Category Archives: Biotechnology

Drug Company Spends $100 Billion But Not to Find New Drugs

This could be the headline if the Pfizer acquisition of AstraZeneca comes to fruition.

Pharmaceutical companies continue to remind us that the reason they have to charge outrageously high prices for their drugs is because drug discovery and development is high risk and very expensive. This argument has always been suspect but now there is clear evidence that it isn’t the high risk and high cost of drug development that drives high drug prices.

Here are two examples that totally discredit the premise behind high drug prices being espoused by Big Pharma.  Gilead spent $11 billion and Pfizer is contemplating an acquisition which will cost the company over $100 billion to buy a company.  These acquisition costs represent more than 5 years’ worth of R & D spending by either company.  Unfortunately, no new drugs will be coming from the money spent on these acquisitions. That’s right, no new drugs, not one, come from the money spent on these acquisitions.  Sure the companies will continue to develop some of the compounds that are already in their respective pipelines, but the $11 and $100 billion isn’t going to discovering or developing any new treatments.

Unfortunately, rather than increasing drug discovery and development, these type acquisitions divert money away from drug research. In addition to the cash and stock value used in the acquisition, the acquiring company looks for “redundancy” and “operational synergies” which result in massive cuts in research budgets and staff.   Bottom line?  Billions of dollars spent for less research, fewer drug discoveries.

It is clear that drug companies don’t have to charge outrageously high prices to cover their R & D expenses. In the examples given here, patients are paying for the acquisitions.  Drug companies obviously have more than enough cash to fund even more research than they currently do.  Rather than innovative drug research, their high drug prices are supporting luxurious operating expenses, overpriced acquisitions, and extraordinary executive compensation (Gilead, Pfizer, and several other Big Pharma CEOs are among the top compensated CEOs in Corporate America).

Rationalizing the high prices they charge for medicine with the high cost of R & D is just another reason Big Pharma has lost all credibility with patients, regulators, and the healthcare market.

The Five Types of Biotechnology Companies

Type One:  Big Biotech

Biotech companies with full product lines and significant revenues that rival those of Big Pharma.  They have sufficient cash from operations (profitable) to support healthy, well-funded research pipelines and to acquire technologies that fit their business strategy.

Type Two: One Trick Ponies

Companies with a single major marketed product and sufficient revenues to support some operations with or without profit.  These companies are often acquisition targets for Big Pharma.  With no follow-on products or pipeline, company executives and investors are counting on the company being acquired before they run out of money, lose investor interest, or their product becomes obsolete.  

Type Three:  Prolific Pipelines

Biotech companies with pipelines of high probability technologies.  Their compounds have a sound basic science premise supported by encouraging preclinical and perhaps even Phase II clinical data.  These biotechs focus on developing a strong regulatory package of clinically relevant “proof of concept” data to support optimism for FDA approval and commercial success.   Single product companies might be acquired outright while multiple product companies may sell individual compounds (or technologies) while leaving the discovery research and early clinical development infrastructure in place.  These companies have recently been the source of compounds for Big Pharma looking to replenish and bolster their depleted pipelines.

Type Four:  Too Little, Too Late

These companies have compounds that will probably work, deliver positive clinical results, and even achieve FDA approval.  Unfortunately, their product will provide no meaningful clinical benefit over currently marketed products (some of which might even be generic drugs).  The commercial potential for these products  is limited.   These companies, nevertheless, continue to persuade investors with slick presentations espousing large market size numbers and an insistence that with “a new treatment” even a small percentage of that large market will result in significant revenues for the company.

 Type Five:  “Promises, Promises”

Biotechs that are developing products based on extrapolation of flawed or misinterpreted laboratory-derived conclusions.  This is different from bonafide discovery research based on progressively revealing evidence of potential safety and efficacy.  Unfortunately, while their story may sound plausible, there is little or no evidence to support hope for clinical or commercial success.  These companies thrive on finding investors who are looking for lottery size payouts from picking a winner where nobody else seems to appreciate or understand the medical and scientific techno babble.  These companies require eloquent CEOs who can tell a story and preach the promise of a promising technology.  Unfortunately, the only winners for this type biotech company are the executive teams who continue to be paid Big Pharma salaries and bonuses for prolonging the unfulfillable promise.

So what’s the point?

There are probably in excess of 4000 companies (private or public) worldwide that consider themselves “biotech” companies. 

             Think about the large number of Type Four and Five companies masquerading as Type Three companies.

             Think about the venture capital, investment, and research grant money that Type Four and Five companies wastefully divert from Type One, Two, and Three Biotech companies.

             Think about investor confidence in Biotechnology when Type Four and Five companies fail to deliver.

 mike@pharmareform.com