Since the economic downturn of
2008, doom has become ingrained in the biopharma narrative.
According to the mantra,
budgets for great science have flatlined. New startups can't find VC money to
translate great science because VCs cannot find new risk capital. And VCs can't
get exits because IPOs have dried up and it's a buyer's market for trade sales.
For biotech, "risk-sharing" pharma deals mean "back-loaded."
Pipelines are shrinking as R&D downsizes. Breakthrough drugs can't get
approved by risk-averse regulators in a hostile political climate. And public
and private cost controls are killing reimbursement as drug companies
increasingly are relegated to "vendor" status in the healthcare
Have we left anything out?
The 19th annual Back to School
issue says it's time to end the ritual complaining. The industry is not doomed -
it is in fact busy restructuring for the future.
The question is what must come
out of this process.
For 2011, Back to School argues
that rebasing the biopharma space can result in better engines of value
creation for patients and shareholders. But only if truly fresh thinking is
allowed to replace old expectations and habits.
Indeed, the signs of fresh
thinking are all around. It is only a matter of time until it is woven into a
framework for the next decade.
It does not take a Tea Party
hobbit to see the signs of despondency.
The 3Q11 economic numbers show
the potential for a second dip recession. Profligacy by governments and
thoughtless leveraging of household balance sheets mean that everything and
virtually everyone will be rebasing for years to come.
Rebasing means entire
industries will shrink, along with their growth rates and anticipated returns
on investment. Biotech, pharma and their investors won't be excluded.
The global rebasing doubly
amplifies the price of the lack of productivity in drug development. A solution
to the productivity problem already was essential to maintaining biopharma's
ability to compete for capital against social media or "the next big
Now time really has run out.
The old return mechanics for risk capital are over (maybe they were ephemeral
in the first place). The revenue trajectory has flattened. The patent cliff has
arrived. And even though the aging of the baby boomers guarantees unrelenting
demand for healthcare, the means to pay for it have shriveled.
The doomsday crowd sees big
pharma downsizing jobs and R&D, Darwinian culling of the biotech herd and
transformational science left dying on the vine. In this setting,
self-preservation takes precedence over leaps of faith. The appetite for risk
But this does not mean
biopharma's innovators, experimenters and tinkerers have given up. For
starters, they can see the upside signals in the industry's fundamental
indicators: ambitious newcos, pharma's post-patent cliff pipeline, and positive
data on the economics of expanding access to drugs (see "Pharma
Phoenix," A12; "Innovation Bandwagon," A13; and "Pharmacoeconomics,"
These brighter signs should not
blunt the passion for transformation, even if they buy time for the biopharma
world to build its new structure. The drive to innovate is compulsive. The
innovators and experimenters do not ask for permission to test their ideas, nor
do they spend time with the naysayers. There is too much to do.
The framework they are building
is beginning to emerge. For 2011, Back to School identifies some of these
building blocks. The accompanying short essays by an international group of key
opinion leaders identify others.
Not all the ideas are new. But
their timing may be better now. In total, they point to the industry's
structure for the rest of the decade.
The path forward
Twelve years ago, Back to
School examined the requirements to sustain the biotech industry.
"According to the
conventional wisdom," Back to School said at the time, "there are
still too many companies, they are too narrowly focused, the financing window
is closed, there are fewer good startup ideas, and big pharma is learning the
biology-based discovery game" (see "Structure 2000,"
BioCentury, Sept. 7, 1999).
In a nutshell, "Structure
2000" focused on the technology, finance and project decisions that were
required to keep a steady flow of biotech companies entering the mid-cap space -
then defined as $300-$800 million in market cap - and onward into the top tier.
Many of the themes in Structure
2000 ring true today.
One is the notion that an
increased mortality rate among flawed companies and improvident VCs would leave
better companies providing better returns on investment.
Moreover, even 12 years ago,
KOLs could foresee the role of the biggest companies in harvesting winning
products and technologies, and the rise of corporate strategic investing.
But while Structure 2000 was
inward looking and focused on biotech, the structure for 2012 and beyond
includes the entire biopharma space and will be significantly shaped by a
widening web of players - by research institutions, government, patients and
payers, not just shareholders.
It will require an already
heavily partnered industry to be even more broad-minded about how
collaborations must be at the center of value creation. This will be a
recurring theme throughout the rest of Back to School for 2011:
The precompetitive space is
being expanded by public and private actors so that scarce resources can be
pooled to elucidate disease more efficiently.
In the competitive arena
downstream, companies are acknowledging that value must be made more visible to
shareholders. Rather than waste another decade on mindless aggregation, brave
companies will be putting their P&Ls on new, more appealing growth curves.
In the regulatory space, new
thinking about public-private collaboration can be amplified to enable clinical
development to be more cost-efficient while addressing public health
In the payer space, new
collaborations are showing where biopharma companies and benefits providers
should be mutually focused on to create value for patients and shareholders.
All along the way, the new
ideas for organizing value creation will suggest ways to organize capital pools
throughout the value chain.
The precompetitive space is
being expanded by public and private actors so that scarce resources can be
pooled to elucidate disease more efficiently.
