Health

New Drug Developments point to New Industry Model

Three interesting pieces of news in the pharmaceutical industry, reported yesterday on IHT and the Wall Street Journal Europe, point to an emerging trend in drug development and R&D.

The IHT reports on a new class of diabetes drugs developed by at least five drug makers - including Merck, Novartis, and Eli Lilly - derived from a Harvard study of proteins found in fish. The new drugs are important because they have significantly fewer side effects. Interestingly, the drugs were not developed inhouse. rather:

In 1992, John Eng, a doctor at the Bronx Veterans Affairs Medical Center in New York, moved the research forward when he found a a molecule in the saliva of Gila monster lizards that was similar to Habener’s GLP. Amylin Pharmaceuticals, a small biotechnology company based in San Diego, California, licensed Eng’s molecule, which the company eventually developed into Byetta, now sold by Lily

The Wall Street Journal reports on two related events:

1. A small biotech firm in Switzerland - Speedel Holding AG - spun off from Novartis, has developed aliskiren, a new type of high-blood pressure medication (see also biospace). It is the first new drug in a decade, with fewer side effects and 24-hour effectiveness. Interestingly, the drug was developed by Dr. Alice Huxley, who licensed the rights to research done by Novartis and subsequently shelved.
2. GlaxoSmithKline has expanded a drug research alliance with India’s Ranbaxy Laboratories. Under the deal, the Indian company can earn over $100 million for new drug development.

Common Thread

What is common in these three stories? The fact that big pharma had relatively little to do with them, beyond providing the money.

Both new drugs were created not by big pharma but by smaller companies. As the WSJ points out, “All over the $600 billion drug industry, big companies under intense pressure to make hefty profits are shying away from long shots, preferring to fund research into only the most promising projects.”

Worse, in the case of the diabetes drug, the basic research - the most risky part of drug R&D was done by smaller companies and academic institutions. Clearly, neither is big pharma as innovative, nor as risky as it would like us to believe.

The three developments point to a potential new business model for big pharma. The only way to maximize new drugs developed is to maximize the number of drugs under development. This requires lower cost, so outsourcing some drug development makes perfect sense. That is what happened here - in each case, big pharma has bought innovative drugs from smaller, more nimble, and cheaper companies, paying for late-stage clinical trials and marketing.

In this new model, big pharma is the frontend of a drug R&D supply chain. It does no R&D itself, but does have a big role to play as its deep pockets provide the incentive for smaller companies to take the risk of drug development. Obviously, not all companies will survive, but then most startups seldom survive. In the dotcom business, 90% of startups are expected to fail. Still, a 10% success rate in drug development may well be higher than what is currently the norm.

© 2007 The Discomfort Zone.