Pipeline Peril

The dynamics of the R&D pipeline could undercut recent CRO and CMO successes.
Dec 02, 2007
Volume 31, Issue 12

Jim Miller
Contract research organizations (CROs) had a very good year in 2007, but the same can't be said for their clients. While contractor revenues and profits were growing at double-digit rates, sales at major pharmaceutical companies were getting whacked by generic competition, price pressures from insurers, and growing safety concerns surrounding some long-marketed drugs. Restructuring became the principal task at hand for senior executives at many of the 15 largest pharmaceutical companies as thousands of professionals lost their jobs.

Candidate woes

Developments surrounding the research and development (R&D) pipeline should be of particular concern for CROs and contract management organizations (CMOs). During the last six months, some very high-profile, late-phase candidates have run into adverse event problems, often just months before they were due to be filed with the US Food and Drug Administration. For instance, Novartis (Basel, Switzerland) has been forced to reconsider filing its diabetes drug, Galvus, in the United States due to concerns about its safety profile, and Eli Lilly (Indianapolis, IN) ran into problems in Phase III testing of its cardiovascular drug, Prasugel. Merck (Whitehouse Station, NJ) was forced to terminate Phase II trials of a highly touted HIV/AIDs vaccine. All were considered highly promising blockbuster candidates.

The late-stage failures are symptomatic of the problems major pharmaceutical companies are having in introducing new molecular entities (NMEs), despite efforts to make their R&D operations more effective and despite billions spent on in-licensing deals and acquisitions. In fact, 2007 is shaping up to be the worst year yet in the continuing decline of NME filings, and the raft of late-phase problems isn't helping.

The situations involving Prasugel, Galvus, and torcetrapib, the good cholesterol-raising drug that Pfizer (New York) terminated last year, point to a vexing problem for drug companies: the high therapeutic potency of many new candidates is being accompanied by greater risk of adverse events. The full potential for such effects apparently was not realized in early safety and efficacy studies, so the drugs were allowed to proceed to large-scale trials where the problems emerged. Furthermore, in the post-Vioxx era, FDA and other regulatory bodies are hesitant to approve drugs with increased risk profiles, despite their higher therapeutic value, when proven safe alternatives are already on the market. So potential big winners are being stopped in their tracks.

While the number of these problem candidates is small, their impact is magnified through the R&D pipeline because there are so many "me-too" candidates in development. Take Merck's HIV/AIDs vaccine: it was considered the most promising of some 50 HIV/AIDs vaccine candidates in the pipeline, including more than 10 in late development. While different vaccines have different modes of action, the failure of an experienced vaccine developer such as Merck raises overall concern about the cost and viability of developing such a vaccine.

Pipeline data also indicate that despite efforts to improve R&D effectiveness at major pharmaceutical companies, and despite the flow of licensing and venture-capital funding into early stage companies, candidates are not progressing into late-stage development. According to data compiled by IMS Health, the number of Phase I candidates has grown by 60% in the past five years, and the number of Phase II candidates has grown by 30%, but the number of Phase III and registered candidates has been flat. Survival rates from Phase II–Phase III are now under 25%, according to some sources, and even lower for cancer drugs.

Flow of funds threatened?

If compounds continue to not make it through the pipeline, companies may stop spending so much money to acquire them. Competition to replenish pipelines and technology toolboxes has driven up the cost of acquiring new compounds dramatically. According to market intelligence provider Recap, the average value of an out-licensing deal by small bio/pharmaceutical companies has tripled in the last three years, and the cost of in-licensing preclinical compounds—the riskiest deals of all—has doubled. Those rapidly rising deal values have driven record flows of venture capital to biopharmaceutical companies in recent years, averaging $1 billion per quarter in the US alone.

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