If it takes 15 years to go from
gene to bedside, then a 10% reduction in the entire value chain gains only a
year and a half. A 20% reduction - which seems implausible - gains only three
years. And a 30% reduction - a preposterous objective at this point - still
means it will take more than a decade to go from bench to patient.
At an industrial level, this
arithmetic is made even worse by the number of independent efforts to solve
translational problems that by their nature have a low probability of success.
This results in something BioCentury calls the "duplication of futility."
For example, it would be
interesting to know just how much money companies have invested to find out
that gamma secretase doesn't appear to be a good target in Alzheimer's disease.
Likewise, it would be
interesting to speculate just how much further along the industry would be in
its understanding of whether raising HDL is a good idea if this work had gone
on in the precompetitive space rather than at individual companies.
Or - in today's quick-kill
culture - would such an idea be discarded after one failure? Right now, no one
knows, but it is hard to argue that shared knowledge won't provide faster,
cheaper, better answers.
In a 2002 essay called "Bring
Back Medicine," BioCentury predicted that reductionist biology was going
to disappoint drug developers, because the approach did not address the reality
At the time, BioCentury argued,
"the productivity bottleneck will prove to be less technological than
attitudinal, with the winners being those able to develop the necessary
transformational thinking to bring clinical medicine - patient observations and
functional outcomes - into play as the key driver of the target-based discovery
process" (see "Bring Back Medicine," BioCentury, June 19,
Ten years later, Back to School
suggests the prediction has not been so far off. Indeed, the marketplace has
made it quite clear: The healthcare system requires drugs that produce
predictable clinical outcomes that are relevant to patients, physicians and
But while academia and industry have identified thousands of
targets, they have not created many drugs. Chas Bountra, chief scientist at the
Genomics Consortium (SGC), estimates the industry gets only 3-5 drugs
targeting novel mechanisms per year.
The bottom line: There has to
be a better way to sort through the chaff to get to the wheat.
One place to start - to make an
attitudinal leap - is to rethink the value of intellectual property in upstream
It's not uncommon to hear
biopharma executives talk about the unrealistic expectations that universities
have about their early stage IP. Maybe it's time they turn the mirror inward
and consider the value of some of their own early IP - especially when weighed
against the costs of going it alone.
Indeed, the industry has come
sufficiently far that a good portion of this discussion is now going on in public,
in part stimulated by advocates of "open innovation."
For example, Paul Chapman, general manager of the
Pharmaceutical Research Division at Takeda
Pharmaceutical Co. Ltd., has told BioCentury, "Industry may be
overvaluing some of its IP that is really more obstructive than productive"
(see "Making the Case for Precompetitive Clinical Development,"
SciBX: Science-Business eXchange, May 19).
Under the open innovation
model, at least some parts of the precompetitive space are expanded to create
shared knowledge about the underlying mechanisms of disease, and a shared
understanding of what constitutes true disease modification and how to measure
There are plenty of ideas for how to go about it. One of the
most ambitious is the effort by the SGC and Sage
Bionetworks to build a public-private consortium that would provide
clinical validation of novel targets. The consortium, Archipelago to Proof of
Clinical Mechanism (Arch2POCM), aims to generate a portfolio of small molecules
that would be used to provide proof of clinical mechanism for targets up to
Phase II trials.
The idea would remove IP and
data access restrictions to create an environment that eliminates redundant
discovery programs and thus reduces the overall cost of R&D.
The challenge, of course, is
how to capture the value of the consortium's compounds despite the lack of IP
protection. Arch2POCM's advocates suggest the consortium would retain
possession of a viable compound's IND package, including some undisclosed
information that would be necessary for regulatory approval.
Arch2POCM would auction the
package to the highest private bidder. While others could develop the same
molecule, they would have to redo all the preclinical, Phase I and Phase II
Both SGC and Sage have been
busy building their own open innovation models in the preclinical space.
SGC, which operates out of the University
of Oxford, University
of Toronto and Karolinska
Institute, is producing 3-D models of medically relevant proteins for
the public domain with contributions from sponsors that include GlaxoSmithKline
AG and Merck
& Co. Inc.
Sage has its own project pipeline, for example partnering with
plc to study cancer using computational models of disease genetics,
large cancer genomic datasets and predictive disease models.
Sage, which aims to build
better maps of disease for the public domain, said it will not gain any IP out
of the deal; indeed, all of the data and models will be made available in the
public domain one year or less after the end of the collaboration with
AstraZeneca, which is providing funding as well as genomic data.
The not-for-profit has similar deals with Takeda for CNS
diseases and Pfizer
Inc. for cancer.
Naysayers will say open
innovation is impossible, because industry and its investors require the
monopolies provided by intellectual property. They do, but the open innovation
model still leaves ample space for commercial players to build IP around
inventions that can be directly linked to a healthcare outcome - in short, a
product label that has value to clinicians, patients and payers.
Nor does the open innovation
model prevent well-endowed companies from devoting their capital to creating a
fundamental AND proprietary understanding of specific diseases. But Back to
School would bet that collectively, industry would be more successful and more
profitable if it stopped duplicating failures and focused on applying knowledge
to create new molecular entities, solving pharmacology and pharmacodynamic
challenges, demonstrating safety and altering the economics of care.
