Pharma — Frozen in Place or Running from the Past?
By Wayne Koberstein, Executive Editor, Life Science Leader
Follow Me On Twitter @WayneKoberstein
My recent months of wintry travel began just as fall ended. In November, our first Outsourced Pharma West event brought me to San Francisco, where clouds had gathered and the temperature fell to mild cold at night. But when I landed back home in Oregon after midnight a few days later, the light jacket I had worn in the city could not hold off the cold sting of a strong north wind. The fabled old man of the seasons had shown his first hand; now it was time to show mine.
It was either freeze in the parking lot or find a way to escape the cold, and fortunately the wind-frozen frost gave way to my makeshift scraper, so once my window was closed and my engine warm, I left the frigid time behind. Now, several months later, with daffodils blooming in my backyard, I still think of that chilling entry to a winter where, to this point, many people have seen some of the coldest fronts in history.
Meanwhile, I continued my travels, and though I luckily dodged the worst and found some of the best weather of the season, I began to see a meteorological analogy to current industry patterns. As Big Pharma faces headwinds, little pharma sails on before the storm, leading the front of an expanding life science sector.
(See my OPW tweets and others’ at #OPW2014. Hashtags for other events noted below, but because I do most of my tweeting on the road, you can see a continuous line of my comments for this period at @WayneKoberstein.)
STARTS TO START-UPS
It is human nature to explore and adapt to the great unknown; it is also only human to want to stay put in comfort around the fire. Being made up of humans, if not human themselves, pharma companies cultivate a reputation for the former, but their actions often belie the latter.
Once Big Pharma discovered a trove of new products flowing out of small companies, it was content to turn almost all of them into small-segment, rare-indication, premium-priced drugs — the “orphan blockbusters” — and most often in the crowded area of cancer where off-label use is common. That is an unsustainable model that undoubtedly limits short-term risk for the companies, but also limits the value to public health, where a great need for new primary-care therapies grows unmet.
The origin of this industry, the one we all talk about in this magazine and the community it serves, is pharmaceuticals, first produced by pharmacies and later by industrial chemistry. In the United States, nearly all of the industry was East Coast based. So when biotechnology came along — with the notion of producing human hormones through recombinant-DNA and fermentation — the reaction of the traditional pharmaceutical industry was mainly indifferent.
Not only was biotech far removed from industrial chemistry, it was happening far, far away in a distant land housing an alien culture: California. It was wild-card experimentation as much as invention. So Pharma proceeded with a “they may need us but we don’t need them” attitude toward the West Coast start-up up-starts. Now, we editors have debates about whether Pfizer is pharma or “biopharma.” After all, what self-respecting Big Pharma would risk being caught dead these days with no biotech-based products? Does that mean they have all outgrown the pharma label?
What’s more, how many Big Pharmas would dare go forth without having an “open innovation” model for leveraging their “lean and mean” R&D machines? Why not just admit that most innovative new products now come out of academia and small companies? Don’t worry about the poor old NIH and its incredible shrinking budget; go ahead and tie up as many labs as possible chasing commercial dreams. Leave as little to random chance as possible. Eliminate all risk. Results are bound to come.
Wait. Doesn’t this sound a bit too familiar? Not that long ago, when big companies were pumping up their R&D budgets and swallowing other companies to gain “critical mass,” they began to task their scientists with milestones, quotas, and “outcomes metrics” — all designed to ensure high R&D “productivity” and all, now by general recognition, fated to kill it. This was actually the era that spawned the term Big Pharma.
Previous to the megamergers that brought the current top-10 companies to their exalted state, most pharmaceutical producers, whether independent or inside large diversified corporations, held on to very focused portfolios with near monopolies. The big mergers of the new era were built upon the first real blockbusters, and the companies’ ravenous hunger for more blockbusters grew apace with their size. “Innovation” became the industry buzzword, and the particular mix of free-market policies and government support for research made the United States seem the ideal place to foster it.
