The Big Red Biotech Blog

Biosimilars Not Only Threat Facing Biopharma

As this piece from BioProcess Blog points out, biosimilar competition is only one hazard faced by biopharma producers of the world's top bio drugs. In addition to increased price competition, there are the unscrupulous drug counterfeiters (see recent Avastin issues).  There is also the possibility of compulsory licenses being invoked in places like India (see recent Nexavar case). 

Biosimilar Competition is Only One of Several Threats Facing Biopharma Blockbuster Drugs.

These type of developments led PhRMA President and CEO John Castellani recently to comment, "If countries begin to routinely use complusory licenses, we could see a 'race to the bottom' in which governments in the developing world walk awayfrom their responsibility to support research and innovation in public health. In the absence of investment made by our members, and the resulting research and development, there would be no generic medicines for the world's patients."

As we say in Oz, "Biosimilars, Counterfeits and Compulsory Licenses, Oh My!"

 

Posted by Bruce Lehr May 8th 2012.

Biotech Markets and Funding

Here's a good article by Bruce Booth of the Life Sci VC blog discussing the heyday of IPOs in the 1991-1994 span versus, the history of these deals to date, and the current investment environment.  What's the story?

IPOs of that era paid handsomely to the VC backers of the time.  The average step-up in valuation over the private invested capital was -- 4x.   There was a very low cost-of-capital provided by public equity investors in that period. Much lower than today.  For most of the past decade, step-ups on total invested capital have typically been only 1.5x or so.  Sadly, high capital intensity has been the signature of many of the past decade’s IPO stories.

The playing field has changed since then as investors realized over that time span that only a subset of the 1991-1994 IPO window have accrued real value over time.  Gilead, MedImmune and Vertex might be considered notable exceptions.  Most of the other IPOs have underperformed all the major indices.

 Booth instructs that there is a major flaw in the former IPO model that 3 main features:

• high capital intensity funding large portfolios, requiring serial public equity, with little focus on capital efficiency
• endless cycles of “rinse and repeat” anti-shareholder behaviors where new investors are recruited to fund the promise at the expense of existing shareholder dilution
• management teams too focused on “built-to-last” company survival vs shareholder value maximization, even when the best outcome for existing shareholders, and often patients, is to sell now and access the balance sheet resources of a bigger company

These flaws have led to IPOs a less attractive means of fudning.  As Booth says, if most IPOs trade down after their IPOs, why bother buying at the offering.  Seems rational.  So in the current environment, private backers are becoming more activist and push for strategies that maximize their return in these companies -- which includes the proposition of selling the company "realtively early" to big pharma players. This avoids the dilution problem described above if trying to go the long haul.  The old IPO model is gone.

In the current situation, one of the big change drivers is Big Pharma R&D productivity issues and their increasingly active M&A interests.  Big Pharma in recent weeks has tried to make deals for Human Genome Sciences, Amylin and Illumina -- but were thwarted by big shareholder interests. As described above, activist big shareholders are playing a larger role in trying to maximize their investments and have resisted these perceived "low ball" offers. With more buyers crowding into the market, the pressure to pay a premium is just going to go higher. That's a trend with which biotech investors are well attuned.  See Fierce Biotech. 

Posted by Bruce Lehr May 5th 2012

 

 

Good Article on Security of Virtual Biotechs

Here is a good article from Stewart Lyman at Xconomy (I find I like a lot of Stewart's articles) regarding the solidity and security of virtual biotechs. The article questions whether this is a model that we'd want to perpetuate as a dominant form. Why not?

The basic argument against this type of company has two main prongs.  The more serious of the two in my view is that these companies are often built on a research idea or premise that they acquired somewhere else (often academia) and don't have the wherewithal to confirm whether the science is sound. If these companies embark on a development program with the underlying science being bad, they are doomed to fail.  Stewart cites many cases where the literature is either flawed (retractions) or non-reproducible. See the Amgen and  Bayer studies on this issue.  Reproducibility was less than 11% for "landmark" cancer papers for example.