Moncef Slaoui, chairman of
R&D at GSK, argues that the process should be called "pro-competitive,"
rather than pre-competitive, because it will lift the veil on new investment
Bottom line: There is plenty of
space to operate.
That conclusion obviously is a driver of Europe's Innovative
Medicines Initiative (IMI), where the EU has contributed €1 billion in cash. Industry, through the European
Federation of Pharmaceutical Industries and Associations (EFPIA), is
committing a like amount in in-kind contributions to create shared solutions to
roadblocks in translational medicine over 10 years.
It is also the obvious conclusion in deals among industry
players such as Eli
Lilly and Co., Merck and Pfizer, which have formed the Asian Cancer
Research Group Inc. to study the pharmacogenomics of Asian cancer patients - a
project Sage also is involved in. By jointly gathering molecular epidemiology data
on a large scale, they expect to optimize their individual ROIs while gathering
more data than any one of them individually could do on its own (see SciBX:
Science-Business eXchange, March 11, 2010).
The partners envision potentially merging their database with
others, such as the Cancer Genome Atlas being created by the National
Cancer Institute and the National
Human Genome Research Institute.
Roch Doliveux, CEO of Belgium's UCB Group
and a member of IMI's governing board, is calling for "under one roof
thinking" to move beyond defining disease by its symptoms.
"It's something that we
need to do together - academia, industry and regulators," he told BioCentury
This Week, BioCentury's public affairs television program (see "Public+Private,"
BioCentury This Week, July 31).
Moreover, Doliveux's process
would be patient-driven. Rather than try to make science work in people, "one
other approach is really to start with the patient, understand the disease,
then go back into the theory, and go back to the patient," he said.
In the competitive arena
downstream, companies are beginning to recognize that value must be made more
visible to shareholders. Rather than waste another decade on mindless
aggregation, brave companies will be putting their P&Ls on new, more
appealing growth curves.
In most cases, rebasing
requires vigorous downsizing. But cutting heads is not creating value. Even the
very biggest pharma companies need to show shareholders that they can use
capital efficiently. The value evaporation of many big companies during much of
the last decade shows they were failing this test (see "Pharma Phoenix,"
Back to School suggests
shareholder demands for capital efficiency ultimately will force more and more
companies to creatively combine assets because it improves the odds of success.
As part of this process, new forms of collaboration will require finding new
ways to share reward as well as risk.
Rebasing also will require
companies to end the fruitless effort to satisfy both the investors who want
their capital returned via dividends and share buybacks on one hand, and the
investors who want management focused on R&D on the other. This means
picking one of the business models, and shedding shareholders who no longer
like the risk profile.
Big pharma is of two minds on
this, with some becoming integrated healthcare companies and others going to
purer play drug companies. There will always be integrators to snatch up growth
opportunities. But the fact is that breaking up many companies proactively is a
better alternative to seeing market caps forcibly downsized by the markets or
companies restructured by activist shareholders.
There now are signs that this kind
of thinking is beginning to take hold, as big companies realize dismemberment
may be more productive than consolidation.
Among recent examples, AstraZeneca sold its Astra Tech AB
dental and urological business. Pfizer sold its Capsugel business, which
provides capsule products, equipment and services, and is looking to sell or
spin out its animal health and nutrition businesses. Bristol-Myers
Squibb Co. off-loaded its Mead Johnson Nutrition Co. business. Johnson
& Johnson has sold several businesses: the Breast Care business of
Ethicon Endo-Surgery Inc., the Ortho Dermatologics assets of Janssen
Pharmaceuticals Inc., and the Animal Health business of Janssen Pharmaceutica
NV. The list could go on.
Such rebasing is hardly limited to the largest of the large. Biogen
Idec Inc. is a case in point.
New management brought in in
mid-2010 - as a result of activist pressure - wasted no time in breaking up the
company and pruning the pipeline to focus on differentiated compounds.
CEO George Scangos took the
first step last year with a restructuring that refocused Biogen Idec on
neurology and immunology while exiting cancer and cardiovascular indications.
New EVP of R&D Douglas
Williams picked up where Scangos left off, eliminating programs that were too
late to the party and focusing resources on differentiated assets he thinks
play to the company's strengths.
Shareholders now can see a more
focused pipeline with eight Phase III programs expected to read out in the next
couple of years, most of which have the potential to change treatment paradigms
in their respective indications (see "R&D Reboot," BioCentury,
But strategic pruning and
refocusing are not going to be enough. Reviving growth curves requires more
bravery and creativity than have been evident over the past decade.
One place to start:
combinations of development pipelines in diseases where even the biggest
companies cannot generate enough critical mass to change the odds of success.
Again, experiments already are
Two years ago, GlaxoSmithKline
and Pfizer launched a joint venture, ViiV Healthcare, to discover, develop and
commercialize compounds to treat HIV. The newco began with 10 marketed products
and seven clinical-stage compounds.
Eli Lilly and Boehringer
Ingelheim GmbH have partnered to co-develop and co-commercialize a
portfolio of diabetes candidates that includes two products from each company (see
"Following the Leaders," BioCentury, Jan. 31).
KGaA and Sanofi
have cross-licensed compounds so that both companies can test combination
therapies against cancer.
