The Mirror Cracks — Pharma Must Face Its Future

By Wayne Koberstein, Executive Editor, Life Science Leader
Follow Me On Twitter @WayneKoberstein

Despite great changes in the corporate landscape, the pharma industry clings to an old, broken business model, especially in manufacturing.

One project can inspire another. In this case, an interview with Janet Woodcock provoked a parallel line of thought — that time is running out for the pharmaceutical industry, and the bellwether is manufacturing quality. Oh, I don’t mean the industry will disappear, but I believe its power base will shift and everything it once took for granted will fade away.

To a large extent, the change has already happened: less than ten years ago, the pharma mavens of New Jersey sniffed around the biotech scene and turned up their noses. Why worry about a bunch of tiny startups out on the Left Coast pursuing the pipe dream of bioprocessing? Big Pharma would just find a way to replace proteins with therapeutically targeted small molecules and peptides. Biotech was merely the sacrificial lamb that would mark the beginning of a new era for pharmaceuticals. It wasn’t even worth the effort for the big New York or Chicago marketing agencies to seek new business with the western wannabes. Now the East Coast has joined biotech with a vengeance, making the contrast with the old industry even starker.

In retrospect, most of the maneuvers and mis-maneuvers the old industry has made since the early days of biotech appear reactionary. Mergers and acquisitions, predatory partnering, avoidance of early stage development, dominance of early stage development, sales-force shrinkage, R&D productivity measures and spending cuts, academic research funding, technological stagnation, and other measures deemed prudent by a succession of CEOs and corporate boards — each one can look like a desperate gambit to save the ship or a case of head-in-the-sand brinksmanship.

Big Pharma is still around, though its dwindling membership has tightened the ranks, but nowadays the big companies are the senior guests at a children’s picnic. The kids scamper about freely, somehow coming up with all the good ideas, while the oldsters stay on the side, pushing away at some immovable object they call innovation. Caught in their own arcane accounting, where every failed drug is charged against every successful one, the big companies watch almost passively as their “cost-per-approval” skyrockets year after year. Meanwhile, in biotech, failure is normal, but contained. Each company is a little universe popping into existence for as long as it remains viable. Except by the mega-analysts, other companies’ failures are not usually counted against a few companies’ success. Life goes on.

But for traditional pharma, life has become an exercise in clinging to the past. Everything is seen through the time-yellowed lens of the old pharma-belt culture. I was struck particularly by the December 31 closure of MedAdNews, once the leading bastion of pharma trade publishing and a true mom-and-pop tabloid ruled by Styli and Karl Engel. The disappearance of MAN is an apt symbol of what’s happened to the pharmaceutical industry — the transformation of a national/regional community into a collection of rootless corporate assets. Meanwhile, the big companies, and many of their suppliers, carry on as if nothing has changed. In a minute, I’ll look at the specific area of manufacturing as an example, but for now, a bit more historical context.

FROM THE MANY, TO THE FEW

The pharmaceutical industry began and grew to maturity with a model much closer to biopharma’s. Companies we would consider small by today’s standard pioneered and dominated distinct therapeutic areas and, if they had any international business, mainly entrusted it to independent subsidiaries or partners. Everything changed as the 1980s ended. At the 1989 PhRMA (then PMA) Meeting, a rumor spread that two company CEOs had left the meeting early after a golf game. The next day, the same two executives announced the merger of Bristol-Myers and Squibb.

As implied by the hyphen in the first company name, the industry had seen other mergers, but this one was of unprecedented scale and breadth, and its effect was to open up the idea of a pharma company to encompass any and all areas of business. No longer would the industry be a collegial community of veritable therapeutic monopolies. Right then and there it started to become a bruising clash of “diversified” titans going head-to-head over every piece of commercial ground.

Most of the pharmaceutical companies that existed in 1990 are now submerged in the few mega-companies that remain. I mean they are still there, though slowly fading like unhappy ghosts, spreading systemic dysfunction. But when people talk about the industry’s patent cliff and fallen R&D productivity, they tend to do so as if measuring against some ideal, constant past. So it is important to remember how much the industry has changed, and how much it has not.

Specialized, science-driven R&D, which had fueled the origins and growth of previous pharmas, quickly gave way to bean-counting product acquisition through merger mania. Strategically and operationally, however, companies were frozen in time because they gave little thought to what would happen when they threw all their acquired units into one big cage and ordered them to work together.

Instead of growing organically with a systematic plan, the hammer-welded organizations lurched from one “revisioning” to another. The end result has been a long period of catching up on the hard part of M&A — integrating and coordinating all the assembled pieces. So we now have a situation where the pharma industry has really changed profoundly at a corporate level but still hangs on to old notions of itself and refuses to adopt new ways of thinking and operating.

QUALITY AT ANY PRICE?

Nowhere is the backwardness of Big Pharma more evident than in manufacturing. Aging infrastructure is not just a public problem, it is still all too common in the pharma sector. While other industries wring real money out of the efficiencies of advanced manufacturing tools, large pharma companies plow along with super-centenary technology. Hold it; I know I will hear from companies who have invested in new systems, so let’s just say I believe your exceptional behavior only proves the rule.

Talk to some manufacturers about modernization, and they will tell you they don’t get paid enough to improve production quality and efficiency. But a high margin is apparently no guarantee of high quality. Some of the priciest drugs, such as Soliris (eculizumab), for Hemolytic-uremic syndrome (HUS) and Paroxysmal nocturnal hemoglobinuria (PNH), have suffered recalls and other penalties for quality issues.

Reportedly in the case of Soliris, trouble with a single filtering contractor caused dangerous particulate contamination in the injectable solution. Yes, a backup would have been a logical expectation, though perhaps difficult with this particular compound. But the louder meaning is this: even at the highest price, in drug manufacturing the state of the art is not high enough. This case also shows how pharma-industry problems, especially with parenterals, can affect biotherapeutics as well.

In a cracked mirror, the reflection is misleading. This industry is not seeing itself clearly, and manufacturing is merely one of many areas where its fractured view has consequences. Reconstructing a whole and accurate image of itself will be the first step the industry takes toward facing its future. (For an example of some of this progress, see the sidebar titled “FDA’s Future-Industry Vision: Continuous Production” in the Feb. 2014 issue.)