The second argument is because the companies are virtual, they don't contribute to the development of vibrant biotech clusters. Clusters help sustain an ecosystem by providing a steady labor pool and a critical mass of intellectual power and innovation. Leading biotech clusters continue to draw investment in places like Boston, San Francisco and San Diego. Virtual companies -- are well -- virtual. They don't provide a lot of infrastructure and contribution to clusters.

The main reason virtual biotechs are popular of course is that they reduce the capital needs of the company.  The company really then focuses on a good management team and hopefully a good molecule/technology. But if the quality of the latter is compromised, that's where the idea falls apart. And of course, these companies are really just building a project to be sold.

Posted by Bruce Lehr May 4th 2012.

New Drug Development Financing Tool?

Andrew Lo, an MIT finance engineering professor, when he floated idea of funding new drug development with CDOs -- collateralized drug obligations.  The CDOs would be able to invest in a series of drug development projects that would pay returns if they resulted in successful treatments reaching the market.

The idea would be for investors to put up $50 B to $100 B to fund 150 drug projects over 10 years.  Hopefully, this would be another funding mechanism and would relieve pressure on getting all the funding from government sources, weakened VC networks and Big Pharma itself.

Naysayers may point out that the CDO concept didn't work out too well for housing and mortgages -- but Lo counters that he forsees a big funding gap for drugs in the coming years and that this would mean a drop in new treatments. 

Lo says, "If there's a cancer bubble, I can live with that."  I don't know if CDOs are viable but I like the novel thinking to bring an idea like that to the table for consideration. See Fierce Biotech.

Posted by Bruce Lehr May 4th 2012.  

Tufts Report on Academic-Biopharm Partnerships

A new Tufts Center for the Study of Drug Development study shows academic medical center (AMC) and biotech partnerships are increasingly important to basic research and developing new medicines. The study looked at 3000 grants to AMCs from 450 biopharm sponsors through 22 medical schools. Their conclusion is that the nature of these partnerships is continuing to evolve and that they have not yet reached their full potential.

The report looks at 12 primary partnership models of AMC-biopharm collaboration. There is a shift occuring toward more risk- and resource-sharing models rather than the more traditional unrestricted research or fee for service models of the recent past.  Rather a range of partnership models is arising from corporate venture funds to pre-competitive research centers to academic drug discovery centers.

The report concludes that in the face of an increasingly challenging R&D environment (often discussd here) and overall global competition, we are likely to see the continued proliferation of AMC-biopharm partnerships.

See full report. Download Tufts AMC-biopharm R&D study

Posted by Bruce Lehr Apr 30th 2012.  

Merck Less Bullish on Biosimilars?

Merck BioVentures, the biosimilars endeavor set up by Merck & Co. in late 2008, is being subsumed into the biologics and vaccines division of Merck Research Laboratories. Mike Kamarck, who has led BioVentures since 2010, has left the company.

The IN VIVO Blog: Merck Says Goodbye to Independent Biosimilars Unit.

Biosimilars may indeed be a new kind of innovation, one that brand-focused biologics companies would be foolish to discount and one that many seem to be tripping over themselves to embrace (see Amgen/Watson, Baxter/Momenta, Biogen/Samsung).

Merck's move to reduce its BioVentures group at least in stature seems to raise doubts on its attitudes toward biosimilars and is at odds with the bullish attitude of groups like Novartis' Sandoz unit, which just this week predicted incredible growth for its own biosimilars business. That said, it’s hard to say whether this retrenchment will be part of the long-term learning process or bigger strategic shift, as the whole field is in the midst of an evolution and successful business models have yet to fully materialize.

Posted by Bruce Lehr Apr 27th 2012.

Bio Drug World is a Changin'

Nothing Earth-shattering here by any means, but a couple interesting reads in the blogs by Derek Lowe (via Matthew Herper) and an article by Luke Timmerman dealing with CHANGE in the world of drug development and commercialization.

