The Sustainable Pipeline Myth

The Sustainable Pipeline, In Theory.

Everyone talks about the aspiration of having a sustainable pipeline of projects for their bio/pharmaceutical company.  Here is a sampling from the Internet.

“Our ambition is to create a sustainable pipeline and a portfolio of medicines that deliver real value to patients living with often devastating and life-threatening rare diseases.” 1

“Inspire’s goal is to build and commercialize a sustainable portfolio of innovative new products based on its technical, scientific and commercial expertise.” 2

“Celleron has adopted an aggressive business model towards reaching critical mass and a sustainable product portfolio.” 3

“To be sustainable, pharma companies need a continuous pipeline of new drugs.” 4

“In 2009, the industry has some interesting questions to answer – How to close this innovation cavern and how will the pharmaceutical industry manage short-term perceived benefits at the expense of long-term woes in building sustainable drug pipelines?” 5

“Pharmaceutical Industry Faces Multiple Challenges; Future Lies in Drug Pipeline Sustainability6

“Epizyme is developing an enabling and integrated platform that has already begun to evolve a robust and sustainable drug pipeline.” 7

“Coordination and review of North–South drug discovery efforts is needed to ensure all networks and partners work towards the common goal of ensuring a sustainable drug discovery pipeline for neglected diseases.” 8

“Our remit is to develop a sustainable pipeline of drug discovery programmes, assessing novel target opportunities and establishing projects to identify small molecule modulators of processes critically involved in the growth and survival of human tumours.“ 9

So what is a Sustainable Pipeline anyway?  The most often-employed use of the phrase has to do with numbers – maintaining a steady flow of products onto the market.   As we have noted in the section on the Attrition Based Pipeline, ideally, a bio/pharmaceutical company should want to maintain a project pipeline that accounts for attrition at each stage in order to provide year-on-year, stage-by-stage, a sufficient number of projects to allow for several major regulatory approvals, perhaps first-in-kind drugs or New Molecular Entities (NMEs), each year.  Such a pipeline would be described as achieving sustainable pipeline volume.   The drugs that come up from the Discovery organization are considered to be self-originated.  If the pipeline is not sustainable then gaps in the pipeline must be filled with acquired drug candidates.

Other uses of the phrase, which often get blurred into the first, have to do with sustainable pipeline value – which focuses on the end of the pipeline.   From the number of uses this author has seen the stated aspiration is usually on volume – building a pipeline that delivers a desirable number of late stage assets to ensure continued profitability to the stockholders.

For sure, sustainable used here has nothing to do with the environment.  For many outside the Industry sustainable is synonymous with environmental.

In reality, as we will soon see, in the end the best a company can do is to focus on pipeline value and hope the shareholders don’t care too much whether the new drugs come from internal or self-originated efforts or are acquired by the company by a variety of means.

What Kind of Pipeline Are we Talking About?

Even the use of the term pipeline varies dramatically.  Those engaged in bio/pharmaceutical Discovery and Development will not only consider the three clinical phases and a regulatory/submission stage to be the pipeline, but also the four pre-clinical stages that come before the clinic phases, Figure 1. They tend to think of sustainable pipeline volume.  They are proud of the self-originated drugs because they contributed to those assets.  They tend to think of acquired assets as undesirable step children.


Figure 1, The Stages in Bio/pharmaceutical R&D

Investors tend to focus on the late stages Phase3+ as the pipeline.  They tend to think of sustainable pipeline value.  They don’t know much about self-originated assets as they tend to appear in the pipeline with little fanfare.  They get excited about acquired assets as there are usually media clips that trumpet the importance of the acquisition.

The Sustainable Pipeline, In Practice. 

Deloitte and Thomson Reuters recently published a study of the internal rate of return for the top twelve bio/pharmaceutical companies. 10   Within their data set was a chart, Figure 2, that showed the origin of late stage projects.  Surprisingly, the percentage of self-originated projects in the late stage pipelines of these companies ranged from zero to 44% – with an average of only 25% (see the light blue portions of the bars)!


