Full article reprinted from IN VIVO November 3, 2009
Even as the biggest pharmaceutical companies get bigger--and predict further consolidation to come--top industry executives advocate outsourcing more R&D. Read on...
Full article reprinted from IN VIVO November 3, 2009
At Windhover's Pharmaceutical Strategic Alliances meeting in September in New York, executives from large pharmaceutical companies elaborated on the benefits of size—in terms of absorbing R&D or market turbulence, generating cost savings, and enabling geographic reach.
But fittingly for a conference where the theme asked if companies can be large and small at once, much of the discussion surrounding early-stage R&D was about how much of it to outsource. And that proportion seems to be growing.
The mergers that are creating tomorrow's new industry behemoths—Roche's acquisition of Genentech, Merck & Co. Inc.'s acquisition of Schering-Plough Corp., and Pfizer Inc.'s acquisition of Wyeth—and the logic behind those tie-ups were well represented at PSA.Representatives from larger firms argued size was particularly important in primary care medicine: "I believe that scale really is important these days because of the changing dynamics of the business," said Mervyn Turner, PhD, chief strategy officer and SVP, worldwide licensing and external research at Merck Research Laboratories, speaking on a panel designed to debate whether supersizing pharma provides a compelling strategic advantage in R&D. "You have to spend a lot of money these days in late-stage development to discover if you've got something that's truly differentiated."
The notion was hardly disputed. But that cost can be mitigated, argued Ipsen CEO Jean-Luc Belingard. Belingard noted that there was plenty of "virtual critical mass" out there. Development and commercialization partners can be found—though at a cost, he conceded—provided a smaller company had the right kind of asset; Belingard used the example of Ipsen's GLP-1 analog. The panel, which also included Wyeth SVP, corporate business development Thomas Hofstaetter, PhD, and McKinsey director Rajesh Garg, agreed to an extent, pointing out that in some cases cost could be prohibitive, even as such moves act as a hedge against development risk. Bristol-Myers Squibb Co.'s oft-mentioned pacts with AstraZeneca PLC in diabetes and with Pfizer for the anticoagulant apixiban, for example, demonstrate both points well.
But moves such as BMS' aside, Wyeth's Hofstaetter predicted industry would see more large pharma consolidation. "I think there is one big rationale behind the ongoing consolidation," he said. "And that is that we have a lot of redundancies in the industry and the most effective way to deal with them is acquisitions and the synergies you can realize."
Later, Schering-Plough's outgoing CEO Fred Hassan observed that size is critical for global expansion not only because large companies have more resources to devote to infrastructure on the ground, but also because they can navigate rapidly changing regulatory and reimbursement environments. In China, for example, change is rapid. Companies that want to play in China need to be in touch with local regulators and officials, Hassan said. In Japan, local infrastructure is crucial to obtaining a steady product flow. "In many countries, the environment is not well developed, so local competencies make a big difference," he said.
Despite pharma's arguments that scale provided a necessary infrastructure and shock-absorbing element, the debate over early-stage research centered not around how much industry's largest companies could do, but rather how much they should leave to others.
Vincent Aurentz, head of portfolio development at Merck KGAA's Merck Serono SA division, talked about his company's new corporate venture fund, where the cash to support investments in external discovery projects was essentially skimmed off the mid-sized pharma's research budget. GlaxoSmithKline PLC research head Moncef Slaoui, PhD, architect of GSK's drug performance units (DPUs)—small, biotech-like organizations that exist within and alongside the company's centers of excellence—discussed GSK's plans to create such units outside the Big Pharma's walls, which could eventually result in the outsourcing of up to 50% of the drug giant's discovery research. GSK's efforts include a new group dubbed VPOC—a "virtual proof-of-concept" DPU that uses external resources to move GSK projects along in an expedited manner. The unit resembles Eli Lilly & Co.'s Chorus unit, whose success Lilly is exploiting by "cloning" it internally and also with partners in India, according to Lilly SVP corporate strategy and business development Gino Santini.
And Fred Hassan went even further. Hassan suggested that larger companies should increasingly rely on external discovery. "The model we used in the '90s won't apply any more," he said. Whereas it used to be 50-50 internal and external, he said, the balance should shift in favor of external projects provided pharma can access those projects at an early stage, before they get too expensive.
-- Chris Morrison
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