As 2016 draws to a close, we reflect on a strange year for the pharmaceutical industry and some important pointers for what to do about it. 2016 will for sure be remembered as a year of major political change. The UK’s vote for Brexit and the election of Donald Trump promise a new world order for both people and businesses – and plenty of uncertainty with it. In the same year the pharmaceutical industry has had once of its worst years for FDA approvals in a decade and been buffeted by scandals over price hikes. Meanwhile pharma companies have continued to spend lavishly on M&A, despite the notable fall from grace of serial acquirer Valeant Pharmaceuticals.

To complement our consulting work, Novasecta has been responding to press and TV interest in our perspectives on industry developments through the year and published white papers on topics of most relevance to our clients. Below we highlight a selection from these.

To examine how the pharmaceutical industry should respond to the unwelcome surprise of the UK’s Brexit referendum result, Novasecta privately interviewed 20 top executives from leading European pharmaceutical companies. Our conclusion for pharmaceutical companies was to watch and wait, while keeping their focus on developing and commercialising great medicines for patients.

From our commercial practice, we explored how to beat the trend through new commercial habits, by integrating a combination of dynamic strategies, clear and practical action plans, and great management systems. We then described how excellent brand reviews can make a real difference through a strong evidence base and an orientation towards action

From our R&D practice, we explored how to manage R&D to create value. We also identified a new breed of leading pharmaceutical companies and how they have been responding to the new funding environment of cheap money by defragmenting R&D and re-inventing their organisations in ways that can innovate and deliver better results. They have been using a mix of clever partnering skills, profound multi-disciplinary knowledge, and operational excellence.

In a year when digital became yet more relevant to the industry, we explored the on-going disruption and changes to the pharma industry, helping to frame what digital means to the pharmaceutical industry, suggesting that it needs to centre round the patient, and providing a step-by-step approach for the successful implementation of digital initiatives.

Finally, in our annual MidPharma report we explored the nature and evolution of European-headquartered mid-sized pharmaceutical companies, and examined pertinent relevant trends in the industry to provide our readers with non-standard and thought-provoking insights. Our conclusion was that focus, flexibility and strong partnerships are must haves for all successful pharmaceutical companies.

2016 was certainly a very rich year in events with important implications for the pharmaceutical industry. As pharma and biotech companies set the direction for the year ahead it is more than ever important to stay strategically focused, to build and expand carefully selected and relevant capabilities, and to organise for the challenges ahead.

Novasecta’s Managing Partner, John Rountree was asked by Bloomberg to comment on the most recent development for Actelion, that it “has entered into exclusive negotiations with Johnson & Johnson regarding a possible strategic transaction”. He said that J&J, of all the big pharmas, is the best one for Actelion, as it would give the Swiss company access to the U.S. capital market and may allow Actelion to maintain at least some independence. John added that J&J perhaps might be more hands off than some other potential acquirers. To view the full article, click here.

John Rountree provided his earlier thoughts to the Financial Times, a major UK financial newspaper, on the initial potential Actelion takeover by J&J. Amidst reports of Actelion fighting to keep its independence in the proposed deal, John said that “there is still a great deal of value in remaining independent, but they could do a deal in the way that Roche and Genentech [the $47bn deal in 2009] have done. It could be win-win.” To view the full article, click here.

John was also quoted in a Reuters article discussing J&J’s attempted takeover of Actelion. In the article, John states that “a structured transaction allowing Actelion to benefit from J&J’s scale without losing its independence could work for both sides.” He goes on to mention that “one option might be for J&J to mimic Roche, which bought 60 percent of Genentech in 1990, leaving it to operate independently, before acquiring the rest of the biotech in 2009.”

Interestingly, Actelion tied for third in the MidPharma performance rankings in Novasecta’s 2016 European MidPharma Report, perhaps foreshadowing its appeal as a takeover target.

For a more general take on partnerships versus M&A in the pharmaceutical industry, click here.

John’s thoughts were also reported in a Pharma Letter article, which can be read below:

Since Swiss biotech Actelion (SIX: ATLN) confirmed that it was the subject of a takeover bid by US health care giant Johnson & Johnson (NYS JNJ) on Friday, the eyes of the pharma world have been firmly fixed on the Basel­-based company.