Figure 2, Origination of Projects in the Late Stage Pipelines of the 12 top Bio/Pharmaceutical Companies (Pfizer, Roche, Novartis, Sanofi-Aventis, GlaxoSmithKline, Johnson & Johnson, AstraZeneca, Merck, Eli Lilly, Bristol-Meyers Squibb, Takeda and Amgen) as of Jan. 1, 2010, From Figure 6, (Ref 10).

The rest of the late stage projects came about through joint ventures, co-development ventures, in-licensings or acquisitions.  If the self-originated projects were sustaining the pipeline one would expect them to constitute the predominant share of the pipeline.  Figure 2 clearly shows that none of the major bio/pharmaceutical companies’ pipelines are about sustainable volume!

Perhaps there are some smaller companies out there who can show sustainable pipeline volume but what if they do not?  We had noted in our section on Attrition that to provide 4 launches per year, based on Industry attrition number for each stage in Discovery and Development, the Discovery pipeline would need to contain 516 projects.  Almost 80% of the pipeline would need to be in Discovery.  Munos has determined that no companies achieve more than one NME per year and most achieve less than one NME per year. 11

Perhaps Sustainable Pipeline Volume is a Myth.

There are potentially two reasons why the notion of sustainable pipeline volume may not play out most of the time for big bio/pharmaceutical companies, i.e. why it may be a myth.

1. The Cost of Sustainable Pipeline Volume may be Prohibitive.  In another section we showed that in recent years the Industry spend on R&D as a percent of sales has leveled off. 12 But the cost of R&D continues to increase, including the cost of Development. 13  Since Development holds the near term future for bio/pharmaceutical companies, they must sacrifice some part of their budget to keep the products coming forward.  Thus, the percent of their budgets allocated to Discovery has decreased while the percent allocated to Development has increased. (Ref. 12)  If these companies spend less on Discovery, they certainly cannot afford to maintain a project pipeline that is scaled to account for attrition, they must reduce the size of the pipeline to one that may be affordable but not sustainable in volume.  If the big bio/pharmaceutical companies cannot afford an attrition based pipeline, i.e. their pipeline is unable to sustain the late stages of their pipelines (zero in one case), they must then engage in joint ventures, co-development ventures, in-licensings and acquisitions to fill the gap in the late stage pipeline.  Joint ventures and co-development are also strategies that help to lower development cost and spread the risk among partners. 14, 15, 16, 17

It is possible that the large bio/pharmaceutical companies have for some time been moving away from developing their own internal assets in a move that could be called Vertical Disintegration 18 and this recent snapshot supports that scenario.

2. External Assets May Be More Attractive than Internal Assets.  A second factor that may explain what Deloitte and Thomson Reuters revealed is that the attractions of joint ventures, co-development ventures, in-licensings or acquisitions have lured the big bio/pharmaceutical companies away from developing their own internal assets (again, zero in one case).

In large bio/pharmaceutical companies there tends to be more opportunities for late stage development than the company can manage.  These companies must carefully pick and choose assets for the late stage portfolio setting up a competition between internal assets and external assets.  There may be a “grass is greener…” perception within some companies, such that the internal assets tend to be less attractive than potential external assets (more is known about the internal assets).  But it is hard to imagine that one major bio/pharmaceutical company would have been lured to the extent of developing none of its internal assets. 19

Dimasi et al. 20 found that acquired assets have higher success rates in Phase 1 and 2 than self-originated assets.  They had no good explanation for this phenomenon.  It has been this author’s experience that some clinical studies in Phase I and perhaps Phase 2 would have already been performed on acquired assets by the originating company, but for various reasons the acquiring company would need to perform additional studies.  The previous success, which would not be captured by Dimasi, would likely increase the success of additional studies.

