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Technology Vendors Face Challenges


By John Russell
June 13, 2007 | Some days you’re the pigeon. Some days you’re the statue. These days, many sellers of leading edge R&D technology products and services feel like statues waiting for a good rain.

Disappointing returns from massive technology investments, growing panic over thin pipelines, and dwindling profits have fixed the pharmaceutical industry’s eye firmly on obtaining — that’s obtaining, not so much discovering — new drugs and containing costs. Frankly, it’s hard to blame them. As pointed out by Bio•IT Expo keynoter Robin Spencer of Pfizer, the curve for R&D costs per drug is downright ugly (see p. 21, in which Spencer explains his distinctly low-tech idea for redrawing this curve).

Call it another correction, begun perhaps six-to-12 months ago, steadily gathering steam, as one by one, the major pharmaceutical firms were jolted by harsh economic realities. They need new drugs to sell. If not in lock-step, then at least in like-step, they are circling the wagons around therapeutic centers at the expense of technology initiatives and trying to buy compounds to stoke the therapeutic center fires.

Pfizer is the most recent giant to visibly undergo the change as part of a company-wide reorganization set in motion by CEO Jeffrey Kindler last January. Kindler’s plan calls for the ascendance of therapeutic centers and, to a considerable extent, the descent and even disbanding of global technology centers. Novartis is undergoing a similar shift. Several others began the transformation earlier.

Inevitably, heads are rolling. In late May it was announced that John LaMattina, Pfizer’s president of global research and development, would retire. At Novartis, Mark Boguski, then VP and global head of genome and proteome sciences, left the company. They are just the most visible casualties. Many others, including a disproportionate number of technology execs, are quietly being reassigned or let go.

So it goes. It’s the times, not the people, many of whom are truly excellent.

Strategic Spending
Right now, the industry’s hunger for drugs is directing the flow of investment. That’s probably as it should be. Critics often complain that pharma companies (and venture capitalists) are like sheep and when one is spooked, they all flee. Fair point. But when a wolf appears on one side of the hill, if you are lucky enough to be alerted by the bleating (or blood-letting), it’s a good time to get off the hill. 

Pharma isn’t going to stop buying or using R&D technology. It is going to buy less of it near-term. It is going to be more discriminating about what it buys. It will want to connect the investment to a concrete return faster. It will also meddle more when it does make an investment in technology. Hey, it’s their money, and they’ve got less of it.

As Entelos CEO James Karis says elsewhere in this issue (see p. 18), “I remember I was at a conference when I first joined this company and the CEO of a pharma company stood up. It was a room full of technologists, even genome people, everybody else. He said, “I’m looking at a room full of cost centers. Until I get a drug, all you do is cost me money.” I think we forget that sometimes. Right now they need drugs. They need sales.”

Surviving the latest technology buying slowdown will stress many companies with good but unproven ideas. Many sellers of mainstay R&D technology could also experience flat sales. As in the past, some technology providers will scramble to reinvent themselves as drug discovery companies.

Handicapping which technologies will suffer most is a tough call. Systems Biology will take a few lumps. High-throughput technology buys are likely to slow. Pharma’s emphasis will be on using the tools it has and dumping a few that have not delivered. The best course for leading edge technology providers working through the coming dry spell will be a combination of cost-control, proof-of-value, and failure to panic.

No doubt fundamental changes are occurring in the pharmaceutical industry, but cyclical forces are also at work here. When the scramble to buy promising compounds proves unable to adequately fill the pipeline, a new hunger for technology solutions will emerge and it will be interesting to observe which new technologies excite interest and loosen purse strings. What’s your guess? Write to me at john_russell@bio-itworld.com.

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