is a huge outpouring of activity around the oncology portfolio because of the constellation of new compounds coming out for oncology-related indications." He says metabolic disease therapies will gain momentum at GSK over the next two years. "We're incentivized by our productivity," he says. "We recognize that not every CEDD will hit the jackpot every year. But one of us will."

Wyeth, on the other hand, is among the major drug companies that have instituted a comprehensive series of targets for each stage of drug development. The plan, put in place by Robert Ruffolo, president of Wyeth Research & Development, emerged in response to Wyeth's sagging pipeline in the late 1990s (C&EN, Feb. 16, 2004, page 22). It called for Wyeth to introduce 12 new drugs to early-stage development each year, up from an average of three in the late 1990s; to file eight Investigational New Drug Applications (INDAs) with FDA per year, up from an average of two; to begin Phase III clinical trials on at least two new candidates per year; and to market two new drugs per year. Wyeth hit the mark on early-stage development in 2001 and Phase III trials in 2004, and the firm expects to file as many as four INDAs in 2006.

Ruffollo admits that success in discovery and early development has created a bottleneck in the clinic, where drug candidates move through a formulaic, time-consuming, and heavily regulated regime of testing culminating ideally in the approval of a new drug. Coming out of the slump of the late 1990s, he quips, any company will consider having trouble accommodating new candidates in the clinic as a nice problem to have.

Ruffollo says Wyeth is addressing the problem by rethinking the rigid, step-by-step approach in the clinic and developing a means to adjust procedures midtrial through Phase II on the basis of data and intelligence attained during the trial. The objective of the program, which Wyeth has dubbed "Learn and Confirm," is to bring about early attrition so that candidates and dosage levels destined to fail do not enter costly Phase III trials, which are regulated by FDA. Ruffolo cites a recent study by pharmaceutical R&D analyst CMR International showing that success rates in Phase II have gone down in recent years with time spent at that phase increasing threefold.

One line of attack has been the establishment of early clinical development centers. "These are viewed as Phase II supercenters," Ruffolo says. "We're setting them up all over the world, primarily in Eastern Europe, Latin America, India, China—areas with higher patient density, where patient costs are more reasonable, and where we can operate more efficiently." All must operate according to FDA standards, he says.

The availability of patients, according to Ruffolo, may be the biggest boost to efficiency. Wyeth is working, for example, at a site in Shanghai that sees 4,000 patients with lupus each year. By contrast, Ruffolo says, the largest centers in the U.S. see only about 100 patients with the disease a year.

Charles Gombar, vice president for project management at Wyeth, says the Learn and Confirm program is challenging the traditional, phased approach to trials, which he characterizes as a bureaucratic formula that has crept into the system over the years. "We keep salami-slicing the process down further and further," he says. "Originally it was Phase I, II, and III. Now there are Ia and IIa. It's a continuum that we have been chopping up in order to try to manage it better. But in doing that, we have been stifling some of the creative thinking about how you can develop a drug and how to get data on patients."

Like GSK, Wyeth is forming development teams with expertise in specific disease areas. "They live and breathe drug development in that particular disease," Gombar says. "We are taking constraints off them, encouraging them to use science-driven development" rather than sticking to the formulaic, phased approach. Teams are encouraged to use adaptive clinical trial design, whereby data gathered during testing are used to adapt and focus the trials. "We develop and use biomarker approaches, surrogate approaches, and pharmacogenomic approaches," he says. The goal is to investigate not only whether a drug works and is safe, he says. "We're taking it to the next set of questions: In whom does it work? In what specific patient populations? What are the key sources of variability?"

Ruffolo says Wyeth has met with regulators to discuss its clinical program, and he says the response has been enthusiastic. He adds that the company is determined to pursue its clinical revamp on its own, despite the heightened efforts at collaboration among the major drug companies. "I know what other companies do in this industry, and we're not going to learn from them," Ruffolo says. "Our cost in pharma R&D is increasing at a rate that is not sustainable. We have to rein in the cost and do things more efficiently while maintaining or improving quality. I am not interested in moving at the pace that our industry usually moves at. Quite frankly, we want to be viewed as innovators not only in the laboratory but also in how we develop our drugs."

