培育了中印生技產業的西方委外資源(Outsourcing)還會是台灣生技產業的機會嗎？

這一期美國商業週刊有一篇報導關於歐美大藥廠委外研發趨勢的文章「Outsourcing the Drug Industry」，內容比較傾向一般性報導，並無艱深之統計數據或專有名詞，轉載它只是因為文中提到了印度與中國的委外產業，恰可做為一個引子。另外在2008年5月份的Harvard Business Review有一篇由葛蘭素(GSK)的執行長 Jean-Pierre Garnier所撰寫的「Rebuilding the R&D Engine in Big Pharma」，寫得相當好，可惜沒有免費全文，有興趣的人可以上政大哈彿商學院個案發行中心單篇購買。另外我也收錄一篇歐美藥廠三位巨頭：葛蘭素執行長 Jean-Pierre Garnier、阿斯特捷利康執行長 David Brennam、先靈葆董事長兼執行長 Fred Hassan針對Big Pharma發表在NGP的訪談「Great Expectation」，面對新藥研發成本高漲，臨床測試費用二十年來攀高近十倍，而FDA核可新藥速度卻仍然牛步，甚至安全審查更加嚴格的世紀困境，他們如何突圍？研發與臨床測試項目委外到低成本、高效率的亞洲地區會是他們的選項嗎？

研發委外不是今天才發生的事，趨勢是逐漸形成的。我有興趣的問題是：

(1) 台灣政府現在手上的生技產業藍圖為何？台灣的產學界對這份藍圖有沒有共識？

(2)  台灣的生技公司能用什麼樣既有的的商業模式生存？台灣的生技公司需要或者能開創新的商業運轉模式嗎？

(3) 過去10年來，台灣為什麼沒有廣泛地被國際大藥廠列為合作的對象？

(4) 台灣要如何建構島上生技產業與這些大藥廠的合作模式？印度與中國的路，台灣能走嗎？在亞洲，台灣如何面對印度、中國、新加坡的競爭？

(5) 中草藥或是植物新藥是台灣生技公司發展的唯一活路嗎？小分子新藥與蛋白質新藥的生技公司，在台灣有生存利基嗎？

面對上面的問題，很難一一說清楚，更何況每個問題都見仁見智！剛好這一期(2008年9月號)科學人有一篇四頁對中研院院長翁啟惠的訪問「翁啟惠：台灣生技產業有機會！」，乍看標題，真是興奮莫名，趕緊翻閱拜讀。讀畢心中有點悵然，倒不是對台灣的生技產業失望而悵然，悵然是因為看到極重要的標題，卻沒有在內容看到相應於標題的答案。文章前半部算是閒聊生技發展的看法，後半部是談中研院的角色。其實我覺得標題下得太濫情，已經有數字週刊的味道，標題若下成：「與翁啟惠淺談台灣生技產業現況與中研院的角色」應該是比較中肯，當然，這樣中規中矩的標題對讀者的吸引力就差很多了。

整理一下，翁院長對台灣生技產業樂觀的理由有下面幾點：

(1) 台灣通過生技新藥條例，將帶動生技產業起飛。

(2) 台灣有很好的人力素質，也有資金，加上基礎研究成果不錯，只要資金願意投入，前景當然樂觀。

(3) 台灣醫療器材產業規模已超過藥品.....若能結合具有優勢的電子及醫療......將來一定很有希望。

(4) 我國衛生署的規定接近美國FDA的標準，如果好好發展一些具有地區特色又有世界市場的產品，我們應該有機會的。

(5) 台灣生技專利數目排名世界第16，若除以人口數就是世界第3、4，很多專利都是新發明，卻沒有開發出價值、做成產品，非常可惜。

(6) 現在的藥約半數是從天然物提煉出來，健康食品及中草藥皆是天然物，應有機會進一步發展為新藥，是值得發展的產業。

翁院長說得對不對？文章千古事，得失寸心知。我乃後輩，並不適合評論，希望樂觀能夠成真。另外科學人曾在2006年3月有另一篇專訪「翁啟惠：製藥是台灣生技業的出路」，內容相當不錯。

