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Deloitte Report Says Genetically Focused, Agile ‘NewPharmaCos’ Threaten Big Pharma

As the healthcare industry shifts toward the development of personalized medications, the biggest threat to big pharmaceutical firms will be smaller, more agile life sciences companies developing pharmacogenomics-guided medicines, according to a report released last week by Deloitte.
According to Deloitte's assessment of the market, these so-called NewPharmaCos threaten to beat out big pharmas by developing genotype/biomarker-driven drugs in smaller disease markets; by using molecular diagnostic technologies to resuscitate off-patent, lower-efficacy drugs in smaller, targeted populations; and by establishing healthcare networks to forge relationships with patients for the entire disease life cycle, starting from predisposition testing to disease treatment.
“We expect NewPharmaCos’ R&D priorities to be twofold: First, product development and acquisition for those market segments now identified as unserved due to the need for genotype market segmentation. Such product development would include genotype-biomarker packages for efficacy evaluation,” says the Deloitte report, entitled The Changing Face of R&D in the Future Pharmaceutical Landscape
“Second, similar to big pharma’s jump start, re-evaluation of those failed, off-patent, drugs with good safety profiles to assess genotype-specific efficacy,” will also be a main R&D focus of NewPharmaCos, Deloitte notes. 
According to the report, these NewPharmaCos pose a “substantial” threat to industry stalwarts. “While existing companies are locked into long-term, large, complex R&D programs, [and] are restructuring their organizations for the new environment, NewPharmaCos will be conducting themselves and their R&D in the new fashion from day one,” the report asserts.
“They will be faster, more agile, and significantly leaner than existing players [and will] have the potential to win the new competitive battle in the emerging landscape before the existing players can adapt,” the report adds.
The New Players
While the Deloitte report didn’t mention any NewPharmaCos by name, Clinical Data, Perlegen, and DeCode Genetics are a few of the firms in operation today that appear to fit the emerging mold. These three young companies are focused on using genomics and pharmacogenomics to develop diverse portfolios of genetically targeted drugs and diagnostics.
In establishing itself as a personalized medicine company, in 2007, Clinical Data acquired Epidauros Biotechnologie, a German firm that investigates the genetic underpinnings of drug response. Clinical Data is developing a depression treatment called vilazodone, a drug it acquired from Merck KGaA, that uses response biomarkers to hone in on the population that will most benefit from the drug.
Additionally, the company markets pharmacogenomics tests for the anticoagulant warfarin and the oncologic rituximab, as well as several tests on its Familion assay that help guide treatment for various cardiovascular conditions.
Perlegen last year announced that it was in the process of collecting and analyzing DNA from diabetic patients treated with two popular insulin-sensitizing thiazolidinediones — GlaxoSmithKline’s Avandia and Takeda’s Actos — after published studies associated the class of drugs with an increased risk of myocardial infarction. The findings prompted the US Food and Drug Administration to require a black box warning about the risk of congestive heart failure to be added to the two drugs' labels.
According to Perlegen Chief Corporate Development Officer Rob Middlebrook, the company's goal in collecting DNA samples from patients treated with Actos and Avandia is to ultimately develop a diagnostic that can aid physicians with treatment protocols for type 2 diabetes [see PGx Reporter 07-11-2007].
“The long awaited explosion in clinically valuable biomarkers has begun, and we fully expect that DNA, RNA, and protein biomarkers for both efficacy and adverse effect patient stratification will become the norm in a vast array of therapeutic areas,” Perlegen CEO Bryan Walser told Pharmacogenomics Reporter this week. “In addition to providing clear benefits for patients and their treating physicians, this additional information will have profound impacts on big pharma as well as public and private payers.”
Walser said his company is not focused on rescuing late-stage drugs, but is more interested in advancing currently marketed drugs for which a large number of DNA samples are already available.
“One of our key learnings of the past several years has been that even those late-stage clinical trials in which large numbers of DNA samples are collected resulted in an insufficient number of case and control samples to enable a properly powered study, let alone the subsequent replication of findings in a second, independent set of case and control samples,” Walser said. “As a result, we believe the use of biomarkers to rescue late-stage compounds is unlikely to produce many successes. Instead, existing marketed drugs for which millions of drug-response DNA samples are available are likely to be the first candidates for targeting.”
Both Clinical Data and Perlegen are collaborating with pharma and biotech companies by providing genomic and pharmacogenomics services for clinical trials. Through interactions with pharma companies, these NewPharmaCos get a peek into drug firms' pipelines for low-efficacy drug candidates that they can then license and advance for smaller, genetically targeted populations.
In this way, Perlegen doesn't necessarily see itself as competing with large drug firms. Rather, it hopes to improve upon big pharma's blockbuster products through its genomics services.

“From a business model perspective ... we will not compete with big pharma, but rather serve to better inform patients, physicians, and payers about which of those one-size-fits-all, big pharma products is most likely to provide the best risk-reward profile for a given patient.”