The Herper/Lowe, piece to a degree, laments that the heads of drug companies may not value the "human capital, i.e. scientists" involved in the drug discovery process.  And as the economic gap widens between the number of new drug approvals (bringing in much needed revenue) and the high cost of developing and marketing new drugs -- well at present it looks like R&D scientists are paying for it with their jobs. The observation is made that maybe this isn't the best strategy to employ in a research/discovery driven business.  Nevertheless, there is also a hard economic reality and SOMETHING different clearly has to be done -- as the current model isn't sustainable any longer.

The Timmerman piece talks about some of the changes that are taking place on the commercialization of drugs that contributes to lower sales and higher costs - exacerbating a potential need to cut R&D staff (though that response is a choice).  On the comercialization side, it is not good enough to just get your drug to the market anymore.  You actually need to show it meets an unmet need and quite frankly works better than exisiting alternatives -- otherwise me, you, the insurance companies and the government don't want to pay for it. The whole concept of "comparative effectiveness" is bringing a new discipline to drug development -- and sets a higher bar too.

The two articles demonstate the World has changed.  An for an industry to survive in response to meaningful change -- it has to adapt or head for extinction (in this case layoffs or ceasing to exist as an independent business).  It has always been thus.  Just not in the (bio)pharma industry up till now.

Posted by Bruce Lehr Apr 2nd 2012.

 

Acquire, Acquire, Acquire......No, Divest, Divest, Divest

The tide has officially no turned it seems.  Over the past decade (or more) Big Pharma wanted to get BIGGER and BIGGER through mergers and acquisitions.  Now, as pipelines dwindle, patent cliffs are reached, and revenue holes develop --- its time to turn the ocean liner many pharma companies have become to get smaller smaller smaller and fast.

Abbott officially kicked off the activity with its break up into a diagnostic and pharma company (now called AbbVie).  Reports are now circulating that Pfizer's Ian Read wants to to begin his break up plan first discussed way back in March of last year.  See In the Pipeline and Bloomberg for more.

In general, the market has thus far rewarded Pfizer's stock price for this proposed move, and the closer it seems to reality the more the investors seem to like it.  Analysts seem more torn on the long-term (not short term) wisdom of such a move as Pfizer's portfolio does appear to provide some diversification protection and one could argue that the non-pharma businesses are doing better than the "core pharma" property that Read wants to invest in.

Needless to say, in a monkey see monkey do world, if two very large players decide to follow this path, many more lemmings are sure to follow.

Posted by Bruce Lehr Mar 29th 2012.

Which Pharma Spent The Most R&D On Each Drug?

Pharmalot just published (via Forbes) an analysis of Big Pharma R&D spending for period 1997-2011.  The data was provided by InnoThink Center For Research In Biomedical Innovation and Thomson Reuters Fundamentals via FactSet Research Systems.

Which Pharma Spent The Most R&D On Each Drug? // Pharmalot.

From this, one could calculate the dollars spent on R&D/new drug approved for each company concerned.  The link above provides a Table of the results for 12 Big Pharma (biotech).  Amgen, it turns out spent the least at $3.7 B per new drug (11) approved during this period.  AstraZeneca, it turns out spent the most at $11.8 B per new drug (5) approved during this period - OUCH!  This coupled with products reaching the patent cliff helps explain why the latter is experiencing really tough times now and cut over 30,000 jobs during the period.

Even $3.7 B per drug at Amgen seems like an astronomical amount of money.  It's no wonder the industry it trying to rethink its business and R&D model.  Clearly something better change when you are spending$3.7 B to $11.8 B PER DRUG.

One can't help but think to some degree this "ranking" over the period has a little to do with luck as well given some of the vaguaries in the approval process and perhaps timing of some projects relative to submission dates in this period.  I'm not certain you can state one company has any better development model than any other based on this data.  You can say Amgen made out slightly better than its peers for the period -- but who's to say that will hold up over the next period?  We're going to have to track some of these "new models" at companies like Novartis, GSK and Sanofi to see if they really see improvements.