下面收了幾篇翁院長的新聞及意見，做為補充：

中研院院長翁啟惠成大論壇開講、翁啟惠：30年後所有公司都與生技有關、生技條例通過　翁啟惠：對產業爆發推動力、翁啟惠：發展生技 蹲好研發馬步

附註：最後，說聲抱歉，我實在無力逐一翻譯這三篇原文，期待未來有真正智慧型的翻譯機器問世，科學人在2006年4月號有一篇「翻譯機器前景可期」，引之聊以為安慰。最後對自己的不務正業，以下面這張圖自娛：

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In Depth September 4, 2008, 5:00PM EST

Outsourcing the Drug Industry

U.S. giants are rushing to partner with Indian and Chinese companies—tapping their brainpower and saving millions of dollars in the search for breakthrough treatments

by Pete Engardio and Arlene Weintraub

In her swank headquarters just blocks from some of Mumbai's worst slums, Swati Piramal is midway through an impassioned pitch about revolutionizing the world of drug discovery. Sanskrit passages of the Bhagavad Gita, the ancient Hindu text that guides her business philosophy, adorn the office walls of her company, Piramal Life Sciences. Its logo is gyan mudra, a finger gesture used in yoga meditation resembling the Western sign for "A-O.K."

Journey now to Bangalore. After a crawl through the city's notorious traffic and a bone-rattling ride over a cratered road that washes away with each rainfall, the four-wheel-drive van arrives at the glistening, ocean liner-shaped headquarters of Jubilant Biosys. The laboratories inside are world-class. But when equipment fails, repairs often take a week, scientist Ajith Kamath explains sheepishly. Lunch is Domino's pizza with toppings that include corn, Indian paneer cheese, and hot spices. Turns out Jubilant is co-owner of India's Domino's franchise.

At first glance, companies such as Jubilant and Piramal may seem too undeveloped—or perhaps just too culturally remote—to rub shoulders with the world's top pharmaceutical makers. But judging from all the deals taking shape in India, they may have a critical role to play in the industry's future. In recent months, Western executives have been flocking to India's hastily built science parks, looking for allies in the never-ending quest to develop blockbuster treatments. With little fanfare, they've started a process that could lead to wide-scale outsourcing of drug research to Asia.

Five Western companies have formed drug discovery partnerships with Jubilant, including Eli Lilly (LLY), Amgen, and Forest Laboratories (FRX). Lilly is also partnering with Piramal, as is Merck (MRK). Every month deals are signed with India's elite pharmaceutical companies. The goal is to take promising compounds discovered by the multinationals, run tests to weed out the weakest candidates, and develop some of the others into marketable drugs. Eventually the Indian partners also hope to rack up scientific breakthroughs that lead to entirely new medicines for diseases such as Alzheimer's, cancer, or diabetes.

Looking beyond India's potholed streets and poverty, Western drug executives say they've forged a powerful model for research collaboration. The timing is no accident. Despite spending billions at home on technologies to turn gene-based discoveries into new medicines, pharmaceutical companies are struggling to come up with revolutionary products that will pull them out of a five-year slump with virtually no revenue growth. In desperation, the drug giants are paying hefty premiums to swallow biotech companies—witness Roche's $44 billion bid to purchase Genentech (DNA) in July.

What the multinationals now seek from India is the same combination of brainpower and cost savings that made the subcontinent a leader in software and computer services. Some Western companies are volunteering to share intellectual-property rights on new discoveries and even divvy up the profits. "It's a transformation of the R&D enterprise," says Robert W. Armstrong, Lilly's vice-president for global external research. "We have to think in a totally different mode."

The rush east, where five PhD chemists can be had for the cost of one in the West, entails risks. At a time when Pfizer (PFE), AstraZeneca (AZN), and others are slashing U.S. R&D jobs by the thousands, the buildup in Asia is bound to set off alarms that America is sacrificing another key industry through radical outsourcing. But if the strategy works, it could save the drug industry billions of dollars, bring down the prices of new drugs, and accelerate breakthroughs.

The impact of research outsourcing will be amplified greatly as China, with an even bigger pool of biochemists, expands its role. Lilly, Sanofi-Aventis (SNY), and others have already struck up partnerships there. China has "extraordinary potential," says Eric J. Topol, former chief cardiologist at the Cleveland Clinic, who advises HUYA Bioscience, a drug licensing venture based in San Diego. China could yield "a flood of potentially important therapies. It's just a matter of time".

