1. Drug Discovery, Development &
Trends
Research and Development in
the Pharmaceutical Industry
From the Present to the Future
Richard M. Cook
Director, Angus Consulting
1

2. My Background
• >35 years working in Pharmaceutical R&D
• Companies:
– Beecham Pharmaceuticals (UK)
– SmithKline Beecham (UK and US)
– Astra; AstraZeneca (US and Sweden)
– Independent Consultant in Life Sciences &
Healthcare (Sweden)
2

3. INTRODUCTION
3

4. Geographical Location of the World’s 10 Largest Pharmaceutical
Companies - 1985
Hoechst
1863
Abbott
1900
Pfizer
1849
Bayer
1863
Lilly
1876
Ciba-Geigy
1971
Warner
Lambert
1955
Merck
1891
AHP
1926
Bristol
Myers
1887
Market dominated by US and (mainland) European companies; majority
founded in 19th century
4

5. Geographical Location of the World’s 10 Largest Pharmaceutical
Companies - 2013
Global Pharmaceutical
Markets (by country)
1. USA
2. Japan
3. China
Astra
Astra
Zeneca
Zeneca
1999
Abbott
GlaxoSmith
Kline
2000
Lilly
SanofiAventis
2004
Pfizer
Merck
Novartis
1996
Roche
1982
J&J
1886
Nearly 30 years later US and European companies maintain market dominance; note
5
consequences of extensive M&A activities from 1980’s onwards

6. A Selective History of the Global Pharmaceutical Industry
1827 1859 -
Bulk manufacture and sale of alkaloids in Germany (Merck)
Industrial production of medicines, production of patented medicines, 1st
factory for producing only medicines (Beecham)
1880’s - Merger of European chemical dye companies with apothecaries (Merck; CibaGeigy)
1885 - Manufacture and distribution of Cocaine by Merck (research collaboration
with Sigmund Freud)
1897 - Marketing of Heroin and (less succesfully) Aspirin by Bayer
1906 - Introduction of US Food and Drug Act compelling companies to label products
1948 - Establishment of social heathcare systems in Europe (UK); adopted by Sweden
in 1955
1960 1962 -
1964 -
Introduction of world’s 1st semi-synthetic penicillin (Beecham)
Thalidomide scandal results in strengthening of FDA in the US and of similar
bodies in Europe; medicines now need to demonstrate both efficacy and
safety
1st ethical strictures imposed on clinical testing in Helsinki Declaration
6

7. A Selective History of the Global Pharmaceutical Industry
1975 1976 1977 -
Technology for making mAbs published (Kohler & Milstein; Cambridge Univ)
Emergence of biotechnology industry with foundation of Genentech
1st mega/blockbuster drug (annual sales > $1 bn) launched (Tagamet;
SmithKline)
1980’s - Pharma companies switch from rational synthesis to high thruput screening,
combinatorial chemistry and automation
1984 - Hatch-Waxman Act regularises production of generic medicines
1985 - Registration of recombinant human insulin - first product made by
recombinant DNA technology (Genentech/Eli Lilly)
1986 - 1st therapeutic mAb approved (OKT3; Janssen); since then 22 mAbs have
been approved
1989 - 1st mega-merger between Big Pharma companies (Beecham/SmithKline
Beckman); mergers averaged 3 per year during 1990’s
7

8. A Selective History of the Global Pharmaceutical Industry
1990 1993 1994 1995 1998 2000 2001 2002 2006 2009 -
2012 2013 -
1st HIV reverse transcriptase inhibitor approved (Retrovir; GSK/NCI)
1st alliance to use gene sequencing to identify novel targets (SmithKline
Beecham/Human Genome Science)
1st humanised mAb approved (Zenapax/Daclizumab; Roche/Genentech)
TRIPS agreement enforcing 20-year patent term on Intellectual Property
Approval of Herceptin drug-diagnostic combination (Roche/Genentech)
Human genome sequenced; merger of Glaxo and SmithKline (GSK) to create
world’s largest vaccine business
Pharmaceutical Industry ranked No. 1 most profitable industry on Fortune
500
1st fully human mAb approved (Humira; Abbott/AbVie)
1st approval of bio-similars (Omnitrope; Sandoz);
Reverse takeover of Roche by Genentech; Pharma industry ranked No.3 most
profitable industry on Fortune 500
1st gene therapy approved (Glybera; UniQuire)
1st antibody bio-similar (Inflectra; Celltrion) based on Infliximab (J&J)
approved
8