Posted by Bruce Lehr Feb 10th 2012.

SEE some more commentary on this subject from In the Pipeline.

Corporate VC Makes Biotech World Go Around

According to this post from Life Sci VC, corporate Venture Capital groups are now essential to the biotech ecosystem and provide the bulk of capital to fudn new companies -- at least from Atlas Funds point of view -- which appears to be a representative one indeed.

From Atlas data, corporate VC had only 5% involvement in their projects from 2000-2005, that rose to 33% from 2006-2008 and now stands at a whopping 67% from 2009-present. What's more?  The funds range in size from $100 M - $500 M and account for at least $2.5 B in VC money, according to author's estimates.

That's a lot of money.  Money that new companies in biotech are increasingly dependent upon. An Xconomy underscores this today with a piece on the dearth of cash available to biotechs from traditional VC sources.  Have a read. Clearly the availability of more money is needed to get these new biotech ventures off the ground to take advantage of innovative science.

 

Posted by Bruce Lehr Jan 23rd 2012

 

 

 

Is 2012 a Biotech Buyout Year in Making?

Statements from the recently concluded JP Morgan conference indicate that many big pharma BD groups are actively seeking to purchase biotechs in 2012 as a means of extending their pipelines.  An industry analyst observed that there are 18 biotechs trading at only twice the value of their cash reserves.

Companies that have been named by industry observers as potential acquisition candidates include GenMab, Active Biotech, and Achillion.  Big Pharma players who have indicated they are in buying mode include BMS' CEO Lamberto Andreotti with its continuing "string of pearls" strategy, Roche's CEO Schwan indicates a $3 B budget for aquisitions, Sanofi's Viehbacher has $2.6 B set aside, and Novartis' Jimenez says they could spend $2 B - $3 B. Biogen's CEO Scangos also indicates their willingness to go out and buy early stage assets to compliment the later stages of their pipeline. See Fierce Biotech.

Early indications are that there should be good activity in the M&A arena in 2012.

Posted by Bruce Lehr Jan 13th 2012.

"Wee Willie" Viehbacher on Pharma Investing?

My mind sometimes works in strange and mysterious ways.  I was reading Fierce Biotech this morning and saw that Chris Viehbacher indicated that Sanofi will spend up to $2.6 B on acquisitions next year -- at least that is the budget for a more limited "string of pearls" strategy. 

But I had to smile when he was quoted in the article as saying, "The trick in M&A is to go find something not everybody is looking at."

I will now dub this, in homage to Wee Willie Keeler, the "Buy 'em where they ain't" strategy.

 

Posted by Bruce Lehr Jan 12th 2012.

Sanofi Chases Cheaper String of Pearls

BMS has touted its so called "string of pearls" business development model for building its pharma business over the past few years -- successes include the Medarex (Yervoy approval) and Adnexus Therapeutics.  And, the BMS stock price has responded favorably - enough so to embolden the just announced deal for Inhibitex at $2.5 B.

Competitors -- who may not have been sold when the strategy was first being touted -- seem to be more inspired.  Teva recently hired BMS' chief dealmaker as its CEO to direct its future strategy for growth.  Merck has also indicated it may be working on its own pearls by declaring it is in the market for big and small companies to augment its assets.

Now Sanofi CEO, Chris Viehbacher says he is looking at his own "string of pearls" strategy in apparent homage to BMS but will look to do so with a "mere" $2.6 B in available cash for 2012. Viehbacher though is looking both inside and outside biotech assets and doesn't want to go after any big oysters preferring perhaps assets with lesser luster but more affordability.  See Fierce Biotech.

Just another designer knock-off I guess.

Posted by Bruce Lehr Jan 11th 2012.  

Revenue Challenged Big Pharma Reveal Hopes to Cope

Both Merck and Eli Lilly were in the news today as two companies extremely revenue challenged due to expiring drug patents on top sellers with replacments not ready for prime time to pick up the slack.

