What is happening with Big Pharma?

It is well known that for many years now the global pharmaceutical companies (‘Big Pharma’) have struggled with declining productivity (in terms of innovative new product launches) against a back drop of ever increasing investment in R&D (the ‘productivity gap’). The effects are being compounded by looming patent expiry dates for many of their leading products (the so called ‘patent cliff’), which will cause sales of these products to plummet as generic versions are launched. Furthermore, pressure from national regulatory authorities is forcing companies to lower prices of some products.

We’ve seen Big Pharma adopt a range of strategies to address these mounting challenges, including diversifying into emerging markets in the developing world, setting up their own businesses to develop and market generic products, and, the ever popular antidote, mergers and acquisitions. At the R&D level, Big Pharma has tried new operational strategies such as breaking the organisation down into smaller units more reminiscent of biotech companies, open innovation, out-sourcing etc., as well as adopting new technologies (high-throughput screening, combinatorial chemistry, genomics etc.). In truth, none of this seems to have made a blind bit of difference so far.

In recent weeks we have seen a number of announcements suggesting that Big Pharma is evaluating new ideas for addressing the productivity gap.

Eli Lilly is seeking to raise up to $750m through three funds that will share drug development costs and potential benefits with venture capitalists and external researchers. The company will put up to $50m into each of three mirror funds containing up to 20 experimental medicines from different therapeutic areas, designed to take them through the high risk phase from a year before testing in humans until the mid-stage clinical trials. Eli Lilly will provide up to half the experimental drugs (the rest coming from biotech companies or academic institutions) to be tested by standalone virtual drug companies, substantially expanding its mirror pipeline of research and having first right of refusal on fair market terms to any that provide promising results.

John Lechleiter, chief executive of Eli Lilly said “We think this is a very different kind of model. This way we are not limited by our own resources and we can have more ‘shots on goal’”.

GlaxoSmithKline aims to sign up 10 academic “superstars” this year for long-term partnerships to help develop medicines more effectively and cheaply. The aim is to work closely with leading external medical researchers all the way until the launch of a new drug over a decade. This will allow GSK to tap their expertise while providing them with facilities, funding and incentives paid largely if a treatment proves successful.

Patrick Vallance, senior vice-president for drug discovery and development at GSK, said: “We want a model that allows academics to work all the way through, getting a big reward if a medicine is launched and playing to their strengths. They could go to biotechs, or publish papers, but if they want to make a medicine, we will partner for the endgame.”

A radical plan to end the "madness" of wasteful and pointless research by rival drug companies has been outlined. The new initiative will promote freer and faster early stage drug development through collaboration rather than competition. Central to the idea is banishing the secrecy tied to intellectual property that causes the same work to be duplicated even after it has led nowhere. Recently around 30 academics, research funders and pharmaceutical industry representatives from around the world met in Toronto to hammer out plans for the new model, which would ensure that all pre-Phase II research results are publicly accessible. The objective is to launch a prototype scheme by the end of the year at an estimated annual cost of around £124 million.

Neuroscientist Dr Chas Bountra, head of the Structural Genomics Consortium at Oxford University, who is organising the scheme, currently known as POC (Public/private partnership, Open innovation, Clinical consortium), believes the pharmaceutical industry is in crisis. "What we will do is publish data immediately and hopefully we'll stop other organisations doing the same and repeating these studies with their own assets," said Dr Bountra. "This will save resources and, importantly, prevent exposing patients to medicines that will fail."

In contrast, Pfizer recently said it would cut its 2012 R&D spending by as much as $2 billion from a planned $8.0-8.5 billion, including the closure of its Sandwich UK facility with the loss of some 2,400 jobs.

I can’t help feeling that all of these initiatives are examples of fiddling whilst Rome burns. The problems facing Big Pharma are so profound that fundamental change is required. It is interesting that when Pfizer announced its R&D cuts it was rewarded by the market with a rise in its share price. In contrast, companies increasing their R&D spend don't get rewarded by the market. The stock market is driven by short term considerations and this doesn’t sit very easily with an industry where it can take 10-15 years to bring a new product to market.

In the last century, companies such as Merck Sharp & Dohme focused on developing innovative products offering real patient benefits, secure in the knowledge that profits would follow. Merck enjoyed a stellar reputation and was well respected by the general public. These days Big Pharma is mistrusted by much of the general public and its reputation is almost on a par with that of the bankers.

I think we need a new business model if Big Pharma is to successfully address their problems. Society needs new medicines and we can’t allow short-term financial market considerations to stifle innovation. One possibility is to consider developing a new social innovation model that brings together Big Pharma, governments, healthcare providers and patients in a model that rewards long term investment whilst breaking link between short-term investor pressure on share price and R&D spend etc.

This won’t be easy but we can’t afford the pharmaceutical industry to fail.