Issue Date: July 30, 2012
Trying To Rev Up AstraZeneca’s R&D Engine
Martin Mackay likes a joke about how decisions were made when he joined AstraZeneca as head of R&D two years ago. In his charming Scottish brogue, he quips that the Swedish-British drug firm “had more tollgates than the New Jersey Turnpike.” The joke falls flat with his colleagues in Europe, but his U.S. counterparts get the message: The hurdles to efficient and productive research were abundant.
Since 2010, Mackay has been systematically dismantling tollbooths to get AstraZeneca’s drug development highway rolling more smoothly. It’s a reconstruction project conducted under pressure: When Mackay joined the firm in 2010 from Pfizer, where he had also led the R&D organization, patents on AstraZeneca’s top-selling products were set to fall like dominoes. Yet its research team had come up with few new drugs to replace the revenues that would be lost.
“In coming in, what I found was an organization on the back foot,” Mackay concedes. “R&D had some really bad losses in the late stage of compounds.” But he also found an organization ready to embrace change.
Mackay has swiftly shaken things up, changing everything from R&D leadership to the way decisions are made and what projects are pursued. He’s made deep cuts to internal R&D and aggressively sought partnerships to build the company’s pipeline. Much work remains to right the business, and industry watchers question whether it can happen fast enough.
In a time of stiff generics competition and limited productivity, the entire drug industry has been soul-searching about how to improve the output of its research organizations. AstraZeneca’s problems are particularly acute. “AstraZeneca has been marked out from the rest of big pharma because it is struggling with one of the biggest and longest patent cliffs in the industry,” observes Lisa Urquhart, editor at the life sciences research firm EvaluatePharma.
Although other companies have been hit by one or two major patent losses, AstraZeneca is looking at a sustained period of sales erosion as generics competition hits its biggest blockbusters. This year brought expiration of the patent on the psychosis drug Seroquel, which had 2011 sales of $4.3 billion. The patent on the heartburn drug Nexium is up in 2014. Cholestrol-treating Crestor, the firm’s top-selling drug, with $6.6 billion in 2011 sales, will lose protection in the U.S. in 2016.
Meanwhile, generics competition for the asthma treatment Symbicort could arrive in Europe as early as next year. Combined, the four products brought in more than $20 billion last year, almost 60% of the firm’s overall revenues. EvaluatePharma forecasts sales for the four plummeting to $8.9 billion by 2018.
Other big pharma firms have countered some of the revenue lost to generics competition with new products from their own labs, partnerships, and acquisitions, but AstraZeneca has struggled. Recent setbacks include pulling the plug on the PARP inhibitor olaparib after disappointing Phase II clinical trials as an ovarian cancer treatment and discontinuing the depression treatment TC-5214 after a Phase III failure.
A product that did make it across the finish line, the blood thinner Brilinta, has posted slower sales growth than analysts expected.
“This poor track record in R&D has left some in the industry to question whether Astra should focus on doing deals rather than in-house drug development, which it does not appear to be particularly good at,” Urquhart says.
The challenges—and lack of immediate solutions—led to the ouster of AstraZeneca’s chief executive officer, David Brennan, in April. He was replaced on an interim basis by the firm’s chief financial officer, Simon Lowth.
Because of the setbacks and top leadership changes, AstraZeneca is “a company undergoing pretty rapid internal rethinking of who they are, what they are, and what they want to be and the ways to get there,” says G. Steven Burrill, CEO of the biotech investment firm Burrill & Co.
Mackay has his work cut out for him, and he has been working hard. The overhaul of AstraZeneca’s R&D organization has been thorough. Thousands of research jobs were eliminated as the firm pared the number of therapeutic areas it pursues internally. AstraZeneca’s pipeline of drug candidates was cut by more than 40%. In the process, the pipeline shifted from a 25:75 ratio of large- to small-molecule drugs to a 45:55 ratio.
“It wasn’t because these programs weren’t sound and didn’t have merit, but we just didn’t believe they were going to compete, timing-wise,” Mackay says.
Meanwhile, 31 of the 50 heads of internal research units have been hired from the outside—most from other big pharma firms—and all research leaders have been entrusted with more responsibility. Mackay has removed layers of bureaucracy, reduced the number of committees, and empowered scientists to decide the fate of projects.
The push to put more power in the hands of scientists is occurring at other drugmakers as well, notably GlaxoSmithKline and Sanofi. Big pharma companies are undergoing a “change management exercise,” says Glen Giovannetti, leader of Ernst & Young’s global life sciences group. Companies have “broken away from decision by committee—or indecision by committee”—and are trying to make better and faster decisions about which drug candidates to move forward, Giovannetti adds.
