Biopharmconsortium Blog

Expert commentary from Haberman Associates biotechnology and pharmaceutical consulting.

Monthly Archives: February 2010

Across-the-board R&D cuts will not solve the pharmaceutical industry’s productivity crisis

The big topic in pharmaceutical news lately has been layoffs, including layoffs due to major cuts in R&D. For example, the popular pharmaceutical industry blog “In the Pipeline” has had one story after another, in late 2009 and early 2010, about R&D cutbacks, including many comments from people affected by the reductions in staff. Such companies as Pfizer, GlaxoSmithKline (GSK), AstraZeneca, Sanofi-Aventis, and most recently Merck have been affected.

Layoffs, and cuts in R&D, were expected in companies that underwent big mergers in 2009, especially Pfizer/Wyeth and Merck/Schering-Plough. Much of the value of large-scale mergers to shareholders is realized by cost savings due to restructurings (especially elimination of redundancies between the two merging companies) and reductions in staff.

The more fundamental reason that motivates large pharmaceutical companies to enter into big mergers and/or to undertake restructurings that include reductions in R&D programs and in staff is the need to deal with the combination of major challenges facing the industry, which some experts have called a “perfect storm”. The most important of these challenges are low R&D productivity, increasing R&D costs, and expirations of patents of blockbuster drugs.

From the point of view of a financial analyst, the move to cut internal pharmaceutical R&D is a matter of “sheer economics”. Putting more and more money into R&D without any increase in numbers of high-valued new drugs, especially in the face of patent expiries, is a losing proposition. Why not then cut internal R&D, and concentrate on in-licensing pipeline drugs from biotech companies? In-licensed drugs, and drugs developed by smaller pharmaceutical and biotech companies, have shown a higher rate of success in development (measured in terms of percentage of drugs entering clinical trials that reach the market) than drugs developed internally by large pharmaceutical companies.

The problem with this line of reasoning is that we’ve been here before. Big Pharma went through a previous wave of large-scale mergers and restructurings in the late 1990s and early 2000s. These megamergers and restructurings enabled the surviving companies to realize significant cost savings from staff reductions, and in some cases enabled them to acquire blockbuster drugs (notably Pfizer’s acquisitions of Lipitor [atorvastatin] and Celebrex [celecoxib]). However, these gains were temporary, since the industry faced an even worse set of threats in the 2008-2010 period than it faced in 1997-2003. And the disruptions in R&D staffs and programs caused by these moves contributed to a reduction of the capacity of merged or restructured companies to carry out productive R&D.

Moreover, the move toward a strategy of depending more on in-licensing of pipeline drugs from smaller companies (or acquiring the companies outright) comes at a very bad time. The financial crisis of 2008-2009 resulted in a virtual drying up of venture capital investment in private biotech companies (especially start-ups), and in the inability of development stage private and public biotech companies to raise funds in the capital markets. In the resulting cash crunch, many biotech companies ceased work on all but their most advanced pipeline drugs, and laid off large numbers of their researchers.

For example, here in the Boston area, Dyax, then a development-stage public company, adopted cash-conserving measures in 2009. It stopped early-stage research on internal (as opposed to partnered) drug candidates, and laid off 36% of its staff. It also sold its shares at low prices in the public markets to raise what cash it could. On December 1, 2009, the FDA approved Dyax’ lead drug, the plasma kallikrein inhibitor ecallantide (Kalbitor) for the treatment of hereditary edema, a rare genetic disorder. The FDA approval process had not been easy (for example, Dyax received a “complete response” letter from the FDA last year). Other development stage biotech companies have not been as fortunate, and venture capital for start-up companies (such as spin-offs of university laboratories) has been very hard to come by.

