Novartis, GSK deal puts the spotlight on a narrowing R&D focus

Over the past 5 years the big trend in Big Pharma R&D was to break down the walls they had built around their research operations and start executing more pacts with biotechs and academics in the hunt for new drug prospects. Many of these players cut back significantly in key areas where they felt they faced extraordinarily high risks--a particular problem in the central nervous system field, where trial failures have been more the norm than the exception.

Today, in the wake of the big swap and shop between Novartis ($NVS), GlaxoSmithKline ($GSK) and Eli Lilly ($LLY), you can detect a renewed emphasis on R&D specialization. And the trend will have a big impact on all the biotechs and academics looking to collaborate with the biggest players with the deepest pockets.

Novartis' decision to get out of vaccines, where it's suffered, and double down on cancer, where it's prospered, is exhibit A in the trend story--though this is anything but a new style in Big Pharma. Instead, think of it more as an extension of the refocusing that went on among players in recent years. Only days ago, Novartis told FierceBiotech that it is exiting the RNAi field after years of effort and hundreds of millions in investments. They couldn't make a go of it, so they're getting out and devoting their efforts to more fruitful fields. GlaxoSmithKline, which is essentially bowing out of cancer (even though it retains some early-stage work under a Novartis option) is pursuing a narrowing focus that started as it pulled back sharply from some areas in the neurosciences field several years ago.

Now that its deal with Novartis is done, GSK's R&D group is going to be heavily concentrated on its work in respiratory diseases--where it has gained some notable new drug approvals--as well as vaccines, where it plays a dominant role. MAGE-A3, its big cancer vaccine program which has so far proven to be a massive dud, is an example of the kind of work they will now steer clear of. The same likely goes for cardiovascular R&D, where it has a big, though troubled, Phase III program underway for darapladib.

Look for others to follow suit, but not in the same direction as GSK.

"As the risk and cost of bringing new drugs to market rises, we expect pharmaceutical companies to concentrate on a smaller number of therapeutic areas," Fitch noted in an R&D review out today. "With a full late stage oncology pipeline across the sector, we see oncology drugs as a key area of competition due to the high returns available and the prospects for next generation treatments, particularly in combination with already established drugs."

In part, Big Pharma's new/old strategy of increased specialization follows the example set down by a group of large biotechs which have found major success in a select group of diseases. Gilead ($GILD) demonstrated just how successful you can be with one blockbuster, noting that Sovaldi earned $2.3 billion in sales revenue in the first quarter--easily the best drug launch in the industry's history. And Biogen Idec ($BIIB) followed up this morning with the news that its MS drug Tecfidera earned $506 million in Q1, part of a blockbuster campaign for a drug that is earning rave reviews from physicians around the country.

At first glance, Pfizer's ($PFE) reported interest in buying out AstraZeneca ($AZN) may look like it's flying in the face of this trend--and in many ways it is. AstraZeneca has been purposefully agnostic about its acquisitions strategy in the hopes that it can find something, anything, that can salvage its reputation after becoming the poster child for R&D dysfunction and disarray. But you may have noticed that the only way this deal begins to look good to many analysts is if you fit AstraZeneca's early-stage efforts in cancer immunotherapy with Pfizer's deep interest in oncology.

That may not prove enough to justify another megamerger after that whole trend left a pronounced sour taste among analysts, but it does fit neatly into the emphasis on simplifying R&D as a way of lighting a way forward. Based on Big Pharma's meager record of new drug approvals over the past 10 years, it still needs to find a way to do many things better in R&D.

For biotechs and academics, simplification is likely going to mean fewer giants competing in the same field. And that will translate into less competition for their drugs and ideas. -- John Carroll (email | Twitter)