The East-West research collaborations are new and have yet to produce a single drug. But many Western executives say they're stunned at how quickly the Indian industry is achieving targets set by the joint ventures. Just a few decades ago, India was a outcast in the pharma business. To the outrage of Western multinationals, New Delhi in the 1970s declared it would cease honoring patents on pharmaceuticals. Thousands of generic drugmakers then sprouted up, reverse-engineering Western medicines and distributing them in India and in other developing countries. The Indian executives argued they were providing a social service, selling antibiotics, say, for a fraction of what Western patent holders demanded. In the 1990s, Indian generics makers Cipla and Ranbaxy Laboratories started selling AIDS cocktails in India and Africa at just $1 per dose.

Even Indian drug executives, however, realized the knockoff business is a dead end. Almost all of India's top pharma managers say their cherished goal is to stamp out diseases in the Third World. That will require breakthrough medicines, not factories full of pirated generics. They also recognize the only way to jump-start a modern industry is through collaboration with Western drug companies. So in 2003, New Delhi reversed course and said it would protect the rights of foreign patent holders.

The first collaborations involved fairly simple lab work, mainly to save on labor costs. The Indians wanted more responsibility. But while India had plenty of good chemists who could crank out drug knockoffs, it lacked biologists with the deep knowledge and experience to develop novel compounds.

When Sandeep Gupta, a former Forest Labs research director, toured Indian pharma companies in 2006, he urged the CEOs to import talent fast. "I told them unless they expanded their biology capability, I couldn't [make deals] with them," he says. Soon, local drugmakers were snatching up thousands of Indian-born biologists who had trained abroad and offering them leadership opportunities. Jubilant nabbed Kamath, a 14-year veteran of Pfizer, to head its nascent structural biology department, and V.N. Balaji, who had worked at Monsanto (MON) and Allergan (AGN), as chief scientific officer. The company quickly expanded its team of 50 chemists and drug discovery experts to an army of 700. "If you told me five years ago this would all be here today, I would have replied 'no way,' " Kamath says.

Over time, the partnerships evolved into co-development arrangements. The turning point was a 2003 collaboration between GlaxoSmithKline (GSK) and Ranbaxy. Glaxo handed over novel compounds thought to have medicinal value and offered its Indian partner a share of the intellectual-property rights and millions in royalties if it could help develop a commercial drug. Western drug companies have announced about $400 million worth of such deals so far, but the total value is probably much higher. BristolMyersSquibb, for example, has expanded a research partnership with Bangalore-based Biocon. It includes a state-of-the-art research facility that will house 400 scientists—the cost of which has not been announced.

For the Western partners, the first objective in these alliances is to cut costs. In the U.S., specialized research outsourcing firms will charge a drug company $250,000 and up for the full-time services of a PhD chemist. With an Indian partner, the same work can be done for roughly one-fifth the cost. But what Western companies long for, more than anything, is to replenish their drug development pipelines. It can cost as much as $100 million to nurture a potential drug from a germ of an idea to the point where it is tested in people. After all that, the odds of any drug winning Food & Drug Administration approval are just 1 in 8. By conducting many experiments in low-cost Asia, the drug companies believe they can run more projects while keeping R&D budgets flat. In other words, they gain "more shots on goal"—a phrase that gets repeated so frequently you'd think it's a quote from a sacred Indian text.

The other catchphrase that comes up constantly is "fail fast, fail cheap." When scientists study potential drugs in the test tube and then in animals, they detect many problems that ultimately cause drugs to fail, such as toxic side effects or inadequate absorption in the body. Killing projects at that stage is essential, because most of the cost to develop a drug—a few hundred million dollars, typically—comes later, during human clinical trials. In effect, Western drugmakers want to front-load the failures through early-stage screening in India, says C.S.N. Murthy, CEO of Bangalore-based Aurigene. "Here, you can get four failures for the price of one."

In the early days, Western executives were suspicious of their Indian partners with their history drug knockoffs. Yet they were also powerfully attracted. Mervyn Turner, a senior research vice-president at Merck, says his first trip to India in November 2007 was "mind-blowing." He was impressed by the local companies' yearning to do world-class research and by their passionate, charismatic leaders. In Mumbai, he met Piramal, the Harvard-educated daughter of a textile mogul, who explained that she chose medicine to find a cure for polio. She's "a force of nature," he says.