The main U.S. industry association of the time signaled the proud message in 1994 with a change in its own name, from PMA (Pharmaceutical Manufacturers Association) to PhRMA (Pharmaceutical Research and Manufacturers of America) and began touting Tufts’ global tally of all expenses related to all drug R&D, divided by the number of approved drugs, to drive home the point. Despite the unifying theme, the industry’s consolidation created ever more direct competition, and the collegial inter-company discourse of the PMA days faded into the past.
Meanwhile, more and more companies in the West — those characterized by big dreams and burn rates, but now standing on the shoulders of their own local giants — started contributing new breakthroughs to the world of medicines. No longer were they the wild left-coast hippies with their strange brews, but more and more the targets of large companies hungry for new products and eager to get in early. Almost as if to hedge against the crazy odds of early stage investment, the big players once again instituted metrics, this time as milestones and other “risk-abating” measures into contracts.
I spent the second week of January in San Francisco once again, a time known as
JPM Week because of the annual JP Morgan Healthcare Conference held near Union Square. I had covered the conference for years, but this time I might as well have been as far away as my colleague, Louis Garguilo, who commented on the JPM event from his east-coast home. This year, JPM decided to cut back the already limited press corps invited on site and allowed only our chief editor Rob Wright to cover the conference.
Still, sour grapes acknowledged, I found my banishment from JPMHCC a blessing in disguise. EBD’s concurrent Biotech Showcase gave me a home base downtown for nearly a dozen meetings and interviews with fascinating new players in relatively unexplored disease areas, some of which are featured in our March 2015 issue and others slated for the future. It was also a bit like old-home week for me, because BTS attracted many of my long-time friends in the industry, along with all the new faces and young voices I had the pleasure of meeting. (Tweets at #BTS15.)
One of the highlights of the week was a special reception held by the Healthcare Businesswomen's Association. The event evoked some fond memories of the group’s origins and the people who founded the HBA Woman of the Year awards 25 years ago, at last interrupting the long, steady run of “man-at-the-top” covers on the publication I headed at the time.
CONFLUENCE & CONVERGENCE
Two weeks after JPM Week I was on the road again, this time to the BIO CEO & Investor conference in New York. (Tweets at #BIOCEO15.) I always find this event interesting because it is a confluence of east and west-coast cultures — and an increasingly global mix of attendees. JPMHCC offers a bit of everything in health care, from pharma to provider institutions; BIO CEO offers a more focused universe of life science R&D-driven companies — and they don’t all have to be JP Morgan clients. Most of the key investors are also present, along with the cream of Big Pharma.
On the first night, I took a break from the usual crowd and had dinner with a set of colleagues who cover the industry for other publications — at least one I know very well and others only from distance. One notable person present was Luke Timmerman, who has now gone out on his own with the paid-sub based Timmerman Report. Luke has the well-earned reputation of being both a good guy and an honest journalist, not afraid to speak uncomfortable truths to readers.
Once again I dodged the worst weather. Boston got the brunt of the blizzards, and New York was between storms while I was there — though I had to step gingerly over some frozen rain to the taxi when I left the restaurant that night.
This year, BIO CEO offered a wealth of interesting companies presenting and useful, sometimes controversial discussion of tough issues such as vaccines, medicines for developing nations, alternative funding models, and scientific convergence around new approaches to currently moribund areas such as neurodegenerative diseases. Cancer did not dominate for once, but I was surprised to see companies with checkpoint inhibitors or other “disruptive” immune-oncology approaches under-represented by far — though perhaps the high demand for such products makes public appearances unnecessary.
Speaking of vaccines. While I was on the road, one of Rob Wright’s tweets on my Companies to Watch column featuring PaxVax, elicited a comment from a “clean vaccines” advocate, who maintains the 1960s polio vaccine is responsible for “thousands” of deaths from cancer. In doing so, the person grasps on to vanishingly small pieces of fact to support the charge of viral contamination in the vaccine causing cancer and summarily rejects all evidence to the contrary. Just to be clear: follow-up studies after possible viral traces were detected in some vaccine lots, then eliminated from subsequent lots, found no connection with cancer or even cancer rates.
