Clayton Christensen on the Future of Pharma

Posted under Blog, business model, change, Clayton Christensen, commercial model, Companies, conference, Diagnostics, Events, FDA, Funding, health analytics, healthcare, innovation, IP, leadership, Medical Devices, Medical Supply, Mitt Romney, People, Pharmaceuticals, Politics, Public Policy, R&D, Regulatory, Safety, SaS, Startups, Strategy, Technology, Uncategorized, Universities, Videos by Ben Comer

A keynote speaker at the 9^thAnnual SaS Health Care & Life Sciences Executive Conference on May 10, ‘disruptive’ author of The Innovator’s Dilemma and Harvard business professor Clayton Christensen sat down with PharmExec to discuss the future of the pharmaceutical industry, and what Mitt Romney could bring to the White House.

Ben Comer: Like tech companies a decade ago, many pharmaceutical companies are now outsourcing more and more of their core competencies in the name of efficiency, often short-term efficiency. Do they risk losing their core in the process?

Clayton Christensen: We absolutely worry that that’s exactly what is happening. I wrote a book called The Innovator’s Prescription, about the future of healthcare, and chapter nine is our view of where the pharmaceutical industry is headed. But the genesis is that, when we thought that diseases were defined by their symptoms rather than their causes, there were big blockbusters out there that were very attractive for [treatment]. And now we realize that a disease should not be defined by the symptom, but rather by the cause. It used to be that the FDA clinical trials process was like a final exam. If 30 to 35 percent of the patients responded to a drug, it was judged as a passing grade. And if your percentage was less than that, then you failed the test. But now we realize that if only 20 percent of the patients responded, then there must be something different about those 20 percent. They must have a different disease than all the rest. Rather than just project it, now we understand that managing clinical trials is an indispensable element of drug discovery. And so if you outsource that, then you’re outsourcing the activities that in the future will be the critical capabilities.

BC: How can big pharma companies foster a culture of innovation in the context of a large, lumbering bureaucracy?

CC: Rarely is the development or the absence of a product the problem in a company. Almost all companies are awash in ideas for new products. What they don’t do – and they could but they choose not to – is to create new business models that are tailor-made to the characteristics of the new product. You come up with this great idea, and you can’t do anything with it unless you get funded. To get funded, you have to, little by little, morph and shape and modify your business plan so that it fits the current business model. If it doesn’t fit the business model, they don’t perceive that it will be successful. So what comes out of the process is incremental innovation after me-too innovation. It’s not that the original idea wasn’t innovative, but in order to get it funded, you have to change your strategy so that it ultimately conforms to your company, rather than to the problem or unmet need in the market.

BC: Is it a viable strategy for pharma companies to spin out a separate entity, away from headquarters, to facilitate new kinds of development?

CC: It doesn’t have to be totally thrown outside of the corporation, but it needs to be a different business unit underneath the corporate umbrella. And you have to manage it at the level of the CEO, differently, than the mainstream. Almost never do you need to accomplish or accept lower profits when you set up this new business. But the formula by which you make acceptable money will be different.

BC: Is current US public policy harming or helping innovation in this country?

CC: I think that it facilitates a particular type of innovation. But I don’t think government is the core problem. I think finance and hedge funds and private equity funds are the big bad actors in the system. Investors like hedge funds and private equity funds and venture capitalists have a measure of performance called internal rate of return. And internal rate of return is a ratio; the way you get internal rate of return up is that you only invest in things that have a very short time horizon. If you just invest more and more for faster and faster quick wins, IRR goes way up. And you think that you’re innovating, because of the quick returns you’re getting. But what that means is that you can’t invest for the long term, because the truly disruptive business units don’t pay off for five to eight years. So then because the government says, ‘Well if you keep your money in the investment for 366 days, we’ll count it as long-term capital gain.’ There isn’t anything about 366 days that is long term. So the government should re-frame that, so that if you keep your money in for five years, there’s no tax, and if you keep it in for eight years, it’s a negative tax. All of these massive amounts of capital that are in private equity funds and so on, you re-purpose it through the tax code, and it would behave very differently, and invest in very different kinds of things.

BC: What is your message to the pharmaceutical industry, and is there a solution to the productivity gap?

CC: I think I know the right question, but I don’t know the answer. I would love to get together with deep thinkers in the industry to sort it through. As a general rule, when other industries are at this kind of an intersection, what has happened is that, at one stage in the value-adding stack in an industry, at one stage if it’s becoming commoditized and modular, you cannot make money at that level in the stack. But the whole industry doesn’t become unprofitable, rather its activities above and below that original [product or service], that’s where the money is made. And that has to be happening in the pharmaceutical industry, but I can’t see what it is yet. By example, the auto industry is becoming commoditized; cars are being assembled by sub-assemblies from tier-one suppliers. Anybody can get these modules and snap together a car. So it’s really hard to differentiate your car from anybody else’s car, so where the money is being made is in the subsystems that define the performance of the car, and by activities that sit on top of that, like OnStar. That’s where the money is made. Somehow, I have a sense that selling the pill, in the future, is not where the money will be made. It will be the attachments on top or underneath it. I haven’t heard anybody articulate what those look like, but I think they’re emerging, and we need to identify them.