Merck CEO, Ken Frazier, maintained that he was pushing his licensing group to pick up the pace to help fill in pipeline gaps -- and indicated he thought this was the future of the industry. He said Merck would be looking for early stage deals and in particular was interested plumbing the hepatitis C arena for new opportunities.  Merck is banking on its big bankroll in helping it see its was through this pipeline dip. See Fierce Biotech.

Lilly CEO, John Lechleiter, was more reduced to grasping at his pipeline to save him.  Lilly announced today that it expected to see a $3 B revenue drop from loss of patent protection on Zyprexa as the generics moved in.  Lechleiter continues to eschew big mergers and is banking on the 12 late-stage drugs Lilly has in its pipeline.  This did not prevent a price hit to its stock today however.  One big pipeline test that looms is for Lilly's Alzheimer's drug, solanezumab -- that's trial results should be shared in Q3.  There is a lot riding on this and one wonders what might happen to Lechleiter's plan (or even Lechleiter) should some of these key dozen projects go down. See Fierce Biotech.

One must remember though that Hope is not a Strategy.

Posted by Bruce Lehr Jan 5th 2012.

 

More on Relative Value of Patents for Bio Drugs in a Biosimilar World

More from the Patent Doc blog on why biologic drug producers in the future will stay away from patents and rely more on trade secrets to protect their interests. The Biologics Price Competition and Innovation Act of 2009 (particularly the litigation provisions) contains incentives for biologic drug innovators not to rely on patents to protect these drugs and the return on investment.  A recent analysis also showed that patent protection provides (on average) about one additional year (~327 days) of exclusivity past the end of the 12-year exclusivity provided by the BPCIA. So statutory protection is about equivalent with patent protection and the former can be accomplished through much less information disclosure on one's biological drug.

The blog post below talks about using trade secret approach more in late stages of development for process related steps like cell line optmization -- that generally doesn't benefit from patent protection.  This would make it harder on a follower to try to copy a bio-drug.

...the expected de-emphasis on patent protection for later-stage development (including regulatory approval) can be expected to change the relative importance of patents in the two stages.  Such de-emphasis will also change where the valuation in biologic drugs may lie, because there will be a relatively greater advantage in optimizing cell lines and other process parameters (which even today rarely benefit from patenting) than in patents on the biologic drugs per se. 

So less emphasis on composition of matter and more emphasis on the process. The author further concludes that "the future will be different than the past regarding biologic drug development and efforts to obtain the benefits of biologic drug development at a reduced price."

Posted by Bruce Lehr Dec 26th 2011.

Bio-drug Innovators Eschew Patents in Future to Block Biosimilars?

Here's interesting post from the Patent Doc Blog that argues that there are incentives for producers of innovator drugs to NOT file patents to block information access to biosimilars producers in the future.

The writer argues that instead of filing patents innovator drug producers could file the bare minimum information with the FDA to get their drug approved.  Because biologic drugs are so complex, this degree of stealth would prevent knowledge flow to biosimilar producers who wanted to copy their drug. Thus, the innovator would not disclose the cell used to produce the drug, or any optimization of that cell line.

The bloggist argues that this would produce obstacles for the biosimilar follower and would also avoid litigation under the biosimilars statute. The innovator could thus avoid protracted biosimilar patent infringement lawsuits. 

It is an interesting post.  But if non-filing is this easy, why doesn't someone do it now? It would save time and money.  It may protect from a biosimilar follower but does it protect from a fellow innovator?

Posted by Bruce Lehr Dec 20th 2011.

Atlas Shire's Up Investors Rare Disease Portfolio

Yesterday, Atlas Ventures announced a new alliance with Shire Pharmaceuticals to explore investment opportunities in early-stage rare disease therapeutics. The partnership leverages Shire’s capabilities and knowledge in the research and development of rare diseases with Atlas’ expertise in the formation and growth of early stage companies. 