Although this is an imperfect world and everything we do holds some risk, there are some issues where you must take a stand on one side or the other. My fear, or awareness of risk, in taking a vaccine has never come close to overcoming my desire never again to see huge wards full of iron lungs containing our children. The introduction and administration of polio vaccination is the finest moment in pharmaceutical-industry history. But for me and many others, it’s highly personal.
My brother Gary died of pneumonia in 1950, after a year in the casket-sized canister that had kept him breathing through the paralysis. When I mentioned this to the advocate, the reply was “Sorry about brother, but no worse than those that died of cancer from SV-40 in Polio vaccine.”
Yes, this advocate claims he only wants “vaccines free of preservatives and adjuvants,” as if that ensured some kind of purity, yet I do not believe he is looking for a “civil debate” as he maintains, but for another excuse to exploit people’s fear of science, and to slow vaccination rates to the point of inefficacy. There are legitimate issues with vaccines we as a society need to discuss, such as cost and availability, but debating with advocates of pseudoscience is a terrible distraction that will only ensure more backsliding in this critical area of public health.
Some might think I am using the bully pulpit of this publication to unfair advantage against the anti-vax advocates. But just who is at a disadvantage? The last time I checked (today), vaccine rates were still falling and diseases we thought we conquered are again rising up from the dead, like the TV zombies we love to hate. So if you believe in vaccines and know that “herd immunity” is only maintained when we stay close to universal rates, your side is losing. My own grandson had a scary case of whooping cough because his mother is afraid of vaccines. What’s next? Polio?
One of the closing sessions of BIO CEO was a conversation with Ian Read, chairman of Pfizer. Read is often regarded as aloof, and as a former accountant he speaks the cool language of balance sheets to a greater extent than just about any other CEO I’ve seen. In one breath, he acknowledges his company’s low rating as a potential partner; in the next, he speaks of “boosting the multiple.” Perhaps it was this bookkeeping style of management that led Read to champion the inversion strategy in Pfizer’s attempted takeover of AstraZeneca. If so, it may have also blinded him to the adverse public-relations side effects of his prescription.
After getting back home, I heard from PhRMA that the group would not be holding the annual meeting Rob Wright and I have attended for the past two years. This at least temporarily ends a tradition that predates my entry into industry journalism in the mid-1980s, when I attended my first PMA meeting at the exclusive Greenbriar resort. No reason was given, but I can’t help thinking it had something to do with many of the issues I have just discussed. I’ve seen PhRMA circle the wagons at other times of stress, and this past year, under the (rotating) chairmanship of Ian Read, the association has dealt with a host of seemingly intractable political and economic issues at a time of shrinking membership among the largest and richest companies.
At the same time, even the word “pharma” may become passé. The life science sector, we prefer to call it, has shifted and expanded to such a degree that the old industry terms no longer reliably apply. Perhaps PhRMA/pharma/Big Pharma needs time to rethink its position in the expanding sector and decide whether to stay frozen in time, or take some fast steps out of the past. And by that, I don’t mean turning all CEOs into bookeepers. Accountants are valuable, but they are typically managers, not leaders. For more thoughts on the difference, read "Misjudging Leadership In the BioPharma Industry" by Louis Garguilo.
On my way back home from New York, I connected to a flight in San Francisco, where passing through a few days before, I had seen the rain falling as it would in Seattle. Now it was sunny and warm all across the Bay Area, and the weather remained mild even up in Oregon, with no hint of ice on my windshield this time. Here I was, back in my own comfort zone — yet knowing it would be only a few weeks before I had to stir myself again, for one more trip. I will be in San Diego, February 25 – 26, for Biocom’s Global Life Science Partnering Conference. See you there?