The Winner’s Curse
Most of us mix up the meaning of Biotech and Pharma since both do pretty much the same thing, invent new drugs. We tend to use Pharma to describe the FIDDCO, i.e. a fully integrated Drug Discovery and Development Company, whereas Biotech companies are more likely to be emergent and on some pathway towards full integration, driven by their own research. But as I remember it, Biotech was originally used to describe the new “big molecule” companies inspired by the early success of Amgen and Genentech from inventing protein drugs. However, when this early success was hard to reproduce, most biotechs stuck to the small classical organic molecules which still dominate clinical practice. This is now changing, as the majors move to acquire or develop a protein drug component for their pipelines. Some argue that we are likely to see protein drugs as 50% of Pharma pipelines, indeed with the acquisitions of CAT and Medimmune, AstraZeneca now has 27% of its current pipeline as proteins and that’s a big change for a company that grew out of manufacturing paints and dyestuffs.
Why is this happening now? No doubt the science has improved and people have gained much more experience in the technologies required to develop and manufacture proteins to the demanding standards required of a new drug, but there are also significant commercial drivers, proteins are expensive and the technology barrier to cloning by generics is higher.
If this continues there will be big changes coming …
AstraZeneca has dabbled in proteins for a long time with internal research programmes, biotechnology initiatives and sporadic new business attempts, but never quite got the hang of making a business out of it. So when Cambridge Antibody Technologies (CAT) started to make money from their first drug, they shook out their pockets for a bit of petty cash and bought them for £700M. CAT were told that this was a bright dawn where CAT would become the foundation of AZ’s new Biologics business, retaining all their own entrepreneurial culture, while benefitting from the strength of the AZ business focus and investment. So caught in the web, the fly agreed it was a good idea. A few months later, AZ bought Medimmune for $15 Billion who were then offered CAT as a tasty treat. The reaction, allegedly, was “what do we want them for?”.
Why did AZ pay such an enormous amount of money for Medimmune? Good strategic management? Not really. Medimmune offered themselves to the highest bidder and organised an auction of their company. I like to think that they got the idea from the news item about the Italian model who auctioned her virginity on-line. With little time to do their homework, AZ were bundled into overpaying, as in the winner’s curse. Then, with so much cash to find, a stagnant share price and dividends to maintain, jobs have to go. 300 have gone at Alderley Park, the site at the heart of successful new small drug discovery in AZ, losing people with deep experience in classical medicinal chemistry, pharmacology and drug design. They won’t be the last job-losses at AZ, and more are looming on the horizon. With Pfizer’s Lipitor coming off patent in 2010, it won’t just be AZ.
This is not just a reduction in the number of jobs, but it also represents a shift in the skill base towards protein science, bio-processing and the like, but away from chemistry and associated science. There are some who think that this shift will continue and these changes herald the death of classical drug discovery. Personally I don’t buy that. I see a silver lining.
The people who are being “shed” are often people with 20-30 years experience who are steeped in the tacit knowledge of drug discovery and development. They are now free of the management overload that comes with working for a very large complex organisation. They have skills and know-how to contribute and they will find ways of engaging with researchers who appreciate their advice and help. I think this is all part of a shift of drug discovery out into the long tail and this will lead to a far more fluid, vibrant and effective research environment that will increase the delivery of new medicines. Big Pharma may well move more towards biologics, which are expensive and easier to defend from competition, but the rest of the world will do the drug discovery, and do it faster, at lower cost with more success.
The future of drug discovery is still with white pills, made by chemists, but they’ll be invented by small groups of smart people working all over the world in universities, research Institutes, small companies, virtual groups and as individuals sat at a computer in their back bedroom. I think that’s a good thing.
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