And Merck and Roche
and its Genentech
Inc. unit have combined both the commercial and development partnership
approaches around Merck's Victrelis boceprevir. In addition to co-promoting the
HCV drug, the partners will explore new combinations of investigational and
marketed drugs to treat the disease.
Such deals aren't limited to pharma-pharma tie-ups. Genentech
BioPharma Inc. last month combined their checkpoint kinase 1 programs
in cancer so that the best molecule will be advanced and both companies will
share the upside (see "Checkpoint Match," BioCentury, Aug. 22).
Financial theory may argue that
investors can manage their own risk by creating portfolios of companies
pursuing, say, Alzheimer's and other cognitive disorders. But this argument
does not address the duplication of futility problem. Investing to repeat
failures will not solve the puzzle of how to increase the odds of success.
Antitrust worriers will warn
that government will block such R&D combinations. Back to School argues
that is the kind of thinking that creates dying industries. The first
responsibility of innovators is to create success and force the regulators to
More aggressive use of spinouts
also will allow capital to see and flow to the kinds of risk it wants to
The formation of BioCritica
Inc. by Lilly and investors Care Capital and NovaQuest is a case in
point. BioCritica will have exclusive rights to the pharma's languishing sepsis
drug Xigris drotrecogin alfa, as well as options to license additional preclinical
critical care candidates.
Lilly said it did the deal
because Xigris was competing for resources within the pharma's pipeline, while
the investors expect that upcoming data from a confirmatory Phase III study in
septic shock will revitalize the story (see "Spinout's Gamble on
Xigris," BioCentury, June 13).
Lilly provides another example
with its Mirror Portfolio initiative, where the pharma has picked three VCs to
seed with up to $150 million in total cash and also is contributing molecules.
The VCs will add in-licensed molecules and develop them to human POC before
offering them to Lilly and other potential pharma buyers.
Risk-sharing deals also will
have to move outside the box to include reward sharing.
For example, there is no a
priori reason why a reward system can't be set up for companies that agree
to have their molecules tested in adaptive trials like I-SPY 2, where drug
candidates are dropped as they demonstrate futility (see "Spies Plot
Revolution," BioCentury, March 22, 2010).
I-SPY 2 started with a cohort of five breast cancer compounds
from three companies: Abbott
Inc. and Pfizer.
For the sake of argument,
imagine only one of those five compounds reaches the market. Under the current
system, the company with the successful molecule is the only one that makes
money. I-SPY participants with failed compounds presumably will save money by
ending development earlier, as well as benefiting from the knowledge gleaned
from the trial. But their rewards end there.
To incent more companies to put
more molecules into these kinds of studies, the losers could be offered a piece
of the action, presumably a low single-digit royalty on the winning molecule's
sales. Because everyone knows they will likely be losers more often than not,
everyone would be better off.
In the regulatory space, new
thinking about public-private collaboration can be amplified to enable clinical
development to be more cost-efficient, and lead to a more imaginative consensus
about accelerating approvals of drugs that address public health priorities.
Globally, there is a consensus
at the top levels of regulatory agencies that solutions are not flowing to
patients who have unmet needs, and that they need to be more engaged with drug
developers to fix the problem.
This recognition is coming at a
time when shifting social and political currents could be invigorating efforts
to forge partnerships between regulators, industry, academia and patients.
These include intensified
interest in ensuring that public investments in biomedical research are
translated into better patient care; demands from patients to be more
integrated into drug discovery and development; and political recognition that
life sciences jobs and profits are subject to the same global competitive
forces that have obliterated U.S. and European supremacy in other industries.
These currents open the door to
extending upstream public-private collaborations into the regulatory space,
where the goal would be to industrialize clinical development and dramatically
broaden the use of progressive approvals. Accomplishing both - even in stepwise
fashion - would meaningfully address both economic and public health goals.
Importantly, FDA has
stated publicly that it is open to many of these ideas.
"The foundation of science
that supports both swifter and surer drug development and regulatory review is
crucial to our goals, and that involves partnership between industry and
government as well as academia," Commissioner Margaret Hamburg told
BioCentury. "HIV/AIDS was an example of how stakeholders came
together and worked in a powerful way, and I think that is a model that we have
to take very seriously" (see "Margaret Hamburg,"
BioCentury This Week, June 12).
Moreover, there is a framework
to build on: the Orphan Drug paradigm, accelerated approval, REMS and patient
registries are already part of the mix. But the thinking about how they are
applied must be more ambitious, and more voices need to be included in the
For example, regulators on both
sides of the Atlantic already have recognized the importance of collaborating
closely with patients and industry, and exercising flexibility, for politically
attractive health priorities such as rare and neglected diseases. There is no
reason the same regulatory science can't be adapted to other unmet needs, even
if they afflict millions of people.
Similarly, regulators already
have the means to fast-track trials of combinations of novel drugs for
tuberculosis; the same core thinking should be applied to other urgent
Patients have pointed the way.
Rare diseases garnered special attention largely because passionate patient
advocates persuaded Congress to create unique incentives for drug development
and encouraged FDA to collaborate closely with sponsors.
This experience, along with the
AIDS experience, shows that vastly enhanced patient engagement is key to
creating the political space for regulatory innovation.