9. BIG PHARMA* AND BIOTECH COMPANIES
* Companies with revenues > $3 billion and/or R&D expenditure > $0.5 billion
9

10. A Brief Comparison of Pharmaceutical vs Biotechnology
Companies I
Pharma
Biotech (applied knowledge of biology)
 Emerged late 19th/early 20th
 Emerged in 1970’s as an outgrowth of
centuries initially in Europe
interdisciplinary research in molecular
(Germany) and later established in
biology, immunology and biochemistry
US. Medicines based on synthetic
 Founded to exploit development of universityderived discoveries
small molecules produced by
 Co-incided with strengthening of patent
chemical processes
legislation in Europe/US
 Limited number of major companies
 Large number (>1,000 in US alone) of
dominate industry; focus on
small companies (circa 100 employees
medicines & vaccines to manage and
per company) using cellular/
cure disease
biomolecular/ genetic processes to
 10 largest companies control 33% of
develop medicines, diagnostics, biofuels,
market
agricultural products etc.
 Cash rich - funded through profits
made by selling approved medicines  Often cash poor – mixture of private and
public funding (e.g. Pharma; Venture
 Very high overheads
Capital)
 Lower overheads than Pharma companies
10

11. A Brief Comparison of Pharmaceutical vs Biotechnology
Companies II
Pharma
 Focus on Research, Development,
Manufacturing & Marketing
 2x more money spent on Marketing vs
R&D, but....
 5 x more money spent on R&D compared
to average US manufacturing company
Biotech (applied knowledge of biology)
 Focus on Research
 Value driven by Intellectual Property
 Employs mainly scientists
 Often dependent on Big Pharma for
development of leads
 Transition to Big Pharma now replaced
 Employs both scientists & nonby Partnering with Big Pharma
scientists
 Biotech model increasingly applied
 Increasingly dependent on
to Big Pharma R&D but note that
universities/biotech companies for indespite $0.5 tr investment over last
licensing of potential new therapies
25 years ROI for the industry as a
 In 2010 Biotech deals contributed 34% of
whole has been negative
revenue of majorPharma companies vs
17% in 2001
 Historically ROI’s > 18%, now declined
to ~8% (cf: Apple Inc has an ROI = 14.2%)
 Of >1800 US biotech companies founded
since 1980 only 6 are net positive
11

12. R&D
Drug Safety
 Genetics
 Heath Economics
 Imaging
 Statistics
 Patents/Legal
 Regulatory Affairs
 Information Technology
 Archiving
 Pharmacy
 Biology
• animal technology
• DMPK
• pharmacology
• toxicology
• biotherapeutics
 Chemistry
• analytical chemistry
• chemical technology
• medicinal chemistry
• process chemistry
• computational chemistry
 Clinical studies
• physicians
• CRA’s
• clinical scientists
• clinical project managers
• medical writing
What kind of people are employed in the Pharma and
Biotech Industries?
• In Europe: ~700,000 total employees ; ~160,000 in R&D
• In 2012 Pharma and biotech sectors amounted to 18% of
R&D expenditure worldwide
Commercial
 Healthcare communications
 Medical information
 Pharmacovigilence
 Sales and Marketing
Manufacturing & Supply
 Chemical engineer
 Production engineer
 Plant engineer
 Validation engineer
 Pharmacy
 Quality Control & Assurance
12