The creative alliance structure provides an opportunity early in the venture process to utilize all of Shires capabilities in rare diseases from research to commercialization, while leveraging the extensive Atlas network and experience in company formation. Under the agreement, professionals from both Shire and Atlas will be dedicated to work closely together to advance the collaboration effort.

Financial terms of the deal aren’t being disclosed. But Atlas indicated that Atlas and Shire will seek to create a small portfolio of investments over the years of the partnership. Shire will also get option rights in these deals, through which it will have the opportunity to acquire the companies at a pre-determined price if the startups reach certain scientific goals. 

By structuring the investments to give Shire the option to acquire, the partnership “secures access to these innovations for Shire, while mitigating the downstream liquidity risk for the team and investors." An Atlas spokesman said,  “We are quite excited about how these unique platforms will enable us to further experiment with the early stage venture model.”

See Life Sci VC Blog, Xconomy, and Fierce Biotech.

 

Old "Car" Model Applied to "New" Pharma Industry

Fierce Biotech reports that some Pharma manufacturers are looking to the car industry for ideas on how to adjust their business model to be more profitable as well as perhaps shorten drug delivery times. Auto makers are very familiar with outsourcing many aspects of manufacturing and primarily concern themselves with design and marketing.  The pharma equivalent might be drug R&D and marketing.

GSK and AZ in particular were cited as two big pharma picking car makers' brains, drawing on companies like McClaren, Jaguar and Renault. In addition to outsourcing expertise, Porsche (for one) has crowed that it reduced product development time by 28%.  Contrast this by industry watchers claims that Big Pharma development times have increased by 31% -- there might be something to learn here.  Porsche actually has a consulting arm that is starting to market to pharma.

One big caution though -- auto makers haven't historically always been able to recoup their costs of capital -- not exactly a ringing endorsement for someone who wants to compete in pharma industry with dwindling capital markets to support it. Auto makers may have the most to teach in manufacturing and reducing costs there.

Interestingly, Pharmalot reported yesterday that 38 manufacturing plants were closed in the US this past year as pharma looked to downsize (and outsource like autos?).  While, Fierce reported on comments by Merck's CEO Ken Frazier indicating he would buck the Pharma R&D downsizing trend to continue to invest in R&D (consistent with auto internasl development model?) instead of cutting back R&D more severely (to also outsource) like GSK or Pfizer. The debate will rage as to which is best until more data emerges supporting a winner.

From an innovation standpoint though, it is good to see companies willing to consider other tried and tested business models for applicability to their situation -- especially cross industry like this.

Posted by Bruce Lehr Dec 15th 2011.

Pfizer Plans to Protect Lipitor Market Share

You gotta give them an A for effort and maybe creativity too.

Pfizer is embarking on a novel marketing/sales plan to protect shae of its Lipitor franchise as much as possible -- and perhaps preserving hundreds of millions to billions in revenue for itself in the process.  Its new pricing strategy includes offering incentives to health plans and pharmacy benefit managers (PBMs) to favor its brand-name drug, providing consumers a co-pay card that lowers their cost significantly, and partnering with a specialty pharmacy to mail Lipitor directly to patients. 

Can Pfizer Really Protect Lipitor Market Share? // Pharmalot.

In a poll of PBMs, 66.7 percent believe the moves will not protect Lipitor market share during the first 180 days of exclusivity that Ranbaxy Laboratories (in partnership with Teva) has in which to sell a generic. After six months, they expect Pfizer to lose 54.5 percent of the market. And a year from now, they expect Pfizer will have lost two-thirds of the Lipitor market.

That may be so but...and here's the Big But.

“What Pfizer is doing is groundbreaking, because they are taking a very aggressive step to stop erosion of their brand and this will probably result in protecting billions of dollars in the first six months that would have been lost otherwise,” says Rhonda Greenapple of Reimbursement Intelligence. “And partnering with a specialty pharmacy to protect a patent has never been done before. It’s a model everyone will look at and it’ll be very interesting to see what really happen after 180 days. Because if every brand does this, it could stop people from being converted” to generics.

