Les Propheties Pharmaceuticale : Prophesying on where the pharmaceutical outsourcing is headed

It is either an after-effect of all that powwow with the old-worldly Chippewa (the ‘real-Indians’, who aren’t Indian really ;-)) in the round house OR, it’s the paradoxical audacity stemming from my ironic inability to predict my own future!! - Either way…….,

......I have this compelling urge to play an oracle for once & mouth some prophecies!

My prophesying though is limited to pharmaceutical manufacture, outsourcing & is inspired by what’s going on right now all around in the pharmaceutical industry. While on first-look most of the recent happenings appear to be standalone in nature, there is a tangible pattern that isn’t too tough to decipher. My attempt is merely to speculate on what this pattern means for pharmaceutical manufacturing scenario, a few years from now, albeit a little prophetically.

Listed below are a some of my observations, statements & surmises (not still prophecies....), in no particular order, based on a handful but trend-indicative news alerts that I received over the past two weeks;

• Big pharma shutting-down small molecule manufacturing sites but investing in Biologics facilities - Merck, Pfizer, Novartis, AstraZeneca etc in shutting-down mode & Roche, Genzyme (Sanofi) et al in investment spree

• CMOs & Pharma companies scramble to strengthen ADC manufacturing capabilities in an apparent response to the visible thrust by drug developers to biologify (sic) unsuccessful small molecule candidates as ADCs & reposition them as targeted therapy candidates - SAFC, Lonza & Roche strengthening ADC capacities

• Indications that compulsory license issuance in developing countries is driven more by ‘access to cost-effective first-line therapies’ than ‘access to later-generation therapies’  - Indian Patent office Upholding CL for Imatinib & rejecting CL application for Dasatinib

• Federal complicity (vis-à-vis’ regulatory) with the innovator belief that biosimilar is an Oxymoron – The recent passage of SB-598 bill constraining use of biosimilars by State of California

• Regulators mellowing, but playing-safe with approval of biosimilars? - The first ever biosimilar approval by EMEA is for Remicade (infliximab) indicated in the ‘relatively non-fatal” auto-immune disorders

• Geographical re-alignment and consolidation of biosimilar manufacturing assets - Dr. Reddy’s  signing a deal for getting it’s biosimilars manufactured & marketed within the USA by Merck-Serono; Lonza’s scrapping of biosimilar venture with Teva and it’s going slow on India expansion; DSM launching a large-scale biosimilar facility in Australia et al

• The increased focus of Big-pharma on having a lean & integrated supply chain for their off-patent assets – As indicated by the on-going race of backward-integration by formulation CMOs & forward integration by API CMOs

• Drug Discovery & Development (primarily chemistry, biology & clinical) service providers progressively getting consolidated within NA, EU with clinical development centers in low-cost countries – As indicated by the flurry of activity each passing day

• Clinical API synthesis tending to be retained within the shores by the partly to de-risk late-stage regulatory risks & mostly to engage residual in-house R&D facilities – As indicated by the outsourcing strategy adopted by most Big & Mid-sized pharma

• Spurred-on by increasing regulatory wariness, high focus by the outsourcer' on ensuring supply chain integrity for key Intermediates and starting material for both marketed as well as developmental drugs – As indicated by the uncharacteristically massive press-coverage of  WuXi successfully facing a FDA pre-approval inspection for the ‘Intermediate’ of a new drug under review for approval

While the observations tell a story of their own, here’s my promised prophecy in the form of three quatrains, which very unlike the good old Nos’, I went about decoding myself – so much for my quest to be understood in my lifetime!

Quatrain 1

Decoded:

The Indian &/or Chinese CMO/ CDMO/ CROs will see the outsourcing getting limited to;

·        Manufacture of generic, low-tech (applicable to DP) small molecule, high volume & predominantly disease-maintenance/ management therapeutics (as against curative therapeutics)

·        Manufacture of (ideally integrated) potent, cytotoxic therapeutics    

·        Non-GMP/ GMP manufacture of key intermediates requiring large capacities/ ~ economies of scale of both patent-case & generic APIs for big/ mid-sized pharma

·        Large-scale manufacture of OTCs & Medicinal Products (components of med devices)

·        Early development (preclinical through PIII) of investigational drugs belonging to small/ mid & big-pharma (since this stage demands a lean-cost model)

·        Late-stage development (leading to NDA) of investigational drugs for small/ virtual biotechs

Quatrain 2

Decoded:

The North American, European CMO/ CDMO/ CROs will see the consolidation of the following opportunities in their favor;

·        Manufacture of Biologics, Biosimilars(authorized?)  