Unless large pharmaceutical companies are prepared to serve as venture capitalists on a much larger scale than they are currently doing, and to invest in earlier-stage, riskier companies and drug candidates, they may be competing for fewer and fewer good in-licensing opportunities. This will result in bidding up the prices for what opportunities exist, and a dearth of drug candidates for pharmaceutical companies to develop. The venture capital market for early-stage biotechs appears to be easing somewhat, and a few companies (some of which have been discussed in this blog) have managed to obtain funding. However, much uncertainty remains.

Moreover, large pharmaceutical companies will need to have internal researchers (or consultants) who are competent to evaluate in-licensing candidates, and internal researchers who can collaborate with their smaller licensing partners. One critical area for such collaboration is translational medicine, in order to predict the outcomes of treatment with in-licensed drug candidates and to increase the probability of clinical success.

The real issue is that the pharmaceutical industry cannot use mergers, restructurings, across-the-board R&D cuts, and layoffs to solve its productivity crisis, except in the short term. It has to work on the actual problem—how to increase the productivity of R&D.

We recently authored two publications that analyzed the nature of the R&D productivity problem, and which outlined solutions. These are an article, “Overcoming Phase II Attrition Problem”, published in Genetic Engineering News (GEN) and available free on our website, and a book-length report, Approaches to Reducing Phase II Attrition, available from Cambridge Healthtech Institute (CHI). In summary, we proposed a two-part strategy to increase rate of success in drug development:

  • Identify those targets and drugs that have the best chance of success in the discovery phase, mainly via focusing on biology-driven drug discovery (i.e., strategies based on understanding of disease mechanisms).
  • Employ early stage proof-of-concept (POC) clinical trials to weed out drugs and targets that do not achieve POC.

With respect to this strategy, it is interesting that two large pharmaceutical companies, the Swiss pharmaceutical giants Novartis and Roche, are not emphasizing layoffs and R&D cuts. Both have biology-driven R&D strategies.

In a recent Reuters article entitled “Killing research no certain cure for Big Pharma”, Novartis’ chairman and former CEO Daniel Vasella is quoted as saying, “You can improve margin up to self-dissolution. You save and you save and you cut costs and cut costs — and then you have no sales anymore and then you have a collapse.”

We have discussed Novartis’ R&D strategy in several articles on this blog, notably our July 20, 2009 article “Biology-driven drug discovery: a ‘disruptive innovation’?”

Roche came by its biology-driven R&D strategy via its 2009 acquisition of Genentech. As we also noted in our July 20 blog post, Roche has been integrating itself with Genentech to become essentially a large biotech company.

In striking contrast to his colleagues in most Big Pharma companies, Roche’s CEO Severin Schwan is optimistic about the future of drug discovery and development in the pharmaceutical industry. He believes that the industry is “poised for a quantum leap into a golden age”, because of continuing discoveries in disease pathways that will enable researchers to design targeted drugs to address unmet medical needs. Roche has no plans to diversify into generics, over-the-counter drugs, or vaccines, as other Big Pharmas have been doing in order to mitigate the lack of high-valued new products coming from their R&D operations.

In addition to overall reductions in R&D and shifting toward greater reliance on in-licensing of drugs, some Big Pharma companies have been taking other, more selective measures in their attempts to cut R&D costs and improve R&D performance. One approach has been to get out of therapeutic areas that are no longer productive for a particular company, and to focus on more promising areas. For example, GSK is eliminating its R&D in depression, anxiety, and pain, and focusing its neuroscience efforts on neurodegenerative diseases such as Alzheimer’s and Parkinson’s disease. It is also building a new R&D unit that will focus on rare diseases. These seem to be sensible moves.

With respect to rare diseases, in addition to adopting the “Genzyme strategy” (which seems to be GSK’s main goal), some rare diseases share pathways with more common diseases. As discussed in our July 20 blog post, Novartis has been developing drugs that address these common pathways, beginning with the rare disease and then expanding to the more common diseases.

