What's R&D Got To Do With It?

By Cliff Mintz, Ph.D., contributing editor

A candid conversation with pharma veteran John LaMattina, Ph.D.

Over the last five years or so, many big pharmaceutical companies concluded that their internal R&D activities were no longer delivering the ROI they had grown to expect. This resulted in the elimination of hundreds of thousands of jobs and the outsourcing of many R&D activities. While most executives and industry insiders believe that downsizing and outsourcing R&D is a sound idea, John LaMattina, Ph.D., former senior VP at Pfizer and president of Pfizer Global R&D, who spent 30 years in R&D after joining the company in 1977, is not so sure.

During his tenure at Pfizer, Dr. LaMattina oversaw the development of new treatments for cancer, smoking cessation, rheumatoid arthritis, and AIDS. After retiring in December 2007, he decided to write a book to dispel some of the myths and misconceptions about the pharmaceutical industry and its products. Drug Truths: Dispelling the Myths about R&D was published in 2008. In 2011, he decided to start a blog called Drug Truths (after an appearance on the Dr. Oz Show) to better inform the public about the drug development and commercialization process. In addition to his literary pursuits, Dr. LaMattina is a senior partner with the VC firm PureTech Ventures and serves on the board of directors of Human Genome Sciences and Ligand Pharmaceuticals. He also serves on the board of trustees of Boston College and is active in the Terri Brodeur Breast Cancer Foundation.

During his conversation with me, Dr. LaMattina shared his views on the dramatic changes taking place in pharmaceutical R&D and the effects that they may have on the future health of the industry.

As a scientist who spent his entire career in R&D, do you think the era of the “blockbuster drug” is really over?
From my perspective it depends on the context of the use of the word “blockbuster.” I believe it is still possible to develop drugs for certain indications that could yield sales of $1B per year or more. Analysts have coined the term “niche blockbusters” for these molecules, and it is not unreasonable to include drugs to treat certain cancer indications or genetically inherited diseases in this group. Interestingly, one of the major factors that will allow these new drugs to reach blockbuster status is the high prices that historically have been associated with them. I think the niche blockbuster business model will be the one embraced by most pharma executives going forward.

While others have suggested that the advent of personalized medicine may be a death knell for blockbuster drugs, I believe that personalized medicine may actually generate more blockbusters. This will certainly be the case if payors, physicians, and patients can be guaranteed that a disease-specific, personalized treatment is better and safer than other treatment options out there. This will allow drugmakers to obtain reasonable pricing and generate significant sales of these drugs. We are clearly in the early days of personalized medicine, but I think that reasonably priced, highly safe, and efficacious medicines will be the business model going forward. However, from a more traditional perspective, there is no doubt that companies that are able to develop drugs to treat Alzheimer’s disease will have a blockbuster on their hands, mainly because the incidence of Alzheimer’s disease continues to skyrocket as baby boomers age. Similarly, because of growing patient populations, development of a safe and effective (based on long-term clinical outcome and safety studies) treatment for obesity or diabetes could easily achieve blockbuster status.

Practically speaking, however, it is difficult to predict whether or not a new molecular entity will achieve blockbuster status. Obviously, that depends on the overall performance of a drug in Phase 3 studies and, ultimately, the label you can get from the FDA. However, I can tell you after spending 90% of my career in discovery, that at the beginning of every new development program we were asked by upper management to assess a compound’s commercial potential. Because we were discovery scientists, we really had very little idea about potential commercial success of a drug candidate. That said, spending valuable time and resources on compounds with only minor commercial potential was frowned upon. Nevertheless, I believe that if drug discovery is driven by the desire to develop treatments that address unmet medical needs, then the compounds that make it through will enjoy commercial success.

What factors do you think contribute to the current high attrition rate for new molecular entities?
First, over the past decade, the FDA has clearly raised the bar for approval of new molecular entities (NMEs). This is because the FDA learned that drugs cannot solely be approved using biomarkers or surrogate clinical markers. Consequently, the agency insisted that long-term outcome studies to demonstrate safety and efficacy would be required for drug approvals. This caused clinical trials to take longer and become more expensive, costing literally hundreds of millions of dollars, than in the past.

