The Future Is Uncertain, The End Is Always Near
8 CommentsBy Ed Silverman // December 6th, 2007 // 6:20 am
That’s a line from an old song by The Doors, but it seems to apply, increasingly, to big pharma. A piece in The Wall Street Journal (subscription may be required) pulls together a string of numbers and comments to further this view. Basically, there’s nothing terribly new to say - patents on big sellers are set to expire and there are few replacements (see chart). Coping is the problem. “I think the industry is doomed if we don’t change,” Sidney Taurel, Eli Lilly’s ceo, tells the paper.
Overwhelmed drugmakers, however, continue to rely on old models, especially for research, and have spent a great deal of time and energy on raising prices; paying lobbyists and, more recently, complaining about the FDA. “The era that created the modern pharmaceutical industry is, in fact, over,” said Richard Evans, a former Wall Street analyst and now a consultant at Avos Life Sciences.
Faced with a lack of internal drug development, meanwhile, many are responding to the crisis by slashing workforces, buying biotechs, expanding into generics and stepping up their outsourcing. “There are lots of people in India, China and Eastern Europe who can make products of the same quality as ours but at significantly less cost,” Bristol-Myers Squibb ceo Jim Cornelius readily concedes.
Some data to ponder:
- As the Dow Jones World Index rose 75 percent in the six years ended Nov. 29, the FTSE Global Pharmaceuticals Index fell 19.8 percent;
- During the five years from 2002 through 2006, the industry brought to market 43 percent fewer new chemical-based drugs than in the last five years of the 1990s, despite more than doubling research-and-development spending;
- Between 2011 and 2012, Datamonitor predicts annual industry revenue will decline, the first decline in at least four decades;
- Big pharma spent nearly $76 billion since 2005 to buy biotechs. In 2005, there were 33 deals worth $16.5 billion, in the first nine months of this year, there were 49 deals totaling $28.7 billion, including AstraZeneca $15.6 billion acquisition of MedImmune;
- The average price per pill has risen 63 percent since 2002;
- Advertising spending reached $5.3 billion in 2006, up from $2.5 billion in 2001;
- Since 1995, the number of sales reps has nearly tripled to 100,000;
- Spending on lobbying reached $155 million from January 2005 to June 2006;
- Layoffs are in vogue as Pfizer cuts 20 percent of its sales force, AstraZeneca cuts 10 percent of its employees and Johnson & Johnson is shrinking its staff by 4 percent. Glaxo, Novartis and Abbott are also eliminating jobs.
Source: The Wall Street Journal
Nathan
One thing that the WSJ article didn’t point out: I think to some degree we are a victim of our own success. We’ve attacked all the “easy” therapeutic targets. We have at least marginally effective treatments for most major disease categories. Drug discovery always has to build on existing success. A cancer or diabetes drug as successful as something made 10 years ago won’t get approval today. Profits are going to get harder and harder to make. I think there are a lot of analogies that can be made between the oil industry and the pharma industry. The oil industry has tapped into almost all of the “easy to reach” oil. So now, they have to invest a WHOLE LOT more money just to keep the taps flowing at the same rate. Pharma is in the same boat. We invest more and more in R&D, getting the same or worse results — but that’s because we have to “dig deeper” than ever before to come up with new products.
Ed Silverman
Hi Nathan,
Yes, the low-hanging fruit is largely picked, (something I wrote three years ago, but not for Pharmalot), and so the challenges have grown. As I indicated, the story isn’t new, but the climate has gotten still tougher.
Cheers
ed at Pharmalot
ol cranky
I’m not really sure we’re investing more and more into R & D. Large pharma completely ignore the any attempts to mind the gap and sink the entire budget into huge programs to develop “sure thing” blockbusters” that don’t even come close to the $2B mark (heck, some of them don’t even get approved). The end result is the old blockbusters go off patent and they don’t have other approved drugs selling to fill in the gaps. This results in even more mergers (which is really as bad for the industry as it is for consumers) and reorganizations.
Of course the cost of clinical development has also increased exponentially because the companies are laying off employees to cut employment costs and hiring contractors and/or CROs at significantly higher costs than the employees (I’m not talking about supplementing a development team, I’m talking about almost completely replacing the team and, in many cases, doing so in a way that duplicates efforts). They’ll complain about the increased cost of development to anyone who will listen but the staffing changes are made so the can talk about the huge [non cost-efficient] investment to justify drug costs while taking advantage of the shift of the costs tax deductible R & D charges.
Jack
I think there’s still low-hanging fruit in infectious tropical diseases - as far as finding small molecules go - but as to securing equivalent reimbursment for those molecules - that’s another story. Basically, there’s not a lot of unexplored chemical space that hasn’t been high-throughput screened several times over.
Hank
So what will the “new” industry look like? As Ed suggests, the core story has been repeated many times for at least the past ten years. But the “solutions” that have been most visible have been two-fers (like Vytorin), exploiting the pediatric market for all its worth (and sometimes more), pushing the off-label market, and so on. Anything to keep doing what is doing.
We hear about “designer drugs” and the suggestion of untapped reserves via biotech, but is there anything there?
In this part of the country, it’s hard not to think of the auto industry, which keeps making the same mistake from which it never learns but every now and then pretends to.
Nathan
Jack, I beg to differ. There is lots of unexplored chemical space waiting to be exploited. The problem isn’t chemical space, the problem is the combination of a lack of medically relevant targets (enzymes, receptors, etc) combined with a lack of relevant animal disease models. This is compounded by the fact that existing treatments must be at least equivalent to existing treatments (of which there are many for most diseases).
Remember how quickly we were able to conquer the HIV virus? Look what we had going for us: a clear target involved in the disease (reverse transcriptase), a clear unmet medical need, and a disease state which had such a dramatic endpoint (death) that side effects were acceptable. The industry was able to rapidly respond multiple drugs were on the market in less than a decade. The only current disease areas that even approaches these criteria are HCV and cancer.
Bob Freeman
It’s beginning to look to me that the “new” model is basically a sales & marketing organization that relies on in-licensing for new products. What is troubling me is that the costs of licensing deals and acquisitions is extraordinarily high, which begs repeating the question of value for money. I don’t see how the industry can justify its pricing practices and tax breaks in that kind of environment. Off-sourcing, while rational, is resulting in the loss, at least temporarily, of high paying manufacturing and research jobs.
Re personalized medicine, I believe we’re probably 10 years away from knowing what this fully means and its implications for health care financing.
Outsidethe box
So we’re shifting from an old industry model to a new one - and some are doing it better than others. The cost of in-licensing isn’t a real issue. If you look at almost every deal the risk to the buyer is mitigated by having the vast majority of costs in the back end of the deal. If the product doesn’t work you pull out of the deal and big pharma’s cost are contained at a much lower level (or at least that is the plan). Headline deal numbers are only relevant if the product actually hits the market.
This is becoming the Hollywood model. In the old days the studio owned everything from the star to the theater. Now small production companies are set up to make the movies and the studio does the marketing and distribution. I am sure that it won’t be long before most big pharmas have very much smaller research, a development pipeline that is over 75% in-licensed and concentrate their efforts on identifying in-license targets, productivity in development, low cost manufacture and high quality marketing. They’re not there yet, but all of the majors are going this way.