13. THE PROCESS OF PHARMACEUTICAL
RESEARCH & DEVELOPMENT
13

14. What is Pharmaceutical R&D?
• Process of discovering, developing and
bringing to market new ethical (available via
prescription) drug products
• Most pharmaceutical R&D is undertaken by
private companies and funded through the
profits made by selling the products
• A largely sequential process divided into preclinical and clinical phases (serial search, filter
and selection)
14

15. Pre-clinical Phases [ 1. Discovery]
Target Selection
Hit Identification
Lead Identification
Lead Optimisation
• Target Identification - Establishing the link between a given target and a
particular disease process. Is there an unmet medical need?
• Synthesis and Extraction - Process of identifying new molecules with the
potential to produce a desired change in a biological system. Requires:
– Understanding the fundamental mechanisms of disease or biological
processes
– Research on the action of known therapeutic agents
– Random or focused selection (chemicals; cDNA’s) and broad biological
testing
• Biological Screening and Pharmacological Testing - Studies to explore the
pharmacological activity and therapeutic potential of compounds. An
iterative process using:
– Tissues, enzymes and cloned receptors plus computer modeling
– Isolated cell cultures – animal and human
– Animals and in vivo disease models
15

16. Pre-clinical Phases [2. Pre-clinical Development]
• Conversion of an active compound into a form and strength suitable
for human use
–
–
–
–
Manufacture of drug substance/active pharmaceutical ingredient (API)
Pharmaceutical Dosage Formulation, Drug Delivery and Stability Testing
Analytical and Bio-analytical method development and validation
Metabolism and Pharmacokinetic studies (ADME) to determine how
long a drug remains in the body
– Good Manufacturing Practice (GMP) manufacture and documentation
– Toxicology and Safety Testing
• Use of rodents and non-rodent mammalian species to establish maximum
tolerated doses, general safety, toxicity patterns and help define safe
human doses with a Therapeutic Index
• Focus on the relationship between dose level, frequency of administration
and duration of exposure in both short (typically up to 1-month) and long
(up to 9 –months)-term toxicity studies
16

17. Pre-clinical Development Pathway from identification of an active drug to initiation
of the first clinical trial (Steinmetz & Spack, 2009)
Parallel and inter related activities involving manufacturing, analytical,
documentation, safety and clinical components
17

18. Clinical Phases
• Phase I - typically 12-month duration
– 20-80 healthy volunteers to evaluate drug safety, tolerabilty and
drug profile at different doses
– defines pharmacologic effects at anticipated therapeutic levels and
ADME patterns
• Phase II - typically 24-month duration
– Controlled clinical trials in 100-300 patients to establish drug
efficacy (proof of concept) and short-term risks
– May require additional studies involving different ethnicities and/or
’at-risk’ populations
• Phase III - typically 3 years duration
– Controlled and uncontrolled multi-centre clinical trials in 10003000 patients to determine effectiveness and dose plus identify
adverse reactions;
– Evaluation in children as appropriate
18

19. Regulatory Review & Approval plus Post-Marketing
Surveillance
• Regulatory Submissions
– Applications for approval to market the drug
– Can take up to 2.5 years and documentation exceeding 100,000
pages
– Negotiations with re-imbursement authorities and possible need
for additional comparator studies
• Phase IV (post-marketing surveillance)
– Experimental studies and surveillance activities originally
undertaken once a drug is approved but now increasingly a
condition of market approval
– Additional safety measurements including long-term potential for
morbidity/mortality in large and varied populations
– Evaluation of different delivery methods or determination if the
product may be used to treat another condition
19

20. Plus.....
• Process Development for Manufacturing and Quality Control
– Engineering and manufacturing design activities to establish a
company’s capacity to produce a product in large volume
– Development of procedures to ensure chemical/biological
stability, batch-to-batch uniformity and overall product quality
20

