Pharmaceutical companies across the planet are in the midst of radical restructuring. Research laboratories are closing, development activities relocating, manufacturing being outsourced, distribution being rationalized, marketing approaches being transformed – every step in the value chain is undergoing change. Change aimed at improving productivity.
It is natural to ask: is this a response to the credit crunch and the global downturn it triggered? Well, clearly the financial meltdown has not helped, but I believe most of the restructuring we are seeing is as a result of much longer term trends.
Over the last couple of years we have rediscovered with a vengeance that ‘boom and bust’ remains a feature of the economic scene: downturns still occur every 5–10 years. However, pharmaceuticals is an industry where many key decisions play out over decades. It takes 20 years before a new generation of therapies, such as antibodies or antisense, move from laboratory concept to approved medicine. Patents are applied for, operations are set up, plants are built, with the expectation of returns over a similar length of time. Economic up- or down-swings may speed or delay decisions or financial returns slightly, but investments need to make sense over decades, not a few years.
Likewise, the downward pressures that resulted in recent restructurings are long-term trends and were building up even in the early, more prosperous years of the last decade.
Prominent among these trends is the well-publicized decline in research and development productivity. We all know that, as worldwide research and development investment has grown, the number of successful new chemical entities approved has stayed stubbornly low and even recently declined further. More fundamentally, little of the recent output has been in the form of the kind of mass-market ‘blockbusters’ – the statins, antidepressants and antipsychotics and proton pump inhibitors that fill the current top 10 drugs list Citation[1]. We are seeing mainly specialized medicines for niche indications: even recent major commercial successes such as Avastin® and Gleevec® have reached their current market size only after many costly trials and approvals in multiple indications.
Companies are tackling this issue in several different ways. Some, like AstraZeneca in cancer, are working closely with clinical academics to develop new medicines in collaboration. Others, such as Lilly with its Chorus venture with Versant, are sharing risks with venture capitalists and seeking to increase the number of early-stage candidates without expanding budgets. Others, like GSK with its Harvard stem cell group, are implanting researchers in the world of academic research in order to stay ‘close to the action’ without massive internal investments. Reliance on small ‘biotech’ partners for inward innovation has been steadily growing. Now we are even seeing joint development projects between major pharmaceutical companies in high-return/high-risk project areas.
As we enter the era of so-called ‘personalized medicine’, we are also seeing increasing cooperation between pharmaceuticals and diagnostics companies. The goal is to create companion diagnostics that help target new medicines to the patient groups that will benefit most. These approaches will be most useful if the markers or diagnostics that emerge are commonly accepted and applied – a further frontier for pre- or non-competitive partnership.
There is talk across the industry of a future in which even more is shared, with biomarker programs, clinical cohorts and trial infrastructure shared across several companies in the same disease area. In this ‘cookie jar’ future, companies will succeed (or fail) together, with their only claim to exclusivity being the specific candidate molecules they bring to the party.
The net effect of all these changes is a reduction in the industry’s in-house research and development infrastructure and greater reliance on research and outsourcing partners. This will inevitably challenge the scale of the majors’ current research networks, which already come under close scrutiny whenever mergers or acquisitions take place.
The affordability of the industry’s uniquely high research and development spend is also being challenged by the massive wave of patent expiration within the next 3–5 years, which is triggering cutbacks. Initially these will largely impact the marketing and sales infrastructure, but this will also feed into the affordability of research in the long term.
Strategically, it makes sense for companies facing the need to cut back research and development to deselect specific therapeutic areas, rather than slim programs across-the-board. In this forced prioritization, neuroscience seems to be particularly at risk. While three of the world’s top ten medicines are for CNS conditions, further future investment in the category has to be weighed against at least three key factors. The first is the inherent difficulty of research and development in the CNS, with our still-limited understanding of neuroscience and the challenge of the blood–brain barrier. The second is the high placebo effect in many psychiatric conditions, making definitive trials a greater challenge than elsewhere. The third is the widespread activist and media criticism of any drugs for mental diseases that are seen to have limited evidence whilst having side-effects, as all medicines do.
