"It's really hard to turn a research dollar into a profit dollar."
--Erik Gordon, a professor at the Ross School of Business at the University of Michigan, commenting for a January 14, 2009, article in the New York Times on Pfizer's recent decision to fire 800 research jobs this year, as they narrow their focus to six disease areas (cancer, pain, inflammation, diabetes, Alzheimer's disease, and schizophrenia).
"Our time of standing pat, of protecting narrow interests and putting off unpleasant decisions -- that time has surely passed."
--President Barack Obama, Inaugural Address, January 20, 2009.
While layoffs seem to be all too common these days given the nosedive our economy has taken in the past year, Pfizer's layoffs likely point to issues that I think are disconnected from other sectors' struggles.
For decades, we all have counted on the private sector to drive progress toward new drugs and treatments for disease, but there is a chance -- through no fault of their own, unlike what we're seeing with financial institutions -- that the pharma/biotech development model is built for the era of first-generation drug discoveries like those made in past decades, not for the discovery of drugs for diseases that are several steps up the complexity staircase. In an era of change, we may need to reconsider a more deliberate role for the public sector in driving discovery into development, and potentially through the first stages of what has been traditionally viewed as "commercial" development.
At the risk of stating the obvious, biology is hard. Shareholders' desired horizon for payoff may not be aligned with what pharmaceutical companies can realistically provide--especially in an era where the low-hanging fruit may be gone. This is old news, but only for those "in the know" -- and I think it's critically important for a broader group of stakeholders to think about the way things work today and why we might be headed for an even greater slowdown in the development of new medical treatments that can improve and save lives than we've already experienced to date. Here is a broad overview of what I see from where I sit, and why I'm concerned.
For at least the last 10 years, we've watched the big pharmaceutical companies, if they stay in core research at all, eliminate their internal core research efforts into anything but disease areas with the largest pools of possible customers. While it gives one pause to see the giants of the last drug development revolution scale back so significantly, clearly redefining the model of their business, the void has been filled by the explosion of the biotechnology sector during the same timeframe.
Today the biotech sector encompasses a seemingly endless range of narrowcast companies and focuses, but almost all of them start the same way: as small, nimble, research-focused enterprises with passionate scientific founders who are tackling a particular disease or class of diseases using newly discovered technologies. These companies often are started by a basic researcher who has discovered in his academic lab something commercially viable; to capitalize on this discovery, a biotech is formed.
In their earliest days, many of these companies are funded primarily by angel investors and occasionally by the federal government's Small Business Innovation Research program. Others are funded by venture capital firms that look for relatively rapid translation from concept to product to clinical testing and that don't usually have the patience or funds to spend years working out solutions to unexpected problems or obstacles encountered along the way. As these young biotech companies progress through the earliest stages of drug development -- compound screening and product development, including in vitro and in vivo testing -- they frequently live hand to mouth, as traditional NIH funding, the bread and butter for the academic labs that made the initial discovery, is not available to the companies founded to carry the discovery forward.
If the science is successful, possibilities begin to emerge. One is a license or joint-development agreement, or even acquisition by a pharmaceutical company like Pfizer, willing to pay to bring innovation and potential blockbusters into their pipeline. But over the last 10 years, Big Pharma has become increasingly risk-averse about when they will pay. Most will not seriously consider a joint-development agreement without clinical data nor an acquisition without controlled, Phase 2 results -- confirmation of efficacy in a double-blind, placebo-controlled trial.
A second possibility is that the biotech grows through private venture capital financing until it can go public. But even those companies with early funding from marquee venture capital firms run into difficulty securing additional rounds of financing to support product development over the timeframe that may be required. Venture capitalists typically need payback on their investment (i.e., the "exit strategy") in a five-to-seven-year horizon, if not earlier -- and thus cannot continue to support programs that hold great promise but have run into problems.
As I've observed this business over the past six years, my biggest concern about this increasingly complex and somewhat disjointed drug development pipeline has been not a sense of fundamental malfunction in the system itself but how the emergence of increasing numbers of new biotech players leads to increased dysfunction in information-sharing among players on the front lines. Given that "hoarding" information (even non-competitive information) is already much more common than sharing it in the biological sciences, this is saying something. As technical and innovation expertise migrates to start-ups -- many of whom don't talk to each other, let alone to pharmaceutical companies --positive and negative outcomes from early applied work cannot be shared and understood as clearly as it was when the vast majority of R&D took place under Big Pharma's collective roof.
As I write this, though, I have an increasing fear of something even more problematic: What happens to this intermediated system if funding dries up in the middle? What happens when the venture capitalists realize that, as Professor Gordon says, "It's really hard to turn a research dollar into a profit dollar?" For that is certainly what we are seeing today, and it seems that this is not an issue that will go away anytime soon.
I've written before about my strong belief that more private research funders should adopt deliberate strategies to accelerate drug development -- as our foundation and a handful of others have. But the hard truth is that, while foundations can provide critical capital to translational research and play a leadership role in raising awareness of the issues facing disease research, our money will ultimately be only a drop in the bucket of what's required to develop new treatments for the illnesses we're committed to curing. The best we can hope for, to paraphrase Melinda Gates, is to shine light on new ways and new models for tackling the challenges at hand.
In a scenario where pharma is axing research, publicly traded biotech companies are running out of cash (the Biotechnology Industry Organization, the chief organizing and lobbying group for the biotech sector, estimates that 45 percent of publicly traded biotechs will run out of cash in the next six to 12 months), and venture capitalists are retreating as they recognize how damn hard it is to transform research costs into profitability, what can we expect of the next 10 years... particularly as the buoyant economy of the last 10 comes to a screeching halt?
Problems. Major problems. For both publicly traded and emerging private biotechs, if investors decide that the risk outweighs the reward, we will see even longer development cycles or perhaps no investment in converting discovery into treatments at all. We all will be left holding the bag -- in the form of a giant void in funding, one whose impact cannot be overestimated. One that the government is not prepared to handle, and one that private foundations simply don't have the capital or scope to impact. The 10 to 15 years it currently takes to develop a new therapeutic, already a timeframe impermissibly long for those individuals struggling with disease and their family members, will be drawn out and the path to advances will be stalled.
The answer doesn't lie simply in a stimulus package of one kind or another. It's far more complicated than that, and incremental change won't cut the mustard. But this is an issue that affects all of us, one that's too big to ignore. As President Obama noted, the time has come to stop putting off unpleasant decisions and instead meet the demands of a new age. We need to take an honest look at the medical research enterprise to assess what's working and what's not. Are players' incentives aligned? Do risks match reward? It's critical that smart people who may never have thought about the drug development pipeline become engaged in this subject now -- before medical research slams into the wall.