By Mark D. Uehling
May 15, 2003 | In a crisis, there are two types of friends. Some smile nervously, hoping not to offend. Others tell it like it is. Their goal is not to avoid a looming catastrophe but to get you through it in one piece.
Sam Barnett, IBM's lead partner for the life sciences practice in the Americas, falls into the second camp. At the 2003 Bio-ITWorld Conference & Expo, Barnett laid out an assessment of the pharmaceutical industry's future that was, for a few minutes, grimly familiar. Generic drugs grabbing market share, discovery pipelines clogged, research budgets rising.
Then Barnett shifted gears, and the ex-PricewaterhouseCoopers consultant (IBM bought PWC) supplied more ammunition and more bandages than are traditionally offered in critiques of the industry. He started with the all-consuming drive to find blockbusters. "We doubt this model will carry the industry forward in a sustained manner," Barnett said.
IT, Research to the Rescue
Barnett's not pushing Chinese herbs. He just doubts blockbusters will be found in sufficient numbers to keep the industry afloat. The good news is that IT, not without a little self-interest and more focused research, he said, could return the industry to the profitability it enjoyed in the past decade. The bad news is, today's companies must survive until (cough, gasp) 2040 to get back to 1990 levels of prosperity. Barnett said the smartest biotech and pharmaceutical companies are already spending heavily on IT and looking for drugs differently.
Companies unable to adjust, alas, are headed for a difficult future. Barnett closely analyzed why drugs are withdrawn from the market and found a surprising conclusion. "Forty percent of the products have been pulled for economic reasons," he noted, citing mergers, competitive concerns, and other factors that have nothing to do with adverse reactions in patients. "You wonder, what were they thinking early on?"
As IBM analyzes drugs about to lose patent protection through 2007, it puts the soon-to-vanish revenue at a staggering $73 billion, which amounts to a few percent of the industry's more than $2 trillion in revenue during that period. Names such as Claritin, Cipro, Zocor, Paxil -- all will be hit by generic competition.
Barnett calls this looming revenue shortfall "the cliff." "We don’t see replacement products there to supplant this revenue loss. We don’t expect this to turn around anytime soon," he said, mentioning that 28 products, worth a potential $20 billion in sales, had failed during clinical trials recently. "It’s a pretty depressing picture."
The current global $56 billion R&D budget in pharma and biotech is closely tied to overall revenue, he noted. That means that as revenue dips, the research budgets of the industry will shrink accordingly. Barnett suggested that a few companies are already paring back what they spend to find new drugs.
But the industry as a whole has failed to take the sort of drastic measures that carmakers, for instance, have adopted. "When you compare what’s done in pharma to what’s done in other industries, it’s a fairly light brush," he said of cost cutting. "If you’re looking at this as a patient, the patient is sick. Not quite near death. But getting there."
The Madness of Mergers
Nor should anyone draw hope from megamergers and the resulting mammoth R&D budgets that result. Said Barnett: "We have not seen great success of companies that have merged. Size of R&D spending is not related to productivity. In fact, it may be inversely related."
In fairly cutting language, Barnett went on to explain that biotech companies spend 10 percent of the industry's research budget "and get half of the innovation," as measured by genuinely novel drugs. The top 20 pharma companies, by contrast, spend three-quarters of the research dollars -- and get about one quarter of the innovation. "Size is not related to innovation," he said. "Most mergers don’t work as planned."
His prescription is simple: smaller target populations for new medicines, plus higher prices for drugs that don't just string patients along but actually improve their health. Today, Barnett said, drug companies "don’t want to cure someone, they want to keep someone on the drug forever."
In the future, he predicts that will change. Drugs such as Enbrel for rheumatoid arthritis, Procrit for anemia, and Risperdal for psychosis are examples, he said, of "high-density" drugs for targeted populations of patients. "We see these as indicators of what the future may bring. They can become blockbusters with a smaller number of patients. Rather than marketing to 500,000 doctors, you’re marketing to 10,000."
Barnett said his research shows that half the drugs coming to market today are "biologics," or large molecules such as proteins, monoclonal antibodies, and antibody fragments. Data from Centre for Medicines Research International, he said, suggest biologics have a fourfold better chance of getting FDA approval than chemical entities.
The downside is that some conservative pharmaceutical companies are uncomfortable with large molecules and especially wary of drugs that must be injected because they cannot survive in the digestive tract long enough to be absorbed. Still, he thinks the insurance companies will pay for the benefits such drugs bring.
Again, the early adopters are already forging ahead. "Half of the products coming to market today are biologics," Barnett said. "Half of them are brought to market by the biotechs themselves," that is, without partnerships with larger companies. "That was a surprise to me. I thought the biotech companies needed help."
Biologics can get approved with much smaller clinical trials, Barnett noted. But to get the biologics and other more-targeted medicines to market, he said, major IT investments are necessary today. As an example, he mentioned "adaptive" clinical trials, meaning tweaking the study protocol a bit more often.
"You have to have real-time data to do any of this," he said, not even bothering to outline the archaic, paper-clogged arteries of some major medical centers sponsoring trials. "That has huge implications for IT and systems."
Asked how the industry is responding to his views, Barnett replied that his analysis of the problem is accepted without much objection. It's the remedy that is meeting resistance. "There is a lot of pushback and disbelief," Barnett said of the predicament facing the industry. "They hope it will go away."