Newsmakers: Wyeth R&D
An interview with Dr. Frank Walsh, Head of Discovery Research, on Wyeth's outsourcing strategy
by Gil Roth
How do you cope with success? Wyeth’s drug pipeline has grown by leaps and bounds, with a 400% increase in productivity from 2001-2005, in terms of compounds entering the clinic. With chemistry as the major bottleneck, the company elected to find an outsourcing partner. Searching worldwide and running pilot projects with partners in Russia, China and India, Wyeth signed an agreement Hyderabad-based GVK Bio in November 2005.
Photo courtesy of Wyeth
To find out how the company developed its R&D outsourcing strategy, and to see how that strategy fits into the company’s overall approach to outsourcing, we interviewed Frank Walsh, Ph.D., executive vice president, Head of Discovery Research, Wyeth Pharmaceuticals. Dr. Walsh joined Wyeth in 2002 and was named to his current post in January 2005.
Contract Pharma: Your recently gave a presentation entitled, “Investing in R&D: Is it time to change the model?” Is it time?
Frank Walsh: I don’t think there was anything broken with Wyeth’s R&D model, as such. Our organization has been highly productive at this stage, but we want to do more and more. We want to increase our productivity.
We already have the highest productivity levels in drug discovery in the industry. But in a world where budgets are not rising as high as we might like, we nonetheless need to do more and more chemistry. So it’s from a capacity point of view to make more chemistry available for the larger number of discovery projects that we know we need to deliver on our portfolio. We decided to invest by enhancing our chemistry function. So, the R&D model at Wyeth’s not broken; there’s no big problem that we’re fixing through this strategy. It’s not part of global downsizing, shifting from one country to a lower cost. Our problem is success. We need to get adequate Resources for the expansion of our portfolio.
In fact, I think drug discovery in the pharmaceutical industry is in pretty good shape. Most companies are being quite productive at this stage. The problems come later, in the clinical stage, where because of the complexity of the pathologies and the diseases we’re working on — and the fact that many of the targets are unprecedented, following the sequencing of the human genome — it means the failure rates in early clinical studies up to proof-of-concept are at an all-time high.
CP: So how do you adapt to that?
FW: One way is to increase the number of targets going into clinical. If you just play the numbers game and put enough in, you’ll get enough out. The other way is to become much more rigorous in that phase. We’re heavily involved in the evolving discipline of translational medicine, trying to understand the mechanism of action of drugs in human populations, as a way of putting the odds in our favor. Unfortunately, there’s no easy answer.
CP: How does the GVK Bio agreement relate to Wyeth’s major IT outsourcing agreement with Accenture? While they're in different sections of Wyeth's business (chemistry R&D and clinical data management), what do you they signify about Wyeth's approach to outsourcing?
FW: From that point of view, they are very similar, even though chemistry is very different than CDM. At Wyeth, we’re interested in looking worldwide at opportunities to enhance our efficiencies. I think we’ve had a very positive experience with Accenture, one that’s led to increased efficiencies at a key point.
In that respect, it’s encouraged us -- because success breeds success -- to look at other aspects of the business. This is our first foray into outsourcing the chemistry portion of our business. That’s a part of our business that would’ve been inconceivable to effectively outsource -- or even to want to outsource -- as little as five years ago.
CP: What’s changed to allow this type of outsourcing?
FW: Certainly, 10 years ago, there were few if any high-quality chemistry companies available. Sure, there were companies in Asia that were making generics, but those were more chemical development functions, where you take a single drug and scale it up to the multi-kilogram or tonne quantity. This is different, more akin to pharma R&D, where companies in Asia and eastern Europe have now evolved to very, very high quality. I think it’s partly because of the changing economies in those regions. There’s been available the capital to invest, and the availability of trained graduated from universities. Asian universities have been producing a large number of well-trained graduates at a period when that number has been diminishing in western countries. Also, there’s the return to those countries of individuals who had training in the U.S. and European pharma industry. A number of startups we’ve had discussions with had experience in the U.S. These startups are becoming very competitive.
CP: Are there IP issues to deal with at this stage of development?
FW: Those are more of an issue in late-stage. For us, we’re looking at hundreds of thousands of starting materials. Although we have to have adequate patent protection, these aren’t drugs that can be marketed; they’re tools that are going to be modified by chemists. They have much less intrinsic value. Nonetheless, the strengthening of patent protection in India and China has made those places much more attractive. There’s much less of a risk to companies like Wyeth. The fact that many more companies are using services in those regions should indicate that there’s broader acceptance of that practice.
I think there’s a realization that if companies are serious about this business — and it’s clear that many providers have aspirations to move beyond contract chemistry -- the only way they will survive and attract high quality partners in the west is if they do work to the same standards we do.
So there’s no desire to steal IP or be less than diligent in looking after companies’ rights and adhering to international treaties. We’ve been very impressed by the thinking of a number of companies we discusses this issue with.
CP: Why did Wyeth choose to go with a single provider in GVK Bio?