If the new thinking upstream is
to bear fruit, clinical research is an obvious place to make a new
breakthrough. Industry and regulatory partnerships with patient advocates can
build a consensus approach to a continuous screening and testing system to
replace today's medieval workshop model with an industrialized approach.
For example, all the
stakeholders would be better served if regulators, industry and academic
researchers collaborated to create permanent consortia for drug testing.
Independent committees could define common endpoints and enrollment criteria,
design the studies, monitor their execution and publicly report the results.
Such a system also would
address the shortage of clinical trial subjects by seeking to incorporate
virtually every patient with a serious unmet medical need into premarket trials
and long-term registries. In part, this would be accomplished by using public
money and user fees to extend participation from elite academic medical centers
to community hospitals and individual physicians.
At this scale, the
industrialized system would unmask failures fast, while qualifying important
drugs for early adoption through a progressive approval system. The accretion
of data also could be used to design small, fast trials to confirm safety and
efficacy in the postmarket setting.
The industrialized model,
especially when adaptive designs are used, would make it possible to
incorporate two of the most important elements of modern manufacturing: rapid
feedback and continuous quality improvement.
This scale could yield rapid
readouts on safety and efficacy, and especially about the natural history of
diseases. Trials would more quickly identify winners in specific patient
Back to School is not proposing
an instant transformation. But there needs to be a more visible effort to apply
the flexible approaches pioneered in the regulation of rare disease to more
common diseases, and to form public-private partnerships to bring new patient
populations and the broader clinical community into clinical research.
For example, NIH's NCI Clinical Trials Cooperative
Group Program has not paved the way - indeed, the Institute of Medicine
concluded last year that the system is "approaching a state of crisis."
But the Children's
Oncology Group has moved in the right direction by building a critical
mass of patients (see "Curing Cancer Trials," BioCentury, Feb. 28
& "Structure vs. Function at NCI," BioCentury, March 28).
The I-SPY 2 adaptive breast cancer study illustrates the
collaborative possibilities. It is managed by the Biomarkers
Consortium, which is led by the National
Institutes of Health. Its lead center is the University
of California, San Francisco, and it is validated by the endorsement of
FDA and NIH and the participation of Abbott, Amgen and Pfizer.
Many companies still might want
to resist comparative trials. But such studies are now a fact of life, and a
system that can compare investigational agents is the wave of the future.
Moreover, drug developers will be far better served if they participate - these
trials are far better than the dubious meta-analyses that industry's opponents
have employed to great political effect in the last few years.
Industry would have to give up
some of the secrecy and control it has today. But in exchange, it would gain
increased scale, improved speed and lowered cost. Most importantly, it would
gain credibility for the results because of the buy-in from patients, clinical
investigators and regulators.
Collaborating with patients is
critical to another regulatory innovation that is under development in the U.S.
and Europe: new models for benefit-risk assessment, which are required to
change the public policy argument about drug safety.
"No one has done a good
enough job listening to patients about how drugs feel to them and how they feel
about benefits and risks," Janet Woodcock, director of FDA's Center for
Drug Evaluation and Research (CDER), told BioCentury (see "FDA
Performance," BioCentury This Week, Jan. 16).
The agency has been developing
a semi-quantitative framework, incorporating patient perceptions, for assessing
and communicating benefit and risk. EMA and the European Innovative
Medicines Initiative are also working on new risk-benefit frameworks.
Patient-oriented assessment of
risk, coupled to expanded clinical trial participation, would provide the
impetus to expand the provisional approval pathway for all new therapies for
serious unmet needs.
Such compounds would be eased
onto the market, with strict controls over which patients could receive a
provisionally approved drug, limits on marketing, and intense monitoring and
collection of safety and efficacy data. Based on the accumulating evidence, the
restrictions could be retained, eased or eliminated - or the product could be
Once again, FDA has signaled it
is open to this idea. "Some kind of a progressive approval process is
something we are talking about very much," Hamburg said on BioCentury
The challenge is to translate
this open-mindedness into policy. The heads of regulatory agencies need to find
flexibility to operate within the law and to advocate for legislative changes
when the law prevents science from addressing unmet needs.
A culture of collaboration also
does not dominate the ranks of line regulatory staff. Resetting this
environment is a precondition for improving the productivity of the drug
Top regulators can begin to
transform this ecosystem by pressing forward with many more experiments like
In the payer space, new
collaborations are beginning to point to ways biopharma companies and benefits
providers should be mutually focused on value creation for patients and
Without these efforts, the
biopharma industry risks being relegated to "vendor" status in a
healthcare system focused on bending the cost curve down.
Like many other ideas, the
engagement of drug developers and payers is not new. Companies routinely talk
to payers about the profiles of new compounds early on in development. And the
dance between pharma companies and NICE in the U.K. has resulted in so-called
risk-sharing deals that are pinned on outcomes. But the latter process is
adversarial and delays the flow of drugs to British citizens - or deprives them
altogether if the drug company decides not to participate or if NICE still
concludes a drug isn't cost-effective.
More imagination is wanting
here, and perhaps it is emerging in collaborations where payer data and access
to patients are being used to inform clinical trial designs and identify places
where the use of drugs bends the value curve for the payer (see "Pharmacoeconomics").
