Hi, I don't think I've posted on the Biotech board before, but I'm a shareholder in MLNM, and an undergrad at MIT. Earlier today, Roger Perlmutter, Executive Vice President of Research and Development at Amgen came by the business school here and gave a talk on "Big Biotech: Pharmaceutical Research and Development in the Post-Genome Era." Unfortunately, I had to leave about three quarters of the way through, but I thought what I saw was interesting nonetheless, and I hope you folks don't mind if I give a summary of what he talked about. Much of what I write will probably be a direct quote or close enough that I should probably cite it.Quick history of Dr. Perlmutter. Before becoming the exec. VP of R&D at Amgen, he was the Senior VP of Merck Research Labs, then Exec. VP of R&D at Merck. He has both an M.D. and a Ph.D, and was the chair of immunology at U. of Washington after being a professor of biochemistry there. He went over to Amgen because it seemed that Amgen is/was the "leading biotech", or as he called it the "Snow White" that goes with the seven dwarves.He started off his talk by discussing Jurgen Drews idea of an innovation deficit in big pharmaceuticals. The number of new chemical entities not being able to sustain growth, and the fact that new technology is having no major impact on provision of new drugs. Along those lines, he put up a chart comparing complexity, challenge, pace, opportunity, and aspiration versus time. Up until about 1998, chemistry was enough to overcome those. After that point, up until about now, biology becomes preeminent. After 1998, there's a lot more competition, increasing price pressure, increasing cost of R&D, less yield of new drugs from R&D, and very worrysome patent expiration horizons.The main signs of big pharma's problems that he pointed out were decelerating revenue growth, increasing patent exposure, fewer new drugs, and increasing cost per drug. [The decelerating revenue growth seems less important to me just because a billion dollar drug means a lot less to revenue growth for a 30 billion dollar company versus a 500 million dollar company.] He put up a chart showing the decreasing revenue growth, which only showed a difference of 1%. Next, he put up a chart of new molecular entities (NME or NCE [new chemical entity]), which showed them decreasing from a high in 1996 of over 50 to I believe the mid-20s last year, down to 12 so far this year. Of course, prior to 1996, it looked like there were only mid-20s of NME's approved anyways. However, he also stated that 2003 looks just as bad, and 2004 looks worse. Moreover, the next chart he showed displayed the increasing cost per NME. This was more of an estimate of his, since as he said it has to take into account all of the failed drugs and research that did not even result in a drug. From $54million in 1976 to $231million in 1987 to $802million in 2000. This increase he mainly blamed on the increasing length of drug development, primarily in the clinical trial phase. In the 60s, the average length was about 8 years, whereas in the 80s and 90s, that increased to about 14 years. Over that time, the amount of red tape appeared to stay constant at about 2 years. The extra time in clinical trials has to be spent just checking for side effects of the NME. Even once a drug is approved, only about 3 of 10 recoup their R&D costs, and he guesstimated that number is dropping to 2 out of every 10. After reiterating those points, he moved on to biotech.He started off this section by listing the main advantages of biologicals made by biotechs. 1: improved safety margins, thereby reducing clinical costs. 2: increased chances for biological effects, because biologists are the ones making the drug. 3: more rapid advancement because of early development. He expanded on this last point by talking about the link between academia and industry a bit. Main quote: "Important new medicines result from successful exploitation of targets identified by academia," with a graph showing spending by the NIH and the pharmaceutical industry on drug discovery. Next major quote: "What distinguishes companies that discover NMEs? Seamless integration of R&D." He stressed this a lot over the next couple minutes. Going from discovery to launch with a minimum of wasted resources. He touched on the history of drug discovery; the 70s and its study of targets, the 80s and molecular biology beginning to make targets more accessible, the 90s and biotech starting to have real products, culminating with the genome project which exposed every human target. This essentially makes finding a valuable target like finding a needle in an enormous stack of needles.This led to what he called the "futile cycle in drug discovery research" that currently exists. Projects are easy to start but hard to kill, yield nothing useful, and take up enormous amounts of money. Every project could in theory result in a useful drug, but realistically probably won't. This results in a waste of money since it's impossible to distinguish which projects are truly important, so the projects which deserve the resources don't get them. He also touched briefly on why advances in biochemical research complicate drug discovery. He said that lab studies don't expand on the biomechanical mechanisms of drug action, and that preclinical models don't provide good enough information for human diseases.After that, he gave an example of the pitfalls of the drug discovery process, at which point I had to leave. All told, I thought his talk had a fair amount of technical detail in it, even though he did tailor it to his business-school audience. One very interesting point that he made was about the current drug portfolio of the major pharmaceuticals. He listed about 5 companies that had on average 50% of their revenue being produced by drugs that have patent's expiring in the next 8 years. With drug development taking as long as it does, this is quite a problem, one that he said pharmaceutical company executives were taking very seriously. Apologies for the length,Rob
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