It will be very interesting to watch how this plays out.  Several Senators (next post) have already written to Pfizer CEO Ian Read about their concerns that this plan will in fact work and raise prices for consumers and the government in the process.

 

 

Posted by Bruce Lehr Dec 1st 2011.

 

Innovating Fast and Motivatng More Speed

Sometimes two concepts just come together for me.

First from the Innovate on Purpose blog, a post dealing with why firms have trouble innovating quickly.  They don't have models that allow them to prototype quickly.  This retards their learning and slows progress toward an innovative result. Short, rapid experiments with imperfect prototypes is the key.  Plus the ability to plow learning back into more protyping quickly.

Then by happenstance, a piece from In the Pipeline blog dealing with management's motivation of speed. You'll find the answer is surprisingly simple.  Simple enough that it might work.

Posted by Bruce Lehr Nov. 15th 2011.

 

 

Pfizer Scales Back Unit Sell Off

Pfizer says it is now considering selling its animal health and nutrition businesses -- which together account for about $5.5 B of its combined $68 B corporate sales. This is a more modest approach than what Ian Read had spoken about earlier in the year.  Earlier, he had suggested that Pfizer might sell everything other than its innovative drug business in order to get back to its core offering. 

Now Pfizer says it will hang on to its established products division ($10 B in revenues) that contains its generic drug portfolio. Pfizer will also keep its consumer healthcare business ($2.7 B).  Both of these units had been previously mentioned as potential sales candidates.

In the meantime, JP Morgan has been enlisted to sell off the animal health buiness, and Centerview and Morgan Stanley will be entrusted to deal with the nutrition business. The deals might take as much as 24 months to pull off according to company spokesmen.  Eli Lilly has been mentioned as a possible taker for animal health, and Nestle or Danone might be fits for the nutrition group. See the FT.com story.

 

 

Posted by Bruce Lehr Oct 24th 2011

Pfizer CEO Says He Isn’t ‘Chasing Revenue’ in Big Deals as Patents Expire

Pfizer will be losing patent protection on drugs which currently account for 60% of the company's revenue, but its CEO, Ian Read, says he will not be chasing big deals to replace the shortfall. 

"We are not going to chase revenue at the destruction of capital," Read said.

PharmaGossip: Pfizer CEO Says He Isn’t ‘Chasing Revenue’ in Big Deals as Patents Expire - Bloomberg.

Pfizer, if anything is looking to shrink the company by selling non-core pharma operating units and is also buying back shares.  ON the acquisition front, they will only be looking at mid-size companies with attractive mid- to late-stage molecules in their pipeline.

Maybe Read read John LaMattina's article in Nature Reviews Drug Discovery yesterday. 

 

 

Posted by Bruce Lehr Aug 3rd 2011.

Pharma Mega-Mergers Bad News for R&D Productivity

Former Pfizer R&D Chief John LaMattina says pharma mega-mergers may have made some sense in terms of short-term business rationale but were/are devastating to the R&D function.  He points to several factors that have negatively impacted industry R&D productivity:

• Merged companies slash R&D spending and close entire R&D sites (to help pay for merger)
• The number of companies has been reduced from 42 to only 11 (from 1988 to 2011) resulting in less diversity in the pipeline
• Many companies used to pursue the same targets which increased chances of someone being successful - pipelines are now less broad
• He says there is a correlation between the number of companies and the number of new drugs
• Unlike the past, mergers now result in R&D cuts in personnel, spending and programs
• Historically, companies prided themselves on spending 20% of sales on R&D - now that figure is approaching 10 to 11% at companies like Pfizer
• Mergers tend to freeze pipeline advancement -- especially in earlier stages than phase III as merged companies sort out pipeline and "rationalize"
• Enduring large and potentially multiple mergers, with associated stops and starts, has big negative impact on employee morale and motivation

He finishes his discussion by noting Lilly's Lechleiter has eschewed mega-mergers as a growth strategy, and Merck's Frazier has opposed R&D cuts to satisfy short-term return desires from Wall Street.  He hopes other industry leaders will take note.