Sanofi's global partnership with Medco
Health Solutions Inc. is one such tie-up, aimed at designing trials and
mining data to ensure that payers get the kinds of data they need at product
launch (see "Payers in Product Development," BioCentury, Aug. 1).
Accessing the real-world data
at Medco will enable the pharma to identify patient subpopulations that will
most likely benefit from its compounds, and allow it to use this learning at
the beginning of clinical trials.
The data also will enable both
the pharma and the PBM to calculate the comparative effectiveness of
Meanwhile, under a deal with AstraZeneca, the HealthCore Inc.
outcomes research unit of WellPoint
Inc. is conducting studies in the U.S. to determine the value of a
medicine to the healthcare system.
Relating a drug's performance
to a host of clinical outcomes and total resource utilization goes well beyond
the requirements needed to show efficacy to FDA and EMA. As with the
preclinical and clinical spaces, it wouldn't be surprising to see broader
consortia emerging to address these caregiving and economic questions.
AstraZeneca and Healthcore have already said they plan to expand their
partnership to other provider groups, doctors and hospital groups to increase
the robustness of their data.
These kinds of deals should do
more than give drug developers the ammunition they need to speed reimbursement
after launch. Successful collaborations will actually give payers a vested
interest in delivering the value to patients.
Once proof of concept for this
outcome is demonstrated, it will provide the basis for a virtuous circle
leading back upstream. It would not be too far a stretch for drug companies to
negotiate something like a commercial advanced purchase commitment - some form
of guaranteed access to the formulary - based on a drug candidate's ability to
address the predefined demands of the marketplace.
All along the way, the new
ideas for organizing value creation will suggest ways to organize capital pools
throughout the value chain.
The capital crunch is not
simply about lack of money. Indeed, it's hard to argue the industry is
starving. Even with VCs scaling back, it's possible to project more than $640
billion being available from corporate, venture and capital market sources
through 2015. And that's not counting NIH and other taxpayer contributions (see
"Trying to Make Do," A19).
The question is not so much whether there's capital, but why
it doesn't flow to bottlenecks where value is waiting to be created. To
paraphrase serial bioentrepreneur John Mendlein of aTyr
Pharma Inc. and Fate
Therapeutics Inc., all the low-cost capital seems to go to the wrong places.
Some of the VC drought is a
long-needed correction that provides the impetus for better investing.
Ineffective second- and third-tier investors chasing mediocre ideas are being
weeded out. A smaller number of smarter investors will create more value with
their money, even if the total venture pool actually were to shrink.
But better investing is not
enough. Returns must be produced throughout the value chain. The "valley
of death" problem is not the same thing as the "VC model is broken"
In the valley of death, there
have not been effective mechanisms for channeling the relatively small amounts
of money that are required to perform important translational science.
In the VC case, the timelines
for value creation and exit are not aligned. Therefore, asking venture capital
to move upstream only compounds its dilemma. In fact, the valley of death
solution must provide more mature assets to the VCs.
Moreover, the same capital
efficiency requirements can't be applied in each case. The solutions are not
going to be identical. But at least two benchmarks for capital efficiency can
be applied across the board.
First, capital should not be
forced to duplicate futility. It no longer wants to take on this risk. This is
a key reason for embracing new thinking about collaborations and reward sharing
throughout the value chain. Creating asset pools likewise enables investors to
pool their capital.
Second, capital needs to be
returned in stages. It no longer wants to wait until the end of the line. This
suggests pools of specialty capital will need to aggregate along the value
chain. Some of it will be investment capital. Some of it will be strategic
capital. Some of it will be foundation funding. Some of it will be taxpayer
The ROI metrics should be different
for each pool, and therefore it is unreasonable to apply the same investment
models to them.
For example, one can argue that
the vast bulk of translational funding is not the province of professional risk
Likewise, one can argue that
the investable VC space is smaller than advertised. Save for the truly
exceptional opportunities, many assets simply should not be pitched to VCs
unless they obviously fit inside fund time horizons or clearly provide
incremental monetization milestones along the way.
While capital pools always have
existed, the old structures can't be taken for granted. Nevertheless, some
important pools already look to fit into the Structure 2012 model. Indeed, it's
clear money already is going into the feeder system.
Europe's Innovative Medicines
Initiative is a €2 billion capital-pooling exercise in the
translational space, as it involves taxpayer and corporate resources.
More experimentation will be
needed to bridge IMI and open innovation efforts such as Arch2POCM to the
commercial world. One place to start is asset auctions, which could be a basis
for sustainable funding of research to answer really important translational
questions where the value can't be questioned.
Further downstream, strategic
venture capital is a pool that straddles translation and early clinical
development. By BioCentury's count, there are at least 30 corporate venture
funds at 24 companies. While a few of these have a later-stage focus, the vast
majority are looking at early stage assets.
This does not include the
latest round of blockbuster pharma-university collaborations, like Pfizer's $85
million partnership with UCSF. The collaboration - the first of the pharma's
eight planned Global Centers for Therapeutic Innovation - brings company
scientists to academic centers and backs them with a host of drug discovery
technologies (see "Pfizer Goes Back to School," SciBX:
Science-Business eXchange, Dec. 2, 2010).
Smaller buckets are being tried in projects such as BioPontis
Alliance LLC, a consortium-like set of industry and academic partners.