A look inside Forest Lab's partnership with Aurigene shows both the strengths of the new research model and the hurdles it faces. Forest has given Aurigene some prized, proprietary data on how novel drugs might attack metabolic disorders such as diabetes. Aurigene's job is to screen a library of therapeutic chemicals and come up with a drug. Each company has assigned three senior staff to a "joint research council," and parallel teams of chemists and biologists keep in constant touch via teleconferences. Murthy says speed is of the essence. While large U.S. labs struggle with bureaucracy, "in a place like this, a scientist makes some computations in the morning, and by the afternoon he has all the data. He doesn't call a meeting. He walks up to a colleague and stands over him until he gets what he needs." Forest and Aurigene recently designed a drug and started animal tests in just three months—a quick kick-off by U.S. and European standards.

Western drug companies are giving Asian partners more responsibilities than they ever imagined. Suven Life Sciences, an Indian startup in Hyderabad, is co-developing drugs for brain diseases with Lilly. As part of the deal, Suven can work on its own drugs for Alzheimer's, obesity, and Parkinson's disease, provided they don't compete with jointly developed products. Early on, Lilly sought to impose restrictions on Suven's own research. "We didn't have any flexibility," says CEO Venkat Jasti. But as the relationship evolved, Jasti prevailed on his U.S. partners to toss that paperwork in the trash. "We can't do it the Lilly way," Jasti says. "Innovation comes from freedom."

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Great Expectations

The pharmaceutical business – once the envy of fellow industries for its year-on-year surging profits – has suddenly found itself staring at a crisis.

With the soaring costs of bringing a drug to market blowing holes in Big Pharma’s profits, NGP looks at how AstraZeneca’s David Brennan, GlaxoSmithKline’s Jean-Pierre Garnier and Schering-Plough’s Fred Hassan are striving to strengthen the R&D pipeline.

Big Pharma is all too aware of the rocketing costs of R&D, especially if a drug falls at the last hurdle in testing. However, the industry is also waking up to the reality that many of its money-spinning blockbuster drugs are soon to come off patent, with rivals poised to pounce with generic alternatives. Add to the mix fears over drug safety, compliance issues, scrutiny over market practices and it sheds some light on why for the first time in almost ten years the global pharma market failed to deliver double-digit growth 2004. Noises coming out of the industry indicate that improving R&D productivity is top of the agenda for Big Pharma bosses.

JP Garnier, CEO of GlaxoSmithKline (GSK), has witnessed first hand the cost of R&D during his 30 years within the industry: “Bringing a drug to market has seen a colossal rise from a couple of decades ago.”

How? “R&D swallows up most of this expenditure,” said Garnier, who believes this is borne out in the figures. “In 1980 the industry spent $2 billion in R&D and the US Food and Drug Administration (FDA) approved about 30 new products. Twenty years later the industry spent $26 billion and again the FDA approved 30 products.” On top of this, clinical trials used to cost around $2000 per patient in the early 1980s, compared with $20,000 nowadays. It is statistics like these that have got industry analysts asking whether the age of the blockbuster is dead.

“Clinical trials in the US have become an extremely expensive proposition,” Garnier explained at a recent conference. “When you move a trial from the US to Poland or India you go from about $20,000 per patient down to about $2,000 to $3000 – huge savings. I’m not saying I won’t do clinical trials in Europe or the US anymore, but I don’t have to do all of them there.”

AstraZeneca, Europe’s third largest drug maker, is a case in point of a manufacturer with lucrative patents running out on its best selling products. CEO David Brennan has vowed to make it his priority to strengthen the company’s weak product pipeline in order to address this issue. Indeed, 2006 has been a difficult year for the pharmaceutical giant in terms of drug development, culminating in the announcement that its potential blockbuster for treating stroke patients had to be pulled at Phase III of clinical trials. NXY-059, which fared no better than a placebo during testing, was predicted to generate more than $3 billion in sales. This bombshell for shareholders follows a series of unsuccessful trials, which include the blood thinner Exanta and lung cancer drug Iressa. Brennan described the latest setback as a “disappointing”. The failure of NXY-059, thought to have cost AztraZeneca around $12 million, overshadowed strong third quarter results. Earnings rose by 34 percent – beating analysts’ expectations – while sales were up by 11 percent.

The elephant in the room

“For the third quarter we have produced a strong set of results, and have increased the financial targets for the full year,” said Brennan. “I remain committed to maintaining this operating and financial momentum and to strengthen the pipeline.”