·        Manufacture of high-tech, specialty small-molecule APIs (ADCs, PDCs et al); formulations & devices

·        Late-stage development (leading to NDA) of investigational drugs for Mid & Large-sized pharma

·        Integrated Drug-discovery, development for Big pharma

Quatrain 3

Decoded:

Finally & a tad controversially – the Indian pharmaceutical players (& probably Chinese too) in general will aggressively pursue;

·        Compulsory licensing opportunities for the first-line therapies of small-molecule drugs for the NON-orphan disease segments

·        Biosimilar/ biogeneric development (for potential global alliances) and for eventual direct commercialization (with likely alliances again..) within India – with emphasis on curative biologics for non-fatal disease segments not addressed by small-molecule therapeutics    

As is evident, this list of predictions is by no means exhaustive & is only a brief compilation based on some core-opportunity types focused on within the outsourcing domain.

I know Nostradamus has more detractors than believers, so go ahead and flame me, I’m all game! ............ Only, make sure your rebuttals are in Quatrains too…., Just kidding :-)

    

Deal-Flow : Value-addition :: Silicon-rapids : Organic back-waters

Reacting to the rather weird scenario wherein some VCs are trashing their own brotherhood, Bruce Booth wonders in his latest article if this is an outcome of a Lake Wobegon-like illusion or if it is the Dunning-Kruger effect in action.

In my comment against this post, I offered my own little suggestion for this apparent case self-deprecation (OR is it not) and more....

My comment:

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If I go by what Mahendra Ramsinghani said here on LPs bothering more about deal sourcing capability than value-add by VCs, Khosla’s indictment of ‘95% zero-value add VCs’ shouldn’t really rock the boat more than the supposed shake-up caused by the AngelLists’ & Kickstarters’ of the world – The ‘80% negative-value-add’ rhetoric though is way below the belt & confounding.

Perhaps these intriguing proclamations are a manifestation of nervous energy of the PE biggies that are ‘but-of-course rattled too’ by the progressive warming of the PE globe and thus eager to reaffirm their value-add alternate asset investor status to the larger LP universe.

Can’t help but note again that a lot of the above paradigms, shake-ups, prophesies & reactions are all still relevant mostly to the 'silicon-rapids' (IT et al) and much less to the 'organic-back-waters' (~biotech) – taking a cue from what you said about the CEO, I’d think the loneliest job in the world at present probably is that of a biotech venture capitalist :-)

Isn't 'Syndicate' a worrisome term on an online crowd-funding platform?

A recent article by Lora Kolodny on Venture Capital Dispatch raises some interesting aspects on how VCs perceive the impact of likes of AngelList (online crowd funding platforms) on VCs - all but the potentially most impactful feature of investment 'Syndicates'

Below's my comment on the above article;   

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I was waiting for something on this – a much needed & timely insight.

It’s good to see all four VCs cautiously optimistic & none too worried about the online equity participation platforms impacting the role of a VC – couldn’t agree more!

From what has been said by the VCs, my key takeaways are as follows;

1. Fundamental changes to the proprietary-deal-flow showcase of the VCs ~Rory Eakin, CircleUp

1. The additional costs of investing associated with online platforms ~Annie Kadavy, Charles River Venture

1. ‘Tragedy of the commons’ Risk – to mean the relative disengagement of investors owing to a portfolio comprising of multiple small investments ~Jeremy Liew, Lightspeed Venture Partners

1. The risk of misreading or missing a signal by investors – owing to low signal to noise ratio of all online leads ~Alfred Lin, Sequoia Capital

While all these pose some but varying levels of risk, I feel the evolving ecosystem (of online equity platforms) will soon equalize the same & make the impact minimal.

One aspect that hasn’t been discussed is the potential risk of ‘investment bias’ stemming from the syndicate approach – which may inadvertently shift focus from a few worthy signals that already suffer a low S/N ratio - What say Alfred Lin (& AngelList)?

End of the day it's all about the Benjamins', impressive TVPIs not withstanding!

In a wake-up call of sorts, Super LP Chris Douvos cautions GP universe that end of the day it's 'all about the Benjamins', impressive TVPIs not withstanding!...