BC: I read in The New Yorker that you’ve lived near the Romneys, and both you and Mitt are active in the Mormon church. Do you have any thoughts about a President Romney?

CC: He’s really a good man. He’s very smart, but it’s true that he was raised in a wealthy home, in a prominent home, and then accrued even more wealth, and his kids have been raised in an even more prominent family. And that’s actually about the toughest environment in the world to be raised in, and have your head be screwed on straight. It truly is. And so people think of that, that he’s not connected with the real world. But he has raised his family to create unbelievably good kids. But more important than that, in the Mormon church, we don’t pay professional ministers to teach us and to take care of us, but we help other people and teach each other the gospel of Jesus Christ. What that means is – because the members have to take care of one another – you meet everybody. And so Mitt was the bishop of our church, and bishop just means that he had responsibility for about 500 members of the church. And he had a family, he was trying to build Bain at the same time, and to be the bishop meant that he spent, on top of all that, 30 hours a week. And I don’t know if you ever saw the first Star Wars movie, but Luke Skywalker came in to meet Han Solo at some kind of a café, and the band that was playing, there was one of every conceivable form of life in the band, that’s what a Mormon church looks like; one of every conceivable type of person. If you’re the bishop, you’ve got to help all of those people. Under his leadership we built three significant new congregations in the inner city, in three different languages. So he really has seen a lot. I don’t think journalists have really realized, when he left [Bain & Company], the consulting firm, to create Bain Capital, that was going great. And the original owners of Bain & Company decided to sell their ownership stake to the next generation of partners. In order to pay the selling founders off, they had to take all of the profits the consulting activity made, and then some, to pay off [the owners]. And these people were just sitting at the side, rolling it in. As a result, Bain & Company would have gone bankrupt in two weeks. So they said, ‘Mr. Romney, could you please leave [Bain Capital] and come here and take presidency of Bain & Company, and somehow you have to prevent bankruptcy.’ So Mitt sat down with the six selling partners, and essentially convinced them to agree to take one-sixth of the amount of money that they thought they were owed, and got them to feel good about it. Just the way that he got these people, instead of knocking their heads together, he led them to agree on something that was very counterintuitive to all of them, and that is the idea that we are all best served if we try to help the other side win. I just think that someone with that instinct in the White House, in the climate of Washington, that would be a good skill.

Christensen’s new book – How Will You Measure Your Life? – takes his experience and thinking in business and applies it to personal decision-making. He has been the subject of lengthy profiles this month in both Bloomberg Businessweek and The New Yorker.

CETP Inhibitors: Blockbusters that Never Ran?

Posted under Biotechnology and Pharmaceuticals, Blog, Cardiovascular disease, CETP Inhibitors, Companies, Diagnostics, Funding, leadership, Lilly, Medical Devices, Medical Supply, Merck, Pharmaceuticals, R&D, Resverlogix, Roche, Startups, Technology, Universities, Videos by Ben Comer

The news that Roche scrapped development on its CETP inhibitor dalcetrapib, a drug designed to raise HDL cholesterol in the blood, likely presages the shuttering of Lilly’s development program for its CETP inhibitor, evacetrapib, industry experts and analysts say.

Merck’s CETP inhibitor, anacetrapib, will probably receive additional scrutiny as well, although Tim Anderson, senior analyst at Bernstein Research, identified a “bull case” for the product in an analyst note. The argument in favor of anacetrapib, per Anderson, hinges on the drug’s apparent lack of safety problems compared with torcetrapib (Pfizer’s CETP inhibitor that hit a developmental dead end due to safety problems in 2006), and the fact that it lowers LDL cholesterol, whereas Roche’s dalcetrapib only raised HDL. At any rate, Merck’s Phase 3 trial “is not likely to conclude for two or three years, in the best of circumstances,” wrote Anderson.

The CETP inhibitors – those still being developed– are justified by the assumption that raising HDL levels correlates with a lowering of cardiovascular risk. Donald McCaffrey, CEO at Resverlogix, a Canadian biotech firm, says with HDL, it’s all about “reverse cholesterol transport,” or in other words, plaque removal from the arteries. With HDL, “it’s not about the huge numbers, as Roche’s program has just shown. It’s about functional HDL…and whether you can make more of it.” A simple blood plasma test can show that a patient has higher levels of HDL, says McCaffrey, but HDL differs in function and capability. Resverlogix is developing a product (RVX-208) that acts on the “main protein” in HDL, known as ApoA-1 protein. By causing the body to make more of the ApoA-1 protein, more HDL is created, but it’s “empty” HDL. The idea is to “take the garbage out of the arteries, which requires more garbage bags.” With CETPs, the approach is to stop HDL from leaving the system, which causes it to build up. But the HDL build-up in that scenario resembles a garbage dump. That kind of HDL is “not going to go back into that arterial wall and take out any more plaque…it cannot,” says McCaffrey.

