Recent M&A activity indicates a potential resurgence in the appetites of larger companies for psychiatric drug development, but experts say the space may not offer a sufficient risk-reward proposition for R&D.
While large pharmaceutical companies turn their attention to neurodegenerative diseases like Alzheimer’s and amyotrophic lateral sclerosis, the business case for neuropsychiatric R&D doesn’t appear to fit as neatly with their objectives.
Blockbuster drugs like Prozac and Zoloft for depression and atypical antipsychotics like Risperdal and Abilify are all products of the big pharma engine from the 1980s and 1990s, said Graig Suvannavejh, senior biopharmaceuticals and biotechnology equity research analyst at Mizuho Americas. “Large pharma liked these diseases because there are lots of patients,” he told BioSpace.
This was in the days of pharmaceutical sales forces selling a wide portfolio of primary care products, Suvannavejh said. However, in the late 2000s and 2010s, many of these successful products went generic, “and that coincided with a time where oncology and the emergence of monoclonal antibodies took off,” he explained, driving many big pharma companies to exit psychiatry, putting more focus on Alzheimer’s and other neurological diseases.
To some extent, this trend still holds today. For example, a representative from Eli Lilly, a big player in the Alzheimer’s space, told BioSpace in an email that the company does not have any clinical programs in psychiatry and it is not a focus area for R&D.
Meanwhile, neuropsychiatric drug development has been left to smaller biotech companies like Sage Therapeutics, whose Zurzuvae was approved in August 2023 for postpartum depression, and Intra-Cellular Therapies, which recently scored a Phase III victory in major depressive disorder.
Amit Etkin, founder and CEO of Alto Neuroscience, told BioSpace it is “critical” that big pharma get back into neuropsychiatric R&D. “The need is massive,” he said. “Fundamentally, there’s a huge need that needs to be addressed and needs to be addressed in a different way.”
A Risky Proposition
In a LinkedIn poll conducted by BioSpace, 25% of respondents said that lack of pharma R&D investment is the biggest challenge facing the neuropsychiatric space.
There are several reasons why large pharma companies may steer clear of neuropsychiatric R&D. First, most neuropsychiatric drugs are small molecules, which are much easier to make generic versions of than large molecules, Suvannavejh said. Hence, large pharmas pivoted to large molecules and monoclonal antibodies where revenue is extended. The Inflation Reduction Act, which came into law in 2022 and makes small molecule drugs eligible for price negotiations four years sooner than biologics, is reinforcing this trend.
Additionally, the neuropsychiatric space is risky. “The likelihood of clinical trial success . . . is probably the lowest in neuroscience,” Suvannavejh said, noting a “big placebo effect” and the complexity of the brain. “Everyone these days needs to optimize for capital efficiency . . . and I think that large pharma has, on purpose, chosen to limit their exposure to neuroscience because they know clinical trial failure rates are high.”
Daniel Karlin, chief medical officer at MindMed, which is developing psychedelic therapies for neuropsychiatric and other disorders, agreed. He noted that depression is a “phenomenological shared disease” without a shared underlying biology. “You take a drug that has a distinct biological action and you test it in all [depressed patients]—it’s no surprise that we get low mean effect sizes because why would one biological intervention work for a bunch of different biologies?”
This makes it “extraordinarily difficult” to develop new psychiatric drugs, he told BioSpace. “The enterprise of psychiatric drugs is high risk and potentially low reward. So the pursuit of novel psychiatric drugs has been sort of offloaded onto biotechs to take on that early development risk.”
Suvannavejh concurred. He characterized big pharma’s mentality as, “Let them figure it out on their dime . . . and then we’ll buy them.”
And that appears to be what is happening. In December, Bristol Myers Squibb acquired Karuna Therapeutics and its investigational schizophrenia drug, KarXT, for $14 billion, and AbbVie picked up Cerevel Therapeutics and its neuropsychiatric pipeline for $8.7 billion. And last month, AbbVie—which has previously been active in the space—inked a potentially $2 billion deal with Gilgamesh Pharmaceuticals to develop psychedelic therapies for psychiatric disorders.
Greater Speed and Scalability
Beyond these deals, a handful of other large pharmaceutical companies do have neuropsychiatric programs. Johnson & Johnson’s Janssen has two assets, seltorexant and aticaprant, in Phase III studies for depression. Meanwhile, Merck has a Phase IIb program in schizophrenia, and Denmark-based Lundbeck is developing a Phase III asset in post-traumatic stress disorder, in partnership with Otsuka Pharmaceutical.
While there is significant innovation stemming from the efforts of smaller biotechs, Etkin said that big pharma’s greater involvement “would lend enthusiasm, energy, more money, more opportunity, like we see in other areas.” Development can also occur more quickly with the help of larger companies. “When you have big pharma get involved in a space, there is a capacity for scale and for speed that’s much harder to do in biotech.”
Etkin said there is not one ideal marriage between pharma and biotech in the neuropsychiatric space. While the traditional alliance has been through M&A, “There could be many other forms in terms of collaborations, trying to bring expertise in different ways at different stages,” he said. Whatever form it takes, he added, the key is to establish those connections. “Because a lot of those people over the years went to biotech, [collaboration] becomes a natural way to kind of reconstitute that field within those big pharmas.”
Even when big pharma companies aren’t actively developing neuropsychiatric therapies, they can still be involved. Etkin noted that Novartis and Eli Lilly joined the Series B and Series C rounds, respectively, for Alto, which has had several mid-stage wins in depression over the past two years.
Karlin said that big pharma companies need to “be brave and be thoughtful.” Specifically, he said the industry needs to move away from the style of drug development based on the Diagnostic and Statistical Manual of Mental Disorders, where one psychiatric drug needs to address a single diagnosis.
“Big Pharma has always looked at this space as really important, just not knowing how to innovate,” Etkin said. “At the end of the day, it’s probably big pharma with biotech coming together to bring that innovation.”
Heather McKenzie is a senior editor at BioSpace. You can reach her at heather.mckenzie@biospace.com. Also follow her on LinkedIn.