21. Simplified Development of a New Medicine
Year
1
2
3
4
5
Applied Research
Phase of
R&D
6
7
8
9
10
11
Clinical Development
12
13
14 - 15
Post-market
surveillance;
Registration product
maintenance
• Pre-nom
• Target Selection
1st dose in
1st pivotal
• Hit Identification • Pre-clinical
patient
dose
• Lead Identification
• Lead Optimisation
Phase I Phase IIa/b Phase III
1st
launch
Phase IV
Toxicology and PK studies
1st dose
in man
Long -term safety
Clinical development
Pharmaceutical development/formulation
Predictive Sciences (PK/PD, biomarkers, chemistry, safety)
Proportion of
hits, # of cpds
Approx. Costs
sm
mAb
5-10,000
1-5
$376 m (SM)
$615 m (mAb)
1-3
1
1
1
1
1
1
1
~ $1 bn
Expensive, closely regulated, sequential process typically taking > 12 years before any
21
$$ returns

22. Global Biopharmaceutical Industry
• Biopharmaceuticals are drugs produced by biotechnology (i.e not extracted
from a native source or synthesized by chemical reaction) and include
therapeutic proteins, vaccines, allergens, nucleic acids
• Current worth: $145 bn, projected to reach $167 bn by 2015 (Global Pharma
worth $300 bn, rising to $400 bn by 2015)
– 6 of the current top 10 selling drugs are biopharmaceuticals
• >300 approved biopharmaceuticals on market vs >1000 for Global Industry
– Biopharm approvals growing at 30% per annum versus < 5% for small molecules
• Biopharmaceutical success rate in clinic 30% vs 6-8% success rate for pharma
industry as a whole
• Biopharm Product Cycle Time takes ~14 years and costs between $0.8 – 1.0 bn
(comparable time and costs as for small molecules)
• Of the pharmaceutical industry’s top 50 growth drivers for 2012-2017 (Pharma
Outlook, Q1 2013), 34% are biopharmaceuticals (mAbs and non Ab therapeutic
proteins) and 26% of these are products for cancer
An expanding market, outperforming traditional small-molecule drugs, benefitting
from rich late-stage pipelines and the development of emerging markets
22

23. A comparison of the Discovery and Development of Biopharmaceuticals and Small
Molecules
1st IND submitted (US)
Small Molecules (NCE’s)
Target
Selection
Hit/Lead
Generation
•
•
•
•
•
Lead
Optimisation
Pre-clinical
development
Target
Validation
•
•
•
•
•
•
Phase II
Phase III
Launch
Generally simple, low mw chemicals
Broad target and off-target effects
Inexpensive to manufacture and sell
Easy to copy and generics positively encouraged
Conventional routes of administration (usually oral/inhalation)
1st IND submitted (US)
Biopharmaceuticals (NBE’s)
Target
Evaluation
Phase I
NDA and review (US)
Lead
Isolation
Lead
Optim
Candidate
profiling
Pre-clinical
development
Phase I
BLA and review (US)
Phase II
Phase III
Launch
Generally complex, high mw molecules, often blocking protein:protein interactions
Highly specific/limited target set and reduced off-target effects vs SM
Expensive to manufacture and sell
Manufacturing process is critical (low yield, time-consuming mammalian cell cultures)
More difficult to copy but biosimilar pathways established although lagging behind generics
Non-traditional routes of administration
Research phase
Development phase
23

24. CHALLENGES FACING
PHARMACEUTICAL R&D
24

25. How Successful Is This Process?
New Molecular Entity (NME)* Approvals over last 10
years
Highest number
of approvals
since 1996 n=53)
45
40
35
From 3,050
compounds in
full development
30
to August
2013
25
20
15
10
5
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
* Small molecules (NCE’s) plus biopharmaceuticals (NBE’s) approved by the FDA
25

26. NMEs per year versus total R&D spend in billions of US dollars between
1970 – 2008 (adapted from Samanen, J, 2012)
Figures for 2011 indicate total
spend on R&D exceeds $100 bn
per annum. Global market size
for pharmaceuticals will exceed
$1 trillion by 2014
Annual approval of new medicines remains linear while cost of R&D is increasing exponentially
This is not sustainable
26

27. Or Put Another Way......
The number of new FDA-approved drugs per billion US dollars of R&D spending
has halved approximately every 9 years since 1950, [inflation-adjusted]
(Scannell et al, 2012)
27

