As Biotechs Fill the Research Gap, Developers of all Sizes Scramble to Reduce Risk

Actavis CEO and president Brett Saunders raised eyebrows a few weeks back when he bluntly stated what a growing number of biopharma chief executives appear to be thinking when it comes to the value of internal R&D.

“The idea that to play in the big leagues you have to do drug discovery is really a fallacy,” Saunders told Forbes. “You have to do research, you have to be committed to innovation. I strongly believe that, but discovery has not returned its cost of capital.”

The substance of Saunders’ comments is less surprising than the fact they generated reactions of surprise when expressed on-the-record. Six of 10 heritage “big” pharmas (GlaxoSmithKline, Eli Lilly, Merck & Co., Novartis, Pfizer, and Sanofi) have cut R&D spending between 2011 and 2014, according to a review of results by GEN.

A seventh (AstraZeneca) has been flat, leaving only three big pharmas spending more on R&D in 2014 than in 2011 (Bristol-Myers Squibb, Johnson & Johnson, and Roche). BMS is unlikely to show an increase in 2015, having told investors that its R&D spending will likely be “decreasing in the low-single-digit range.”

Two veteran industry observers say Saunders’ observation is correct.

“It’s no longer reasonable for large pharma companies to try to maintain the capabilities to bring compounds from the laboratory bench all the way to the marketplace. It’s too expensive. It’s too difficult to justify the upfront cost, and it’s just not a formula for success,” Kenneth I Kaitin, Ph.D., professor and director of the Tufts Center for the Study of Drug Development, told GEN.

As a result, Ryan Abbott, M.D., J.D., a physician and associate professor of law at Southwestern Law School, told GEN, “Big pharma is now an intermediary between the research community of the universities and startups, where people are working on genuinely new technologies, and getting things to market.”

“Not to say that there isn’t any R&D in big pharma. Occasionally, something impressive comes out of it,” Dr. Abbott said.

Yet external discoveries, he added, are increasingly important to biopharmas—a trend detailed in two studies. Deloitte Consulting and Thomson Reuters found in 2013 that more than half the Phase III compounds for 10 of 12 unnamed companies came from external research, with one company sourcing 94% of its late-stage pipeline externally, via product licensing, partnerships or acquisitions.

A year earlier, McKinsey & Co. found that the external R&D percentage of molecules advancing to Phase III jumped from 38% in 2002 to 62% in 2010.

For the complete aritcle published in GEN magazine. Please click here.


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