Bigger Isn’t Better: It’s Time for Big Pharma to Break Up Into Little Pharma
Fresh headlines cross my desk almost weekly about the crisis in the pharmaceutical business. Jaw-dropping sums of money, about $65 billion a year, flow into the pursuit of new medicines. Yet every year we hear the same old refrain—a pathetic number of new FDA-approved drugs, just 21 last year—come out the other end.
This highly unproductive endeavor has caused endless hand-wringing and finger-pointing. Some like to blame the FDA for being too much of a hard-ass, setting impossible standards for safety and effectiveness. Others accuse scientists for overpromising about the benefits of the genomics revolution, then failing to deliver. Wall Street is an easy boogeyman, given its fast-money obsession that is out of whack with the long-term financial support drug development requires.
But if we really want to see more wonder drugs, then Big Pharma needs to take a hard look in the mirror. Big Pharma’s mega-merger binge of the past few years made quarterly earnings reports look better, and put a lot of money in the pockets of lawyers, investment bankers, and C-level executives. But now that much of the dust has settled, these companies can see they have created enormous global organizations (Pfizer/Wyeth, Merck/Schering-Plough, Roche/Genentech to name a few) that are so far-flung it is darn near impossible to know who’s on first anymore. Pfizer alone now has 110,000 employees around the world.
I’ve heard something close to this sentiment—on background—from multiple sources within most of the major pharma companies I’ve talked to over the past few months. Mega-mergers create a lot of internal bureaucratic headaches—which mostly get glossed over in favor of the spin about synergy and complementary corporate strengths. Months, sometimes years, get spent as these companies try to figure out exactly what they now have obtained through the merger, so they can figure out what to keep and what to scrap in their newly bloated organization. While they all say that partnerships with small biotechs and academic institutions are critical, becoming Titanic in size makes it hard to stay on the same path with smaller, nimbler organizations.
Technology, I’m sure some will say, will fix some of this inefficiency in drug development. We’re living in the age of the $10,000 genome, and fast on our way to the time when entire human genomes will be sequenced for $1,000 or so in an afternoon. It’s true, this is an exciting trend that is bound to help drug developers gain a much better understanding of the genetic and molecular underpinnings of disease. It ought to pave the way for more personalized therapies with a better chance of success in clinical trials.
There are some inspired ideas out there which could transform the drug development business. Merck, Pfizer, Eli Lilly, Novartis, Johnson & Johnson, and Abbott Laboratories have pooled resources in a Boston outfit called Enlight Biosciences that is seeking to create enabling technologies, like RNA interference, which can be used for the betterment of the entire industry. Some of the same characters are contributing money and data to Sage Bionetworks, a Seattle-based nonprofit seeking to spark an “open-source” movement for biology. The notion is that biologists can no longer keep working in isolation, and they need to put much more of their experimental data in the open, to harness the wisdom of the crowd to create better drugs.
But none of these technologies or collaborative efforts are going to amount to much if Big Pharma continues to set up R&D teams that are too big. It’s time for Big Pharma to get serious about breaking up into Little Pharma.
It’s hard to say whether Big Pharma is ready to go down this road. In a recent op-ed for The Economist, GlaxoSmithKline (NYSE: GSK) CEO Andrew Witty did acknowledge that an industry culture change is in order. The imaginative R&D environment he describes sounds more like the one you see sometimes at small biotech companies.
“In the past the problem of R&D in big pharmaceutical companies has been ‘fixed’ by spending more and by using scale to ‘industrialise’ the research process. These are no longer solutions.” Witty wrote. He added: “We need to recapture the ability to empower creative talent in the discovery phase of R&D by creating an environment in the labs that reflects the fact that discovering a drug is as much an art as it is a process.”
Witty doesn’t go so far as to say smaller is better, but the environment he describes sounds small, and reminded me of some comments former Merck CEO Ray Gilmartin made to me a few years ago when he was visiting his company’s Seattle branch. I asked Gilmartin whether Merck would continue to grow its Rosetta Inpharmatics operation in Seattle. At the time, Merck had about 300 people doing leading-edge work that was supposed to help it separate the wheat from the chaff in its drug development pipeline.
No, Gilmartin said, 300 people was pretty much as big as Rosetta would ever get. With fewer people, he said, it would be too small to make an impact. But if it got much bigger, then the staff would end up spending so much time in meetings, trying to figure out who’s doing what, that productivity would go down.
Gilmartin, regardless of whatever mistakes he made during his tenure, had a point. Very few of the high-impact drugs of today are coming from the biggest R&D budgets in Big Pharma. If you look at the eight blockbuster drugs in the works that I listed in this space a couple weeks ago, six were developed by small companies. Even if you add Bristol-Myers Squibb’s new FDA-approved melanoma drug to the list, that really shouldn’t count as a Big Pharma contribution, because all the critical early development work came from a small company, Medarex, that was bought by Bristol.
Do you think Big Pharma should get smaller to create new drugs? What is the ideal amount of money and manpower needed for pharma R&D? What kind of culture does it really take to pull of this act of art and science? I’d love to hear your thoughts in the comment section below.