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Three Pharmas Highlight Contrasting Approaches To Product Innovation

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Back in 2010, in a landmark analyst note (not exactly a phrase we hear very often), Andrew Baum, then at Morgan Stanley , observed that while many pharma companies were ostensibly trying to discover and develop drugs, most weren’t very good at it and, and should probably stop. Instead, he suggested, they should shift from R&D to “S&D” – “Search and Develop” – and seek to in-license promising early-stage (or late-stage) products that innovative biotechs were making.

At this week’s Pharmaceutical Strategy Conference in New York, I had the chance to hear three contemporary responses to this abiding challenge. (I was attending the conference to participate on a “pharma and digital health” panel that also included a discussion of precision medicine and the tools of genomics.)

(Disclosure/reminder: I am Chief Medical Officer of DNAnexus, a cloud genomics company that has a significant business relationship with one of the companies, Regeneron, I’ll be discussing, though our area of collaboration isn't a focus of this post.)

The first perspective, offered by George Yancopoulos, Founding Scientist and President of Regeneron, highlighted the importance of “great science,” of “exceptional, one-in-a-thousand people,” and the sort of extremely long-term thinking he suggested might be in short supply among most industry CEOs. Yancopoulos, unabashedly, views Regeneron as a company that does discovery research exceptionally well, and believes this represents a key competitive (and existential) advantage for the company.

Another perspective, advanced by Allergan EVP David Nicholson at the conference, and by CEO Brent Saunders via Twitter (hence the syntax), says that you can be an innovative pharmaceutical company (“very committed to innovation,” in the words of Saunders) without doing discovery work, given the richness of the existing ecosystem. “Goal is to be R&D development powerhouse,” Saunders added. “Our team has best development track records. Partner for discovery.” Saunders also noted, “Many don't do discovery, see [Gilead] $GILD & [Celgene] $CLGN still value R&D.” (I imagine the putative absence of discovery research at Gilead will come as news to their CSO, Norbert Bischofberger.)

Yancopoulos was skeptical about the prospects S&D without in-house discovery, arguing that without a very strong and engaged internal researchers, you have a hard time identifying the most promising science, and your ability to partner intelligently is compromised. In his original 2010 report, Baum specifically called out the need for such scientific and translational expertise if the S&D approach is to be successful.

Both Nicholson and Saunders assert that Allergan has overcome this problem, and has a very strong internal group focused on scientifically rigorous, strategically smart partnerships. Moreover, says Saunders, the results speak for themselves: “Look at our track record on partnering; 3 NMEs [new molecular entities - i.e. novel drugs] approved YTD [year to date].”

Yancopoulos seemed unconvinced; in his view, the key to both drug development and savvy acquisitions are exceptionally innovative scientists, the kind that are drawn to organizations engaged in compelling research, and who would never join (or never remain at) companies where active internal discovery wasn’t occurring.

Michael Hayden, President of Global R&D and Chief Scientific Officer of Teva, offered a third perspective. While Hayden spoke of Teva’s interest in developing novel molecules (especially in neuroscience and respiratory), I was especially interested in Hayden’s broad vision for research that expands the use of existing drugs. For example, he highlighted a recent partnership with drug delivery company Microchips (an MIT spinout – see here), and the just-announced acquisition of Gecko Health (a “smart inhaler” company – see here).

For a very long time, I’ve thought a promising entry point for digital health in pharma was with generic companies like Teva (in 2012, I explicitly called out Teva here, in fact), with the idea that from the perspective of a payor, a generic drug wrapped in a digital health solution could represent a far better value proposition than an expensive novel agent in the same category. For example, a twice-a-day generic drug plus an effective digital health adherence approach (to assume a can-opener, as economists say) might well demonstrate comparable, or even better, real world efficacy than a once-a-day novel product.  (See also here, here.)

Of course, Teva isn’t the only company thinking along these lines; just today, Allergan, in fact, announced a partnership with the Silicon Valley-based genetics company NuMedii, led by Gini Deshpande. NuMedii seeks to use genetic data to reposition existing drugs or early-stage compounds, in this case targeting psoriasis. To date, the obvious appeal of repositioning (leveraging the derisking that’s already occurred) has been offset by the difficulty of developing a robust methodology for achieving success; the hope expressed by the Allergan partnership is that NuMedii has finally cracked the code.

It will be interesting to see (1) if Regeneron’s investment in basic science yields the bumper crop of novel medications Yancopoulos clearly anticipates; (2) if Allergan continues to prove as adept in identifying, acquiring, and developing truly innovative early-stage compounds as company leadership believes it will be; and (3) if Teva’s plan to use emerging technologies to create compelling solutions around existing drugs proves a viable strategy.

I’m intrinsically optimistic about (1) and (3), and have been in the industry long enough to think twice before betting against Brent Saunders.