Joint ventures and co-developments come with contractual obligations that may make it harder to stop work on such assets.  Assets through acquisitions may also have more luster than internal assets.  In fact the late stage pipeline of the company with zero internal assets consists solely of assets from co-developments and acquisitions!

One would expect that most if not all of the major bio/pharmaceutical companies would model the potential value of various mixtures of late stage projects and select a late stage portfolio that offers a maximum return on investment.   Thus it may be that some of the internal assets “didn’t make the cut”.  But if the top bio/pharmaceutical companies were earnestly invested in the sustainability of their internal pipelines it is hard to imagine that late stage portfolio modeling would lead them to turn down 46-100% of their internal assets.  Clearly, the major bio/pharmaceutical companies are not striving for sustainable pipelines by volume.

Conclusion – As Long as the Shareholders Are Happy We Can Live With the Myth

Presumably, while a company is growing from a start-up, and shareholder expectations are satisfied by the sales growth of its first few new drugs all will be happy to see a steady or increasing volume of projects in the pipeline with the assumption that some will replace or add value to the set of existing products.  For the largest bio/pharmaceutical companies who are facing and have faced loss of major revenue through patent expirations, sustainable pipeline volume is insufficient.  They must demonstrate sustainable pipeline value.

The snapshot provided by Deloitte and Thomson Reuters of the big bio/pharmaceutical companies clearly indicates that they are not relying upon their internal pipelines to fill their late stage pipelines, and perhaps they may have not relied upon their internal pipelines for quite some time.  And as we noted earlier, there are signs that they may be moving away from the costly infrastructure needed to support an internal pipeline.  At least among the big bio/pharmaceutical companies the sustainable pipeline by volume would have to be considered a myth or at least old-fashioned.  And in the end, who cares?  As long as their pipelines sustain value, no one will quibble about where the new drugs come from.  Deloitte and Thomson Reuters argue that these companies need to focus on their internal rate of returns.

  4. IMAP’s Pharma & Biotech Industry Global Report — 2011
  5. N. Campbell, “Mega Mergers – Are they turning Pharma Companies into Zombies”, Pharma Focus Asia, 2009, p. 8-14.
  10. Deloitte and Thomson Reuters, “R&D Value Measurement, Is R&D Earning its Investment?”, 2010.…/UK_LS_RD_ROI.pdf
  11. B Munos “Lessons from 60 Years of Pharmaceutical Innovation”, Nature Reviews Drug Discovery, 2009, 8, p. 959-968.
  12. Discussed in our section Why Innovation Has Dried Up.
  13. Discussed in our section NME Output versus R&D Expense – Perhaps there is an explanation.
  14. A. Mullard, “Partnering between pharma peers on the rise”, Nat. Rev. Drug Disc. 2011, 10, p. 561-562.
  15. B. Hughes, “Pharma Pursues Novel Models for Academic Collaboration” Nat. Rev. Drug Disc. 2008, 7, p. 631-632.
  16. J. P. Garnier, “Rebuilding the R&D Engine in Big Pharma” Harvard Bus. Rev. 2008, May, p.1-8.
  17. See also K. Kaitin, “Deconstructing the Drug Development Process:  The New Face of Innovation”, Clin Pharm Ther 2010 87 p356-361.
  18. Discussed in this section
  19. A plausible explanation for how it is that one of the top bio/pharmaceutical companies has no internal assets in its Late Stage pipeline may be that this company is the new Merck, that came about through the merger of the old Merck with Schering-Plough in 2009.  It is feasible that this late stage portfolio was considered to have no “self-originated” assets at the moment of the interview – so close to the act of the merger.  Instead the new Merck may formally consider all of its late stage portfolio to be derived from co-development or acquisitions from the old Merck and Schering-Plough.
  20. See Fig. 3, p. 276, J.A. DiMasi, L. Feldman, A. Seckler and A. Wilson, Trends in Risks Associated With New Drug Development: Success Rates for Investigational Drugs” Clin. Pharm. & Ther. 2010, 87, 272-277.