Inside This Issue - Opinion
R&D may be casualty as Rx makers retrench
November 8th, 2010
If a new survey of pharmaceutical executives whose companies account for more than 40% of the industry’s global revenue is any indication, an era characterized by a remarkable level of innovation may be drawing to a close.
Conducted by Roland Berger Strategy Consultants, the research shows that 65% of the companies involved are rethinking their business model in the face of what they perceive to be the strategic crisis facing the pharmaceutical industry. Diversification is now the watchword, with drug makers that not all that long ago were focused primarily on developing breakthrough treatments turning more of their attention to such things as generics, over-the-counter medications and vaccines.
From a purely business perspective, the shift in emphasis makes sense. As Stephan Danner, a partner in Roland Berger, points out, the large number of patent expirations looming on the horizon, government cost containment efforts and difficult market access have brought big pharmaceutical companies to “a turning point.”
Diminishing returns from investments in research and development are complicating the picture. Nearly 50% of the executives surveyed said they anticipate a negative return on current R&D projects, a sobering thought in light of the more than $800 million it costs to develop a single medication.
The change in tactics at pharmaceutical companies is likely to have unintended consequences, the most significant of which is a slowdown in the appearance of new drugs that save and enhance people’s lives.
The gains that have been made in recent decades are truly remarkable. As Roy Porter wrote in his 1997 book The Greatest Benefit to Mankind, “The breakthroughs of the last 50 years have saved more lives than those of any epoch since medicine began. ... The 1950s extended the ‘first pharmacological revolution’ onto a broad front; it produced, in psychotropics like chlorpromizine, the first effective medications for mental illness; other drug breakthroughs, notably steroids such as cortisone, made it feasible to capitalize on the growing understanding of the immune system. Immunosuppressants opened brave new world possibilities for transplant surgery.”
Patients and payers are understandably concerned about drug costs (although it should be remembered that they still account for just 10% of total health care spending and forestall other, more expensive forms of treatment).
At the same time, efforts to rein in expenditures should not be allowed to, in the words of Alan Holmer, former head of the Pharmaceutical Research and Manufacturers of America, “kill the goose that laid the golden egg.”