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The Cooperative, Competitive Future of Pharma R&D

Executive Summary

The first annual rEvolution Symposium of top research execs didn't solve the R&D productivity problem, but it went some way towards examining how the industry has gotten itself into it. Most of the big-money technologies of the '90s have not increased the productivity of pharmaceutical R&D, both because they address less significant problems, in particular missing predictive toxicology, and because they've been mismanaged and misused. Moreover, because of the industry's 10-year product cycle time, many technology purveyors have had to overpromise in order to create buying interest that will in turn create returns for investors with much shorter time horizons; some technologies useful for research have been forced before their time to try to serve as the basis for drug creation. Two major areas to focus on: accountability and inter-company cooperation. On the former, the R&D chiefs want to apply to large organizations the kind of accountability intrinsic to small companies. On the latter: no company can solve the basic science problems alone--dealmaking, including consortia, are a necessity. The movement towards decentralization and inter-company cooperation is likely to lead to the disaggregation of the industry's research efforts--and a boon for productive biotechs, granted they can hold on through this time when their models are financially unsustainable.

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Jumpstart to Products

Discovery research is an ever more difficult investment to justify, so companies are placing greater emphasis on mining discoveries that have already been made but whose real value remains unexploited. Big Pharma, in part inhibited by habit and current infrastructure, has not moved aggressively in the new direction-but the jumpstart model now dominates small-company strategies and will increasingly translate into the rest of the industry.

Cardiovascular Drugs

The three start-ups profiled in this group of companies are employing a variety of scientific platforms and business models to develop treatments for cardiovascular disease. Excigen (gene therapy to treat arrhythmias) and Endogeny (cell therapy to repair damaged heart tissue) are using cutting-edge approaches to discover and develop novel therapeutics, while QuatRx is an in-licensing company with a lipid -regulating compound that may enter the clinic next year. What all three have in common is a focus on products and an intent to outlicense their products for late-stage development and commercialization.

The Infrastructure Dilemma

Most drug companies struggle against duplicating in their biotech partners the development and marketing infrastructure that will support the collaboration's product. And though they frequently lose that battle, biotechs generally have to co-fund their share of the expenses, including infrastructure. But the Neurocrine/Pfizer transaction on indiplon marks a new valuation sign post. Not only will it pay significant up-fronts, milestones, and royalties, but Pfizer will fund all further clinical work, while Neurocrine makes final development decisions, and 100% of the creation and maintenance of Neurocrine's sales and marketing group, while supplying it with a blockbuster quid, Zoloft. Pfizer's strategy: to turn infrastructure overlap into sales augmentation: it will control indiplon's marketing and, by helping to train Neurocrine's sales force, be able to exercise considerable influence over its direction and activities. Moreover, if it chooses to acquire Neurocrine, it will be able to do so with minimal integration issues since the Neurocrine marketing team will have been so closely associated with the Pfizer way of doing things.

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