Second, at about the same time, payers (government agencies in Europe and insurance and health management companies in the United States) began playing a more prominent role in the drug approval and commercialization process for NMEs. That is, payors are less inclined to pay higher prices for new medications unless drugmakers clearly demonstrated improved clinical outcomes for the patients who were treated with them. Put simply, why spend more on reimbursement costs for a prescription drug if it did not offer any clinical benefits or improvements as compared with a less costly generic version of the medication?

Both factors not only increased the time and cost of running late-stage clinical trials but also increased the failure rates of many NMEs. Historically, you could be reasonably assured that 90% of NMEs would ultimately be approved if your Phase 2 data looked good. This is no longer the case. These days, the results from Phase 3 clinical trials can make or break a compound — or a company for that matter. Put simply, late-stage clinical development became riskier and more costly. And, not surprisingly, the approval rate of drugs coming out of Phase 3 clinical trials has consistently dropped for the past five years or longer.

Is this a bad thing for patients or society in general? No! But, at the same time, higher regulatory requirements and standards have caused major problems for drugmakers. Many big pharma companies are still grappling with them and trying to adjust. Like it or not, I don’t think that these new, more stringent regulatory requirements are going to change anytime soon. To that end, if you are able to clear the high bar set by regulatory agencies and garner approval for an NME, then it is likely you will have a winner on your hands.

What are your thoughts on outsourcing?
I think that there are two distinct types of outsourcing, and, unfortunately, they are frequently lumped together. One type that I embraced while I was running R&D was to use it to maximize my budgetary reach. For example, when my IT head came to me and suggested that we could reduce our IT costs by 90% by outsourcing those functions to India, then I considered it. This is because it gave me an opportunity to shift and divert funds originally allocated for IT to a key clinical trial that I wanted to run.

The second type of outsourcing involves determining how much to invest in external R&D to either complement or supplant your internal efforts. I believe it is critically important to invest in outside ideas, and an R&D budget must have monies allocated specifically for it. This is because no matter how big an internal R&D organization is, it will never be large enough to explore all of the possible ideas out there for new drug development. However, I don’t think it’s prudent to overly rely on external R&D to drive drug development. To be successful in this business, it is critically important to have a strong, internal scientific organization to help evaluate NMEs and ultimately decide on what to invest in the outside. Further, while I am not an economist, I think that relying on in-licensed compounds is ultimately less profitable for a company, mainly because of up-front costs, milestone fees, and downstream royalty payments. According to my formula, 1/3 of a company’s pipeline ought to come from external sources and the remainder from internal R&D efforts.

What effects have mergers and acquisitions had on the life sciences industry?
Consolidation in the industry has resulted in massive downsizing and outsourcing of many R&D functions. This turmoil has placed an enormous stress on R&D personnel, many of whom wonder on a day-by-day basis whether or not they will have a job tomorrow. Not surprisingly, this has resulted in a loss of concentration and lack of R&D focus among pharmaceutical employees, which, in turn, has resulted in thinning pipelines at most big pharma companies.

While some companies have embraced a downsizing strategy, others have not. Lilly’s CEO John Lechleiter has publicly asserted that he will not downsize R&D operations and continues to invest heavily in R&D. Unfortunately, Lechleiter is being punished by Wall Street analysts for his decision. In marked contrast, Wall Street has tended to reward CEOs like Pfizer’s Ian Reed, who is downsizing R&D operations to precariously low levels.

I believe that if downsizing of R&D operations continues at its current rate, the uptick in R&D productivity that occurred over the past few years will be lost. And, it will be a very long time — at least 5 to 10 years — before the delicate equilibrium is restored between drug discovery and commercialization. Based on my experience running R&D, the discovery pipeline needs to be regularly filled and replenished to remain robust; this is simply not happening at most big pharma companies today.

Has big pharma really shifted its focus from small molecules to protein-based drugs?
While many big pharma execs are talking up the promise of biotechnology drugs and biologics, I believe that small molecules will continue to play a vital role in treating certain indications, especially those in oncology and chronic diseases like rheumatoid arthritis.

