Is Life Sciences R&D still valued?
Life Sciences businesses are never far from the news these days. AstraZeneca saw an 11% drop in revenues for the first half of the year and Emma Walmsley, Chief Executive of GlaxoSmithKline, is selling off non-core brands and streamlining drug development. Brexit uncertainty has pharmaceutical companies hard at work on drastic contingency plans in the wake of the European Medicines Agency moving from London to Europe.
Against this background contract research organisations (CROs) continue to flourish.
Paul Overton is the Global Head of Business Development & Marketing at Evotec and a scientist by background. Here Paul describes how the world of Life Sciences R&D is changing and how he sees the future.
How are changes in the market shaping how life sciences R&D is delivered now and in the future?
Historically the pharmaceutical industry was dominated by large household names like Pfizer, GSK, AstraZeneca and Novartis. An aging population, new markets (China, India and Russia), scarce expertise and long patents supported stability and strong business performance. Today, however, drivers such as the patent cliff, late stage clinical failure, the lack of translational crossing of the chasm and the rising costs of R&D are forcing the industry to think differently.
With growth in ‘big pharma’ at best flat, structural change has driven growth for CROs where the market is worth in excess of $25bn globally. Discovery is growing by 12% – 15%, Pre-clinical by 6% – 7% and CMC by 8% – 10%. Many pharma companies still operate in silos but there is a slow change. Companies are bundling development phases a little more now, and integrating some of the value chain vertically. The next big drive is going to be how to align CMC (chemistry, manufacturing and control) with regulatory preclinical, and discovery in an integrated manner. There is still a huge amount of white space between each business segment. We see large numbers of interesting compounds from customers reaching the end of medicinal chemistry phase that are not formulated in a phase appropriate manner. This regularly causes delays before you proceed into formal regulatory preclinical. While some steps of the developmental processes have been integrated, the cross-silo challenges still need to be addressed.
Is big pharma evolving their approach to the R&D model?
The largest risk and a key focus for investors is attrition, the cost of developing drugs that don’t reach the market. There is a power game going on within the pharma industry. You have the scientists with the view that they know best, but you also have the financial driver on the other side. There should be healthy friction between the two but sometimes it doesn’t work the way it should. Take outsourcing as an example, initially scientists chose which CRO to use. Then it became procurement-driven where CROs were selected down to three favoured providers or even a sole provider. The focus was on quantity and price rather than actual value created in the molecular asset. Now there is a growing understanding that ‘time is money’, and you look at the quantitative value of your asset in terms of how it progresses through the pipeline. On pure cost its clearly cheaper to do the work in Asia. But if you are looking for value which is created as a joint solution from using the technology and knowledge within the CRO industry, that’s a different argument. The value is different.
Is R&D changing for the benefit of the patient?
Personalised medicine is the way R&D is going and I think the days of the blockbuster are gone. If you target the right patient segment, theoretically you can charge a premium price as long as it does what it says on the tin. Pharma is learning that lesson. You can see that already with companies such as Shire, which is targeting orphan drugs or very specialised drugs, premium pricing it and doing very well out of it. Novartis AG is doing that and AstraZeneca is doing the same thing now. The approach is clear, it just takes a little longer to get there.
How has this evolving R&D model affected the CRO industry?
It’s changed a lot. It used to be seen as a service that you could just buy when required, if you look at the clinical market, that’s changed dramatically. Companies like Quintiles IMC, INC Research, PPD, and ICON have changed that model and people now see integrated clinical development as a single solution. Regulatory non-clinical is getting there, with companies such as Charles River Laboratories, Envigo and Covance, but again, I don’t think they’ve got that early stage piece sorted out yet.
It’s still not adding true value to the customer. The industry has changed for the better. Years ago people used to look down on CROs. Now, because of what’s happened in the industry, people transferring from CROs to pharma and vice versa, it’s changed the human dynamics. So, if you work in a pre-clinical CRO, you’re probably seeing 50 or 60 candidates a year, whereas if you are in a pharma company, you’ve probably seen one or two. Even the term CRO is dated because people see that as vaguely subservient. We like to use Partner Research Organization or Innovation Research Organization, so even the language is becoming more collaborative.
What creative solutions we might see over the next couple of years?
I think a lot more research is now done at cost in the CRO industry.
Innovation is driving the work rather than just profit. Because CROs have that knowledge internally, we look at the asset earlier and add value to take it forward. One of the phrases I quite like is ‘wooden dollars’, to describe a joint innovation fund. If you have a customer you work for on a regular basis, you both put into a research pot to innovate in that area or a similar area – a joint R&D fund, that’s one way of looking at it. CRO’s in the role of professional advisor, the honest broker that tells the customer that their molecule is not a preferred asset, would be a nice way forward.
What disruptions do you see going forward in R&D?
Digital health is a key part. That is going to deliver better drugs, more targeted to the patient than ever before. That’s got to be good for the industry as a whole. There will be some losers in it but I think, from a population point of view, it’s the right way to go. Another disruptor is that venture capitalists, rather than just sponsoring a company, are creating companies. They see some interesting research in a university and then create the biotech into the asset. All decisions are centred on creating value for that asset or portfolio going forward. If it isn’t creating value, they kill it because their money is more important.
And, finally, what about the Brexit question?
The issues are well known by now; European grant funding, the global movement of uniquely skilled people, investment from Asia and the move of the European Medicines Agency out of London are all potential serious handicaps. It’s hard to believe that there won’t be a solution that allows a thriving business sector to continue and as a sector we continue to strongly lobby to secure cooperation.