Thursday, March 13, 2008

The Failure of Industrialized Research (Part 1)

Drug discovery is unpredictable and unmanageable. So why do large pharmaceutical companies spend so much money on it?

Observing the pharmaceutical industry from a prudent distance, one might wonder at its apparent confidence in it ability to discover new drugs. Pharmaceutical companies maintain great staffs of scientists and spend increased sums of money on technologies meant to increase the chance discovering new medicines. Their research-and-development budgets surpass that of the National Institutes of Health. And this investment is only growing: global expenditures on R&D has doubled over the past 11 years, from $22.2 billion in 1991 to $44.5 billion in 2001. If the investment by pharmaceutical companies continues to grow at this pace, R&D spending could reach $57 billion in 2006.

But closer inspection reveals a contradiction: in most cases, these large corporations purchase seminal drug ideas from smaller, entrepreneurial biotechnology companies and university research laboratories. In 2001, the 14 major pharmaceutical companies were responsible for discovering merely 26% of the 32 biologics and new molecular entities (NMEs, defined by the Food and Drug Administration as active therapeutic ingredients that have never been marketed in the United States), while being responsible for 65% of global R&D spending. Biotech and academic labs produced the remainder.
[2] Furthermore, the productivity of pharmaceutical companies is decreasing: the number of medicines in the early stages of development (preclinical and clinical Phase I and II) dropped by more than 20% from 1999 to 2001. [3]

Finally, consider this: most of the NMEs that big pharmaceutical companies do develop are not focused on new targets; they do not create entirely new medicines or open up new markets. Of the 32 FDA-approved medicines that came to market in 2001, only 5 were novel therapeutics or were directed against new targets.
[4] None have their roots in large pharmaceutical companies (see “FDA Novel Therapeutics or New Targets, 2001,” page 49).

A critical assessment of these products reveals that many are me-too drugs, that is, they are structurally similar to and affect the same targets as drugs already on the market. What pharmaceutical companies call NMEs ver often aren’t new at all: of the 13 new drug applications (NDAs) approved thus far by the FDA in 2003, 8 are reformulations or combinations of drugs that have already been approved.
[5] Xanax, in a new extended-release formula, makes the list. Another, Cardizem, was first approved in 1999. [6]

“A company with a research budget of $4 billion should be turning out five new drugs a year, and they’re not,” says Charles Grudzinskas, an industry consultant and professor of pharmacology at Georgetown University Medical Center.

What, then, do those armies of corporate scientists do? Do pharmaceutical companies accumulate them as tokens of prestige? Or is this merely a fossilized behavior that once made economic sense?

For large pharmaceutical companies, the issue is, predictably, a sensitive one. Most of the senior executives we contacted for this essay declined to be quoted on the record. But one put it this way: “Oh, we do it for a variety of reasons. Because revenues permit it; research is only a fraction of out total budget. Because it only takes one success to win big; it’s a venture mentality. Because consolidation is inevitable, and bigger looks better. And finally, because management has a vested interest in wasting money. Our stock price is supported by the appearance of large-scale research and a full drug pipeline.”

The executive was, perhaps, being excessively cynical. His reasons, while partly true, are subsidiary: the best explanation of why pharmaceutical companies invest in early-stage discovery is that they have their reasons (even if, as will be discussed later in this essay, the scale of their investment is irrational). According to UBS Warburg, only 20% to 25% of the R&D spending by pharmaceutical companies is for drug discovery itself; the great majority is spent on development. Research is thus a sunk cost of being in the drug busniness: since the best, most innovative ideas are purchased from others, big companies need scientists to validate outside discoveries and to develop those discoveries once they have been purchased. Industry-based scientists analyze drug candidates for toxicity and other risks in cell cultures, animals, and people. Finally, they optimize molecules and create variations on known themes. In other words, pharmaceutical companies need experts to validate potential acquisitions and for drug development; therefore, they must invest in both.

Increasingly, the secret ecology of the big pharmaceutical industry is to outsource drug discovery. In 2000, 55% of big pharmaceutical companies’ approved products were “in-licensed,” in the jargon of the trade. In 2002, this fell to 36%, and increased mergers and acquisitions suggest a growing reliance on external discoveries: deals and alliances for preclinical and discovery products increased by 85% between 2000 and 2002.

Consider the case study of Bristol-Myers Squibb and ImClone. After spending $14 billion in current dollars on research over the course of a decade, Bristol-Myers Squibb felt it necessary to spend another $2 billion to acquire the rights to Erbitux, the anticancer drug candidate from ImClone (see “imClone Systems,” page 26). Amgen, whose first two blockbuster drugs trace back to before the company’s founding, has spent $1 billion a year – 25% of its sales – on research, yet it, too, has gone to outside sources, notably spending $9.6 billion to acquire Immunex and, and, with it, the arthritis drug Enbrel. Even Human Genome Sciences, which has defined itself by its powers in drug discovery, has resorted to outsourcing, paying $120 million to acquire Principia, mainly for its long-acting growth hormone technology.

How did this happen? By now, the industry had expected to be feasting on the fruits of a revolution in fundamental research technology. Genomics and proteomics were to have produced vast quantities of molecular targets in the body (and in the organisms that infect it). Combinatorial chemistry was to have made a blizzard of arrows, some of which would surely hit those targets. High-throughput screening was to have shot those arrows at myriad targets to see which ones stuck. The resulting plethora of new ideas was forecast to be almost more than the development side of the industry would be able to exploit. But for all their sophistication and promise, these tools have as yet contributed few new product ideas.

Traditionally, companies have made substantial investments for research by their own scientists into the types of drugs they already market. Several other approaches to drug discovery have been tried. Some companies have even freed their scientists to do pure research, without corporate interference, at entities like the Merck Genome Research Institute, the Bristol-Myers Squibb Pharmaceutical Research Institute, the Pfizer Technology Discover Center, and DNAX, which was purchased by Schering-Plough to carry out basic research in immunology. Some companies have outsourced their research by sponsoring academic research in return for first dibs on the commercial rights to any discoveries. As far back as 1980, Germany’s Hoechst entered into such an agreement with Massachusetts General Hospital (but got little out of it).

None of these strategies, individually or in combination, has provided the predictable flow of promising new therapeutics that the industry requires to maintain its profitability. Disenchantment with the unpredictability and unmanageability of a discovery model driven by investigators’ curiosity and instinct has propelled the movement toward an industrialized model of research with large-scale screening as its foundation.

Part 1 of 3. Part 2 to follow shortly.

Contributed by Barry Sherman and Philip Ross. Originally published by them in The Acumen Journal of Sciences, Volume I and reprinted with their permission.

1 Centre for Medicines Research International Pharmaceutical R&D Expenditure and Sales 2001: Pharmaceutical Investment and Output Survey 2001: Data Report I.
2 Ibid.
3 Ibid.
4 Zambrowicz, B., A.T. Sands (2003) Knockouts model the 100 best-selling drugs – will they model the next 100? Nature Reviews: Drug Discovery 2(1) 38-51.
5 FDA (2003) New Drug Approvals for Calendar Year 2003,
6 FDA/Center for Drug Evaluation and Research. Reports to the Nation 1993 – 2001 and Drug Topic Archives New Drug Approvals 1995 – 2001.
7 Burrill & Company (2003) Biotech 2003: The 17th Annual Report on the Industry.

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