Shrinkage from A to Z

No wonder AstraZeneca‘s CFO did a twenty minute infomercial at JPM on ‘Why you should partner with AstraZeneca.’ Those who have advocated for the transition of Big Pharma to a purely late-stage drug development and commercialization role, leaving R&D to others, now have a test case to monitor. AstraZeneca is lopping off 97.5% of its neuroscience group, keeping just 40 to 50 R&D people in the US and UK. That’s it, the rest are gone. AZ is outsourcing all of its neuroscience R&D to external relationships, while outsourcing all pre-Phase III business development activities, across-the-board, not just in neuroscience, to R&D staff. The stated reasoning is that by having scientists carry out the search and vetting process for inlicensing candidates, they will ensure that scientific merit is the basic criterion for licensing, and the same people will also oversee the (outsourced) development of programs that are licensed/acquired, including managing the partner relationship. AZ’s Business Development group will be responsible for negotiations and for screening late-stage asset candidates. AZ made a point of stating they had already started hiring R&D people who have a BD mindset, who will not be inclined to support internal as opposed to external programs. That won’t be an issue in neuroscience, since there won’t be any inhouse R&D.

We have our doubts about the wisdom of this stripped-down process. Business Development in today’s environment is a kind of speed-reading task, skimming a huge number of external programs, in theory at least, identifying those which deserve a deeper look. Our suspicion is that the breadth of scan will diminish with this approach, scientists tend to be relatively more specialized in certain areas of expertise, and since they are explicitly going to ‘own’ the programs they license, in an environment where many heads have already rolled, we expect that they will stick somewhat ‘close to home,’ with mechanisms and concepts they are familiar with. Some of the same dynamic already exists in pharma’s traditional model, since an inlicensing candidate that does not resonate with the belief-system and priorities of some internal champion within the larger company has no chance of being chosen. But this takes it to the extreme, and eeven as this is presented as providing a more entrepeneurial context for R&D staff, they are going to be asked to carry out tasks that require a generalist’s perspective while also retaining specialist skills in fostering the programs they have chosen. It is not that there are not people with the ability to function in both domains, there are, and we know large companies who have provided BD people with the opportunity to also have a hand-on role in clinical asset development. But that group is more the exception than the rule.

To the delight of AZ’s CFO, overhead costs will certainly plummet, with just 2.5% of staffing remaining within neuroscience. But in the clamor for resources within AZ, those 40-50 survivors will have near-zero clout. We see this ‘Gilligan’s Island‘ of neuro castaways less as the nucleus for a lean and efficient outsourcing operation, and more as a vestigial organ. It is possible that they could eventually turn out to be the seedling for a renewed neuroscience program when the area comes into favor again. For now, and for those looking for a Big Pharma partner, Astra Zeneca will be suitable only for those who have a large enough range of capabilities that all they need is fiscal resources: Not much else will be available from AZ, and there may not be much of even that for neuroscience.

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3 Responses to Shrinkage from A to Z

  1. Raymond T. Bartus, PhD says:

    Another Interesting and provocative perspective from Harry Tracy. Time will tell if this is the beginning of a new and bold paradigm within Big Pharma that recognizes the longer-value that exists in many VC-funded companies who are clearly cash and resource challenged in the face of current financial realities, or simply a new spin to an old Pharma solution to improving the short-term balance sheet by reducing expenses that provided no short-term remedy, in any case.

  2. Having spoken with AZ’s EVP of Innovative Medicine today (Menelas Pangalos, who used to head neuroscience at Wyeth, and then briefly at Pfizer), I am pretty sure that my first take on the announcement was incorrect. To briefly summarize: There will be licensing ‘scout’ specialists within the 40-50 members of the neuroscience group, not everyone is going to be expected to have generalist skills. Pangalos expects that the reduction of fixed costs will allow expansion of programs into a broader spectrum of areas, including psychiatry. Whether this small group can carry out ‘frontal lobe functions’ for a far-ranging assembly of outsourced activities will only become clear over time. But one thing that this does: Spending will be directly correlated with level of activity, which means a lull in productivity and progress does not have to be accompanied by a continued hemorrhage of fixed cost spending. This should allow AZ to have a more patient, longer timeframe perspective on neuroscience–as is necessary.

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