'tis the central dogma of investing alright, but still leaves enough scope for a small repartee of my own - here goes;

My comment

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Not sure if it’s a norm, but it’d surely surprise me if the GP takes an investment call in a particular portfolio company without as much as doing a cursory review of its exit potential & potential exit valuation – they probably do too, but don’t necessarily assign a value, given the magnitude of arbitrariness in doing so. It hence is somewhat ironic that the exit valuation in this model is merely a derivative of the overall size/ value of the fund raised by the VC and doesn’t factor-in anything that’d determine the potential of an individual investee enterprise – confounding this  further is the VC having to justify this derived value.

So while the proposed analysis does sound like a non-nonsense approach to assessing the fund performance, that part about “reality checking those putative outcomes” would still remain the single most challenging & expectedly the most contentious aspect even as LP-GP engage with an intent to cracking the funding arithmetic.

Nonetheless, it’s good to be reminded that for all practical reasons the sum of individual valuations of portfolio companies in a particular fund is but an unexciting statistic to the PE Portfolio manager in the LP organization keen on showcasing something akin to the promise of an ‘absolute return’ his hedge-fund counterpart typically presents :-)

We are all just prisoners here, of our own device!

Where does this notion that every mild ache or pain might be the harbinger of something particularly nasty, or even fatal, come from? asks drug baron in a recent post pondering on the Origins of Hypochondria

Since hypochondriacs too are prisoners of their own device**, I wondered in my comment if one can choose a device of well-being than of ill-health...

**Thank you Eagles, for penning such profound lyrics (and of course out-of-the-world music...) one can interpret in a zillion ways & still love.

My Comment

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A brave admission and a sound rationale...

Psychologically speaking…,

I'll try and link the three plausible reasons stated for being a hypochondriac to three personality types using the widely known MBTI system;

Domain Knowledge & (over)Exposure to Information - THE THINKER (INTP)
........applies knowledge & available information to connect the dots and map the domains - and at times create phantoms

(Supreme) Self-Confidence - THE SCIENTIST (INTJ)
.........pragmatic, believes in things that can be explained through well validated scientific rationale - at times negating viable but unsubstantiated dogmas

An Entrepreneurial Spirit - THE DOER (ESTP)
..........the risk-taker who's not always a conformer & who takes things into own hands with an intention of chasing the desired outcome - at times not reaching the goal

Probably being a hypochondriac is an outcome of the incremental edge the SCIENTIST has over the DOER in a quest set-out by the THINKER. What could probably change the equation is spooning-in a dollop of a few other personalities from the 14 others to choose from :-) (MBTI types again)

Physiologically speaking…,

I think though that one needs to believe in things for them to work for them - particularly so in matters of health & well-being! If the SCIENTIST questions how?, I'd try saying that since most disease conditions are manifestations of biochemical & ion-channel imbalances & brain plays a understandably important role, influencing the thought/ brain is perhaps important too as medicine is? Perhaps, there’s some rationale behind why placebo's routinely give new drug candidates a run for their money when it comes to efficacy?

Hippocrates did say... "Men ought to know that from nothing else but the brain come joys, delights, laughter and sports, and sorrows, griefs, despondency, and lamentations”

Just perhaps.... he also meant to include disease?

Ambrosia for food, Palm-top engagement, Iterative decision making – A preview into evolving expectations of the healthcare consumer

Understanding consumer preferences has always been of paramount importance in most product segments. Within the pharmaceutical domain however even as there’s a constant ideation, speculation on future of healthcare; outlook on disease incidence, burden and pharmaceutical consumption patterns, this particular aspect has not been focused on, possibly owing to the prescriptive nature of the medicine where decision-making seldom lies with the patient & the power to influence product development lies more with the medical professionals & payers. To an extent this disengagement of consumer does justify the disinterest of Industry to understanding the consumer as against understanding the prescriber & the payer/ insurer.

Having said that, a number of disorders these days are getting close to being categorized as lifestyle-diseases & with early detection, diagnosis and routine monitoring getting simpler, it’s only imminent that the insurer will increasingly resort to rationalizing what treatment-regimens can be covered thus significantly shifting the onus of payment to consumer. Then again, owing to the abundance of open-source information and availability of validated healthcare gamification apps, the consumer is getting more knowledgeable & hence empowered. Seen together, these trends indicate that the average pharmaceutical consumer is well poised to be the key decision-maker on therapeutic choices, particularly on maintenance therapies that form a predominant portion (vis-à-vis’ the curative therapies) of all pharmaceutical revenues.