28. Why Pharmaceutical R&D Needs to Change
• Current model appears not to be working as evidenced by ever- increasing
costs, reduced clinical success and long cycle times.....but this is not all:
• Altered Demographics
– People living longer with higher proportion of chronic vs acute disease and
increased expectations from health-care providers and patients requiring a change
in research focus
• Big Pharma no longer the only source of health-care provision
– WHO estimates 4 billion people, 80% of the world population, presently using
herbal medicine for some aspect of primary health care
– Sept. 2013 – Google announce entry into healthcare business with formation of
Calico
• High cost of drugs (and healthcare costs generally) in a shrinking economy and
increasing influence of payers (governments, patients, HMO’s in US)
– Note: actual cost of drugs makes up ~10% of total healthcare costs in Europe/US,
but drug costs are easier to regulate
– Increased costs and cycle times in part a reflection of increased Regulatory
requirements and increased length and complexity of clinical trials for chronic
diseases
28

29. Why Pharmaceutical R&D Needs to Change
• Current model appears not to be working as evidenced by ever- increasing
costs, reduced clinical success and long cycle times.....but this is not all:
• Lack of harmonisation within a cautious regulatory environment and increased
difficulty in getting novel drugs approved when already ’tried and tested’
medicines are available
– However a conservative Regulatory Environment also makes entry into
pharmaceutical market more difficult and maintains competitiveness of Big Pharma
• Only ’innovative drugs’ will now be approved
– Between 1995-2004, 66% of new drugs were similar to existing medicines
• Newly-emerging markets previously ignored
– By 2015 leading emerging markets (inc. BRIC countries) will account for 28% of
global spending on pharmaceuticals versus 12% in 2005
• Increased competition from Generics and Bio-similars coupled with ’patent
cliff’
– Generic drugs now constitute >50% of pharmaceutical prescriptions and 79% of
approved drugs now have generic counterparts
– Patent expiration started 2011/12 and will continue through to 2016, with loss of
$33.2 bn in US sales alone in 2012
29

30. Changes in the Provision of Medicines over the last 60 years
Research
Pre 1960
Universities
Development
Sales/Marketing
Local Pharma Companies
Apothecaries
Global Pharmaceutical Companies (Big Pharma)
1970 - 2000
Tech transfer via biotech industry
Universities
Contract research orgs
Global Pharmaceutical Companies
Biotechnology Tool Companies
2000 - today
International Biotechnology
Industry
Universities
Contract research orgs
Local Pharma Companies
Amgen; Genentech;
Genzyme; MedImmune;
Millennium; ImClone
M&A means
that these
may often
be the same
companies
Local Pharma Companies
30
Modified from Drews J , 1999

31. Changes to Drug Discovery & Clinical Development Processes over the last 40 years and
Consequences
1970/80’s
• Small molecule focus
• Iterative, low throughput animal-based screening
• Med-Chem optimisation of leads
• All activities contained ’in-house’
• Small, focused clinical trials in well-defined patient populations
Changes to drug-discovery process initiated via
introduction of innovative technologies: inc.
automation, systemisation, process measurement
1990/00’s
• Target-based HTS of large cmpd libraries yielding small molecule leads with
’measurable developability’.
• Structure-based rational drug design replaces trial and error methodology
• Increased partnering with universities/biotech companies
• Extensive, expensive, multi-centred trials in response to Regulatory/Payer demands
• Patient selection driven by Commercial rather than Biological needs

1.
2.
3.
 10-fold Increase in # potential drug targets
 Increase in # drug-like molecules synthesised
 Improvements in overall selection processes
Increase in product cycle times (doubled since 1960’s)
Failure of cmpds in clinic (Phase 2 success halved in 5 years)
Increased costs (R&D cost escalation ~15-20% per annum)

Emergence of Biopharmaceuticals &
increasing commercial importance of Abbased therapies
31