Another strategic move by several Big Pharma companies is to shift away from small-molecule drugs toward a greater emphasis on biologics. Biologics have shown a higher rate of success in development than small-molecule drugs. However, kinase inhibitors also have shown a higher success rate than other oncology agents that have entered clinical trials in the last 15 years. As with biologics, kinase inhibitors have been developed via biology-driven drug discovery, resulting in much stronger clinical hypotheses for the mechanisms of action of these drugs. Might not shifting toward biology-driven R&D strategies, rather than just shifting toward biologics, enable companies to improve their R&D productivity, both for small-molecule and large-molecule drugs?

Shifting toward biology-driven R&D strategies should also enable companies to reduce R&D costs, by reducing reliance on the costly and unproductive technology-driven “industrialized drug discovery” approach. However, unlike across-the-board R&D cuts, this more selective approach should result in improved R&D productivity.

Update on anti-aging biology, sirtuins, and Sirtris/GlaxoSmithKline

On November 8, 2009, we posted an article entitled “Anti-aging biology: new basic research, drug development, and organizational strategy” on this blog. This article focused on new findings in anti-aging biology, their applications to drug discovery and development, and on how this field has affected the organizational strategy of GlaxoSmithKline (GSK).

GSK acquired Sirtris for $720 million in 2008. Later that year, GSK appointed Christoph Westphal, the CEO and co-founder of Sirtris, as the Senior Vice President of GSK’s Centre of Excellence in External Drug Discovery (CEEDD). The CEEDD works to develop external alliances with biotech companies, with the goal of acquiring promising new drug candidates for GSK’s pipeline. Michelle Dipp, who was the vice president of business development at Sirtris at the time of GSK’s appointment of Dr. Wesphal, became Vice President and the head of the US CEEDD at GSK. Thus GSK has been using its relationship with Sirtris to restructure its organizational strategy, attempting to become more “biotech-like” in order to improve its R&D performance.

Now we learn that several research groups and companies have been questioning whether resveratrol (a natural product derived from red wine which has been the basis of Sirtris’ sirtuin-activator platform), as well as Sirtris’ second-generation compounds, may not modulate the sirtuin SIRT1 at all. Thanks to Derek Lowe’s “In the Pipeline” blog for the information. This issue was also covered in a second post on the same blog. It was also covered by articles in the 15 January 2010 issue of New Scientist and in the January 26, 2010 issue of Forbes. Nature also covered this story in an online news article.

In a report published in December 2009, researchers at Amgen found evidence that the apparent in vitro activation of SIRT1 was an artifact of the experimental method used by Sirtris researchers. The Amgen group found that the fluorescent SIRT1 peptide substrate used in the Sirtris assay is a substrate for SIRT1, but in the absence of the covalently linked fluorophore, the peptide is not a SIRT1 substrate. Although resveratrol appears to be an activator of SIRT1 if the artificial fluorophore-conjugted substrate is used, resveratrol does not activate SIRT1 in vitro as determined by assays using two other non-fluorescently-labeled substrates.

More recently, researchers at Pfizer published a study of SIRT1 activation by resveratrol and three of Sirtris’ second-generation sirtuin activators (which the Pfizer researchers synthesized themselves, using published protocols). These researchers also found that although these compounds activated SIRT1 when a fluorophore-bearing peptide substrate was used, they were not SIRT1 activators in in vitro assays using native peptide or protein substrates. The Pfizer researchers also found that the Sirtris compounds interact directly with the fluorophore-conjugated peptide, but not with native peptide substrates.

Moreover, the Pfizer researchers were not able to replicate Sirtris’ in vivo studies of its compounds. Specifically, when the Pfizer researchers tested SRT1720 in a mouse model of obese diabetes, a 30 mg/kg dose of the compound failed to improve blood glucose levels, and the treated mice showed increased food intake and weight gain. A 100 mg/kg dose of SRT1720 was toxic, and resulted in the death of 3 out of 8 mice tested.