It also hence would not be overtly speculative to state that the hitherto quintessential practitioner-dependent healthcare consumer is evolving quick & is looking at an iterative role for her/ him-self rather than merely wanting to being ‘prescribed health’, literally & figuratively. Continued negligence of factoring-in consumer behaviour in the product development process can thus be a serious lapse of judgement in an industry that’s been groping around for the next paradigm shift for a few years now.

The Health 2025 survey I floated in early July is a token attempt to gain some basic perspective into the altering behaviour of an ‘aware pharmaceutical consumer’ which I hope either in its promise OR in its inadequacy will instigate more such studies in-depth and at a larger scale. While I can’t claim to have gotten a great number of responses, I fortunately received quality responses (& some incidental endorsement*) as indicated by consistency of the trend that was showing up right from early stages to till plateauing of response flow.

Even as I was compiling the final results I came across this rather well received fund raising pitch of Stefan Broda (Founder/CEO of BeforeWeDo) at the end of which one particular GP lauded the Consumer Iteration built into the business model which is worth emulating by other healthcare start-ups! – If not a sign from the heavens, a sweet coincidence nonetheless.

SAMPLE POPULATION, STATISTICAL ASSUMPTIONS & SURVEY DESIGN

I chose the sample population of pharmaceutical professionals who I believe are very representative of the above breed of ‘aware pharmaceutical consumers’ & to whom I have ready access through the Pharmaceutical Discussion Group I founded and manage on Linkedin & Groupsite.

Based on a guestimate of ~5million pharmaceutical professionals world-wide, I derived my target sample size as 350, using a Confidence level of 95%, which is the mostly used default level & a Confidence interval of 5, which again is the oft-employed default figure. By the time I chose to start the compilation (the survey is still active) I however had only 159 responses which translated amount to a confidence interval of 7.7 while the confidence level remains at 95% - That, I guess is my cue to you for taking the results with a pinch of salt :-)

Finally, I am neither a professional statistician nor a qualified analyst and it’s likely the design of survey may not fully please many out there. I however did consciously try and keep the questionnaire short, the questions specific & the choice of answers broad in order to minimize any chance of a bias setting-in – the trends indicated by the responses, as I see, justify some if not all questions.

PRESENTATION OF RESULTS, ANALYSIS

The survey is based on ten questions out of which the first three are essentially filters namely age, sex & nationality that enable some level of demographic segmentation of responses. While the charts of responses to individual questions looked very pretty on Surveymonkey dash-board, I agonized nonetheless quite a bit deciding on an ideal approach to presenting the results on my blog without sounding too pedagogic – I hence chose to weave the details around certain KEY OBSERVATIONS and then go about detailing on those further.

Since it may help put things in perspective, I have uploaded the primary results document* to file cabinet on Pharmaceutical Discussion Group – please note that this link opens the document only when you are logged in, (i.e. if not a member already, you will have to join the group)

**I’ll be happy to share the master data file too with anyone interested.

KEY OBSERVATIONS

In hindsight I realize some of the questions are pretty skewed & some fairly meaningful, but overall they seemed to fall in two broad categories, one set wherein the standalone overall response is itself strongly indicative of a trend & a second set wherein an interesting picture emerges only when the responses are separated out and compared across demographics. I however will spare the mundane trends and go straight to top observations based on the percentage response towards a trend-indicating response;

I.

Not just food, Ambrosia is what the consumer wants - a huge thumbs-up for Functional Foods!

Quite ironic that the top trend in a health survey is food & not medicine! - A whopping 87% of the respondents see/ want the food in 2025 to be more than nutrition, out of which 46% see a potential for food being a curative!

Women make up the majority of the ‘food as a curative’ advocates (60% as against 30% among men) – which simultaneously underscores & endorses the greater influence of women in the functional food promise.

More Indians (56%) believe in the promise of curative food than the North Americans (40%) or Europeans (44%) – a possible connection to the expectations influenced by prevailing, predominant ethno-cultural dietary practises?

II.

