Research and Development Headed for Divorce

Psst. I've got a bit of gossip for you, a piece of news you won't hear on TMZ or Entertainment Tonight. Early reports seem to indicate that a huge celebrity couple, seen everywhere at all the big industry firms is headed for splitsville. That's right. That perennial couple, the so-called jewel in every pharma companies' crown—R&D—looks like they're on the outs. R seems to be leaving D. Or is it getting kicked out? An article in the Feb. 10, 2011 issue of Nature reported cuts to the research staffs at both Pfizer and GSK. Pfizer, the article said, is shutting down its Sandwich, UK, facility, thus cutting 2400 mostly research scientists. The company, according to the article, is also eliminating 1100 jobs from its Groton, CT, research facility, and is slashing research budgets from a previously stated target of $8.0 to $8.5 billion down to between $6.5 and $7.0 billion. For its part, GSK was quoted in the same article saying that it would be "externalizing parts of early-stage discovery; dismantling development in areas with low financial and scientific return." Judy Slinn, a business historian at Oxford Brooks University in UK was also quoted as saying "Pharma companies will still do development work. They won't do discovery."

Michelle Hoffman

OK. But then who will do discovery? Pharma is looking to small biotechs to fuel its discovery engines. By most accounts, pharma will be shopping among later-stage biotech companies ready for development. Yet there still seems to be a significant funding gap to develop promising technologies out of the universities and into at least proof-of-concept stage; that is, there seems to be little money to develop technologies to the point that they become attractive to large pharma.

This funding gap—the so-called Valley of Death—is nothing new. It's just that in an environment where everyone is cutting back on research, the problem of developing promising technologies seems more acute. The Biotechnology Industry Organization (BIO) is addressing the problem in what it is calling their "Big Thinking Project." BIO recently commissioned the firm headed by former NIH Director Elias Zerhouni to collect suggestions for optimal government and industry initiatives from key industry leaders. They asked for policy proposals that would support early innovation to a point where risk-averse venture investors and big pharma firms would pick up the tab for continued development. Their responses include a mix of reforms that would reduce regulatory and financial risks.

The Obama administration is also keen on promoting innovation. In his 2011 State of the Union address, the president wasted little time pinpointing the source of America's future financial security. "The first step in winning the future is encouraging American innovation," he said. And the administration's 2012 budget backs that up with funding increases for biomedical research and FDA activities. But then it curiously sounds a counter-innovative note. The very same administration "now proposes to jettison the biotech exclusivity deal," that had previously been approved as part of the healthcare reform package, notes Jill Wechsler in Regulatory Beat this month. In shrinking the exclusivity period from 12 to 7 years, the move threatens to disincent investor support for the very innovation it otherwise hopes to stimulate.

Interestingly, in the same State of the Union Address, the president warned of competition from overseas. "Meanwhile," he cautioned, "nations like China and India realized that with some changes of their own, they could compete in this new world. And so they started educating their children earlier and longer, with greater emphasis on math and science. They're investing in research and new technologies." Indeed they are. The Chinese government is spending a reported $2.4 billion to support drug development, while it introduces policies to promote its biotech sector, strengthen its intellectual property protection, and strengthen tax and lending policies. In other words, research, jilted by US pharma, may find solace in China's warm embrace.

Sources: D. Cressey, Nature 470 (Feb. 10, 2011) p. 154; H. Jia, Nature Biotech. 28 (Oct. 2010), p. 990; Podcast, A Conversation with Jim Greenwood, www.BiopharmInternational.com.

Michelle Hoffman is the editorial director of BioPharm International.