The Pharma Ecosystem

By Patrick McGee

It’s old news that pharma and biotech have been struggling over the last several years, and things won’t be getting better any time soon. As our cover story reports, over the next three years, revenue at big pharma is projected to fall off at a rate of 20% a year. These kinds of sobering numbers are what made us decide to feature an article looking at how the industry is responding to these challenges, how its ecosystem is adapting and evolving. “What you see now in big pharma is that they’re disintegrating most of the things that historically gave them strength, and they’re looking for new business models,” said G. Steven Burrill, founder and CEO of Burrill & Company. It’s clear that it is time to move away from the blockbuster model that has been the mainstay of the industry for too long. Many companies are doing this by focusing on their core strengths. And they are also either buying or partnering with smaller startups, companies that are at the cutting edge of innovation. I saw evidence of some of this innovation in March when I went to the greater Philadelphia area for a tour of several pharma and biotech startups. I met many industry veterans with 15, 20, or 25 years of experience who had been let go by, or decided to bail on, their big pharma employers. But instead of deciding to go into another field or opt for early retirement, many chose to start, or be employed by, small companies working in niche areas. Their innovation filters up to and through many of their big pharma and biotech counterparts, regenerating the ecosystem. Take the case of Protez Pharmaceuticals, based in Malvern, Pa. The company has a management team of six industry veterans with a combined 155 years of experience working for some of the giants of the industry like Pfizer, GlaxoSmithKline, and Aventis. They are focused on the development of new antibiotics for resistant bacteria, an area abandoned by big pharma because it believed there was not enough profit margin. But it is estimated that the market for hospital-based antibiotics in the United States is over $5 billion per year and growing at more than 10% annually. That potential clearly got the attention of Novartis, which purchased Protez in June 2008. Or take ERYtech Pharma, a company based in Lyon, France, with a second office at the University City Science Center in Philadelphia. The company has developed a technique that uses a modified dialysis machine to encapsulate therapeutic compounds in red blood cells. Last November, ERYtech launched a Phase 3 clinical trial in France in patients with relapsed acute lymphoblastic leukemia. The trial is for the company’s lead compound Graspa, a new enzyme formulation of L-asparaginase that is encapsulated in red blood cells. L-asparaginase has been a critical component of combination chemotherapy for over 30 years, but this new formulation should yield longer efficacy, better patient compliance, reduced dosage, and an increased safety profile, the company said. These are just two examples of the continuing innovation that should help revitalize the pharma and biotech industries. Although the process can be painful, ecosystems usually find a way to return to a state of equilibrium. Let’s hope the signs of innovation that I saw on this recent tour are indicators of just that.