32. THE SEARCH FOR A NEW MODEL
A Stimulus For Discussion
32

33. Current
Future
Large centralised organisations with
all skills/expertise available in-house
Virtual monopoly in drug design,
development and distribution
Good at managing financial and
management risk of long-term
projects, esp. in a volatile economic
environment
Good at diversifying risk of uncertain
R&D investments
Extensive M & A’s with large
companies wanting to become larger
and thereby increase market share
while at the same time reducing
competition
Large companies:
• split into smaller, autonomous R&D units
(based on Biotech model)
• divest into separate companies (e.g.
Abbott/AbVie)
• become even larger with superior economies
of scale
Some specialised internal
(development) expertise is retained
but companies become increasingly
reliant on out-sourcing to low-cost
countries or specialist CRO’s
• In the US ~80% of R&D costs go on salaries
M & A’s smaller but more frequent
and much more fluid, often not
exclusive
33

34. Current
Future
Highly professional S&M teams
organised internally
Well-defined processes in place for
R&D and drug registration
Highly succesful business model
applied across industry provided
external environment doesn’t
change
S&M increasingly fragmented with
needs of multiple customers having
to be addressed
Changed external environment
meaning established processes for
R&D/drug registration unlikely to be
relevant in new model(s)
• Organisational separation of R from D unlikely to be practicable longterm
• How to ensure culture of outsourcing doesn’t lead to loss of both
quality control and internal ’know-how’
• Active measures to reduce R&D spending that may be indiscriminate
and counter-productive over time
• Who will fund new capability investments and how?
34

35. Current
Future
Broad business-focus covering
multiple disease areas and primarily
technology-driven
Focus on blockbuster drugs to treat
largely chronic diseases prevalent in
Western industrialised countries (inc.
Japan)
Dominance of branded drugs
Narrow business-focus with
emphasis on product differentiation;
incremental improvements to
existing medicines no longer
acceptable
Driven by scientific expertise and
innovation often by comparison with
other industries
Niche markets and/or medicines as
part of a total health-care package
with increasing impact in newlyemerging markets (e.g. Asia, Sth.
America, sub-Saharan Africa)
Increasing focus on hard-to treat
diseases and combination drugdiagnostics.
Generics and Bio-similars play an
increasingly important role
35
• Increased emphasis on comparative
efficacy and safety will result in
larger/longer clinical trials driving up
drug development costs

36. Current
Future
New ideas/approaches generated
internally and supplemented by
selective acquisition via
universities/biotech companies
Success dependent on speed of
decision-making, execution and luck
In-licensing traditionally driven by
downstream concerns (marketing,
manufacturing, distribution etc.)
In-licensing of late-stage (de-risked)
compounds
New approaches increasingly as part
of collaboration with university
departments and companies funded
by Venture Capital, often with
financial input from Big Pharma. Will
include new technologies as well as
potential medicines. Example:
• VC companies will only invest in
well-defined leads with high
probability of success
• Early-stage inlicensing/investments increases risk
GSK/Avalon to allocate $0.5 bn to fund
up to 10 drug-development start up
companies over next 3 years
Success dependent on novelty of
science underpinning idea
In-licensing of potential early-stage
medicines (including technologies)
becomes an important focus
36

37. Summary Slide
•
Highly profitable industry, directly employing ~1.5 million people (US and EU) and with average
profit margin in 1970/80’s twice that of median of Fortune 500 companies
– Expected return from marketing a new drug is now 10% lower than in mid 80’s
– Neverthelss R&D investments in Pharma industry have outpaced govt. investments in biomedical
sciences
•
Cost of developing a new medicine increased dramatically in 21st century; product cycle times
increased but now appear to have stabilised
Decade
1950’s
6
-
1960’s
8
137
1970’s
11
150
1980s
13
194
1990’s
13
290
2000’s
15
802
2010’s
•
Approx. Product Cycle Time (years)
Cost m$$ per drug (adjusted)
15
1380
Pharmaceutical Industry now entering a third stage of development
Serendipitous growth
Deterministic growth
Stochastic development
Which models will succeed and which will fail?
37

38. End
38