The Pfizer researchers also found that the Sirtris compounds interacted with an even greater number of cellular targets (including an assortment of receptors, enzymes, transporters, and ion channels) than resveratrol. For example, SRT1720 showed over 50% inhibition of 38 out of 100 targets tested, while resveratrol only inhibited 7 targets. Only one target, norepinephrine transporter, was inhibited by greater than 50% by all three Sirtris compounds and by resveratrol. Thus the Sirtris compounds have a different target selectivity profile than resveratrol, and all of these compounds exhibit promiscuous targeting.

Sirtris and GSK dispute the findings of the Amgen and Pfizer researchers. One issue raised by Sirtris is that the Sirtris compounds synthesized by Pfizer may have contained impurities, resulting in the toxicity and lack of specificity of the compounds in vivo. Researchers associated with Sirtris and GSK also contend that although the Sirtris compounds only work with fluorophore-conjugated peptides in vitro, they appear to increase the activity of SIRT1 in cells. However, other researchers assert that since resveratrol interacts with many targets in cells, the results of the cellular assays are difficult to interpret. In the Forbes article, GSK’s CEO Andrew Witty is quoted as calling the dispute over the activity of the Sirtris compounds “a bit of a storm in a teacup”. He says that the compounds that Pfizer tested in mice are not the same ones that Sirtris and GSK are currently testing in clinical trials for treatment of diabetes and cancer. (Sirtris’ compounds in clinical trials, discussed in the next paragraph, are in fact different from the ones tested by the Pfizer researchers.)

Currently, Sirtris is testing its proprietary formulation of resveratrol, SRT501, in a Phase IIa clinical trial in cancer. The company reports that SRT501 lowered blood glucose and improved insulin sensitivity in patients with type 2 diabetes in a Phase IIa trial. Sirtris is also testing a second-generation SIRT1 activator, SRT2104, in Phase IIa trials in patients with metabolic, inflammatory and cardiovascular diseases. SRT2104 was found to be safe and well tolerated in Phase I trials in healthy volunteers. Sirtris is also testing another second-generation SIRT1 activator, SRT2379, In Phase I trials. SRT2379 is structurally distinct from resveratrol and from SRT2104.

As we discussed in our original blog post, Elixir Pharmaceuticals is also developing various sirtuin inhibitors and activators for metabolic and neurodegenerative diseases and for cancer. One of Elixir’s products, the SIRT1 inhibitor EX-527, was in-licensed by Siena Biotech (Siena, Italy) in 2009, and was entered into Phase I clinical trials in January 2010. Siena Biotech is developing this compound for treatment of Huntington’s disease.

Despite the dispute over whether Sirtris’ compounds are real SIRT1 activators, the numerous studies on the biology of sirtuins are still valid. Companies with assays that use native peptide substrates and are amenable to high-throughput screening could use these assays to discover novel sirtuin activators. For example, Amgen published a report in 2008 describing such assays. The ability of companies such as Amgen and Pfizer to commercialize such novel sirtuin activators would depend on whether they could overcome the intellectual property position of Sirtris (and Elixir). Since Amgen and Pfizer are working in this area, this indicates that they believe that they can do so.

The efficacy of high doses of resveratrol in improving metabolic parameters of mice fed a high-calorie diet is also not invalidated by the Amgen and Pfizer studies. However these studies cast doubt on the mechanisms by which resveratrol exerts these effects. The apparent efficacy of SRT501 in improving metabolic parameters in patients with type 2 diabetes in a Sirtris Phase IIa trial is consistent with the mouse studies.

Finally, as we discussed in our November 8, 2009 blog post, longevity is controlled by numerous interacting pathways, which may provide at least several targets for drug discovery. Researchers are hard at work to gain additional understanding of these pathways, and some companies are working to discover and develop compounds that modulate these targets. For example, several companies are developing AMPK activators, as discussed in our original blog post. And numerous research groups are reportedly attempting to find drugs that act similarly to rapamycin in increasing lifespan in mice (the main focus of our November blog post), without rapamycin’s immunosuppressive effects.