The Advantage of Size in Pharma R&D
Nature Reviews Drug Discovery recently ran an opinion piece by me titled: “The impact of mergers on pharmaceutical R&D.” My interest in publishing this piece was to show that mergers are one of the major factors in the decrease in productivity for the pharmaceutical industry. My views on this hot-button issue generated a lot of discussion in the press and on the web; not surprisingly, some of the comments were unfavorable. One in particular used a quote of mine from 2004 to challenge my current views. The author felt that the opinion I expressed in Nature Reviews Drug Discovery was inconsistent with my previous views as stated in my quote below:
“I’m a big believer in size… When you are a smaller company, as we were 27 years ago when I started, you don’t necessarily have the resources to invest in things outside your immediate expertise. But as we’ve gotten bigger and become more resource rich, we’ve been able to expand.”
Actually, I am still a believer in size and stand by this quote today.
Twenty years ago, Pfizer’s entire R&D budget amounted to $627 million (in contrast to $9.4 billion in 2010). In those days, we were limited in what therapeutic areas we could work in as we couldn’t spread ourselves too thinly. For example, this meant not doing research on statins – an area we entered in 1997 when we did a co-marketing deal for Lipitor with Warner-Lambert – or not putting a big effort in areas like cancer and AIDS. This all changed as Pfizer’s revenues grew dramatically in the 1990s from $5.8 billion to almost $27 billion and, in parallel, the R&D budget grew to $4 billion. During this time frame, we were able to add resources to work in key research areas like cancer, immunology, addiction and pain. We were also able to invest in new equipment and technologies to enhance our research capabilities. This growth was done in a measured and systematic manner. All of these investments helped to build the current late stage pipeline now touted by Pfizer CEO, Ian Read.
But in the current business environment, size plays a more crucial factor. The hurdles in bringing a new medicine to market are higher, and more expensive, than ever. Many new medicines now need to show not just an efficacy which is superior to existing therapies but also long-term safety in patients. These studies are expensive. For example, at the behest of the FDA, Pfizer is funding a study known as “PRECISION,” which is designed to compare the safety and efficacy of Celebrex with ibuprofen and naproxen in arthritis patients with cardiovascular disease. This one study will end up costing somewhere between $250 – 300 million. Nothing like this could ever have been contemplated 20 years ago – it would have consumed most of the R&D budget.
Size, therefore, has its advantages. My concern is, however, how a company grows. A company needs to be cognizant of the effects sudden growth has on its pipeline and science base. A company needs to grow at a reasonable pace; in other words, growth needs to be done responsibly and not as an attempt to meet a bottom line. In the combination of Squibb with Bristol-Myers, the two companies were “fused.” There weren’t major cuts made. True, this type of merger causes disruptions as outlined in my opinion piece, but they aren’t necessarily fatal, particularly if it is a onetime event. However, mergers of “synergies” where research sites are closed, thousands of scientists are fired, and pipelines are pared are devastating to a research organization. Such mergers eliminate, and perhaps lessen, the value that the new size theoretically brings.
If you want a merger to work, you need to ensure it doesn’t damage the R&D foundation of the company.