Unnerving Trends in the Pharmaceutical Industry

"Houston, we have a problem."  This phrase, credited to the crew of the Apollo 13 lunar mission, has been used in many contexts (both seriously and comically) to describe difficult situations.  In worst-case scenarios, like Apollo 13, profound and life-changing (challenging) consequences may emerge.  In today's economy, one may paraphrase this to "ACS, we have a problem."

ACS (the American Chemical Society) is an organization dedicated to the promotion of the chemical sciences through educational programs, industry support and government lobbying.  Twice a year, it brings together thousands of chemists to exchange thoughts on the future of science, the status of academia/industry and government policy. Additionally, career resources are continually provided to aid ACS members in advancing their careers or identifying opportunities to regain or maintain employment.  Such resources are extremely valuable in these days of continued downsizing and outsourcing. However, even the ACS cannot create jobs where few exist.  In previous years, the back of Chemical & Engineering News was full of job advertisements for chemists.  Furthermore, the ACS sponsored career fairs were supported by hundreds of potential employers with jobs spanning all levels of experience.  I am sad to say that these advertisements are sharply diminished compared to previous years.  It is no secret that among sectors, the pharmaceutical industry is among the hardest hit.

Fully recognizing that these trends are industry-related and not the fault of the ACS, the question is now "what can be done to restore growth to the pharmaceutical industry?"  In order to answer this question, it is important to understand the causes of the present multi-year downturn.  These causes can be traced back to the marketing of "blockbuster" drugs and the resulting year-over-year double digit returns to investors.  As patent protection for the existing inventory of "blockbuster" drugs expires, the pharmaceutical industry is forced to look at lower revenues and increased competition from generics.  At the same time, the existing drug development pipeline is deficient in new "blockbuster" products to replace those going off patent.  Lower revenues coupled with continued demands from investors for high returns forces corporate downsizings.  Such downsizings are typically at the expense of research - the efforts generating long-term revenues.  With research departments minimized or eliminated, there are fewer quality products entering development - the efforts generating short-term revenues.  With fewer and/or premature compounds entering development, the likelihood of late-stage clinical failure is increased.  This trend directly results in decreased investor confidence.  With decreased investor confidence, there is less money available for investment in the pharmaceutical industry.  Less money means fewer jobs and fewer products advancing into the clinic.  IT IS THIS CYCLE THAT MUST BE BROKEN IN ORDER FOR THE PHARMACEUTICAL INDUSTRY TO RECOVER!!!

Emerging Trends in the Pharmaceutical Industry

Understanding the cycle leading to poor investor confidence is only the beginning.  In order to reverse the pharmaceutical industry's downward spiral, we must implement new paradigms and develop them to their full potential.  Such paradigms include:

• personalized medicine - novel therapeutics with companion diagnostics
• efficient use of both in-house and outsourced activities
• streamlined processes enabling the "forced failure" of programs more likely to fail so efforts can be focused on programs most likely to succeed.

Regarding personalized medicine, I posted two articles on this subject (see postings on November 12, 2010 and February 27, 2011). Furthermore, the potential that can be realized through the ability to screen likely patients in order to assess their likelihood of responding to an experimental therapeutic is dramatic.  To cite data presented by James Sabry (Vice President of Genentech Partnering) at a recent networking event, 4000 drugs were tracked from clinical trial to market from 2004-2010.  Of this set of drug candidates, only 9% achieved FDA approval.  Broken down to the clinical stages, 63% advanced through phase I clinical trials.  Of the 63%, only 33% advanced through phase II clinical trials.  Of that 33%, 55% advanced through phase III clinical trials.  Finally, 80% of those advancing through phase III received approval.  In order to restore investor confidence and rebuild our industry, these percentages must rise. Through exclusion of clinical trial participants lacking necessary biomarkers, these percentages will increase.