Commenting on the company’s pipeline, Brennan said: “There are three elements to our strategy to strengthen the pipeline: improve the productivity of our in-house discovery and development efforts; aggressively pursue promising products and technologies from external sources; and, beginning with our offer for Cambridge Antibody Technology, build a major international presence in the research and development of biological therapeutics to complement our small molecule capabilities.”

On the back of the latest drug trial disappointment the Anglo-Swedish group is being urged by its major shareholders to inject around $4 billion in order to stave off generic rivals. Calls are also being made for Brennan to look to purchase drugs being produced outside company by acquiring a smaller company. AstraZeneca now has just one product, a cardiovascular drug in the pipeline, which could start generating sales by the end of the decade. It’s biggest selling drug Nexium, prescribed for heartburn, could be the next big earner in the drug maker’s stable to suffer at the hands of cheaper generic alternatives. While Brennan is confident that Nexium, which racked up $4.6 billion worth of sales last year, will keep the company ticking over but question marks hang over whether they can underpin future earnings growth.

“We know what it will take to continue to deliver a strong performance over the next five years,” Brennan said. “While new products will play a role, many of the ingredients for continuing our momentum can be found in our current product range. Effective lifecycle management and commercial excellence in support of key growth products such as Symbicort, Crestor and Seroquel should continue to drive top line growth. This will give us the potential to grow sales in line with projected market growth and, in conjunction with continued cost discipline, the delivery of earnings growth ahead of sales is within our reach.”

Brennan, who took up the top job in January, knows he will have to demonstrate his mettle and leadership in the next 12 months to drive this ship through the storm and keep shareholders satisfied.

R&D: the money pit?

Another pharma boss feeling the pinch in terms of drug discovery costs is Schering-Plough Chairman and CEO Fred Hassan. He said the mounting costs associated with drug development and clinical trials is threatening to undermine the industry’s business model.

“The total cost to bring a molecule from the lab to the patients is as much as $1.5 billion. When you lose products in Phase II or Phase III or pre-registration, the cost is enormous. You may be several hundred million dollars down at that point.” Hassan continued: “That explains why the business model is under threat: the ability to devise new molecules through R&D and bring them to market is not keeping up with what’s being lost to generic manufacturers on the other end. This situation requires new thinking, new urgency, new capabilities.”

So what is Schering-Plough, which invested $1.9 billion in R&D in 2005, doing to improve the process of bringing drugs from the lab to the patent?

“It is not a linear process; there are many parallel processes – you need a lot of feedback and to correct by what you learn to go forward.” Hassan continued: “We work on simplifying the basics of moving these molecules through. We designate certain projects as a high priority and they have my attention as CEO. We have one major decision-making body that promotes projects from one phase to the next. The head of every function whose input is needed – clinical trials, toxicology and pharmaceutical sciences – is at the table. This is one of our most important means of dealing with complexity.”

Hit the target

Garnier said that R&D at GSK, the world’s second largest pharma company, was identified as needing a shake-up back in the mid nineties. “It has been a seven to 10 year journey from the time we realised R&D productivity was declining to the time we turned the corner. The true answer is not to flee the scene but solve the core problem and turn the corner in terms of R&D productivity,” he said.

“If you can make your R&D engine work well then you can create enormous shareholder value. First you have to have the tools that will help you discover those drugs more quickly.” This is because, as Garnier puts it: “A fool with a tool is still a fool.” And with so much resting on the product making it through trials and onto the drug market, said Garnier. ”You have to treat R&D as a business and try to do it in a more cost efficient manner. I hear my colleagues complain that it costs $1 billion plus to discover new drugs but if you improve R&D productivity you bring down that number significantly.”

Garnier believes the low success rate of molecule testing needs also to be looked at: “Very worrying is the attrition in the pipeline – the time up until launch – where 93 percent of the molecules don’t make it, a figure that slightly less for the biotechs. This is a problem that we clearly need to address… You need to make sure you pick the target with drug discovery. There is this magic moment where you hit a target and you commit hundreds of millions of dollars – so you better pick right.” Garnier likened this to the search for oil. “Science is game like drilling for oil. You can halve the odds by drilling in more favourable territories but the companies like Exxon Mobile and BP succeed because they place so many bets.”

