Volume 89 Issue 8 | pp. 12-16
Issue Date: February 21, 2011

Cover Story

Do-Or-Die Time

R&D chiefs agree that big pharma’s fully integrated business model has one more chance to deliver
Department: Business
Keywords: innovation, pharmaceuticals, drug discovery
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NEW GRAMMAR
Researchers at the Novartis Institutes for BioMedical Research are vetting data released by the decoding of the human genome.
Credit: Novartis
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NEW GRAMMAR
Researchers at the Novartis Institutes for BioMedical Research are vetting data released by the decoding of the human genome.
Credit: Novartis

The key to the future is innovation, John C. Lechleiter, chief executive officer of Eli Lilly & Co., told attendees at the World Health Forum last October. “My perspective is pretty simple,” he said. “The engine behind pharmaceutical innovation is broken, and we have to fix it.”

While the world desperately needs cures for everything from influenza to Alzhei­mer’s disease, the drug industry is taking too long, spending too much, and producing far too little, Lechleiter said. “Believe me, I’m reminded of this over and over as I meet with investors, many of whom are questioning the viability of the current business model.”

Lechleiter’s keynote speech at the forum, held in Boston by Harvard Medical School, embodies the concern at the highest levels of the pharmaceutical industry about the long-standing predicament of soaring expenditures and plummeting productivity in research.

Drug companies have attempted to boost productivity with a range of strategies, including licensing from biopharmaceutical firms, establishing in-house biotechnology divisions, and partnering with academic researchers. Some have tried to improve efficiency by making deep cuts in research staffs, whereas others have inked large acquisitions. Several have done both.

As part of a fourth-quarter earnings announcement, Pfizer’s new CEO, Ian C. Read, announced earlier this month a sweeping round of R&D consolidation that includes an exit from research in allergy, respiratory, and internal medicine at its Sandwich, En­gland, facility, a major research hub that will be closed over the next two years (C&EN, Feb. 7, page 5). The company is also exiting oligonucleotide, tissue repair, and regenerative medicine research in Cambridge, Mass., and antibacterial research in Groton, Conn.

“The most fundamental question that Pfizer has to fix is our innovative core,” Read told analysts. The research downsizing starts to fix that core “in a way that will give us consistent productivity in our innovation.” It comes on top of deep cuts that Pfizer has made since acquiring Wyeth in 2009, including closure of six R&D sites.

Pfizer’s steps to right its ship are perhaps the most severe in the industry. But industry watchers see most companies drawing a line in the sand in 2011, making decisions that will fundamentally change the course of research.

C&EN interviewed R&D directors at six big drug companies to gauge how much commitment to research remains in an industry plagued by high R&D costs and low productivity. All of them pledge to continue innovation in drug discovery, but they are also mindful of the need to improve efficiency and manage risk in what has been a losing proposition for nearly 10 years: achieving growth through the introduction of breakthrough therapies.

GlaxoSmithKline: Honing R&D Leadership

“I believe that the pharmaceutical industry’s fully integrated business model has one last chance to prove it can deliver shareholder value and value for patients,” says Adrian Rawcliffe, senior vice president of business development for R&D and finance at GlaxoSmithKline. The traditional big pharma model, whereby companies own all drug development functions from basic discovery to marketing, will succeed or fail over the next five years, Rawcliffe predicts.

Success depends in part on improving existing therapies. “Our current portfolios are insufficiently maximized,” Rawcliffe says, adding that finding new indications and formulas for existing medicines is a relatively low-risk investment compared with discovering new drugs. “I don’t think anyone out there believes our existing products are as good as they have to be at addressing a range of diseases from asthma to HIV,” he says.

At the same time, Rawcliffe says, drug firms must continue bringing to market new products for unmet medical needs. Innovation is not as risky as it is often held out to be, but it should be done efficiently, he says.

“Science is exploding, and deciding what to invest in is absolutely critical,” Rawcliffe says. But industry failed to make appropriate choices, he says. “We pursued everything.” Once a company picks the science appropriate to its task, it must pursue implementation at a fraction of the historical cost, he argues.

