The debate and discussions in the media on the attempted bid by Pfizer for AstraZeneca (AZ) have largely revolved around the short term impact on jobs in the UK as well as the rights of shareholders and how corporations exploit tax loop holes.
The real question is how we as a society can actually find the drugs that are desperately needed for many incurable diseases? The Pfizer bid for AZ is only a symptom [no pun intended] of the continuous reconfiguring and restructuring of how pharmaceutical R&D can be performed so that we can efficiently find these cures.
How drugs are selected and finally make it to market is determined, quite correctly, through the scrutiny of the regulatory authorities such as the US Food and Drug Administration (FDA) and the European Medicines Agency (EMA). There is an inherent risk in taking a drug through clinical trials and less that 10% of drugs entering human clinical trials will make it to the patient. So how can companies reduce this risk and increase the chances of success?
Pharmaceutical companies have been grappling with the ‘how’ for the past two decades. Further more in recent years the landscape has been changing, for example, the regulatory hurdles, quite correctly, have been raised so the chances of finding the ‘right’ drug are lower and so more difficult. Both the pricing and reimbursement (P&R) of drugs place additional hurdles and additional risk on whether drug actually gets to the patient. In the UK P&R is regulated through the UK’s Department of Health via the Pharmaceutical Price Regulation Scheme (PPRS) and the National Institutes of Care Excellence (NICE) respectively. This changed landscape has meant that pharmaceutical companies have had to rethink how they do research. The concept of large companies doing all their own drug research has been on the wane for years. Great ideas cannot emerge in one place they happen everywhere and there is evidence that smaller R&D groups are more productive than large ones. As such pharmaceutical companies have become more dependent on external R&D provided by universities, charities and venture capital backed biotechnology (biotech) companies. Moreover, pharma companies have been refocusing their efforts to a smaller group of therapeutic areas with the greatest unmet clinical need. For the past five years all major pharmaceutical companies have been reducing their internal R&D efforts and this, by the way, independent of the world economy.
Furthermore pharmaceutical companies have been moving their R&D activities to locations with the highest research skills, these include Cambridge, Mass, and Cambridge, England. This has meant moving away from ‘remote’ R&D sites which originated as manufacturing sites, such as AstraZeneca closing its Cheshire, Alderley Park site and moving to Cambridge and Pfizer moving away from Sandwich in Kent. Most of the large pharmaceutical companies have done similar moves.
This changed landscape means that pharmaceutical companies have had to raise the scrutiny of their existing drug candidates and abandon more of them. To replace them they need to either find more candidates from biotechs or acquire them through acquisitions like Pfizer’s bid for AZ or through deals such as Novartis acquiring GSK’s oncology franchise.
In the end a key driver is a focus on building the strongest product pipeline. Simply put companies can strengthen their pipeline through acquisition by keeping the best of the combined businesses and spinning out or axing the weaker candidates. Regardless of whether Pfizer acquires AZ or not, the change in ‘how’ R&D is done will lead to further rationalisation of R&D and a greater role for biotech to be the key innovators and, as such, we should see a further rise in M&A as well as licensing and partnerships.