BioPontis is proposing to perform killer translational experiments on
technology with high unmet industrial need. It would sell or license the
winning technologies and share the proceeds with the academic institution (see
"Gap-filling alliance," SciBX: Science-Business eXchange, Aug. 4).
Industry partners include Merck, Pfizer and the Janssen
Biotech Inc. unit of Johnson & Johnson. University alliance participants
Sloan-Kettering Cancer Center, New
York University, the University
of Florida, the University
of Pennsylvania, the University
of Virginia and the University
of North Carolina at Chapel Hill.
At the same time,
cross-institutional collaborations will make themselves more attractive to
these pools of capital.
For example, the Sanford-Burnham
Medical Research Institute has built infrastructure that provides
researchers with structural biology tools, genomics technology, imaging
analysis and drug screening. Now, a partnership with Florida
Hospital provides access to patients (see "Sanford-Burnham's
Disease Deals," SciBX: Science-Business eXchange, Feb. 3).
A deal between the University
of Rochester Medical Center and Temple
University School of Pharmacy aims to address the critical mass problem
for mid-tier institutions that do not command $500 million or more a year in
Under the deal, target-rich but
chemistry-poor Rochester will collaborate with Temple's chemistry-rich but
target-poor Moulder Center for Drug Discovery Research. In some cases,
Rochester will pay for fee-for-service projects, but costs would be shared in
joint collaborations (see "Opposites Attract," SciBX:
Science-Business eXchange, Aug. 25).
Further downstream, the private
equity fund venBio has created another bucket, focusing on companies that are
ready to collect human proof-of-concept data for their compounds but are
finding few investors that want to pay for the clinical studies needed to get
While capital is clearly
amassing in the preclinical to IND space at one end, and money is available to
fund companies that have definitive POC data, the firm has identified the space
in between as a place where the opportunity for value creation is not matched
by investment capital.
venBio's vehicles include a
fund for strategic investors such as Amgen (see "Amgen's ven
Biogram," BioCentury, Nov. 22, 2010).
Further down the value chain,
the most important capital pool may be the growing group of mid-tier biopharmas
($5-$20 billion in market cap). Companies in this space need asset partnerships
and acquisitions to grow and, unlike private biotechs, aren't locked out of the
public capital markets.
While BioCentury has documented
the growth of this space many times over the years, these companies are not yet
recognized as a powerful financing arm for the pre-commercial assets locked in
private companies (see "Sweet Spot Revisited," BioCentury, Feb.
Meanwhile, efforts to make
value visible need to be accompanied by creative ways to unlock the value for
investors beyond cash dividends and share buybacks. Spinning assets into new
public entities can be shareholder monetizing events. Distributing the newco's
shares also allows investors to vote with their feet - staying with the R&D
project or selling out. Such newcos thus are in a position to draw investors
who embrace their risk profiles.
All this begs the question of
what to do about the IPO pool, which has largely dried up. Here, as in the VC
space, it's time to recognize that only some assets deserve access to the
public markets. Fund managers not only operate on even shorter timelines, but
also no longer want to take on execution risk, as witnessed by the current trashing
of biotechs in the midst of product launches.
The fact is that more companies
will demonstrate public market profiles if the upstream capital is invested
more effectively. For the very best companies, that should narrow the valuation
gap between the public markets and strategic investors. Then it will be up to
private investors whether to engage in company building with public capital or
bail out through the trade sale.
Biopharma is in the midst of a
chaotic paradigm shift in the drug
discovery-development-approval-reimbursement-marketing system. But inchoate in
that chaos is the embryonic form of a new system that will be better than the
For those who take the time to
look around, it will be apparent that many of the pieces of the new world order
for biopharma are already being put in place by skunk works of creative people
and companies. They don't spend their time asking permission or worrying about
The precompetitive landscape is
the most unformed, but is benefitting from a jolt of energy and multiple
experiments. There probably will not be a single model, but multiple items on
the menu for the players to choose from.
The spaces downstream also are
likely to see multiple models, with some big companies choosing to be pure-play
drug companies and others choosing to be umbrellas for multiple businesses;
with some companies choosing to pair their portfolios with other companies;
with others choosing to spin out disease areas, and so on.
Ironically, for all the hand-wringing
about the regulatory space, it is here that the potential for a singular new
paradigm is clearest, and pieces of this system are already in place:
accelerated approval, REMS and patient registries and postmarket studies. They
point in the direction of industrialized clinical development collaborations
and patient-driven progressive approval regimes. What's missing is a critical
mass of experiments to give all the stakeholders some skin in the game.
The payer discussion is still
early stage, but experiments have started and the shared economic interest of
the parties should drive more collaborations, all to the benefit of patients.
Not everyone who is driven to
experiment will be successful - or even good - at what they try to do. But some
of the new ideas inevitably will succeed. Some investors will make money. And
the process will continue. Those who cannot innovate - or cannot happily ride
on the coattails of the innovators - will disappear. That is how it should be.
In a conversation with BioCentury
at the close of his tenure as chairman, president and CEO of Genzyme Corp.,
Henri Termeer went out of his way to refute the common wisdom that the industry
has gone from thinking big to thinking small, and to reject the notion that
today's CEOs are more risk-averse than those of the past.