In recent years, GSK has addressed the R&D predicament by dividing research into smaller and smaller teams, starting with the establishment of Centers of Excellence for Drug Discovery and progressing to discovery performance units, in which as few as a half-dozen researchers are responsible for entire therapeutic areas (C&EN, Feb. 22, 2010, page 12).

“The heads of these groups are like CEOs of biotech companies,” Rawcliffe says. In addition to leading the science, they are responsible for the financial performance of their units, meeting with an in-house discovery investment board for early funding and maintaining budget accountability into development. Decision making hinges on return on investment in R&D.

Like Pfizer, GSK exited some fields of research, including certain areas of neuroscience, depression, anxiety, and pain. The decision was “scientifically driven,” Rawcliffe says. “We didn’t think the science over the next few years justified the investment.” The company also discontinued R&D in Verona, Italy, and scaled back significantly in Harlow, England. In addition, last year GSK reduced the number of clinical-stage contract research organizations (CROs) it works with from about 30 to two: Parexel International and PPD.

Although GSK has cut R&D staff by approximately 25% since 2006, it is looking to its researchers to prove that the integrated model does work. “The area in which we want to lead the pack is R&D leadership,” Rawcliffe says. The heads of discovery performance units, he continues, “have to be savvy and view their enterprises more as value-generating businesses than as science projects.”

As it streamlines its internal capabilities, GSK, like most other pharmaceutical companies, “is focused on sourcing capabilities from anywhere we can find them in the world,” Rawcliffe says. The fully integrated model has evolved, he notes, and he sees “variations on the theme” that allow degrees of outsourcing along the pipeline from early-stage discovery to commercial launch, manufacturing, and distribution.

Roche: A Diversifed Approach To R&D

Jean-Jacques Garaud, Roche’s head of pharmaceutical research and early development, argues that the company is taking an aggressive stance on innovation as part of its formula for growth. He contests the view that an emphasis on discovering new drugs is riskier than other growth strategies.

TRANSLATION
David Mark, senior research director in discovery technology at Roche, screens data for cellular toxicity.
Credit: Roche
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TRANSLATION
David Mark, senior research director in discovery technology at Roche, screens data for cellular toxicity.
Credit: Roche

Whether risk is high or low “is in the eyes of the beholder,” Garaud says. “Not striving for innovation and delivering highly differentiated medicines in the current economic environment is a high-risk strategy. Not trying to understand the key issues of the biology of disease is not a sustainable approach.”

That view is an argument for the integrated drug company, but like GSK’s Rawcliffe, Garaud sees a need to be selective in adopting scientific approaches. Decisions, he says, should be guided by science that emerges from clinical trials of new drugs—in other words, from patients.

Roche is setting a new tack in the wake of its 2009 acquisition of the half of Genentech it didn’t already own. Interestingly, though, the emphasis is not on integrating the two companies’ research efforts. Last year, Roche launched independent discovery research units: the Pharmaceutical Research & Early Development group, which is focused primarily on small-molecule drug discovery, and the Genentech Research & Early Development group, focused on biologics.

“These are two autonomous research units working in therapeutic areas they feel are most appropriate,” Garaud says, noting that the two groups work separately on the same diseases in some cases. “We believe that the diversity of approach is providing us with better chances to innovate.”

It is not far-fetched to say the two groups are competing, Garaud acknowledges. At the late stages of development, researchers compare notes and choose a winner when two programs have significant overlap. “But in the early stages, in order to maximize innovation, it is better not to share too much information, which would result in self-censorship,” he says.

That said, Garaud argues that the drug development programs coming from the two divisions have little overlap, an indication, he believes, that Roche’s diversified approach is working.

Reversing the long, steady drop in R&D productivity has become a motivating focal point across the industry in recent years, Garaud observes. Drug companies, he figures, must address a threefold increase in spending over the past 10 years, during which time approvals of new molecular entities dropped by half. “And the paradox is that this is happening in the greatest revolution in technology in life sciences that we have ever witnessed. What’s wrong with this picture?”

