IT’S THE END OF THE WORLD AS WE KNOW IT
Probably most of you are not familiar with this song by R.E.M., dated on 1987. Twenty years after that, the title has become true. You are probably thinking right now ‘Oh, no, another guy talking about the crisis!’. And you are right! But the crisis I am talking about is not the financial crisis; it is the big pharma crisis. This one has been coming much earlier than Lehman Brothers crack, and, as usual, many people saw it coming.
If you remember, one year ago our editorial was also dedicated to the crisis, but then the focus was on the reliability (take a look here to refresh your memory). Today, the focus is the title. Keep on reading.
One of the most important things about crisis is that they usually are shifting points. When the financial crisis started, many people, including governments, thought that it was a temporal delay, just a nuisance in a bright trend for the future, and the measures needed were just bridges to cover the gap until we could come back to business as usual. Nope. The world as we knew it has ended. A new world is taking shape in front of our eyes.
When you put this in the context of the Pharmaverse, where big pharmas and biotech companies live, the result is that the Old Good Times are over. The big pharma model with its high R&D investments and decreasing returns, mergers and acquisitions (M&A, yes!), and declining pipelines is over. If you want to read many different opinions about this, last month Derek Lowe launched a very interesting post in its blog, In the Pipeline, during the last month. What is most interesting in the post are readers’ comments, by people coming from many different fields and with a long experience in drug development. More than 100 comments, but believe me, they are worth the reading.
I will add here my own vision of this new world, a vision that I have commented in private with some people, working both in pharmas and biotechs, and that I briefly shared with you through this newsletter more than two years ago in another editorial.
1. Outsourcing R&D is a good idea, but has limits. For some big pharmas, the R&D outsourcing has been a growing trend during the last decade. But for some companies outside the Pharmaverse, like Boeing, an extreme outsourcing has cost billions of dollars. Outsourcing strategic parts of the company can lead to terminal consequences, and I fear that some big pharmas will see it in a near future. By the beginning of February, Pfizer announced the closure of its site in Sandwich, key in their R&D efforts; most of the work, including some strategic parts, was being outsourced to companies in the Far East, where they spent a couple of years training to do the work. Additionally, one very worrying issue about this extreme outsourcing is the long term results in the scientific base of some countries. Some people say that in the next ten years there will be no more medicinal chemists in the USA anymore.
2. Hiring armies is not always a good idea also. Since my CEO has forbidden me to use a politically incorrect example which hit the headlines a few months ago, I will use this one: to prepare a gala dinner, is better having a good cook in the kitchen than twenty half-cooked cooks. To be less cryptic, hiring an army of chemists simply does not increase the productivity as expected. It can sound counterintuitive, but if one chemist prepare X compounds, ten chemists do not prepare ten times X compounds. There is no linear increment in productivity, because there are coordination problems, increasing management, etc. The bigger the group, the worse the situation becomes, until you have a big dinosaur spending more resources in coordination than doing chemistry. Sounds familiar? Pfizer is now talking about splitting the company or spinning off some parts to reduce the weight.
3. Concentrate in your strong points and leave the weak points to professionals. I have seen some biotech companies with a deep expertise in biology outsource everything but the biology, thus becoming almost virtual companies. Others have tried offering packages from CROs, including everything (chemistry, biology, GMP production and clinical trials), just because the price was good, with abysmal results in the end. Probably this particular mistake has two causes. The first, some people just cannot reject an offer, need it or not. The second, the old idea about everybody being smarter in other places. My freak example: the AV-8B Harrier II simulators used by the US Marine Corps are built by Indra Systems, a Spanish company, though as everybody knows German engineering is the best in the world. Corollary: in the Far East they can be smart, but here in Europe we are not dumb.
4. Collaboration is a great concept. For some big pharmas, the innovation during the last twenty years came from internal efforts or from M&A, but then the reasoning was something along the lines ‘I like your technology, so I am acquiring the company, taking the patents, selling all the assets and firing the people’. As I said two years ago, when you are intelligent you purchase a good technology and when you are really intelligent, you hire the people who developed the technology. Applied to the Pharmaverse, with the declining of R&D investments, some companies are more interested in the ‘let’s collaborate’ approach than in the ‘let’s purchase you’ approach. However, this means that CROs, which are basically services providers, must face a change in their business model. The end of the world as we know it.
But remember, the whole title of the song is ‘It’s the End of the World as We Know It (and I Feel Fine)’.