FW: I think this is what makes our deal fundamentally different from other major companies, which have elected to work with a large number of providers. We wanted to work with a company where we could get scale, and where we could ensure that this partner had all of its SOPs very similar to what we have internally. There’s also the management of collaborations in very different timezones. Collaborations take a lot of management time, and it’s a lot more efficient for us to work with a single company, where we know all of the leaders and have the same philosophy and approach. We’ve developed the IT infrastructure where we have the ability to both request project work and share the results of the project. That’s a lot easier to manage, given those efficiencies of scale, than to work with three, four or five providers. It makes for a very intimate collaboration.
It’s a lot different than buying chemicals on the internet by sending out requests. The complexity of chemistry is such that, for each project, there are often issues and questions that, if you know the individuals you’re working with, even in another part of the world, and they’re trained to the same standards that you have internally — many of the scientists at GVK have rotated through Wyeth to understand how we work, and many Wyeth scientists will be spending time at GVK — this sort of intimate relationship enhances the economies of scale and gives us competitive advantage.
CP: Is this single-provider model intrinsic to R&D chemistry outsourcing, or is it a Wyeth-wide principle?
FW: I think Wyeth is a very good partner and works very hard at partnerships. Failure is not an option, so that means we make a passionate commitment to making partnerships. In that respect, It’s not unique to contract chemistry; it’s just the way we operate.
And it’s good to find partners who reciprocate. Wyeth find Accenture a very good collaborator, and we find GVK a very good collaborator.
CP: So no plan for evolving toward a preferred provider model?
FW: Not for this type of work. On the other hand, we’re now starting to look at outsourcing of biological disciplines, for example, and it may be more difficult to have this size of collaboration. But it’s early days, so we might be surprised.
CP: Had Wyeth worked with GVK Bio before the selection process?
FW: No. We put pilot programs out to six or eight providers in eastern Europe, China and India. Prior to that, we had not worked with any of them. We visited a number of providers before getting down to that number. But we hadn’t worked with them before beginning this process.
CP: Had you done any contracting of chemistry prior?
FW: We had collaborated with U.S. and European providers before on a substantive amount of work.
CP: There’s going to be a Wyeth-devoted facility at GVK Bio. How is that being funded?
FW: It’s part of the collaboration agreement. The actual terms of the funding haven’t been announced, but this will be a GVK-owned facility dedicated exclusively to the collaboration with Wyeth. The nice thing is that it has room for expansion, so if the collaboration goes well, we have the ability to very quickly and effectively expand our commitment.
The original plan is to have 150 people in place by 2007. We have 120 right now, after signing the agreement in November 2005. It’s a very fast ramp-up of individuals.
CP: In your presentation, you mentioned “the Evolution of Drug Discovery?” occurring sometime after 2007 on your timeline. What will that evolution consist of?
FW: It’s the way I see relationships evolving with Asian companies. As we mentioned, many Asian firms have been very effective working with generics. Now there’s a push to get into the chemistry industry. Much further behind, but also starting, is some work in animal models, particularly efficacy models. So, bit by bit, we’re seeing the evolution of the possibilities of putting together a Drug Discovery Organization. I think it’s in the business plan of a number of providers to move from a purely service model to one where they can be part of the value creation of drug discovery. They could move to a shared risk/reward model.
We’ve been discussing that with GVK and other providers. As I said, we have more projects available than we have people to work on them. We’re always looking for new and innovative drug discovery models. One under consideration is whether some small part of a drug discovery portfolio could be put together and worked out with a dedicated provider like GVK. In effect, they’d take on part of the risk of the project and, if successful, share in the success of project on a royalty basis.
I have a feeling that this will become the standard aspiration of the top-quality chemistry providers. We see this in China, as well; a number of companies are moving toward this.
CP: That’s quite a change. In what time frame do you think this will occur?
FW: There’ll be activity along this route very soon. I believe we’ll start to see agreements signed in the next 12 months.
CP: You remarked that the industry’s doing pretty well with drug discovery overall. Wyeth isn’t in the top echelon of drug revenues, but its pipeline is envied by companies with larger R&D budgets. How well do you think R&D scales up?
FW: I think what Rob Ruffalo [president, Wyeth Research] says is right: there’s a “sweet spot” in R&D. If you’re below the sweet spot, you’re less than competitive or resource-constrained, and if you’re above it, you may not be getting the value out of your R&D efforts. We think a company the size of Wyeth, where we have 1,500 people in drug discovery, and total R&D numbers of 6,000, is a good size for a drug company. The economies of scale are there so you can afford to invest in projects, but small enough that you know everything that’s going on in your organization.
The question we always have is, if we doubled or tripled those numbers, would we get commensurate increases in productivity and efficiency?
A number of commentators have noticed it. On a dollar-spent basis, our level of productivity is very competitive. It looks to me like, the bigger the company, you might not get the same economies. You might get greater economies of scale, but those rapidly run out when you get to the biggest level.
But that’s a subject for a whole other interview. . .