Part of the problem is the proliferation of science, Garaud concludes. “I believe the industry has been too complacent and hasn’t really integrated the new technology and science readily at the center of the process of drug discovery and early development,” he says. “Industry has also tried too hard to do everything itself, instead of having a strong link with the academic world. And the academic world has not been willing to collaborate.”

Change is already under way, Garaud says. An increasing proportion of the research traditionally done at large drug companies is now handled through academic partnerships that allow drug companies selective access to new science.

Roche’s recent academic alliances include a translational research center in Singapore; a human immunology program at the Baylor Institute for Immunology Research, in Dallas; an imaging partnership with three Dutch academic institutes; and a stem cell research collaboration with Massachusetts General Hospital and Harvard Medical School.

Eli Lilly & Co.:
 A Chorus Success

Eli Lilly & Co. has been adapting the fully integrated pharmaceutical model with a program it calls the fully integrated pharmaceutical network, or FIPNet. “It’s a clever term Lilly came up with to capture the idea of working with academia, clinical organizations, biotechs, and CROs,” says Jan M. Lundberg, president of Lilly Research Laboratories. “In our case, it has been a strategy to identify our core skills.”

A key component of the FIPNet model is Chorus Group, a Lilly drug development regime in which a team of some 30 scientists evaluates an early-stage molecule’s prospects for development. The goal is to reduce the cost and time to bring molecules to proof of concept—a clinical affirmation that a drug candidate does what it is expected to do. Lilly initially applied Chorus to “the most speculative projects in the portfolio,” Lundberg says. “An increasing number of things have gone through to development.”

Foremost is Lilly’s BAFF antibody. After initial clinical safety studies, Chorus carried out Phase II studies, which proved that the antibody improves symptoms of rheumatoid arthritis after six weeks of treatment. Chorus took the molecule to proof of concept in 24 months at a cost of $6.3 million. Both figures are about one-third of the industry average, Lilly claims. The company used the results to move BAFF into Phase III studies.

In all, Chorus has generated data on 18 molecules, three of which have passed the proof-of-concept threshold. The company estimates it has saved between $150 million and $170 million. Lilly expects to expand the proportion of projects going through Chorus, Lundberg says.

AstraZeneca: Taking A Long-Term View

AstraZeneca has high expectations for R&D, although it is downsizing significantly at the outset to meet them. Martin Mackay, the former president of R&D at Pfizer, joined AstraZeneca last year to lead its R&D operations. He began, as he did at Pfizer, by overseeing a significant paring of work in the new-drug pipeline. The cuts are needed to focus the projects in the pipeline, and the science in the lab, to those most likely to result in marketable drugs, explains Per Hagmar, vice president and R&D project manager at AstraZeneca.

SPOTTING WINNERS
AstraZeneca researchers are drawing on the precepts of personalized medicine to direct drug development.
Credit: AstraZeneca
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SPOTTING WINNERS
AstraZeneca researchers are drawing on the precepts of personalized medicine to direct drug development.
Credit: AstraZeneca

“We can no longer trust in the old model of numbers, where you keep putting drugs in and a winner comes out,” Hagmar says. “We need to change the culture—stimulate courage and leadership.” In a year marked by a merry-go-round of management switches between companies, AstraZeneca has seen other changes in its leadership. In addition to Mackay taking a newly established overall management seat, Mene Pangalos came from Pfizer to head a new Innovative Medicines group covering research from discovery to Phase II development. He joined the firm with the departure of Lilly’s Lundberg, who had led discovery.

AstraZeneca has amassed a biologics franchise in recent years with the acquisitions of MedImmune and Cambridge Antibody Technology. Yet it ended research in 25 disease areas last year. The corresponding closure of research sites in Europe and the U.S. will eliminate about 1,800 of the 11,000 research jobs at the company.

With the downsizing behind it, AstraZeneca is building capabilities, largely around personalized medicine, Hagmar says. “We think the future belongs to people who can segment indications,” he says. Moreover, successful companies will be able to “spot winners and losers” quickly by incorporating new science in discovery and linking early-stage research to design of clinical trials.