Consumers want to take things into their hands, literally – Mobile Health Tools all set to Rule

At 68%, a clear majority of the respondents are bullish on the role & significance of personal mobile apps in an individual’s health management. (25%, Indispensable & 43%, Very crucial)

Once again this is a trend driven primarily by women, the percentage of women who chose ‘Indispensable’ (40%) being significantly higher than the men, a majority of whom (67%) chose the mildly-tempered but still bullish, ‘Very crucial’ as their answer. This clearly establishes women as the ‘early adaptors of the health mobile tools & apps’ & possibly that mobile apps are more amenable to woman’s health management and finally that factoring-in gender into the development of a mobile healthcare app can be a key determiner of the success of the same.

When the Geography filter is applied, the trend expectedly peaks in North America with an overall bullish-ness at 76% - within which women once again stand-out strongly with 55% responding ‘Indispensable’. The dominant European response is however ‘Very crucial’ (60%) which probably indicates a currently lower penetration of mobile health apps within this geography – this holds good for India too.

III.

They seem to say, keep the Doctor away – Eating an apple isn't the only way

While the question has some unfortunate bias & choice of ‘You’ sounds like a given…, the responses still indicate an increasing role for non-physician health professionals. If the choice of ‘You’ (53%) is ignored, only 12% see the physician playing the single most crucial role towards an individual’s health much below the diagnostician at 18%.

There’s an interesting contrast in choice of physician v/s diagnostician among the female & male respondents’ viz., Female: 7% (P) v/s 21% (D) & Male: 14% (P) v/s 16% (D) – probably again owing to the essential nature of women’s health issues vis-à-vis’ male issues – nonetheless, a potentially important alert to the healthcare industry.

In-line with the number one trend above, the nutritionist polled 10% of the vote. Quite surprisingly, of all respondents who chose Nutritionist, 70% belong to the age group of 35-44 yrs. This read together with the first trend gives a great demographic insight into who could be the prime target demographic segment for promoting functional foods – Women between the age group of 35-44.

NOT-SO-KEY OBSERVATIONS

Apart from the above three observations, the rest of the observations though interesting aren’t necessarily great insights into the health consumer psyche - the same are listed below in no specific order;

• 78% of the respondents feel medicines should target cure as against 22% that are okay with maintenance – expectedly, the 78% group is populated majorly with people under 55 years of age.
• 87% of the respondents prefer oral medications to parenterals – Interestingly though, there’s a strong geographical variation with NA & EU preferring oral medications at 92%, while the Indian respondents still retain some of the cultural trust of ‘injections’ (26%) 
• 89% of all respondents still believe the necessity of medicines per se’ in-spite or despite the preference of the ambrosial foods – if anything, this seems to showcase the omnipresence of the pills.

While the results may not qualify as astonishing findings, the unmistakable relevance of the trends thrown up by a mere seven-question survey still underscores the value of understanding the health consumer’s perspective and using the knowledge to build, refine the road-map of pharmaceutical product development.

Functional Food for thought! :-)

Isn't re-coding the organizational DNA viable only for smaller set-ups?

Bruce Booth makes some really radical suggestions to altering the way a big-pharma R&D set-up could work, primarily by way of re-coding the organizational DNA - the optimist in me loves the game-changing propositions, but the cynic in me fears a big-pharma is way too big to present itself to re-coding..... 

My comment:

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However long-term, I feel the inversion of periphery into core is something that sounds too Utopian for any block-buster-strapped-big-pharma-headed-by-a-recently-appointed-turnaround-artiste to consider doing - Laying off scientists & shutting down sites, though a lot messier, is much quicker and in corporate speak, efficient!

Having said that, I do believe this inversion is indeed happening in some fashion as the disruptive model of shutting down big-pharma R&D sites does release hell a lot of under-utilized scientific talent that in many cases ends-up getting far more productive by reinventing themselves as 'Out-sourced drug developer' and/ or 'Spin-off Biotech' each class of enterprise working in synergy with the other.

Just as genetically engineering a large mammal vis-a-vis' a single cell organism is a completely different devil, re-coding organizational DNA works only for smaller set-ups and hence the only way innovation has to change in big-pharma is through a disruptive shake-up that allows cloistered talent-islands to drift-apart and reassemble in mutually cohesive clusters.

Finally, it's surprising just how long its taking pharma to make that elusive paradigm shift in its approach to innovation.... here's a link wherein a lot of heated discussion happened way back in 2008 & nothing much is still different as on date.