In the ongoing quest to foster innovation, reduce costs, and halt the erosion of revenue from generic competition and anemic product pipelines, major pharmaceutical companies are exploring a range of new and emerging research arrangements. These include developing “virtual” research enterprises; engaging in organizational restructuring to become more like agile biotechs; increasing collaborations with other pharmas, academic institutions, and nonprofit groups; and outsourcing drug discovery to contract research organizations (CROs).
While most Big Pharma companies have been tinkering with one or more of these approaches for years, there is an accelerating need to make significant—and lasting—improvements in the research output. Nearly 130 marketed pharmaceuticals, 14 of them blockbusters, will lose patent protection during the coming three years. These include the heartburn drug Nexium and antipsychotic drug Seroquel, which generated a combined $10.3 billion in revenue last year for AstraZeneca.
In February, AstraZeneca announced it would lay off about 7,300 employees worldwide, including 2,200 in R&D, as part of a major restructuring that includes creation of a “virtual” research operation in neuroscience. “The environment continues to be a challenging one, and we are responding in R&D by announcing an acceleration of our transformation,” said Martin Mackay, AstraZeneca’s president of R&D. “This will result in a leaner, simpler, yet more innovative organization with a lower and more flexible cost base,” Mackay told Drug Discovery & Development. The company plans to get up to 40% of its new programs from outside sources.
The virtual neuroscience operation, called the Innovative Medicines unit, will involve a small team of 40 to 50 staff scientists conducting discovery and development through a network of external academic and industry partners primarily in Boston, Cambridge (U.K.), and Stockholm. The company has more than 150 academic collaborations in the Boston area alone, including with Massachusetts General Hospital and the Dana-Farber Cancer Institute. The focus will be on developing therapies for neurology, psychiatry, and pain. “Investing in science and projects instead of bricks and mortar allows us to pursue opportunities in each of these areas,” Mackay said.
Such academic alliances are “hitting a critical mass,” said Christopher-Paul Milne, DVM, associate director of the Tufts University Center for the Study of Drug Development. More than 60% of academic drug discovery centers have been started in just the past five years. “This is a fast-moving phenomenon. This is where some of the money flows are going as Big Pharma reduces its in-house R&D functions,” Milne told Drug Discovery & Development. “It’s a good way for it to go.”
Individual academic research grants tend to average about $100,000 per year while departmental agreements range from $5 million to $15 million annually. Pfizer Inc., for instance, signed a $100-million, five-year deal with eight nonprofits in the Boston area to identify new drug candidates. Pfizer also runs an $85-million collaboration with the University of California, San Francisco to develop therapies for hard-to-treat conditions such as lung and prostate cancers. GlaxoSmithKline (GSK) is in the midst of a five-year, $25-million agreement with Harvard University’s Stem Cell Institute.
Bringing it back home
Over the past decade, drug companies have sought to control R&D spending and reduce risk by obtaining drug candidates from outside sources and engaging in risk-sharing partnerships and collaborations, especially for early-stage products (Figure 1). But there are signs that the trend may be changing.
GSK, unlike AstraZeneca, is bringing R&D back in-house. In 2008, GSK reorganized its R&D functions around 38 drug performance units (DPUs)—small, independent research teams tasked with specific problems or development areas. The idea was to improve the performance of early-stage research by mimicking the structure of successful biotech companies, which must justify continued financial support from outside investors. In this case, DPU heads must defend their programs every three years and compete for corporate funding against competing initiatives.
Since 2008, three DPUs have been closed and four new ones created. Six received increased funding of at least 20% and five had their budgets cut by at least 20%. More than 20 candidate molecules from DPU projects have entered late-stage development and upwards of 30 will do so over the next three years, said Patrick Vallance, GSK’s president for pharmaceuticals R&D during a March Webinar. “We’ve moved from being blockbuster-dependent to blockbuster-compatible and capable,” added Moncef Slaoui, chairman of R&D. “We always welcome them, but we don’t have to have them all the time.”
For some companies, cutting R&D spending has become a major piece in the re-engineering enterprise. Pfizer, for example, slashed more than $1.5 billion in R&D spending and eliminated 4,200 positions over the past year in an ongoing attempt to stem losses due to generic competition to cholesterol drug Lipitor and other treatments. More bad news is likely: about two-thirds of Pfizer’s total sales will become vulnerable to generic competition as key patents expire over the next couple of years, London-based EvaluatePharma says.