Novartis: Results-Based Optimism

Novartis set out to redesign drug discovery and development with the Novartis Institutes for BioMedical Research, which opened in 2003. Under the direction of NIBR President Mark C. Fishman, the institutes’ researchers focus on disease mechanisms and clinical-trial designs that target particular patient populations early in drug development.

“I agree this is an important time,” says Fishman in response to the suggestion that the pharmaceutical industry is at a make-or-break juncture. “It is a chance of a lifetime. My view is one of immense optimism. We have a chance to completely change the process of medicine and how medicines are discovered and to increase productivity.”

Fishman claims that his optimism is based on results. Since NIBR was established, the company has doubled its output of drugs going through proof-of-concept trials, he says. “We have improved dramatically the number of drugs going through Phase II, which is usually the graveyard of medicine. I see us having a big impact on individual patients.”

Coming to Novartis from Harvard Medical School, Fishman, a physician, touted his outsider’s perspective. In addition to emphasizing disease mechanisms and patient-focused science, he banned the use of financial yardsticks in the early stages of drug discovery and instead preached the importance of delivering a return on investment in late-stage development.

Fishman wants scientists to have freedom to make mistakes during the early stages but then focus tightly on therapeutic and financial targets in the late stages. “You need to know where you are in the chess game,” he says. “If you are in an opening gambit, you have to be inventive. If you are at endgame and you are still playing an opening gambit, you’re dead.”

Merck & Co.: Merging & Linking

At Merck & Co., Richard Tillyer, vice president of research and development, has been working for several years to integrate principles of process chemistry into early-stage discovery to better link discovery and development and to manage attrition. Since Merck acquired Schering-Plough in 2009, Tillyer has been involved in joining two big pharma research organizations and advancing the link between early- and late-stage research.

Last year was dominated by a portfolio review, Tillyer says. “In discovery, we got together and took a good dive into the science around projects with our new colleagues, picking the best programs,” he says. “One thing we’ve gotten out of the merger is a very powerful R&D machine, one of significant size as well. As a company we have decided that R&D and coming out with significant medicines is core to our strategy.”

This fully integrated approach will be enhanced by merging efforts, Tillyer says. “The most significant change is that we have pulled together into a single organization discovery science and preclinical development.” In addition to eliminating a hand-off between discovery and development, the new organization “brings a good amount of product focus into the discovery space to ensure that we are doing the right experiments at the right time,” Tillyer says.

Although the Schering-Plough acquisition made Merck “a serious player in biologics overnight,” growth through R&D will continue to be “largely in the hands of small-molecule development,” Tillyer says, noting Schering’s strength in structure-based drug design and the benefit of joining compound collections. “It was a tremendous thing to combine those collections,” he says. “By the end of last year, we were screening 3 million compounds in the combined collection across all our discovery programs.” The company found that it could advance programs that had been struggling to get hits.

The most significant change in Merck research, postmerger, however, is a broadened scope that includes both first-in-class therapies and a best-in-class strategy of reformulating drugs that are already on the market. “We do not want this to be confused with not being innovative,” Tillyer says. “To improve on a product, you really have to spend time and effort on biology to understand a target, and a lot of time on chemistry.”

Although Merck is pursuing postmerger operational efficiencies, innovation is the key to its growth, Tillyer maintains, noting that new CEO Kenneth C. Frazier has a long-standing commitment to investment in R&D. “He has a tremendous interest in research, and he knows the cycles in our business,” Tillyer says of Frazier, a lawyer who was previously president of Merck’s manufacturing and research divisions.

Frazier’s commitment to innovation may be reflected in Merck’s fourth-quarter results, presented two days after Pfizer’s. Frazier disappointed some stock analysts by announcing nothing like the sweeping cuts that headlined Read’s presentation at Pfizer.

“He really gets it,” Tillyer says, emphasizing Frazier’s view that a commitment to innovation requires long-term investment. “Having said that, he is CEO and he will require us to think hard about return on investment in our research dollars.” The new CEO is coming across as “a tremendous advocate for research,” Tillyer adds, “and his message has resonated all the way through the labs.”

 
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