Mackay points to AstraZeneca’s head of oncology, Susan Galbraith, as an example of the kind of leader he believes will help right the research ship. With an M.D. and a Ph.D., experience in both the lab and the clinic, and years spent bringing cancer drugs to market at Bristol-Myers Squibb (BMS), Galbraith is “a true expert in her field,” he says. “Here was the perfect phenotype” of someone who could turn things around. “What I didn’t want to bring in for those positions were general managers.”
Mackay has tasked his research leaders with building competency in four areas that he finds critical for the success of the reorganized R&D operation: improving clinical trial design, developing models that accurately predict a drug’s activity before it goes to clinical trial, embedding a personalized health care plan early in a drug’s development, and developing drugs that government and private insurers will pay for.
In principle, making personalization an intrinsic part of drug development will enable the company to pick the right patient populations for its drug candidates. “A lot of the failures we had in the industry in Phase III weren’t because these molecules didn’t work but because they only work” in a specific patient population, Mackay says.
The personalized health care initiative is well under way. Today, Mackay says, more than 60% of AstraZeneca’s drug development programs have some personalized component, such as a biomarker or diagnostic.
Furthermore, a new medicine that is “safe, effective, and differentiated is not enough,” Mackay says. “You need to be all of those three things and have somebody pay for your medicine.”
To that end, AstraZeneca is banking on the expertise of another one of its new hires, Greg Rossi, who focused on the payer question at Genentech and Roche, to ensure that drugs provide enough benefit to be reimbursed. More than 90% of AstraZeneca’s projects now have input from Rossi’s team from an early stage, Mackay says.
It will take some time for Mackay’s internal reforms to show up in AstraZeneca’s late-stage pipeline. Meanwhile, the company has set a target of eight to 11 positive proof-of-concept results between 2012 and 2014. The only way to achieve that goal is with acquisitions or drug development deals with third parties. “Our portfolio isn’t big enough, so we need to bring things in,” Mackay acknowledges.
Stocking a portfolio is tough when so many competitors also have walked off the patent cliff. Competition for late-stage drug candidates is fierce, and drug firms still need to maintain a healthy level of internal expertise, says John L. LaMattina, who was Pfizer’s R&D chief before Mackay and is now a senior partner at the life sciences investment firm PureTech Ventures. “Even the Yankees can’t go out and fill all their needs by buying players, and they’re the richest team in baseball.”
Mackay’s solution to winning more deals sounds simple: Be a really good partner. He believes that starts with being responsive to every company that approaches AstraZeneca with a drug candidate. “Often if something comes into big pharma, it goes into a black hole,” he says. AstraZeneca wants to give potential partners an answer quickly. Often it is “no,” but Mackay vows to explain why, because maybe the next time what will be offered is a more promising candidate.
Two other keys to successful deal-making, he says, are guarding a partner’s assets as if they were born inside AstraZeneca and being creative about deal structures.
Since the beginning of the year, AstraZeneca has signed a string of deals, many constructed to share both the risks and rewards of developing late-stage drugs. The most recent was the biggest: shelling out $3.4 billion for a share in Amylin Pharmaceuticals, a biotech firm with diabetes drugs that complement treatments in AstraZeneca’s own portfolio. Technically, BMS is buying Amylin, and AstraZeneca is buying into Amylin through an expansion of an existing diabetes collaboration between the big pharma firms (C&EN, July 9, page 7).
AztraZeneca also has taken a stake in a handful of Amgen’s clinical-stage inflammation compounds. Speaking to stock analysts earlier in July, Lowth called the Amylin and Amgen agreements “good models for the sort of opportunities we find interesting.”
Sharing risks and rewards allows companies to make more bets, LaMattina says. “What AstraZeneca is doing with BMS, and in other ways, is trying to do the very best they can in a time of great austerity.”
Still, industry observers point out that it will take more than a handful of risk-sharing deals to put AstraZeneca back on the right road. “If Astra is to pull itself out of the hole it is in, it needs to do a lot more of these types of deals and still might have to consider bigger acquisitions,” EvaluatePharma’s Urquhart says. “With about $10 billion in cash, it has the firepower to do at least one midsized acquisition.”
Skeptics abound, but Mackay is optimistic that the company is getting up to highway speed. In five years, “we’ll have a replete late-stage pipeline, and we’ll have done even more deals over the next period, which fills out that pipeline,” he says. “We are building momentum.”
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