Not all Big Pharmas are struggling as much. Bristol Meyers-Squibb, which this year loses patent protection on two blockbusters, anti-blood clotting agent Plavix and high blood pressure drug Avapro, announced in January that it planned to increase R&D spending by the “low single digits” from $3.8 billion last year. This itself was an increase from $3.5 billion in 2010. The company said 30% to 40% of its 2012 R&D budget would be earmarked for late-stage development work.
Outsourcing, cloud sourcing
Drug companies are also exploring open-innovation models to enhance discovery efforts. Eli Lilly and Co. was the first to do so in 2001 with its InnoCentive Internet portal. Through it, organizations with research assets could contact those with unmet research needs. InnoCentive has since become a standalone operation with a community of more than 200,000 experts worldwide. Lilly currently operates an Open Innovation Drug Discovery program where outside researchers submit target molecules for consideration by Lilly scientists. If the submitted molecule is of interest, the company can arrange an in-licensing or collaboration agreement. Bayer Healthcare operates an online Grants4Targets Initiative with academia (oncology, cardiology, molecular imaging, and gynecology), as does GSK, with its Pharma in Partnership program.
In a new twist on outsourcing, Lilly has contracted with AMRI (Albany, N.Y.) to help staff its Indianapolis facility. In a six-year agreement, AMRI will hire more than 40 synthetic chemists to support Lilly’s ongoing drug discovery programs. “There is a significant amount of unused lab space and equipment at many major pharmaceutical companies,” said AMRI president and chief executive Thomas E. D’Ambra, PhD. “Contracting with AMRI provides the benefit of a flexible capacity locally at the same out-of-pocket cost as more remote resources,” such as in China or India, D’Ambra told Drug Discovery & Development.
In fact, big CROs, such as Quintiles, PPD, and Covance, are expected to acquire new strategic partnerships as Big Pharma retools its research efforts. “We expect growth in the CRO industry to continue accelerating into 2012, and the rise of the strategic partnership model should concentrate these benefits in the hands of a select group of narrow-moat providers,” wrote Morningstar analyst Lauren Migliore, noting that revenues at public CROs grew by 11% last year.
CROs are also expected to get a business boost when the FDA finalizes regulations outlining the requirements for marketing of biosimilar drugs. The pathway will likely be complicated, possibly requiring one or more clinical trials. Earlier this year, Celerion (Lincoln, Neb.) and Ricerca Biosciences (Concord, Ohio) formed an alliance to offer preclinical and early clinical assessment of biologic drugs to new suppliers.
Less is more
Another source of fuel for the innovation engine is coming from rare and orphan diseases. There are nearly 7,000 such diseases, each afflicting fewer than 200,000 people. As such, rare diseases have not been a primary target of Big Pharma’s business model. But that seems to be changing. About 460 drugs were under development for rare and orphan diseases in 2011 (Figure 2). The Novartis Institutes for BioMedical Research targets rare diseases for which there exist an understanding of underlying causes and unmet medical needs. GSK and Pfizer each have rare diseases business units; GSK is exploring gene therapy approaches to ADA-SCID or “bubble boy” disease, while Pfizer is working with Protalix BioTherapeutics, which has obtained FDA approval for a treatment for Gaucher disease, a rare genetic metabolic disorder.
The National Institutes of Health has a grant program in place to spur research in rare diseases, and nonprofit disease and patient advocacy groups, such as the Multiple Myeloma Research Society (MMRF), are working with drug manufacturers to help guide research and, in some cases, fund projects.
“Our role is to be an honest broker, to speak on behalf of patients with many different pharmaceutical companies,” said Louise Perkins, PhD, MMRF’s chief scientific officer. MMRF has funded $190 million in research at nearly 120 laboratories. Currently, 38 compounds are in Phases 1 and 2 trials. By helping to facilitate trial enrollment, “we can open trials 50% faster than what is considered the benchmark in oncology,” says Anne Quinn Young, MMRF’s vice president of strategic alliances. “For drug companies, faster is better,” she told Drug Discovery & Development.
Of course, which approach, or combination of approaches, will ultimately unlock research productivity remains to be seen. “There is no true consensus among R&D leaders in the industry as to what exact R&D structure is best—if there were, presumably all companies would be designed similarly and they are not,” noted a Bernstein Research analysis in March.
About the Author
Contributing editor Ted Agres, MBA, is a veteran science writer in Washington, D.C. He writes frequently about the policy, politics, and business aspects of life sciences.