Large pharmaceutical companies once withdrew from brain drug R&D. Is a return wave imminent?

Large pharmaceutical companies have gradually withdrawn from brain drug research and development. These giants, skilled at treating heart, lung, and joint diseases, have struggled to replicate their success in brain diseases, shrinking or closing related R&D pipelines over the past decade.

Some companies still focus on brain drugs, but this contrasts sharply with the situation 25 years ago when almost all major pharmaceutical companies invested heavily. Eli Lilly's Prozac attracted competitors to develop their own blockbuster antidepressants, Pfizer subsequently launched Zoloft, and GlaxoSmithKline brought Paxil. By the early 21st century, a new generation of antipsychotic drugs helped AstraZeneca and Bristol-Myers Squibb build multi-billion dollar neuroscience businesses.

However, AstraZeneca, Bristol-Myers Squibb, GlaxoSmithKline, and more recently Pfizer and Amgen have stopped investing significant resources in neuroscience. Companies such as Eli Lilly, Sanofi, and Merck & Co. have narrowed their investments and the number of drug programs. These retreats often followed a series of clinical failures that led companies to question whether funds should be directed elsewhere.

Despite this, early-stage neuroscience investment remains active. In 2018, the field attracted $1.5 billion in venture capital, second only to oncology, indicating that investors expect returns soon, possibly through acquisitions by large pharmaceutical companies.

Industry observers predict that large pharmaceutical companies will return to neuroscience in the coming years, attracted by emerging therapies for epilepsy, mood disorders, and genetic diseases of the central nervous system.

"I predict that within the next five years, or even ten years, you will see another golden age of neuroscience products," said Steven Paul. Paul, who developed the blockbuster antipsychotic Zyprexa at Eli Lilly, is now CEO of the neuroscience biotechnology company Karuna Therapeutics.

Paul is not alone in this view. Earlier this month, the CEO of Roche Pharmaceuticals said that neuroscience in the 2020s could make great strides similar to oncology in the 2010s. Jeremy Levin, head of the neuroscience-focused Ovid Therapeutics and chairman of the biotechnology industry's largest trade organization, expects faster "revolutionary" new therapies to emerge within three years. Overall, nearly ten industry executives and analysts who spoke with BioPharma Dive believe that brain drugs will soon return, with large pharmaceutical companies participating.

"This is a recurring pattern in the industry," Levin said in an interview. "People shelve certain areas, thinking it's a waste of time and money. Then they see some successes. Smart companies dive in, acquire, or partner, and the result is a complete breakthrough in the field."

"Full of uncertainty"

However, recent exits may suggest that neuroscience is not yet seen as a near-term opportunity. Before Amgen almost completely exited neuroscience at the end of 2019, it terminated schizophrenia and Alzheimer's disease programs. Its R&D head, David Reese, explained to BioPharma Dive that the exit was based on several factors, including the industry's "fairly rudimentary" understanding of neurological diseases, the long development cycles of some drugs, and the clearer opportunities Amgen saw in oncology, inflammation, and cardiovascular drugs.

Reese also said that companies are unwilling to invest ten years and billions of dollars in such an "uncertain" field, and therefore believe that building biotechnology companies or public-private partnerships is a more encouraging approach.

The situation is similar at Pfizer. Before deciding in 2018 to spin off some compounds into a central nervous system subsidiary with Bain Capital, its Alzheimer's and Huntington's disease drugs failed in succession over several years. Pfizer said this move allowed it to redirect funds to areas where it excels.

In neuroscience, clinical failures have accumulated because companies lack understanding of disease mechanisms. These failures make further investment by large pharmaceutical companies riskier. Meanwhile, researchers have developed impressive new drugs in different diseases like cancer, prompting large companies to reprioritize. Since most companies do not have a large pipeline of promising brain drugs, neuroscience research is more easily abandoned.

A consequence of this reprioritization is that large pharmaceutical companies are relatively underinvesting in new treatments for the world's most common diseases. While "me-too" cancer drugs have proliferated, there are few new therapies for Alzheimer's disease, Parkinson's disease, and depression that affect millions of patients.

"This is not about exiting neuroscience," Levin said. "It's about not taking risks, and therefore redirecting funds to areas they believe will be productive in the near term."

Executives at small biotechnology companies say that just a few positive studies could bring the giants back. This has been proven in gene therapy and immuno-oncology, which produced global bestsellers including Merck's Keytruda and Bristol-Myers Squibb's Opdivo.

"This is an industry about momentum, and you don't want to be left behind," said Richard Peters, CEO of Yumanity, a biotechnology company developing drugs for neurodegenerative diseases, who previously led rare diseases at Sanofi Genzyme. "If you see a few success stories, the boards of these companies will quickly question management: 'Why aren't we doing this?'"