Shares in Actelion rocketed by an initial 17% on the news on Friday, and on Tuesday they surged up a further 10% to close at 209 Swiss francs, just off a record high, following news of a higher offer, which was reported by Reuters.

Actelion apparently prefers a deal which would see it combine with part of J&J while remaining an independent company, though the US firm favors a takeover and its stance would appear to be confirmed by the higher bid reports.

Despite the reported resistance from Actelion, it might be the company that gains more from the two out of a takeover, said John Rountree, director of pharma strategy specialists Novasecta.

Mr Rountree said that the temptation to over­pay for successful companies was one of the impacts of the new era of cheap capital since the financial crash.

“The prices pharma companies are paying for research and development (R&D) assets and for companies with R&D assets have been rising of late,” he said. “This will mostly benefit the shareholders of companies that are acquired rather than vice versa.

“Actelion’s founders including chief executive Jean Paul Clozel and his wife Martine are right to be exploring ways to monetize their share in a frothy market for pharma acquisitions. If they can manage this while retaining independence, they will do well.”

Mr Rountree described Actelion as a highly successful ‘mid pharma’ that has benefited from its independence and focus.

“Unlike many bigger pharma companies it has developed and commercialized its own portfolio rather than resorted to buying it from biotechs or other pharma companies when the pipeline was empty.

“European mid pharmas have been outperforming big pharma on many dimensions, so it is not surprising that big pharma want to acquire them.”

Not many such European mid pharma companies are available to be acquired – except possibly at astronomical prices – because of foundation or family ownership and control, with Netherlands­-incorporated drugmaker Mylan (Nasdaq: MYL), for example, paying twice the pre­-deal share price for Meda, a European mid pharma previously with major shareholding held by the Olsson family, to acquire it earlier this year.

If Actelion were to be acquired, Mr Rountree said that J&J would be the ‘least worst’ big pharma company to take it over.

“J&J has a relatively decentralized and diverse business model that copes better with diverse companies than the likes of Pfizer (NYSE: PFE),” he explained. “A structured transaction allowing Actelion to benefit from J&J’s scale without losing its independence is more likely to create value for both parties than an outright acquisition.

“The story of Roche­-Genentech, where Roche (ROG: SIX) took 60% of Genentech in 1990, left it to be more or less independent, then the rest of the shares 19 years later, is a helpful precedent, particularly as many of the Actelion executives are ex­-Roche.”

Uncertainty over the deal continued to affect Actelion’s share price on Wednesday. It had dropped by 2.6% to 203.50 Swiss francs by lunchtime.

Every company in the pharmaceutical industry today is seeking to find technologies that will deliver new therapies capable of changing patients’ lives. Typically this process starts with the search for unique biology that can be transformed into potential small molecule or biologic drugs. In this article, I argue that we have exhausted current methods and need to think more holistically about whom we are trying to serve.

Drug discovery is a complex process that often starts with a scientific project. Researchers skilled in a particular area of biological science take a deep dive into the literature to find out what subjects are current and need further elucidation. This is followed by a search through databases for more detailed information. The same scientists then seek to connect with globally recognised experts in the field of inquiry. With the use of databases and old fashioned networking, the scientific team is able to top up its knowledge of what is known and unknown about a subject. The research also includes a thorough investigation of outstanding patents. In the end, the goal is to spot opportunities for innovation.

Innovation comes in different forms. It could be based on new technology, or it could be the repackaging of an old idea with a really new twist. Individual scientists obsessively champion an approach until there is a fusion of ideas, and everyone agrees on a line of scientific attack.

Once a starting chemical, or a target biological process is determined, the discovery process takes over with classical chemistry and/or antibody creation. This then leads to the use of tests and screens to find a candidate drug.

But does it work?

The industry has spent billions of dollars on classical discovery in a bid to identify more and better drug candidates. Most executives, and those that give them advice, have swung from the belief that drug discovery is best done in-house, to the notion that it should be acquired externally from small, innovative biotech companies. The pendulum is still swinging from one approach to the other.

