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Transformational Disruption in the Pharmaceutical Industry

Dr. Jeffrey Leiden, M.D., Ph.D. of Clarus Ventures addressed a group of fifty MBA students on the topic of major changes in the pharmaceutical and bio-technology industries, bringing a broad range of perspectives to his presentation as a clinician, researcher, academic, serial entrepreneur, Fortune 100 COO, and venture capitalist.

As a result of the changing landscape in the pharmaceutical industry, Leiden expects that there will be considerable consolidation and restructuring within the industry, a decline in U.S. leadership as biotechnology and pharmaceutical activity is rapidly growing in other regions, and as a result the need for large pharma companies to develop new drug development strategies.

On Tuesday, January 29, Dr. Jeffrey Leiden, M.D., Ph.D. of Clarus Ventures addressed a group of some fifty MBA students on the topic of major changes in the pharmaceutical and biotechnology industries. This event marks the latest in a series of speaker events hosted by the Healthcare Club featuring a variety of high-profile leaders in the healthcare industry.

Dr. Leiden brought a broad range of perspectives to his presentation as a cardiologist, researcher, Harvard professor, serial biotech entrepreneur, former President and COO of Abbott Laboratories, and currently a Managing Partner at Cambridge-based life sciences venture capital firm, Clarus Ventures.

Leiden started the discussion by outlining the tremendous success of the pharmaceutical industry over the past century, including such examples as reducing the mortality rate of congestive heart failure by 50% over the past quarter century and reducing the mortality rate for HIV/AIDS by some 75% in just the past decade. However, he now sees the industry starting to go through substantial changes with major declines in R&D productivity and declining NIH research funding, increasingly conservative FDA responses, price pressures, foreign patent threats, and the growth of the generics segment. Despite a massive increase in R&D spending, the number of approved new molecular entities (NMEs) has declined by half over the past decade, particularly with biotech playing an increasingly more prominent role among approved drugs.

The presentation also touched on the topic of drug safety and the general misconceptions by the public about the meaning of FDA approval. Leiden postured that most Americans believe that approved and commercially available drugs largely pose no safety risks, when in fact approval indicates what the FDA determines to be an acceptable tradeoff between risk and benefit of the drug under controlled settings. But with increased public scrutiny, for example in the case of Merck’s Vioxx, the FDA has become increasingly stringent in reviewing new drugs.

As a result of the changing landscape in the pharmaceutical industry, Leiden expects that there will be considerable consolidation and restructuring within the industry, a decline in U.S. leadership as biotechnology and pharmaceutical activity is rapidly growing in other regions, and as a result, the need for large pharma companies to develop new drug development strategies. The solutions that he proposes and expects to see of successful companies are founded in a transition from “chemistry cultures” to “biology cultures” and would include reorganization to smaller, decentralized therapeutic areas, increased acquisition of drugs being developed by biotech companies, and smaller specialty-focused commercial organizations. As an investor, Leiden believes that venture capital funding of biotech will play a critical role, but that VCs need to better understand product development and commercial activities to continue to support the industry effectively.

Dr. Leiden entertained questions from the audience and encouraged students interested in healthcare investing to contact Clarus Ventures to explore summer employment opportunities.

February 19, 2008
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