Biotech's hand

The major drug companies all cite genomics as a force that will accelerate research and compress time in bringing drugs to market.

Genomics has helped improve early research in particular, according to Pfizer's LaMattina. "The unraveling of the genome has enabled us to identify a lot more about what causes diseases," he says. "It has enabled us to go into the lab and generate molecules and test hypotheses to find out whether diseases are caused by interaction on this pathway or an aberration of this pathway."

LaMattina cites the development of Pfizer's AIDS drug candidate maraviroc as an example of the power of new tools now available. The project was based on the observation that a number of people exposed to HIV didn't develop AIDS, and analyses showed that the effect is due to variance in a receptor called CCR5. "The theory was that the viruses need the receptor to get into the cell." Maraviroc binds to CCR5 and, presumably, blocks the entry of virus into cells. Pfizer hopes to file for Phase III clinical studies of the drug candidate this year. "It's a great example of the great time we are in right now," LaMattina says. "Genetic knowledge gives us better understanding of disease, and then we do what our industry does best—and what we do not get credit for—and that is going in and getting the white powder in the vial to test the hypothesis."

Five years after the decoding of the genome, the industry is recalibrating its expectations of the speed of development.

Thomas Metcalfe, head of the biomarker program at Roche, says the development of new diagnostic tools and emerging trends in data management show promise, but as with seemingly all things related to the human genome, benefits accrue slowly. "There is a long lag in the time it takes to get from a better understanding of a drug target to a novel drug," he says. "Having said that, a lot is changing because we understand a lot more about human biology, and we are trying to integrate that into the way we develop our drugs and novel diagnostics."

Roche is concentrating on integrating researchers' increased understanding of the molecular cause of disease, as well as their increased familiarity with human variations, into its system of drug discovery and development. "We're developing biomarker plans for most of the drugs that we have in development," Metcalfe says. "And we are thinking very carefully about how this will play out in clinical practice."

Behind the scenes in all of this is the growing role of biotechnology. As new biotech-originated drug candidates for therapies targeting diseases such as obesity, central nervous system disorders, and cancer advance into clinical trials, the importance of partnerships between drug firms and small biotech specialists becomes more evident. Robert J. Wills, vice president for alliance management at Johnson & Johnson, says deals are now much more sophisticated than simple licensing and royalty agreements. The competition for promising compounds has increased, giving biotech firms more leverage in structuring the financial elements of the deal. The biotechs are also more involved as research partners in early-stage development, he says (C&EN, March 6, page 21).

For example, J&J has a development partnership on a diabetes drug with Arena Pharmaceuticals, a San Diego-based specialist in compounds that act on G-protein-coupled receptors. The deal, signed in December 2004, entailed an upfront payment of $22.5 million, the largest payment on a preclinical compound partnership at that time, according to Arena CEO Jack Lief. Arena, which stands to receive payments of up to $295 million per compound selected, also has an agreement with Merck on an atherosclerosis therapy, as well as development projects of its own in obesity and insomnia.

Dennis Fenton, executive vice president of operations at Amgen, says the biotech sector has been particularly innovative in recent years and that significant new biotech-originated drugs will reach the market in the next few years. Amgen has a roster of drug candidates in clinical trials for diseases ranging from rheumatoid arthritis to type 2 diabetes. Among candidates in Phase III trials are denosumab, a fully human monoclonal antibody therapy for bone loss and bone cancer, and panitumumab, a colorectal cancer drug developed in a joint venture with Abgenix. Amgen, the world's largest biotech company, acquired Abgenix last year. "At no time in our history has the pipeline been this interesting," Fenton says.

Amgen, which invests 20% of its revenue into R&D, is "modally independent," in Fenton's words, meaning it is not committed only to large molecules when it comes to developing therapeutics. It is among the large biotechs that rank as midsized drug companies. Some smaller biotech firms currently working in partnerships and licensing agreements have similar ambitions of becoming drug companies.