Investors see GSK’s R&D pipeline as opaque, many different drugs at different stages of development – making it hard to assess the company’s development. There are also grumblings that the company is not releasing enough information about the prospects for its top-selling asthma drug medicine. Bosses are also accused of holding onto data on the largest ever study carried out into diabetes, which could have a massive effect on GSK’s Avandia. Ganier refutes claims that information about the company’s pipeline is kept from shareholders. However, the company’s these investors will want a little more convincing that GSK has the products in the pipeline to keep it at the top of the pharmaceuticals tree. After all, GSK is another drug maker with revenues from its biggest earners, such as its anti-depressant, Wellbutrin XL, under threat from the generics.

There is good news. The growing number of people reaching retirement age means our craving for medications is not going to wane soon. “Society as a whole wants new drugs and vaccines, especially with the baby boomers getting to the age where they are going to depend on drugs and vaccines,” said Garnier, who will retire himself in 2008.

The evidence suggests that meeting this demand is only going to be achievable by fixing a thinning R&D pipeline and developing future blockbusters. Only then will we shareholders again be able to charge their glasses and toast the industry’s long-term growth.

The Turnaround King

Fred Hassan explains how he put ailing Schering-Plough back on the road to recovery.

One man who has weathered the storm is Fred Hassan, Chairman and CEO of New Jersey-based Schering-Plough. Hassan, who has a reputation for reviving the fortunes of pharma companies and rebuilding value, had to get to grips with an abundance of problems when he sat down at his desk in 2003. Similar to AstraZenaca’s challenges, Schering-Plough’s most lucrative product, the allergy treatment Claritin, was facing generic competition, along with a number of other medicines the firm owned. The knock-on effect was reflected in the profit line, which made for uncomfortable reading, as Hassan explained in an interview with PricewaterhouseCoopers. “First, we had to deal with the issues of the past – there were many, many issues hanging over the company. Second, we had to stop the cash burn. We were burning cash to an unprecedented degree in pharma, and there were no previous models in the industry for dealing with it. On top of that, we had major commitments to upgrade infrastructure, including our manufacturing plants.”

It didn’t end there, though, Schering-Plough suffered a serious drop in cash flow from all the dollars it was shelling out and faced severe litigation issues relating to its marketing practices. Under the terms of a consent decree issued by the US Food and Drug Administration (FDA) less than a year earlier, Schering-Plough was committed to an unprecedented, broad and costly program to upgrade compliance and quality at its primary manufacturing facilities. As well, the company had been required to ‘disgorge’, in the language of the decree, $500 million to the US government. Despite these tough challenges, in just two years the turnaround at the company was striking. Schering-Plough, which employs 30,000 people worldwide, found itself back in the black in 2005 with net sales of $9.5 billion.

In terms of personnel, Hassan made strategic changes after his appointment. “Where we found strong players within the company at various management levels, we retained them. We brought in various people who had worked with me previously, because in a stressed situation it can be valuable to bring in people whom you know from experience can tackle the problems.” Hassan also identified the need to improve the marketing side of the business and install a strong global HR function. The drug maker also hired a new CFO and new chief legal officer. A new role was created for the CCO, reporting directly to the CEO. “My approach is usually to have three waves of change in management. The first is very early actions, the second might be six to 18 months after being in a certain situation, and the third might be 20 to 48 months out when you try to rectify the mistakes you have made in the first wave of changes. Generally speaking, every three to four years there’s so much change in our environment that the entire top team needs to be revalidated – including the CEO.”

During the company’s troubled period there were some stakeholders keen to voice their opinion as the best way forward, as Hassan explained. “Some in the activist investors suggested that the company could be restructured into a successful smaller business by eliminating drug discovery, primary care or both.” Hassan, on the other hand, was firmly opposed this idea. “My sense was that they wanted stabilization of the company so that they could exit. Within the company we wanted stabilization so that we could resume growth ¬– a wholly different goal. If we let go of the drug discovery engine we would be mortgaging our future. If we let go of the primary care we would be giving up on our single best opportunity for building long-term value – the cholesterol business.”

Although the company faced a difficult short-term future, Hassan and his team were confident that they could ride out the storm. “By the light of common sense we knew that the immediate future might be very painful, but we also knew that we shouldn’t close down our future as a broadly capable pharmaceutical company. The people of Schering-Plough needed confidence that together we could restore the company, take pride in it and drive high performance in the long term.”