Genzyme, which was founded 30
years ago, was acquired by Sanofi in April. By Termeer's reckoning, biotech
today is thinking far bigger than it ever dreamed of doing in its early years.
And CEOs are taking far bigger risks.
At biotech's beginnings, he
said, "we weren't changing the world - we weren't saying we're going to
cure cancer. We were trying to make a technology work."
Today, he said, "people
talk about big things, not little things - going after Alzheimer's, going after
The bottom line, according to
Termeer: "Today, if you can't cure cancer, you've no business to be in
The 19th Back to School
Commentary is a collaborative work by BioCentury President & CEO David
Flores, Chairman & Editor-in-Chief Karen Bernstein, and Washington Editor
Steve Usdin. Data were developed by Research Director Walter Yang and Staff
Writer Meredith Durkin. The package was edited by Managing Editor Jeff Cranmer
and Senior Editor Susan Schaeffer.
Laboratories (NYSE:ABT), Abbott Park, Ill.
LLC, San Francisco, Calif.
Therapeutics Inc., Seattle, Wash.
Pharmaceuticals Inc., San Mateo, Calif.
Inc. (NASDAQ:AMGN), Thousand Oaks, Calif.
BioPharma Inc. (NASDAQ:ARRY), Boulder, Colo.
Inc., Vienna, Austria
plc (LSE:AZN; NYSE:AZN), London, U.K.
Pharma Inc., San Diego, Calif.
Ltd., Beijing, China
Therapeutics Ltd., Cambridge, U.K.
Ltd. (NSE:BIOCON; BSE:BIOCON), Bangalore, India
Inc., Indianapolis, Ind.
Idec Inc. (NASDAQ:BIIB), Cambridge, Mass.
Consortium, Bethesda, Md.
Alliance LLC, Raleigh, N.C.
Medicines, Cambridge, Mass.
Ingelheim GmbH, Ingelheim, Germany
Squibb Co. (NYSE:BMY), New York, N.Y.
Oncology Group (COG), Arcadia, Calif.
University, New York, N.Y.
Pharmaceuticals Ltd., Cambridge, U.K.
Pharmaceuticals Inc., San Francisco, Calif.
Therapeutics AG, Zurich, Switzerland
Lilly and Co. (NYSE:LLY), Indianapolis, Ind.
Federation of Pharmaceutical Industries and Associations (EFPIA),
Institute of Innovation & Technology, Budapest, Hungary
Medicines Agency (EMA), London, U.K.
Therapeutics Inc., San Diego, Calif.
Hospital, Orlando, Fla.
Institutes of Health, Bethesda, Md.
N.V. (Euronext:GLPG; Pink:GLPYY), Mechelen, Belgium
Inc., South San Francisco, Calif.
plc (LSE:GSK; NYSE:GSK), London, U.K.
Medical School, Boston, Mass.
Medicines Initiative (IMI), Brussels, Belgium
AG (VSE:ICLL; OTCQX:INRLY), Vienna, Austria
& Johnson (NYSE:JNJ), New Brunswick, N.J.
Institute, Stockholm, Sweden
Tissue Repair Inc., Cambridge, Mass.
Health Solutions Inc. (NYSE:MHS), Franklin Lakes, N.J.
Sloan-Kettering Cancer Center, New York, N.Y.
KGaA (Xetra:MRK), Darmstadt, Germany
& Co. Inc. (NYSE:MRK), Whitehouse Station, N.J.
AG (Xetra:MOR), Martinsried, Germany
Cancer Institute (NCI), Bethesda, Md.
Health Council, Washington, D.C.
Human Genome Research Institute (NHGRI), Bethesda, Md.
Institute of Biological Sciences (NIBS), Beijing, China
of Health (NIH), Bethesda, Md.
Venture Capital Association (NVCA), Arlington, Va.
York University (NYU), New York, N.Y.
AG (NYSE:NVS; SIX:NOVN), Basel, Switzerland
Nordisk A/S (CSE:NVO; NYSE:NVO), Bagsvaerd, Denmark
Corp., Seattle, Wash.
Inc. (NYSE:PFE), New York, N.Y.
Pharma Inc. (JASDAQ:4579), Aichi, Japan
Inc., San Diego, Calif.
(SIX:ROG; OTCQX:RHHBY), Basel, Switzerland
Bionetworks, Seattle, Wash.
Medical Research Institute, La Jolla, Calif.
(Euronext:SAN; NYSE:SNY), Paris, France
Genomics Consortium (SGC), Oxford, U.K.
Pharmaceutical Co. Ltd. (Tokyo:4502), Osaka, Japan
University, Philadelphia, Pa.
(Euronext:UCB), Brussels, Belgium
of California, San Francisco (UCSF), San Francisco, Calif.
of Florida, Gainesville, Fla.
of North Carolina at Chapel Hill, Chapel Hill, N.C.
of Oxford, Oxford, U.K.
of Pennsylvania, Philadelphia, Pa.
of Rochester, Rochester, N.Y.
of Toronto, Toronto, Canada
of Virginia, Charlottesville, Va.
Food and Drug Administration (FDA), Silver Spring, Md.
Inc. (NYSE:WLP), Indianapolis, Ind.
Corp., Seattle, Wash.