One such company is Exelixis. "The locus of innovation is shifting," says Michael Morrissey, executive vice president of drug discovery at the company. He points to the company's cancer drug partnership with GSK as an indication that small biotech companies are playing an increasingly large role in discovery. Exelixis and GSK recently extended their agreement and are moving on to a new group of compounds. "Once we showed big pharma that we could produce high-quality compounds to their specifications quickly, they wanted to know what we'd have behind the first wave," Morrissey says. The extended deal with GSK brings in 12 new compounds, he says. The big pharma companies will increasingly look to smaller biotech companies for innovation, he adds.

Partnerships between drug and biotech companies have been going on for a long time. Roche, recognized as a pioneer in biotech partnerships, currently holds a majority stake in Genentech as well as a stake in Chugai Pharmaceuticals. The other drug majors, some of which have traditionally seeded their pipelines exclusively with in-house-discovered candidates, have significantly increased access to new compounds through licensing and partnership.

Currently, between 50 and 60% of the revenues of large pharma companies comes from sales of drugs discovered by smaller partners, according to Jacques Mulder, head of the life sciences practice at consulting firm Deloitte. Big pharma, he says, is moving from an industry that researches, discovers, develops, and markets to one that searches, develops, and markets. "But if you are looking for a CEO to stand up and say 'This is our strategy,'" he says, "you are probably a long way from that."

This notion that big pharma will move away from discovery is, in fact, scoffed at by research leadership in big pharma. Most large drug companies have sizable in-house biotechnology-based drug discovery and development departments. Wyeth, for example, bills itself as the world's fourth largest biotech company. Big pharma companies, however, know they have to avail themselves of outside opportunities. "There is a broad understanding that innovation—the eureka moments—happens all over, and we need to take advantage of this," says Eric de la Fortelle, head of external research and technology at Roche. De la Fortelle adds that innovation plays a key role in downstream development. "A lot of innovation takes place in clinical trials, and fast-to-market strategies are all innovative."

Abbott Laboratories, which holds a similar view on accessing outside innovation, has spent the past 10 years amassing a battery of technologies to bring efficiency to its in-house discovery and development research. At the forefront is the use of fragment-based screening—structure-activity relationship by nuclear magnetic resonance imaging, or SAR by NMR—which assesses the potential of proteins to be modulated by drugs, also called "druggability." (For more on fragment-based screening, see page 56.) Abbott is also employing predictive toxicogenomics to screen out suboptimal compounds in early development and assess toxicology earlier in in vitro studies. New imaging technology is being employed in discovery as well. Abbott is expanding its imaging operation with a magnetic resonance spectrometry facility.

Nothing personal

It is notable that efficiency gains are not ushering in a fundamental shift from the blockbuster drug discovery paradigm, according to Brian Spear, director of genomic and proteomic technologies at Abbott. "Our goal is still to discover and develop safe and effective drugs for everyone," he says.

Genomics and personalized medicine are moving into the process, however, reducing development cycle times and allowing researchers to find specific patient populations for which potential drugs will be safe and effective. "We are defining who the patient is that the drug would most benefit," says Steven Paul, president of Lilly Research Laboratories. "A lot is going on at Lilly and elsewhere to do this." Adaptive trial design is a key technique, he says, and the firm is trying to get more information on candidates in Phase I in order to manage attrition.

Currently, however, there is a lot more information about diseases and compounds than there is about patients. "We are learning a new language," Spear says. "We need better information on what genes affect drug response, how that affects the disease outcome, and how to find the people who will get the best result." This is partly an IT challenge, he says, but the immediate problem is that a lot of the information that's needed doesn't exist.

Where genomics and personalized medicine could usher in big changes in the next 10 years is in the management of cancer, according to NCI's Barker. The focus will shift from treatment to prevention as research uncovers the molecular characteristics of the disease. Effective molecular oncology, she says, will require a heavy use of IT and an unprecedented level of cooperation among research entities. A massive effort to develop diagnostic biomarkers is required, as is a means of establishing and managing access to biobanks. NCI is focused, she says, on putting all these research tools into position for an international effort to extract knowledge from the flood of data from the human genome, specifically in the area of cancer, which she sees as a flagship therapeutic category in 21st-century drug research.