Another concern for CETP inhibitor programs is the class-wide effect of increased C-reactive protein (CRP) levels, a “very serious” inflammation marker, according to McCaffrey. “If you’re increasing your HDL, and you’re increasing CRP, that has been deemed a serious problem,” he says. Lilly and Merck’s respective CETP inhibitors have both demonstrated CRP increases; Lilly’s evacetrapib had the largest increase, followed by Merck’s anacetrapib, and then, in third, Roche’s dalcetrapib. McCaffrey claims that RVX-208, his company’s product, decreases CRP levels by 28%. RVX-208 is currently in two Phase 2 trials, both of which are being conducted by the Cleveland Clinic. The ASSURE trial, which aims to demonstrate plaque regression, not just an HDL increase, is expected to be complete by the first quarter of 2013. The drug is being tested in combination with atorvastatin and rosuvastatin – Lipitor and Crestor, respectively – because “we believe they will be the most efficient statins in the generic market.”

McCaffrey agrees with Anderson on the fate of evacetrapib: “I think the board in Lilly’s case is very conservative, so I think they’ll probably shelve [evacetrapib].” As for Merck’s anacetrapib, “they’ll probably continue on, they’re deep into that program and I think they need to find an answer,” says McCaffrey. (Norman Wong, Resverlogix’s chief scientific officer, outlined the problem with CETP inhibitors in a white paper published last November.)

Analysts have long predicted blockbuster sales for the CETP inhibitor class of drugs, and yet, none have made it through to approval. With the closure of Roche’s dalcetrapib program, is there enough blockbuster potential remaining to justify the enormous development costs these drugs require?

Trust Issues: Dealing with Academia

Posted under academia, Blog, collaboration, Companies, Deals, Diagnostics, Funding, IP, leadership, Medical Devices, Medical Supply, partnerships, Pharmaceuticals, R&D, Startups, Strategy, Technology, Technology Transfer, Universities, Videos by Ben Comer

Worried they might get taken for a ride, university tech transfer offices are beginning to hire ex-pharma and biotech personnel to help negotiate deals with industry.

On exiting a theater, writers are often astounded and dismayed by the film resulting from a screenplay they’ve sold to a producer. Punch-up writers have added corny jokes, directors have replaced nuanced dialogue with bombastic proclamation, and editors have substituted long-form visual narrative with jump cuts and montage. However, these collaborators – the directors, punch-up writers and editors – often determine whether a film is a commercial hit or a box office bomb. Writers and producers have to work together so that both parties are satisfied with the end result.

A similar relationship exists between scientists at academic institutions and the pharma industry; intellectual property is like a screenplay, in that it holds the potential for commercial gains, but it takes a team of different kinds of people to bring that potential to fruition. Academics who spend most of their time in the lab regard the commercialization process with skepticism; they may have concerns about the application of their discovery, or they may feel swindled by the financial arrangement.

With the proliferation of university partnerships in recent years, tech transfer offices have sought to provide intermediary staff that academics can trust, so they don’t automatically assume that industry has shown up in the lab for a fleecing. “University tech transfer offices are hiring biotech and pharma people that can say, ‘You really don’t need another mouse study,’ for example. This helps unlock value faster,” noted one participant at PharmExec’s 2012 Dealmaker’s Roundtable yesterday (the full conversation on trends in deal-making will drop in June; for last year’s roundtable conversation, click here).

Susan Desmond-Hellmann, chancellor at the University of California, San Francisco (UCSF), has been credited as a facilitator on deals with Pfizer, Sanofi-Aventis and Bayer; before she joined UCSF, she was president of product development at Genentech. “As a former head of product development myself, I think that future investment by industry in more deals with academia will depend on a very business-like assessment by companies on what their return on investment has been. They’re going to do that math, as I would expect them to,” Desmond-Hellmann told Nature Reviews Drug Discovery last year. Academics are doing the math, too. Increasingly, institutions “want to be treated like a small biotech,” said another roundtable participant. To avoid distrust, tech transfer offices and academics should “be able to get advice from someone on their side,” and this can be done through the creation of an advisory board peopled with ex-industry expertise.

Job losses at major pharmas over the last couple of years could result in a larger pool of relevant applicants, and many institutions, including Duke University, the University of California San Diego, the University of Michigan, and many others, already have former industry workers in their tech transfer offices. As for writers, they’ll need to cough up Writers Guild of America dues and hold out for DVD royalties.