The industry says that it wants to identify and invest in disruptive technology. It is worth pausing for a moment to consider what the term disruptive really means. According to most dictionaries, it is something that disturbs, disorders or unsettles the existing order. In other words, it can be an uncomfortable process. At the very least, it involves energy and the courage to see things differently. Richard Branson has tried to capture this energy in seeking to introduce changes to the music industry. This can be done in pharma as well, but we also have to recognise our unique circumstances.

The pharma industry is heavily regulated because it produces products that seek to improve the public health. New drugs should deliver a benefit. But this has to be weighed against the risk of unexpected adverse events. The regulation is there to ensure safety and also to promote long- term investment in science.

This means that disruption in life science takes a different form than in the music industry. I would call this ‘thought disruption.’ Put simply, it is the act of putting old research habits aside and drawing on new people and new ideas to rediscover the drug discovery process.

I would start by engaging experts in different disciplines to apply their minds to the challenge of finding a new drug. They might be computer engineers or retail experts who are accustomed to dealing with the customer, or the end user.

We could start by thinking more holistically about patients. How many of us who have worked in laboratories actually understood the physical discomforts and anxieties of patients with a chronic disease? More importantly, how many of us experience the hope that many patients feel about the efficacy of new medicines? Perhaps discovery should start by logging the observations of patients rather than in a medical library.

Greater patient engagement may be possible to achieve in the emerging field of bioelectronics. This describes the convergence of biology and electronics enabling things like silicon chips to identify tiny biological particles that can predict disease. Bioelectronics also enables the creation of wearable devices that help patients monitor a disease like diabetes.

On its own, computer technology could contribute much more to drug discovery and development than it does at the moment. Making chemical entities manually and testing them manually has its strengths. But we could take this process much further by using computers to model drug interactions at a preclinical level.

Moreover, it should be possible to use systems biology to understand pivotal biological processes better. In the current discovery process, the number of potential biological systems available for manipulation is very high. The body is uniquely capable of responding to change by using homeostatic mechanisms to abort a therapeutic intervention. However, by using computers to simulate this process, it should be possible to identify these resistance mechanisms, move on and radically change the discovery process.

Finally, the disruption in thinking that is necessary to recharge drug discovery will need to start in universities. Although universities and courses have been modernised, the career path for a scientist continues to depend on knowledge of biology rather than knowledge about industrial science. New courses in digital biology and a discussion about different treatment paradigms may start to break this mould and prepare scientists for innovation in the centuries to come.

Tony Sedgwick started out as an academic and then moved into industry, becoming chief executive of four biotechnology companies and a senior executive at Roche Pharmaceuticals. He currently is an advisor on R&D to the industry. He is a partner at Novasecta and an advocate for thought disruption through the website www.thoughtdisrupter.com

© 2016 Evernow Publishing Ltd

Reprinted with permission from Mednous November/December 2016 (www.mednous.com)

It was recently reported that pharmaceutical companies Pfizer and Flynn Pharma may face a damages claim from the NHS related to overcharging, following their fine for substantially increasing the price of phenytoin sodium capsules. In a front page story in the Business section of the Daily Telegraph on this matter, John Rountree, Managing Partner at Novasecta, commented that the entire drug industry was “under massive scrutiny” from regulators over the controversial issue after several high-profile cases in the US. He went on to say that “this is not so much a warning shot across their bow, but a reinforcement that they need to be on their toes. A few high-profile cases have tainted the whole industry.”

The Telegraph has put out an article reporting that Sweden is vying to be the home of the European Medicines Agency (EMA), currently headquartered in London’s Canary Wharf, once the United Kingdom leaves the European Union. John Rountree, Managing Partner of Novasecta, commented in the article that “if Britain really does leave the EU, the message we get from Continental Europeans is very clear that the EMA cannot remain in London, it is a fundamentally an EU institution.” He goes on to state that “some pharma executives in the UK are perhaps still hoping that there will be some way of arranging it to remain.” To view the full article, click here.

Newsletter Signup