Will reconfiguring big pharma research revive the drug sector?


Postings in the blogosphere during recent weeks have discussed changing the organization of Big Pharma companies to increase drug development productivity. For example, the author of one posting  considers it mandatory for various companies to become active competitors in biosimilars. Even as Pfizer's CEO, Ian Read, says he is considering divesting up to 40% of that company's operations, the pharma reporter at Forbes wrote that discussion of what the company may sell or how it will reorganize itself are beside the point because the important issue is what Read will do to fix the research operation there.

Clearly the industry finds itself in its current trough because it has been failing at its historic mission of developing new drugs to advance curative medicine. So improving this principal function would seem to represent management's most important challenge. But Big Pharma companies cannot rectify the way they do research without first changing their business model and the way they are organized.

During the 1990s CEO Bill Steere basically created Pfizer in the form it exists today. This structure and function represent the prototype of pharma's reigning megacompany-blockbuster model that impedes more productive research. Steere's plan, later adopted by the rest of Big Pharma, was able to capitalize on a fruitful research paradigm of medicinal chemistry by building an industrial economy of scale around it. It called for creating a big company led by an overwhelming marketing organization and the resources to throw a larger number of compounds into the pipeline than its competitors. Statistical probability meant that a small proportion of these compounds would win approval and, even if most of them were second or third-to-market, me-too entries, the industry's cartel powers over its customers would make those products enormously profitable.

Then all the foundational elements of this model started faltering in the new millennium. Medicinal chemistry had already picked the low-hanging fruit in most therapeutic classes so improvements to existing products became more difficult and costlier to achieve. As research based on medicinal chemistry was costing more and producing less, no successor paradigm emerged to create a new wave of brands with sufficiently better results than older products that could justify premium prices. As all health care costs kept spiraling up, the me-too strategy also started faltering because insurers and employers refused to pay premium prices for fourth and fifth entries in a class if those products lacked appreciable improvements over earlier ones.

Then the large marketing and sales organizations that formerly flogged me-too products to multi-billion dollar sales started to lose credibility and effectiveness as an incessant, weekly drumbeat of stories emerged about off-label marketing, lavish payoffs to big prescribers, ghost-written studies and other transgressions.

At the same time clear-eyed researchers and organizational management specialists saw that Big Pharmas are a two-edged sword when it comes to research. On one hand they possess the capital and personnel to assign 400 bench chemists the task of synthesizing a single enantiomer, but such size also seems to stifle efficient drug development. In 2003, for example, Gardiner Harris of the New York Times interviewed a number of leading researchers who had recently left GlaxoSmithKline. They attributed the company's dismal record at developing new drugs to the time-wasting meetings, travel, budget planning and bureaucratic rigmarole that lie at the heart of all large companies.

While oncology provides pharma with one of its most lucrative therapeutic classes, the need for Big Pharma to operate with an economy of scale has made some of them ineffective competitors in this area. Many Big Pharmas disdain developing a new drug if forecasts show it cannot achieve a peak of annual worldwide sales that reaches at least $800 million. The finance people who drive pharma's operations reason that smaller products cannot feed the enormous, fixed cost machine posed by a large sales force and the other functions.

Yet in oncology many products are launched for third-line use, often in indications that affect relatively small populations. In some cases, their results in those conditions lead oncologists to try the medications at earlier stages or on cancers that affect larger populations. For all its success in cardiovasculars, CNS and other therapies, Pfizer has been mainly a non-factor in oncology because forecasts caused them to drop many auspicious compounds in mid-stage. The mega-company, blockbuster mindset dictated abandoning those compounds that seemed unlikely to generate major sales in one of the four major tumor types (breast, prostate, colorectal and lung).

So the very elements of Big Pharma's business model impede successful achievement in R&D, the industry's core function. Moving pharma out of its present doldrums can't really start by rejiggering R&D to revive a dysfunctional business model. To the contrary, pharma must revise the way it does business and the way companies are organized in order to make innovative R&D possible.

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