NCI is also playing a lead role in NIH's effort to establish a national health information infrastructure as part of its Roadmap for Medical Research. Through its Cancer Biomedical Informatics Grid (caBIG), NCI hopes to pool resources from research institutions, drug companies, and IT suppliers into an IT framework for cancer research. NCI is also collaborating with the U.K.'s National Cancer Research Institute, which is developing a similar network, and is working with large drug companies and FDA on a related project called Clinical Research Information Exchange.

These initiatives are not without complications. The collection of biological specimens in biobanks raises thorny ethical questions regarding ownership and access. Those are compounded by the atmosphere of mistrust surrounding the Department of Health & Human Services' plan for making electronic health records available to U.S. citizens by 2014.

A recent survey of 1,095 U.S. health care consumers by Health Industry Insights, a market research firm, found that 86% were concerned about the health industry's ability to protect the privacy of personal health information. Arthur Caplan, director of the Center for Bioethics at the University of Pennsylvania, says the key to collecting specimens is a system of informed consent. Biobanks, he says, need to be established as third-party "lock boxes," and international standards for management and access are needed.

"New knowledge, not intellectual property, is your goal," Caplan says. Researchers must make their results available as a matter of contractual obligation if they generate knowledge from research on specimens from public biobanks, he says. Such a practice, Caplan says, will be a major shock to scientists. "People trying to get tenure don't like putting information on websites before they get it into the journals," he says.

Networking clinical trials

The need for standards in research is matched by a similar need in clinical trials. In general, the advent of genomics has boosted the importance of databases, knowledge management systems, and collaborative IT tools. A private industry standards group, the Clinical Data Interchange Standards Consortium, whose members include most of the 10 largest pharmaceutical and biotech pharma companies, is working on a standard for clinical trials IT management. HL7, a standards body accredited by the American National Standards Institute, is working on protocols for managing general electronic health care data in the clinic and elsewhere.

A recent report by IT consulting group Gartner points to the time- and cost-saving advantages of operating an enterprise-wide information management system for multisite clinical trial operations. It also cites IT's role in facilitating new methods of research. "The most significant benefit will be the ability to use and reuse data in new ways, such as to perform cross-study analysis that is not possible without a consolidated view of clinical trials," according to the report.

Lilly is among the drug majors working on a clinical trial IT network. "I call it integrative informatics," says John V. W. Reynders, information officer for discovery and development informatics at Lilly Research Laboratories.

He says the technology needed to manage information in the clinic is readily available, but there are several nontechnical hurdles. "One is the exponential increase in the amount of data to manage," he says. Another is that "researchers are not fluent at navigating heterogeneous data—cheminformatics, clinical data, and imaging." All of this is currently being integrated at Lilly, he says, noting that the president of Lilly Research Laboratories, Paul, is championing the information system program as a means to save time and money and to spur innovation.

Lilly has, in recent years, been one of the more productive drug companies. "We've tended to buck the trend," Paul claims. "We had nine new products in the last four years and 15 over the last decade. We have five candidates in late Phase III."

Paul admits, however, that there is a lot of room for improvement. "We are an industry that needs to do R&D differently," he says, adding that it's difficult to compare the drug industry with others. The regulatory aspect alone sets it apart. "But we've never been as cost- and time-conscious as we should be."

Reclaiming lost esteem

As the industry grapples with challenges on multiple fronts, many insiders agree that the drugmakers must do a better job of communicating changes under way to the public and of stepping up to mounting criticism. "In the past, the industry has done a poor job of telling its story to the American people," says Ken Johnson, senior vice president for communications at Pharmaceutical Research & Manufacturers of America (PhRMA), the industry trade association. He says, however, that under its new director, Billy Tauzin, the association has changed course from a reactive and defensive stance to a proactive push with a prescription aid plan at the forefront. The result has been a boost in the industry's public approval rating from 45% to 54% over the past 14 months, Johnson says.

PhRMA has undertaken a cross-country grassroots bus tour of all 50 states to promote its Partnership for Prescription Assistance program, a private consortium of drug companies, health care agencies, and patient advocacy groups convened by the association to provide access to prescription drugs to people needing assistance. The program has assisted about 2 million people since last year, according to Johnson.