“From a business model perspective ... we will not compete with big pharma, but rather serve to better inform patients, physicians, and payers about which of those one-size-fits-all, big pharma products is most likely to provide the best risk-reward profile for a given patient,” Walser said.
DeCode did not respond to requests for an interview for this article. However, speaking at a JPMorgan Healthcare Conference in San Francisco in January, CEO Kari Stefansson noted that while the majority of the DNA-based diagnostics in the market are for rare disease variants, his company is focused on garnering patents “on a fairly large number of sequence variants that confer a sufficiently large risk for common diseases [for which] it is reasonable to develop them into diagnostics.”
Based on Deloitte's description of a NewPharmaCo, DeCode appears to be ideally situated in the shifting R&D paradigm. With its recently launched personal genotyping service DecodeMe; genetic tests for atrial fibrillation, myocardial infarction, glaucoma, prostate cancer, and type 2 diabetes on the market since 2007; and several biomarker-driven cardiovascular drugs under development, the Icelandic company seems to be structuring its internal capabilities like a healthcare network.
This type of network, allowing a company to remain connected with its customers from identifying disease predisposition to disease treatment, will be critical to NewPharmaCos' ascendancy over existing pharma companies, according to Deloitte.
“The genotype-biomarker knowledge provides the opportunities to identify or develop high-efficacy treatments to monopolize such segments,” the report notes. “We expect that new entrants will expand outward from these initial positions to establish and manage disease-specific networks. Such networks would consist of virtual and real companies, patients, and elements of the healthcare system covering the disease life cycle.”
Clinical Data and Perlegen are building healthcare networks in their own way.
According to Clinical Data, its Familion brand of tests can help diagnose a disease, guide patients to various treatment options, and determine whether family members are at risk of developing the various cardiovascular diseases.
“Our objective is to meet the needs of patients, providers, and payers,” Clinical Data CEO Drew Fromkin told Pharmacogenomics Reporter this week. “If we are successful, we will be addressing unmet needs that are creating a gap in care and driving costs in the healthcare system. Clinical Data is focused on creating this value and believes its approach will yield success with the key constituents who have an acute need for these tools to improve clinical outcomes and the cost of care.”
For its part, Perlegen formed a collaboration in April with an undisclosed electronic medical-records provider and plans to mine its collection of clinical treatment and outcomes data to identify genetic markers and develop diagnostic tests that can help physicians personalize treatments for heart attack, breast cancer, hepatitis C, and nicotine addiction [see PGx Reporter 04-02-2008].
Big Pharma, Big Challenge
According to the Deloitte report, while the typical blockbuster drug has an efficacy rate of between 35 percent and 75 percent, genetically targeted drugs promise efficacy rates approaching 100 percent in a targeted population.
“While greater efficacy (flowing from genotyped clinical trials and biomarker-measured responses) has the potential to justify higher treatment prices, the smaller market segments will likely require longer patient relationships, perhaps over the disease life cycle (with treatments to match), to achieve revenue expectations,” the report states.
Industry observers have long hailed the coming of personalized medicine, and with it foreshadowed the end of big pharma's love affair with the blockbuster model. The blockbuster strategy, as attractive as it once was, has failed, according to the report.
“The blockbuster strategy focused on developing drugs to exploit ... large potential markets,” the report notes. “The objective was [to develop] one drug for large markets with typically 15 million-plus chronic patients and [an] annual revenue potential of at least $1 billion.” 
“Over time, this strategy has led to narrow product portfolios aligned against chronic disease markets, a relatively small number of truly innovative compounds, and a proliferation of drugs offering only incremental improvements,” the report says.
Burrill & Company CEO Steven Burrill has said at a conference last year that in the coming age of personalized medicine, “business models will have to change dramatically.” As the big pharma model “disintegrates [and] disaggregates,” the industry will buy innovation — not only validated compounds but also PGx tools and know-how — from smaller life sciences companies and leverage their marketing prowess to play the role of large Wal-Mart-like distributors, Burrill said [see PGx Reporter 11-21-2007]. 
Certain companies like Novartis have readily acknowledged the blockbuster’s impending end. Novartis is among several big pharmas that have redesigned their R&D structures to accelerate drug development and reduce bureaucracy, and are investigating genomic targets that may be useful for developing drug/diagnostic combinations in several, smaller disease markets [see PGx Reporter 03-07-2007, 11-28-2007].
Then there are those pharma companies that are keeping their eye on the blockbuster target and are using PGx strategies to improve the efficiency of clinical trials for drugs intended for the global market [see PGx Reporter 11-28-2007]. At a conference last year, Andy Williams, head of molecular medicine within Pfizer’s angiogenesis programs, noted that “it’s only after you’ve successfully [launched a blockbuster] that you stop talking about blockbusters.
“Pfizer’s in the business of selling medicine. So [for] every … compound that we move to clinical development and launch on the market, the aim is to sell and [impact] patients as much as possible,” said Williams, who previously worked with Pfizer’s pharmacokinetic and metabolism group on developing blockbusters like Lipitor and the targeted oncologic Sutent.
However, approximately $65 billion worth of pharmaceuticals, representing 25 percent of drug sales, are expected to go off patent in the next five years, according to Deloitte, and given the rate of new molecular entities being submitted to the FDA and the number of “truly innovative” compounds in pharmaceutical companies' pipelines, the industry is “nowhere close” to recouping this amount.
Thus, soon the industry behemoths will face an adapt-or-die scenario, according to the report:
“The choice for existing players is clearly control or be controlled – rapidly adapt to the new environment and influence the emerging competitive arena, or let new entrants determine your future.”
Deloitte advises big pharmas to employ R&D strategies that allow them to build diverse portfolios focusing on the entire disease life cycle; establish virtual, disease-specific R&D networks; outsource certain R&D process to manage development risk; develop genotype and biomarker-focused R&D programs; and engage in partnerships with disease knowledge communities.
“With this industry disruption, some existing players will fade away, some will change and adapt, and some new entrants will rise to dominant positions,” the report predicts. “Such disruptions are unstoppable.”

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