Potato Chips, Soap Flakes, Biopharm (and Pharma)

Consultant Robert Dream shares thoughts on evolving industries

By Agnes Shanley, Editor in Chief

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Editor’s Note: Pharmaceutical Manufacturing magazine’s April cover story asked a number of industry experts whether drug manufacturing has improved since former FDA Commissioner McClellan’s comment that it lagged behind potato chip and soap flake making in its use of modern manufacturing methods.  Here are some excerpts from an interview with one consultant who is actively working in biopharma.

PhM – It has been nearly 10 years since McClellan made the comment about drug manufacturing.  Do you think that the situation has improved, worsened or stayed the same since then and why?  What is needed to improve the overall efficiency of drug development and manufacturing?

RD – First, let’s talk about Big Pharma. The bad news is that today’s pharmaceutical giants
look remarkably like IBM did back in the late 1980′s and early 1990′s, and like the railroad industry of the early 20th century.  The good news is that they have a choice.  They can continue down the path of the railroad industry, or they can take the path IBM that took when its future prospects became grim. 

IBM demonstrated how it’s possible for a large company to shift from being a product-centric company to a customer- and service-centric company.  Going forward, pharma companies will succeed or fail, not based on how many drugs they sell, but instead on how well their offerings improve health outcomes.

The marketing myopia of the railroad industry is well documented in the world of business, yet most organizations make the same mistake. Railroads missed out on countless opportunities to pursue growth in the auto industry and consequently suffered.

In contrast, IBM was able to use its near extinction to reinvent itself. The result – a tenfold increase in IBM’s stock value – has put Lou Gerstner in the pantheon of turnaround CEOs. In contrast, most pharmaceutical companies aren’t spending enough time thinking like IBM. Looking at the 10-year stock charts of these organizations you see flat or declining stock prices.  It’s quite clear that reinvention has yet to happen for most life science companies.

Do pharmaceutical companies see themselves in the drug business, the disease management business, or where possible, in the disease prevention business? These are the key questions that will determine whether  Big Pharma companies will survive. Many of diseases lend themselves to the use of applications or biometric devices. This is going to drive a greatly expanded focus on non-traditional partnerships.

For an example of the type of partnership that could be possible, consider Ambucor, which provides ambulatory electrocardiographic and remote device monitoring services for cardiologists.

Pharma companies already have deep relationships with cardiologists. Imagine them buying or partnering with a company like Ambucor to sell that service. This would provide a more complete offering for niches where their heart-related drugs may or may not play a role, just as IBM products may or may not play a role in the services that it offers.

Pharma is still mainly focused on milking cash cows just as DEC, Data General, and Wang did back in the 1980′s. We all know how that turned out.

It was only when IBM brought in Lou Gerstner that things changed.

Now, let’s talk about biopharma.  This sector is thriving with new ideas, new products, new delivery systems and methods. In biopharma, drug substance and drug product are more based on science, technology, and solutions to patient-defined diagnoses than they are in the small molecule world, but, this industry is conveniently being mixed with Big Pharma to balance the loss of revenue or to improve the bottom line.

The lack of funding available for research and development has led many biotech firms to seek partners willing to provide financing for the long product development cycle. Many are turning to the big pharmaceutical companies.

Currently, nearly two-thirds of the funding for biotech research and development comes from the pharmaceutical industry, while over one-quarter comes from government sources, and less than 4 percent comes from universities.  However, pharmaceutical companies are reluctant to get involved until late in Phase II, so biotech firms still have few sources of funding to help them cross the “valley of death” from the early work in the lab to Phase II trials of the product. 

Many pharmaceutical companies see biotechnologies as a solution for their own problems. For the past decade, drug companies have been able to ride a wave of multi-million dollar blockbuster drugs such as Prozac, Lipitor, and Viagra. These blockbuster drugs drove worldwide sales growth from $22 billion in 1980 to $149 billion in 2000. Drug industry earnings rose an average of 15 percent a year throughout the 1990s.  But between 2002 and 2006, patents have expired on 35 drugs with aggregate sales of more than $73 billion a year, while only 14 potential blockbuster drugs were in the pipeline to be launched through 2006.  At the same time, the pharmaceutical industry is coming under increasing pressure to reduce drug costs.  Managed care organizations are stepping up their efforts to negotiate more favorable prices, and there is growing political pressure on drug companies to lower prices.

One approach to containing the high cost of drug development has been to reduce delays in the FDA’s approval process. Over the past few years under a new administrator, the FDA has streamlined the drug approval process, cutting a year or two off the 10-15 year development process. A shorter approval process is worth several billion dollars, but there are limits to the amount of time that clinical trials can be shortened. Patients must still be followed for many months or years to determine the safety and efficacy of drugs and other regulated products.

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