Regarding the combined use of in-house and outsourced activities, I continually comment on industry trends, employment challenges and novel career opportunities.  Two postings on these topics (see postings on August 21, 2009 and October 25, 2009) go into great detail regarding current and emerging trends.  The reality is, outsourcing is here to stay.  Once accepting this reality, potential new opportunities come to light.  In the May 9, 2011 issue of Chemical & Engineering News (pg 48-51), I was quoted regarding trends and opportunities in "Managing Outsourcing."  Specifically, as organizations continue to view synthetic chemistry as "outsourceable," these same organizations recognize that management of these activities requires one both skilled and knowledgeable in the science of organic/medicinal chemistry. Problems always arise when working with CROs.  Success is dependent upon how efficiently these problems can be addressed. Furthermore, simply being able to prepare compounds is not a replacement for the ability to design the right compounds to prepare. In my experience, the most efficient combination of in-house and external resources utilizes a small internal infrastructure for development of robust synthetic methodologies in concert with the technical talents of CROs for the synthesis of targeted compound series dependent upon these methodologies.

Regarding streamlined processes, early drug discovery efforts were somewhat linear with compounds advancing through one assay at a time.  By utilizing batteries of assays to evaluate structural classes, early indications regarding pharmacokinetics, metabolism and toxicity can be established.  Structural series failing to demonstrate early acceptable properties can be terminated in favor of those showing promise.  Through "forced failure," more money is spent earlier to save even greater amounts by not advancing sub-optimal compounds into development.  Finally, referring to the percentage of drug candidates advancing through phase I clinical trials mentioned above, the "forced failure" paradigm holds the potential to positively impact this statistic.

The Future of Employment in the Pharmaceutical Industry

While the above describes trends likely to result in greater success and return on investment, it does little to address the current state of employment in this industry.  While the unemployment rate in the United States is around 9.1%, the unemployment rate in the pharmaceutical industry (including biotechnology) is almost twice that.  While disheartening, I continually post on strategies for maintaining employability as well as what types of opportunities are available for those displaced in a shrinking job market.  Additionally, in the April 18, 2011 issue of Chemical & Engineering News (pg 49-51), I was quoted in an article focused on "Survival Skills."  The lessons are more relevant now than ever - those currently unemployed must find ways to stay active in this industry or risk not finding employment as conditions improve.  In today's economy, there are plenty of reasons for not getting paid.  However, there are no excuses for not working.

Even with the unemployment trends, there are those who have the potential to influence policy and, at least partially, restore growth to this industry.  These individuals are our congressional leaders and big-pharma executives.

In the current state of the pharmaceutical industry, large companies have turned to small biotechnology companies to enhance their development pipelines.  However, these deals, especially for earlier stage compounds, come with high milestone payments.  Consequently, deals between large and small companies are dissolving in attempts to minimize these payments.  The unfortunate result is small companies being forced to develop their products without the backing of larger organizations.  The increased corporate expenses related to clinical development often result in significant corporate downsizings - thus compounding the current employment climate (Chemical & Engineering News, June 20, 2011, pg 15-20).  In an industry where high risk yields high reward, the current risk adverse nature of those influencing the pharmaceutical industry continues to result in downward pressure on the economy.  Downstream, these trends will inevitably be reflected in fewer new products and continued medical indications with no available effective treatments.

With the number of highly innovative scientists displaced due to mergers, outsourcing and downsizing, the talent pools in both local industry hotspots and nationwide are unprecedented.  Even so, John Lechleiter (CEO of Eli Lilly & Co.) is lobbying for US immigration officials to issue more green cards for highly skilled immigrants. While I am all for opening up opportunities for the most qualified individuals, isn't it incumbent upon us to first look after those who, through no fault of their own, found themselves unemployed?

Regarding the rich pool of available talent, the trends and paradigms discussed in this posting should generate a great deal of optimism. Once the dust settles and new business models emerge, growth will return.  Furthermore, with appropriate financial resources, the available talent pools will inevitably give rise to a new generation of start-up companies creating new opportunities for innovation.  As Apollo 13 began with a problem and returned safely home, so too will the pharmaceutical industry.  After all, we are a growing and aging population.  We will always need to eat, we will always generate garbage and we will always require medication.