When AstraZeneca revealed details last week of 3,500 job cuts across its global research and development operations, it was not just the company’s own employees who felt concerned.
The decision by the Anglo-Swedish pharmaceuticals group is the latest in a series of recent restructurings that will have an important impact on the volume of future medical innovation and the way in which it takes place.
Many companies have reduced in-house expenditure and closed some disease research units in the past few months, partly to reduce duplication following a series of large-scale acquisitions such as Pfizer’s takeover of Wyeth and Merck’s of Schering-Plough.
Other “big pharma” companies have taken similar steps, seeking fresh efficiency measures at a time of growing commercial pressure to reduce fixed costs. GlaxoSmithKline said last month it would halt research in areas including depression to concentrate on diseases where the science and its own strengths are more promising.
Chris Viehbacher, chief executive of Sanofi-Aventis, says: “A third of our total research and development spending are costs for buildings before you even switch the lights on and bring in a single scientist.”
The action frees up money to be invested more flexibly in promising projects, whether taking place internally or externally. That reflects a growing recognition even by companies such as Merck – once proud of its almost exclusively in-house efforts – of the need to tap scientific breakthroughs taking place outside its own walls.
Andrew Baum, pharmaceuticals analyst with Morgan Stanley, forecasts that many more companies will shift towards a greater “externalisation” of their drug portfolios, estimating that the returns could be three times as high from investing in less risky drugs already brought to mid-stage development by biotech companies.
But the switch away from in-house drug development by large companies also raises concerns. David Brennan, chief executive of AstraZeneca, says: “You still need to have sufficient in-house staff to scrutinise external projects.”
There are also more fundamental worries about whether smaller drug developers can maintain the total industry “pipeline” of drugs. Clive Dix, chairman of the BioIndustry Association in the UK, says: “The jury is still out on whether biotech will be enough to fuel the engine of big pharma in the longer term.”
Mungo Park, chairman of Innovator Capital, a healthcare specialist bank, cautions that extra money for biotech from the larger pharmaceutical companies will be insufficient to offset a decline in other sources as investors turn towards other sectors such as “clean technology”.
External projects remain far from a panacea. Last week Pfizer announced the failure of a clinical trial of Dimebon, the Alzheimer’s disease drug it developed with its partner Medivation. Yesterday Roche closed down a joint project with Biogen Idec to develop Ocrelizumab, a rheumatoid arthritis treatment.
A recent study by Thomson Reuters estimated that in-licensed drug compounds systematically failed more often that those originated in-house at every stage of the development process. Big companies will need to learn from in-licensing failures if their new externalised approach is to succeed.
Source: The Financial Times Limited 2010
Popularity: 5% [?]