He says the grassroots approach is currently PhRMA's best bet to regain public approval. "The bad news is that we are never going to win the war of words with the big five newspapers—the New York Times, Washington Post, LA Times, USA Today, and Boston Globe," Johnson says. "The good news is that only 8% of the American public reads those newspapers. Their readership is declining. So we've been very aggressive in reaching out to small and midsized newspapers across America."

The key talking point, Johnson says, is value: "the value of our medicine, research, and innovation, and the values we represent." Those include prescription assistance that, he says, few people realize is available from most major drug companies.

The term "value," in fact, is used prominently in the association's continued defense of prescription drug pricing. In addition to the long-standing argument that drug companies need to maintain prices to earn a return on their investment in new drugs before patents expire, the association and its members are more frequently floating the question of what it is worth to have a drug that significantly improves, or even saves, your life.

Research managers at the large drug companies claim, in fact, that the notion of a drug's value is also lost in the discussion of so-called me-too drugs and reformulations of drugs already on the market. "We sell growth hormone given as a once-a-day injection," says Pfizer's LaMattina. "Now we're working on a growth hormone given twice a month. If you're a patient, are you looking at Pfizer and saying, 'Aw, Pfizer, you're awful! All you are trying to do is expand the patent?' "

Perhaps a more telling example at Pfizer involves Lipitor, the world's top-selling drug. Lipitor, a statin to treat high cholesterol, comes off patent in 2011. Pfizer is currently working on a combination of Lipitor and a new drug, torcetrapib, which boosts levels of so-called good cholesterol. Critics, including cardiologists, contend that there is no reason that torcetrapib needs to be taken in combination with Lipitor and that Pfizer, which is currently running clinical trials on torcetrapib only in combination with Lipitor, is acting merely to extend its Lipitor patent. LaMattina stands by his assertion that the combination constitutes an optimal, breakaway therapy for treating high cholesterol.

There is little indication that major drug companies will respond to criticism over high drug prices by actually lowering prices. Deloitte's Mulder contends that they are already reacting to the pressure by cutting costs. Further price pressure will result in changes in marketing as well. "At some point you're going to have to promote products in primary care with 30% fewer reps," Mulder says. "You will promote only to physicians that respond to your message."

Pricing, he says, is likely to become even more complex. The convergence of technology, diagnostics, and therapeutics and the emergence of targeted therapies will have a significant impact. "We know there are a certain number of people who won't respond to these drugs," he says. "How does the health care system deal with pricing under this scenario? It's not a matter of justifying price; it's about getting our heads around how to price drugs."

Beyond the back and forth over innovation, pricing, and safety and the relative positions of big pharma and biotech in the years ahead, there is one point of agreement: The pharmaceutical industry is going through a fundamental change. And expectations are running high, inside and outside the industry, as pipelines recharge, new treatments move toward regulatory approval, and the lessons of the human genome are brought to bear on drug discovery and development.

Research managers, more or less hardened to the criticism, are also confident that public opinion will ultimately be affected by one thing only: new drugs. With all the change going on, the pragmatic focus of the researcher remains a constant, holding out a kind of strategic compass at the drug companies. As Paul puts it, paraphrasing political strategist James Carville's 1992 rallying point in describing the mind-set at Lilly, "It's the pipeline, stupid."

Pfizer's LaMattina agrees. "We'll get back public regard," he says. "You already see modulation in tone about what we do. We are getting traction on value; patients are standing up."

Ruffolo at Wyeth, however, hints that the industry would have done well to communicate better with the public before its fortunes turned. "The time to deal with this isn't now," Ruffolo says. "It was 15 years ago, when we were the most admired industry in the world. If you start to talk about it when you are under siege, you sort of look defensive and you almost don't look credible." He says that while big pharma companies are starting to communicate more effectively, individually and through PhRMA, the public is not likely to be very receptive.

"Maybe it's time for us not to say much of anything right now," Ruffolo says. "Did you ever get so angry at someone that you just didn't want to hear their voice? Maybe that's where our industry is right now. I don't know if there is anything we can do."

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