Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Pharma Emulating Biotech to Boost R&D Productivity

|Includes:LLY, Pfizer Inc. (PFE)
Faced with multiple challenges of patent expirations, generic competition, increased government regulation, and most of all- low R&D productivity, many large pharmaceutical companies have decided a solution to their problem is to reorganize their research organizations to more resemble that of smaller biotech companies.
The idea is to cultivate a spirit of entrepreneurship and sense of urgency by forming small research groups with reduced bureaucracy, each held accountable for their projects. Research, it seems, just doesn’t work very well in large organizations.
This reasoning seems rather odd: Big Pharma has been “Big Pharma” for some time now- loss in productivity did no sneak up on them. From 1995 to 2005, the industry increased spending 2.5X to maintain the same number of FDA approvals. Pfizer did not suddenly grow too big and become unproductive.
In fact, size may be an advantage when it comes to R&D productivity. HBS professor Gary Pisano found in his research that biotech R&D was no more efficient than Big Pharma. Another study by Iain M. Cockburn and Rebecca M. Henderson in the Journal of Health Economics found larger firms had superior performance in drug discovery due to economies of scope.
To the cynical eye, it would appear these efforts to reinvigorate R&D are little more than vehicles for Pharma’s recent cost-cutting efforts.
Another idea for improving R&D productivity comes from Eli Lilly’s then head of research, Dr. Steven M. Paul, in an article titled “How to improve R&D productivity: the pharmaceutical industry’s grand challenge“ in Nature Drug Discovery. Simply stated: improve the Phase II and Phase III attrition rates. According to the article, improving the current attrition rate in Phase II from 66% to 50% and in Phase III from 30% to 20% will yield 2-3 times more NME approvals for the same amount invested.
Dr. Paul suggests target selection may be one of the biggest factors in determining a molecule’s attrition rate. This can be addressed by selecting more validated and druggable targets. A second step is initiating POC studies and using biomarker analysis earlier in the clinical trial process. With POC achieved in Phase I, molecules will have a higher likelihood of success in Phases II and III. Finally, prevent elevation of candidates to Phase III status before establishing solid safety and efficacy data.
These sounds fairly straightforward and are not radical ideas- though this is the first time I’ve seen hard numbers placed on the benefits of their implementation. It is ironic the article comes from Eli Lilly considering its current pipeline woes. Given time, perhaps success down the road will vindicate Lilly’s current strategy.  

Disclosure: No Positions
Stocks: PFE, LLY