Roche is following the tide of its competitors in shrinking its R&D platform to focus on five therapeutic areas and speed up development time. "This is not a cost-cutting effort," said chairman and CEO Franz Humer at this month's annual media day. "On the contrary, our R&D spend has increased significantly in recent years, and will continue to increase in the future."

Indeed, Roche reported a banner year in 2006: Pharmaceutical sales grew 21 percent, more than three times the average global rate. Most of that growth was driven by its partnership with Genentech, and the continued success of designer cancer brands such as Herceptin (trastuzumab) and Avastin (bevacizumab).

The company will now group its R&D efforts into five distinct "disease biology areas" overseen by teams in its Switzerland, New Jersey, and California offices. While continuing to invest in the lucrative fields of oncology and virology, it will enter the autoimmune, central nervous system, and metabolic markets--making for some crossover with other companies that have also taken a strip-down-to-buff-up approach to drug development. The new year has already seen Pfizer and AstraZeneca make similar moves; Merck and GlaxoSmithKline have been operating this way for some time.

"By simplifying and accelerating the multiple decision-making processes involved, the model will be more efficient and effective in translating research activity...into clinically differentiated medicines," Humer said.

The two biggest problems facing pharma companies right now are, of course, high costs and low output. Scaling down to a handful of therapeutic categories allows companies to cut expenses in less profitable areas, while taking advantage of R&D's version of economies of scale--products can be combined to extend patents, regulators become more familiar with the company. "You're always looking for areas that have some synergies between them--it's not an arbitrary thing," said Gary Pisano, professor of business administration at Harvard Business School. Smaller units also mean that decision-making can happen with the same speed that it does at less bureaucratic companies.

Industry observers largely believe the trend is a good one. "Historically, companies tended to be in a smaller number of therapeutic areas," Pisano said. "And then what happened is everyone grew and they started to diversify their base of therapeutic areas--and they diversified their risk. It can be good to trim back and focus."

At the same time, some analysts caution that fixing pharma's pipeline problems will require a drastic shift in how companies think about their business models. "The whole economics of Big Pharma has changed dramatically," said Peter Young, president of specialty investment banking firm Young & Partners. "They're not investing fast enough; they're losing patent protection. I think [many companies] came to realize that the structural alignment doesn't match their economics."

Articles

Drug giant is streamlining R&D to focus on five disease areas--three of them new.

Real Simple at Roche

Drug companies are hailing a new market-based program that will help fund pneumonia vaccines in the developing world--where countries typically get access to new products about two decades later than wealthier nations.

The first Advance Market Commitment (AMC) totals $1.5 billion, and offers a guaranteed price to manufacturers that supply the vaccine in poor countries. In this way, AMC creates financial incentives for firms to compete to market--and create demand for--their products in the developing world.

Italy, the United Kingdom, Canada, Norway, and Russia, together with the Bill and Melinda Gates Foundation, are funding the pneumonia AMC. Experts from the World Bank and GAVI Alliance will now face the gnarly task of determining whether or not to grant eligibility to the single vaccine on the market, Wyeth's blockbuster Prevnar. Arguing against inclusion is the fact that Prevnar does not cover the strains most prevalent in poor countries. On the plus side, it's better than nothing--its immune-boosting effects confer at least partial protection--and would get the program up and running.

Jim Connolly, executive vice president and general manager of Wyeth's vaccines business, said that the AMC's administrators are debating whether to fund Prevnar immediately or wait for future generations of the vaccine. "We think the impact this vaccine can have is dramatic," he said. "But at this point we're not sure what the criteria are."

Both Wyeth and GlaxoSmithKline have late-stage second-generation vaccines aimed at delivering wider immune coverage. But the AMC commitment isn't likely to speed up the clinical programs. "What an AMC might do for us is make us rethink our manufacturing decisions," Connolly explained, adding that the current production of three to four million doses pales in comparison with the 250 million doses that would be needed if all children worldwide were vaccinated.

Yet while AMCs provide the funds to pay for vaccines on a larger scale, they don't guarantee uptake. "One of the issues that still remains is the demand--and the capacity to supply that demand," said Deborah Myers, director of external and government affairs at GSK Biologicals. "There needs to be awareness of the disease and how to prevent it."

To increase awareness, GSK has been leading sessions at NGO meetings in hard-hit capitals like Nairobi. It also plans to sponsor patient education efforts. But actually getting the vaccines into poorer, rural regions will require the seasoned efforts of humanitarian groups like UNICEF. "UNICEF has the ground logistics to distribute the vaccine," Myers said. "There are not many organizations that can do that."

Still, she noted, GSK--like other companies looking for solutions to increase drug access in the developing world--wants to make the program a success. "It's a novel, creative mechanism to address significant unmet need," Connolly said.

First-ever Advance Market Commitment offers guaranteed price for vaccines in poor countries.

The No-More-Pneumonia Fund

The numbers in the earnings reports of Sanofi-Aventis and Bristol-Myers Squibb say it all. A closely watched trial to defend their co-marketed blood thinner Plavix has come to a close, but the companies' financial woes are far from over--and neither firm is putting all their chips on a favorable ruling to save the blockbuster.

Arguments in the patent challenge case wrapped up last week in New York, with a decision due in a month or two. The companies are trying to protect their top performer from Canadian generics maker Apotex, which wants to launch its own copycat version. The three firms have been locked in a bitter struggle, including a reverse-payment deal gone awry and Apotex's short-lived "at risk" launch of clopidogrel.

"The stakes for the parties in the case are enormous, financially and in every other way," said Tom Dewey, a partner at law firm Dewey Pegno and Kramarsky, which is not involved in the case. "It's one of the highest-profile challenges to be litigated to judgment."

BMS, the smaller company, was hit harder. It reported a loss of more than 9 percent in its prescription drug business last year, and 22 percent for the fourth quarter. To drive home the point: When Plavix was excluded from the equation, sales of its other growth drivers actually grew 35 percent last quarter.

Sanofi-Aventis reported growth of just 2.5 percent in its 2006 prescription drug business. It kicked off its pipeline presentation hailing its vaccines division, which grew a more promising 22.7 percent.

In total, Plavix had sales of $2.7 billion last year, down from $3.2 billion in 2005. But the companies apparently have no intention of waving the white flag for Plavix. For starters, sales have been rebounding since a court order swept the generic version from the market. In addition, all blood thinners got a boost when FDA recommended their prolonged use for patients with drug-eluting stents.

The companies also have a plan B to extend its patent life, if and when the worst happens: the launch of a high-loading dose of Plavix as well as additional indications for patients with atrial fibrillation and peripheral artery disease, both of which are risk factors for blood clots, plus pediatric approval. Plavix is also being tested as a combination pill with anti-hypertensive drug irbesartan (currently marketed as BMS' Avapro) and with cholesterol-cutter simvastatin (the generic version of Merck's Zocor).

Nevertheless, the public unraveling of their reverse-payment agreement is likely to put other branded drug makers on notice. In addition, the Federal Trade Commission, which is petitioning the Senate Judiciary Committee for legislative action against these deals, recently filed anti-trust charges against Barr Laboratories--in what could be a test case for the rest of the industry. Barr and Warner Chilcott signed a pay-for-delay deal in 2003 around oral contraceptive Ovcon 35.

"There may be ways to thread the needle, but generally speaking a lot more of these [patent challenge] cases will be litigated to judgment," Dewey said.

Patent challenge has hurt Sanofi-Aventis, Bristol-Myers Squibb, which are considering their next move.

Pharmaceutical Executive-02-21-2007

Real Simple at Roche

The No-More-Pneumonia Fund

The Bottom Line in the Plavix Case