Highlights from the Leerink Swann Healthcare Conference

Posted under Blog, CDER, Companies, companion diagnostics, conference, Diagnostics, DNA, Events, FDA, Funding, gene therapy, genetics, Janet Woodcock, leadership, Leerink Swann, Medical Devices, Medical Supply, Next Generation Sequencing, Pharmaceuticals, Startups, Strategy, Technology, Universities, Videos by Ben Comer

Over a hundred public companies, dozens of clinicians, and several regulators participated in investment firm Leerink Swann’s 2012 Healthcare Conference in mid-February. Press was barred from the event, but John Sullivan, Leerink’s director of research, gives PharmExec a few of the take-aways.

Everyone knows that Dr. Janet Woodcock, CDER’s director, tends to stress the importance of safety as FDA’s top mission when speaking to a public audience. During a keynote address at the Leerink Swann Healthcare Conference in February, she also spoke about the importance of transparency and communication at FDA, specifically with respect to smaller biotech companies.

John Sullivan, Leerink Swann’s director of research, was intrigued by Woodcock’s comments. With an increase in the number of smaller companies, including small biotechs, appearing before the FDA as drug sponsors, Woodcock acknowledged that a different method of interaction, with different protocols, is necessary. “When your customers are big drug companies, they’re more likely to know the language…you have career regulatory officers on board internally, and a lot more shots on goal,” says Sullivan. “You can send them away with a previously unclear piece of guidance that hasn’t been clarified, and they’ll go do more work, confident in the knowledge that they’ll be back in front of the agency with that candidate or another one. They have a certain way of interacting that’s long-term in nature.”

With smaller companies, like emerging biotechs, however, the drug candidate up for review may be a company’s only product, or one of a very few. “There’s a heightened level of urgency that I think the FDA is now recognizing,” says Sullivan. “It sounds like they are taking specific steps to make themselves more available to smaller drug sponsors, to give them more guidance.” Hopefully, this will help to minimize the risk of a company going out and conducting new trials, only to reappear two or three years later to find out that the trial wasn’t what the FDA wanted, in terms of design, says Sullivan. “I took [Woodcock’s comments] as a positive at the margin. That doesn’t mean that this class of emerging biotechs will get more approvals out of FDA, but hopefully they’ll get the right answers, perhaps a bit sooner and for a bit less money, than what they might have anticipated.”

Woodcock has also been an outspoken proponent of drug and diagnostic combinations, and in addition to panels on new prostate cancer treatments, duel eligible and healthcare exchanges, biosimilars, rheumatology and other topics, Leerink also convened a panel on clinical DNA sequencing. The panel focused on the migration of sequencing toward the clinic. The panel consensus, according to Sullivan, was that DNA sequencing would inevitably come to the clinic, but not before two things happen: “The price has to come down, and the utility of the DNA sequence information, to the clinician and his or her patient, has to go up.” Per Sullivan, more links between genetic presentation and predisposition for disease, or response to therapy, need to be made. The platforms by which cancer diagnosis and treatment are used today are “relatively low-density…they can do maybe ten genes or 50 genes,” says Sullivan. With full genome sequencing, researchers can do tens of thousands of genes at once, but “most clinicians don’t need, nor do they know what to do with that volume of information.” Panelists said that as clinicians learn more about genetic information, and the price of a full scan comes down, patients will start to be scanned more often.

“I think there was broad agreement that DNA sequencing, especially single-molecule sequencing – where you don’t have the risk of mistakes as you amplify the amount of genetic material for analysis – really holds the promise of being more accurate than other methods of interrogating DNA and RNA, so it’s attractive from the standpoint of physicians, who want to make sure they’re giving the right answer. DNA sequencing, especially single molecule sequencing, increases those odds,” says Sullivan.

On the issue of price, Illumina and Life Technologies announced in the respective launches of two platforms that can sequence an entire genome for $1,000, in one day’s time. Sullivan called Illumina, which is currently subject to a hostile takeover attempt by Roche (the bid is currently $5.7 billion), a “leader in research-based DNA sequencing today.” Ion Torrent, acquired in 2010 by Life Technologies (which was itself formed through the merger of Invitrogen Corp and Applied Biosystems, in 2008) released a mock-up photograph of a clinical DNA sequencing instrument small enough to fit in the hand of a physician. While still a ways off, the photo suggests DNA sequencing in the clinic will require a set of tools that differs from what’s currently used in the lab, by researchers, says Sullivan. “Clinicians and clinical lab staffers have very different needs than research lab PhDs,” he says. “As far as the drug industry is concerned, they’ll continue to get good ideas for new products from the genetic research studies that are going on in a million academic research labs all over the world, and they will increasingly look to pair their drugs – whether genetically derived or not – with diagnostics.”