Schering-Plough’s turnaround demonstrated the all-encompassing skills that a CEO must possess, especially at an international drug maker. In fact, the role of CEO is constantly evolving with a much broader scope of work from, say, ten years ago. “If there is one common thread in this evolution, it’s the ability to manage complexity, which increases year to year,” Hassan said. “In our industry you are dealing with not only increasing globalisation but also the increasing influence of political agendas, legal issues, regulatory matters and reduce societal needs and demands. CEOs must have the ability to tune into widely different issues and have peripheral vision. The classical model of the hard-driving P&L manager isn’t enough now, you have to be able to work with all of these new or intensified issues.” David Brennan: “Effective lifecycle management and commercial excellence should continue to drive top line growth.”

Jean-Pierre Garnier: “I’m not saying I won’t do clinical trials in Europe or the US anymore, but I don’t have to do all of them there.”

Fred Hassan: “If there is one common thread in this evolution, it’s the ability to manage complexity.”

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Rebuilding the R&D Engine in Big Pharma

To save themselves, pharmaceutical companies will have to break up their giant R&D organizations, overhaul core processes, and put passionate scientists back in charge.

by Jean-Pierre Garnier

Historically, the pharmaceutical industry has been a leader in financial performance and value creation. In recent years, however, its stock-market record has raised doubts about the sustainability of that history along with fundamental questions about the industry’s health. From December 2000 to February 2008 the top 15 companies in the industry lost roughly $850 billion in shareholder value, and the price of their shares fell from 32 times earnings, on average, to 13.

From Leaders to Laggards

The common explanation for investors’ loss of faith is the well-known perfect storm of trends—pricing pressures, regulatory requirements, legal entanglements, inroads by generics, and declining R&D productivity—that have increased the industry’s costs enormously and reduced its revenue and profit potential. I certainly agree that all of these trends are problems for the industry. But I believe that declining R&D productivity is at the center of its malaise.

Some critics question whether so-called Big Pharma can fix its R&D engine. They predict that more-nimble new enterprises like those in the biotech sector will supplant the lumbering dinosaurs. I strongly disagree. There are benefits to size: It provides the critical mass needed for global clinical development and acquiring crucial technology platforms.

The way to solve the productivity problem is not to break up the pharmaceutical giants into smaller companies. It is to return power to the scientists by reorganizing R&D into small, highly focused groups headed by people who are leaders in their scientific fields and can guide and inspire their teams to achieve greatness. It is to seek the best science wherever it resides, inside or outside a company. It is to fix broken processes and promote a strong culture of innovation marked by a passion for excellence and an awareness that results matter. The basic philosophy for modern R&D should be to morph big into small in recognition of the fact that critical mass in fundamental research is the size of one human brain.

We have been striving to do all these things at GlaxoSmithKline since 2000, when we began a sweeping reengineering of R&D. Our results to date suggest that we are on the right track. When we began our effort, the company had only two products in late-stage development—one of the smallest numbers in the industry—despite a decade of high R&D spending. Today we have 34 drugs and vaccines—the largest number in the industry, according to Cowen equity research. A study by CMR International, a respected pharmaceutical R&D benchmarking agency, compared eight Big Pharma players on key R&D metrics (pipeline fill and flow); it shows that our productivity is now two or three times as high as the average of our competitors.

Some of the unique actions we have taken in the past eight years have already proved their value. The most significant is the breakup of our formerly mammoth R&D organization into small cross-disciplinary groups, each of which is focused on a family of related diseases. Other potentially transformational initiatives are still works in progress. Our effort to untangle the process for pursuing breakthrough therapies from that used to develop the best medicine in an already-discovered class of drugs is the most noteworthy.

This article focuses on the pharmaceutical industry. But I think many if not all of the lessons we have learned are applicable to other industries whose long-term survival depends on true breakthrough discoveries, not just incremental improvements.

The Crux of the Problem

The business model of Big Pharma is straightforward. New products are discovered, developed, launched, and protected by various patents. Initially the products benefit from monopolistic—or at least oligopolistic—pricing. After 10 or 12 years, in general, patents expire and lower-priced generics come in, wiping out the revenues of blockbuster drugs in a matter of weeks. R&D must continually replace older products with new ones to stop the revenue base from shrinking. The problem, of course, is that doing this has proved increasingly difficult.