Mergers don't make good medicines

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Article Highlights

  • Big Pharma expected that their scale would help exploit a new generation of drug development tools.

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  • Drug discovery isn't an enterprise that responds well to scale.

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  • In drug development, we've learned that focus matters more than scale.

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When Pfizer constructed a massive drug development facility in Groton, Connecticut, the 160-acre research site became a symbol of the perceived dominance of the big drug makers.

Built on the revenues from blockbuster drugs such as the cholesterol-lowering Lipitor, Groton was the largest drug research centre in the world when it opened in 2000. The sprawling campus had more than 5,000 employees at its peak and comprised 2.7 million square feet of research space.

The Groton lab was the most visible symbol of a new approach to drug discovery that employed massive tools, referred to as "high throughput screening". In its simplest form, the tactic used enormous machines to screen libraries of billions of compounds against a novel biological target.

Big Pharma expected that their scale would help them exploit a new generation of drug development tools that leveraged these scientific methods. Many of these tools were enabled by the mapping of the human genome, along with our ability to visualise the protein targets of new drugs. The aim was to find a molecule that could stick to a target in the right way – for example, turning off a cell receptor in order to alter the course of a disease.

It was said that only the big pharmaceutical companies could marshal the financial resources to erect these kinds of tools. Analysts crowed that these new methods would enable the big drug makers to flourish. Pfizer, with its Groton facility, was at the vanguard of these approaches.

There was one problem. The bigger is better tactic didn't work. It turns out that drug discovery isn't an enterprise that responds well to scale (leaving aside whether these endeavours will also respond poorly to big business mergers).

Discovering new and better medicines isn't merely a function of having the largest libraries of compounds, the fastest tools by which to screen them, or the most PhDs working in a laboratory. Sprawl, in fact, can reduce scientific productivity.

Nobody learnt these lessons harder than Pfizer. Over the two decades that it operated its massive facility in Groton, the only major drug to emerge from those labs was the smoking cessation medicine Chantix. Now Pfizer has largely mothballed the lab. Much of the centre's office space has been rented out, or sold off. There are reports that some of the buildings are being razed.

Like other drug makers, Pfizer has realised that size alone doesn't improve research productivity, and is organising its drugs development efforts into smaller teams of fewer than 40 people. These more focused research groups are concentrating their efforts on increasingly discrete areas of biology. The targets they are working with get right to the mechanistic basis of disease.

In drug development, we've learned that focus matters more than scale. Knowledge around these distinct areas of biology isn't widely dispersed. It's often held in the hands of small teams of scientists who have worked with these targets for many years. The key to uncovering drugs is keeping scientists working together long enough so that they can learn from dead ends, and use their accumulating knowledge to make fundamental breakthroughs.

If drug development doesn't respond well to scale, does it respond to large mergers? This is a question observers are appropriately asking as Pfizer bids to acquire the British drug maker AstraZeneca for £63bn. The history of the pharmaceutical industry certainly suggests that big mergers impede the progress towards new drugs, with research productivity falling.

One study of performance after big mergers in the period 1988-2004 found that in the three years following a business combination, there's a clear decline in productivity as measured by the filing of new patents. Those companies that have undertaken mergers, when compared to peers that haven't, not only reduce the amount of money they spend on R&D, but produce less intellectual property.

The protracted uncertainty that ensues after a big drug merger is especially corrosive to early stage research. Many drug programmes are put on hold as companies evaluate investment and what compounds will be taken forward. Top researchers don't stick around. The lost continuity undermines the long-term scientific efforts needed to make big discoveries.

For these and other reasons, Pfizer's former president of global research and development, John LaMattina, writing in Nature Drug Discovery in 2011, observed that "although mergers and acquisitions in the pharmaceutical industry might have had a reasonable short-term business rationale, their impact on the R&D of the organisations involved has been devastating."

The scale that results from big mergers helps drug makers run the large clinical trials that are required for global registrations. Scale improves their ability to commercialise new drugs, and manufacture them at low costs. But size alone doesn't lead to more scientific productivity. Evidence clearly shows that there are diminishing returns to scale in drug research. This is especially true when it comes to the earlier phases of drug development.

It's no coincidence that today, the big drug companies are rebuilding their pharmaceutical pipelines by realising that their research success isn't tied to the scale of those endeavours, but the precision of that work. While most observers focus on the drugs in the later stages of drug development, some of the most meaningful medical promise resides in the early pipelines of these big companies.

Of the 5,500 drugs in development worldwide, more than 3,000 are in the early stages of development. Many of these are highly novel drugs aimed at the underlying mechanism of diseases for which no highly effective or curative therapies exist. There are 158 potential medicines for ovarian cancer in early development, 19 for sickle cell disease, and more than 40 drugs for small cell lung cancer. Many of these compounds came out of very focused research. Some of the most promising experimental medicines came out of small biotech firms.

This new generation of potentially blockbuster drugs is driven by genuine innovation. It's emerged as a result of a more specialised business model that focused research on discrete areas of novel science. It surely wasn't an effect of bigger drug libraries, or faster screening tools. Drug research doesn't respond to scale, just as big pharmaceutical mergers don't make new medicines.

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