His final thought is that industry consolidation has resulted in less competition and less investment in R&D. At a time when there is a major need for new treatments for conditions such as Alzheimer's disease, drug-resistant infections and diabetes, such a trend is alarming.  See Nature Reviews Drug Discovery.

Posted by Bruce Lehr Aug 2nd 2011.

Andrew Says Shakeout Coming for Pharma Industry

GSK CEO Andrew Witty, never at a loss for words, says that the R&D cutbacks and fall in R&D spending signal a fallout in the industry over the next several years. He says it's his belief that 5 to 7 years from today, you'll see a significant number of companies retreat from the pharmaceutical space, one way or another and only a few hardy ones will survive.

"There is tremendous opportunity for the few companies who solve the R&D equation," Witty told reporters. "It's the companies who deliver multiple new products, not one or two, that address material clinical needs of patients and address the economic needs of the payers--so they are fairly priced, if I can put it that way." 

Witty is determined that GSK will be one of the winners.  He's banking on a clinical pipeline that GSK expects by the end of 2012 will deliver more than 30 Phase III read-outs on 14 of its 15 late-stage assets -- and that the majority will be successful. As that happens, Witty is predicting that the shakeout will begin taking root. See Fierce Biotech.

I have no doubt there will continue to be consolidation among the players, and as penned here before that big pharma, biotech, small and large molecule, generic and innovator, biosimiar and biobetters will begin to blend within the same companies.  The business will continue to become more global and international.  But I don't think it will coalesce to the point where the number of players will be that dramatically reduced only 5 to 7 years from now.

Posted by Bruce Lehr July 29th 2011.

Biotech's Join R&D Cutback Parade -- Increase Cash On-hand

BDO conducted a new analysis of R&D spending in the biotech industry -- reported in Fierce Biotech and Pharmalot. The results (based on 10K filings of 86 public companies) showed that biotech R&D spending was down 7% in 2010.  A drop in spending mirrored the 3% drop seen with 12 big pharma companies in 2010.

Overall, 70 percent of revenues were spent on R&D expenses in 2010, down from 84 percent in 2009 and 117 percent in 2008. Average R&D expense as a percentage of revenue was 108 percent for smaller companies (< $50 M), compared to 206 percent last year and 353 percent in 2008. For larger biotechs (>$50 M), the average R&D expense as a percentage of revenue was 54 percent; in 2009, this was 55 percent.

The biotech companies "are cutting programs," says Aftab Jamil, a partner and national director of the technology and life sciences practice at BDO, "focusing on what they believe are the best drug candidates with a higher level of probability for commercialization."

Meanwhile, 51 percent of smaller biotechs last year were able to raise an average of $64 million in equity financing, which BDO describes as “a promising rebound” to levels last seen before the recent economic crisis. In 2007, for instance, 61 percent of smaller biotechs raised financing and the average value was also $64 million.

The average biotech had $142 million in cash and short-term investments in 2010, a 3 percent decrease from 2009, although larger companies reported a 10 percent decline. Smaller biotechs reported a 6 percent increase, thanks to R&D cutbacks.  Overall, BDO found cash reserves were equivalent to approximately 2.64 years of R&D spending in 2010, up a little from 2.54 years in 2009.

As a group the 86 public biotechs in BDO's basket spent only a fraction of the multibillion-dollar R&D budgets you'd find at a Big Pharma company. But Jamil notes that the companies that can fill a particular gap in any pharma company's pipeline are well positioned to profit from the partnering trend now in full swing. And that bodes well for the future of the business.

It looks like discipline is coming to the biotech world too.  Companies are being forced to be more judicious with which programs they back -- particularly with regard to allocation of R&D expenses.  If they can successfully develop their products, they should be able to profit with all the Big Pharma companies swarming to increase their pipelines through acquisition, licensing or partnering. 

Posted by Bruce Lehr July 29th 2011.