From a patient perspective, it is easier and much more convenient to take a pill rather than receive a weekly or monthly intravenous infusion of a protein-based drug. Nevertheless, there is currently general agreement in the industry that effective treatments for certain indications, most notably oncology, will require a poly-pharmacy approach. By that, I mean a combination of compounds (both small and large molecules) will be required to contain or control those diseases. That said, both small and large molecule capabilities are required for companies to remain competitive in today’s market.

Finally, I think the current interest in biotechnology drugs and biologics is largely based on the current prices commanded by these products. I don’t think that 15 to 20 years ago anybody would have believed that the current pricing for biologics would have been sustainable over time. This has been an eye-opener for many pharmaceutical executives and may be responsible for their changing attitudes about large molecule drugs.

What are the greatest challenges facing big pharma today?
I think my answer may surprise you. I believe the loss of public trust in the pharmaceutical industry is the greatest challenge we face today. Unfortunately, this loss of trust has been largely self-generated. Not a month goes by without new reports about improper detailing or marketing of drugs or legal settlements for inappropriate business activities. Moreover, I believe the industry still suffers from a lack of transparency. Admittedly, however, clinical trial data is more readily available today than it has ever been in the past.

Finally, there is a misconception among many people — maybe 80% to 85% — that drugs are discovered by the U.S. government or academic institutions, repackaged by pharmaceutical companies, and then sold for outrageous sums of money. The pharmaceutical industry needs to better educate the public on the drug development process and more clearly enunciate the benefit/risk ratio for all drugs.

Until big pharma companies figure out how to regain the public trust, the path forward will be an extremely difficult one for them.

What is the most important thing that you learned during your 30 years with Pfizer?
The single most important thing that I learned is that it takes hundreds, perhaps thousands, of people to discover, develop, and successfully commercialize a new drug. No one person is solely responsible, and contributions made by all team members can never be underestimated. I have a great story that illustrates this point.

Nurses who were running Phase 1 clinical trials in England for a compound that was being developed to treat congestive heart failure noticed that men who were to have blood drawn for analysis were consistently lying on their stomachs during these examinations. A nurse finally realized that these men were lying on their stomachs to hide erections induced by the compound. This led to development of the compound which is now called Viagra. In hindsight, the erectogenic properties of the drug were not surprising because it is meant to be a vasodilator; it was simply working on a different organ than originally envisioned!

Looking back over my career, I realize it was a great job to run R&D. I had the privilege of working on a daily basis with thousands of very smart and talented people who were committed to developing drugs that could possibly benefit millions of people around the world. What greater thrill can you have as a scientist?

What effects have globalization had on the pharmaceutical industry?
Globalization has opened new opportunities in regions of the world where our medications can be useful. For example, the large populations of India and China represent real opportunities for biopharmaceutical companies as the standard of living improves and the middle class continues to emerge. Further, establishing R&D operations in these countries may facilitate new discoveries and entry into these markets. To that end, certain diseases like gastric cancer may be different in China as compared with the Western world. Therefore, having a group in China to develop medicines unique for specific clinical indications in emerging markets makes a lot of sense to me. Also, the introduction of medicines for broader or more universal indications into these markets represents exciting new business opportunities.

In today’s economy, who do you think is best qualified to run a life science company; a Ph.D.-trained scientist or an executive with an MBA degree and business background?
I don’t think that strong leadership hinges on the background or degrees held by any one person. To me, a strong pharmaceutical executive understands the importance of ongoing investment into R&D to guarantee the future health of his/her organization. After all, it is this commitment to innovation that supplies a company with the products that it will be able to market and sell in the future.

I honestly hope that John Lechleiter, who is strongly committed R&D and innovation, will be successful at Lilly. He gets it and understands that Lilly will be as successful and go as far as its R&D organization will take them. Further, guys like Ken Frazier at Merck, who is not a scientist but understand the value of R&D, hopes that the Merck name becomes synonymous with those of Google and Apple; two companies that are routinely recognized for innovation. Sadly, executives who respond to Wall Street and continue to cut R&D spending may benefit them in the short term but it will be destructive over the long term.