This pressure may explain why many large pharmaceutical companies continue to study Alzheimer's drugs, even if they are not deeply involved in neuroscience. Analysts expect that the first Alzheimer's therapy that can affect the course of the disease, rather than just symptoms, will become a blockbuster. However, neurodegenerative diseases like Alzheimer's and Parkinson's are extremely challenging due to their complex biological roots.

AstraZeneca, Eli Lilly, Merck, Novartis, Pfizer, and Roche have all had experimental Alzheimer's therapies fail in late-stage trials. Biogen, a leader in neuroscience, plans to seek regulatory approval for a drug with a mechanism of action similar to the failed attempts of its peers, but controversial clinical data have made its efficacy a subject of intense debate.

Targeting genes

Although an Alzheimer's solution seems distant, pharmaceutical companies have achieved victories in other neurological diseases such as spinal muscular atrophy. Since the end of 2016, effective therapies from Biogen and Novartis have been on the market, and a third from Roche could be approved by June.

Compared to the 1990s and early 2000s, companies now have better tools for gene manipulation and correction. Therefore, diseases linked to a single gene defect, such as spinal muscular atrophy, seem easier to target and less risky—which is attractive to large pharmaceutical companies seeking an entry point to return to neuroscience. There are precedents: Pfizer entered Duchenne muscular dystrophy through the acquisition of Bamboo Therapeutics, and Roche has shown interest in a Huntington's disease program developed by Ionis Pharmaceuticals.

This is not to say these diseases are easy to treat. For example, the new excitement around Huntington's disease masks the fact that no drug has yet been proven to alter the course of the disease.

"My caution about the single-gene central nervous system boom is that the deeper we go, the more we find they are not as simple as hoped," said Stifel analyst Paul Matteis. Nevertheless, Matteis said single-gene diseases are a reasonable area for large pharmaceutical companies to invest in when rebuilding neuroscience.

But beyond this broad category, there is little consensus. Ovid's Levin sees epilepsy as a promising target, but also believes psychiatric breakthroughs are harder to achieve. Karuna's Paul disagrees, saying the industry is "on the verge of" positive late-stage data for depression and schizophrenia. These predictions may be expected: Levin's company develops epilepsy drugs, while Paul's company is developing schizophrenia drugs.

Drug development technology may be more valuable than specific disease targets. Ted Dawson, director of the Institute for Cell Engineering at Johns Hopkins University School of Medicine, said he sees "tremendous enthusiasm" around antisense therapies that modulate gene expression. Ionis's business is built around its antisense platform, which developed Biogen's muscle atrophy drug; Alnylam Pharmaceuticals has a similar platform and is central to Regeneron's $1 billion central nervous system research agreement.

Acquisition return?

Analysts point out that any neuroscience reinvestment will depend on the goals of large pharmaceutical companies. If a company's goal is to make brain drugs a core business, then a single small disease unrelated to its pipeline may not be the target. If not, the company may be satisfied with acquiring niche, low-risk products and may later integrate them into a broader platform.

In any case, analysts say that if large pharmaceutical companies' interest in neuroscience recovers, it will extend not only to large markets but also to very small or orphan diseases. Drugs for these diseases enjoy regulatory incentives and can be sold at high prices, which may make investment more attractive.

"Nowadays, pharmaceutical companies seem increasingly interested in the orphan drug business model," said Phil Nadeau of investment bank Cowen & Co. "If there are neuroscience orphan therapies that look very successful, I think pharmaceutical companies may be interested in acquisitions."

Nadeau noted that acquisitions would be a sign of large pharmaceutical companies' return. Since many large developers do not have deep neuroscience research teams, acquisitions may be faster than building from scratch. "This seems to be a tool companies repeatedly use to quickly return to areas they have exited," Nadeau said.

However, even when the science is validated, deals carry risks. Last spring, SVB Leerink analyzed transactions by the 21 largest pharmaceutical companies and found that only one-third of deals worth over $1 billion were "clearly successful," meaning they produced new products or exceeded expected revenue growth; one-fifth failed.

"Skeptics would say that the return on invested capital from acquisitions in the biopharmaceutical industry is relatively poor. So, while it may be faster, it is not necessarily better," Nadeau said.

Whether it benefits target companies is also debatable. Many potential buyers lack neuroscience infrastructure for newly acquired biotechnology companies to rely on, which could make integration more complex. There are also concerns that after the initial wave of excitement, if positive data and drug approvals do not continue, large pharmaceutical companies may retreat again.

"The risk is that companies acquire at low valuations, extract value, and then you might get stuck in a cycle," Vlad Coric, CEO of Connecticut-based Biohaven Pharmaceutical, told BioPharma Dive. "As long as neuroscience is important to them, they will keep you, and then they will exit again."

These concerns, coupled with the easy availability of venture capital or public market funds, may force large pharmaceutical companies to craft better pitches when attracting neuroscience biotechnology companies. "The capital markets are open enough, at least in the U.S., to allow companies to act on their own," Levin said. "You don't need large pharmaceutical companies to regain confidence in neuroscience," he added.