As reported in the Independent, Dr John LaMattina
understands because he has led pharmaceutical R&D, in his case in Pfizer.
Without this insight the real consequences of the consolidation of the
pharmaceutical industry seems not to be fully appreciated. The truth is that
this is a hugely complex issue with elements that are unique to the industry
that cause those outside, even captains of other sectors, to fail really get
it.
I too have led R&D and appreciate the issues – let’s
briefly examine them...
M&A
justification purely financial:
The purchase of AZ by Pfizer is a pure play financial
transaction. The large pharma are so
huge that only multi-billions of $ revenue each year will sustain their market
value. The value that is supported by
major institutional investors who expect steady returns – and don’t pension
investors all benefit? This transaction will most likely go ahead – everyone
has their price, but for the science base of the UK and the pharmaceutical
industry pipelines of the future the real price is too high and no real
solutions exist amongst the pledges being offered by Pfizer (or any large acquirer
in existence today). Pfizer must look at sustainability more than their
immediate financials.
Consolidating
companies were pioneers & took years to build
During the 1960s through to the 1990s the ‘Fully
integrated pharmaceutical company (FIPCO)’ model emerged. Glaxo, Beecham, ICI/Zeneca……all
built on their early research roots to extend their internal activities and
departments to shepherd their products through to the marketplace. The early companies were pioneers and they
built unique internal capability to develop the products everyone has come to
rely on to retain our family units. The
next generation of companies is not being built in the UK on a sufficient scale
to replace those being lost.
Consolidation loses
value in R&D which is not compensated for by size
Many subsequent mergers (between the plethora of early
companies) later have proven that creativity and productivity in R&D is
inversely proportional to the size and maturity of the organisation. The
reasons for this are an essay in themselves, too extensive to discuss here but
are consistent with the teaching of Utterback and Abernathy (ref…).
Consolidated
companies need larger pipelines and seek more in-licensed products
The larger the newly merged companies become, the greater
their need to fill their pipelines with new products – so a rise in in-licensed
products is seen and more are required. These come from small biotechnology
companies which in themselves are founded on early inventions and discoveries
from academia. So the mega companies of today, such as will be a joint
AZ/Pfizer entity will only survive long term with products originating from
outside the company.
Cycle time of
R&D is long and relies on a vibrant ecosystem
Here in lies the real issue. The R&D to
Commercialisation cycle of pharmaceutical products takes around 25 years.
Companies need more products and need them faster. The presence of an extensive and vibrant
R&D ecosystem in the UK is crucial to provision of this pipeline. Yet each
new merger results in the closure of long established R&D sites, with a
corresponding and overnight massive loss of value. The value and expertise that
has taken 20+ years to build up is gone in an instant and the emotional heart
and then brains of these sites are actively disengaged and separated.
The R&D base
and investment has suffered long term erosion
Large pharmacos had started cutting internal R&D some
years ago. Once the human genome was
sequenced there was a realisation that new discoveries and inventions were
possible which would change the face of medicine. New examples emerged in
smaller more nimble organisations and the large pharmacos which had become
rich, fat, sluggish and unsuited to the adaptations required to recognise and
exploit the new potential also failed at time even to recognise the new wave of
medicine. At this time shining examples of a new companies which had been
beavering away working with new modalities (i.e.Genentech, Amgen) were suddenly
appreciated has the next pioneers with the drugs to match the reputation.
Reducing the large
pharmacos in the UK to a remaining few is a serious blow for our future
production of the next generation scientists and products.
The reduction in FIPCO internal R&D resource was
heralded as being inevitable and ‘a good thing’. Strategic outsourcing to
reduce internal bulk was discussed and became a new way of life. A significant situation
then hit each one of the established pharmacos, each was facing a patent cliff.
In turn each company reduced internal R&D budgets, driving outsourcing and
downsizing and large merger transactions looked good on the basis of strong
consolidation and synergies. Now the number of large companies is reduced to so
few through, there is too great a concentration of resources being channelled
through a few entities which completely alters the vibrancy of the external
ecosystem. A single entity investing $200m in the UK will make entirely
different choices to 10 companies each investing $20m. The commitment we need
to extract from Pfizer is to understand fully this issue and to take some
responsibility for ensuring the health of the UK ecosystem it is depriving of
one of its home grown companies. We need Pfizer to sustain their combined
company future R&D investment in the UK and we all need to realise that
even this will not sustain the vibrancy of the past and provide the next
generation of translational scientists and new products.
Condensing this to three relevant points:
Early R&D innovation never benefits from being in a
bigger organisation - there is an entire literature on this - small fast moving
somewhat chaotic groups spawn the new innovations. So the bigger the Pharma the more they rely
in the scientific ecosystem around them to feed their pipelines.
The presence and investment in R&D in the UK in the
past has spawned the current generation of scientific leaders and numerous
innovations and will be reduced to a critical level without some smart plans
and investment.
The third relevant point is our industry works on a 25
year cycle from inception if an idea to final product (as a minimum). Large
companies taking their investment elsewhere on the basis of cost reductions will
not see productive returns in the near term (the 25 year rule will reign). The
UK has a strong experienced science base with a proven track record of
innovation. So for the successful future of UK bioscience
we need a Pharma R&D base here. The huge Pharma giants need their
pipelines feeding and their commitment
to the UK will be all the stronger if they believe it to be a sustainable
source of innovation for them.
Unless the promises made by Ian Read to David Cameron are
binding Pfizer could pull out of the UK in 5 years and the whole cycle of invention,
innovation to Products on the market will be broken. AZ and GSK are this country's only real hope
of sustaining the scale of investment that will make the difference for this
current generation of scientists and their commitment has to be here for the
next 25+ years. Pfizer have a US mindset and no allegiance to the UK. Corporations have short memories and financial
drivers. Do the financiers really
understand this? We must keep explaining……..
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