There may be one exception to this trend against CNS – Alzheimer’s. When we at the Association of the British Pharmaceutical Industry (ABPI) ask patients what diseases they most wish the industry to work on, cancer and heart disease regularly come first and second – and there is no doubt of the morbidity and mortality these major killers bring. However, recently Alzheimer’s has taken the third place in the survey: widespread publicity regarding the disease and its devastating consequences has put the spotlight on insufficient research in this area. Companies such as Pfizer and Eisai are, however, investing heavily, and I would expect that despite the difficulties of finding effective drugs and conducting convincing trials, we will see growing – not declining – investment in this area.
A further long-term trend is away from a ‘pure play’ business model in which companies invest solely in innovative medicines. As most of the pharmaceutical market growth shifts from the USA and EU markets to the so-called BRIC countries (Brazil, Russia, India and China), the balance of new pharmaceutical demand will also shift – from new branded medicines to biosimilars, generics and over-the-counter products. These are likely to fuel the majority of the growth in markets such as India, China and Brazil over the coming 10–20 years. Companies are therefore reserving a greater share of their investment for such products and companies, which in turn reduces the share for truly innovative research and development.
Should these negative forces on research and development investments worry developed world policy-makers? In short, yes. For many years policy makers have taken for granted that this industry will continue to invest in innovative research and development, seeing the high returns on individual products and healthy overall profitability of the major companies. However, fewer, smaller and sometimes less profitable innovations are subjected to ever-tighter cost–effectiveness evaluations, the escalating costs of development and registration, and the attraction of alternative business investments will erode the enthusiasm and capacity for leading cutting-edge research and development – unless we make a number of important changes.
The first relates to product value. It is right that companies should demonstrate the value of their new products to the payers as well as the patients and clinicians. As health budgets come under increasingly tough pressure and new products replace comparatively cheap currently available health measures, we can expect healthcare payers to expect ever more convincing pharmacoeconomic arguments. However, they need to bear in mind two vitally important factors or their decisions will have unintended and very negative consequences.
Health technology assessment is still a short-term and relatively immature science, best at making trade-offs within today’s budget against immediate priorities. It finds it hard to incorporate the longer term impact of innovation into its calculations. It also struggles with making rounded assessments of modern specialist medicines in end-of-life areas such as cancer, where conventional quality-adjusted life year estimates do not fully reflect the value that society places on life extension.
‘Value’ comparisons made between on-patent follow-on medicines and the generic medicines that derive from the ‘first-of-kind’ innovations will inevitably favor the latter. But if the result is compulsory switching or price-leveling between branded and generic, this removes the incentive for all but the first-of-kind innovation. For some policymakers this sounds fine – until we remember that the vast majority of today’s most useful medicines were not the first products in their class. Most waves of medicine advance produce several versions of a new product category and this is an important part of the innovation lifeblood – both of the industry and of medical practice.
The second set of changes relate to the costly, cumbersome way we currently develop and evaluate new medicines. Multiple trials performed over numerous years set each new medicine with a series of separate hurdles of safety and efficacy – yet the few medicines that surmount these challenges still have side effects when a wider population is exposed. We need to restructure the process and economics of research and development and incorporate a larger level of flexibility and partnership in them. Modern biomarkers need to be used to focus the trials on the patient segments most likely to benefit. Later stage, expensive trials need to be co-designed with the approval authorities and the health technology assessment agencies; their costs might even be shared with ‘early adopter’ health systems that allow early, limited use while the drug’s wider effects are carefully studied. (The author recently outlined these changes in more detail in an article in the LancetCitation[2]).
Pharmacoeconomists need to evaluate these kinds of changes and provide the return on investment incentives needed for senior pharma managements to take a risk and trial these kinds of new approaches – before we finally sink under the weight of the old, rigid research and development paradigm.
Finally, and most radically, we need to examine the nature of the incentives we give to innovators. The current fixed patent term, reinforced with data exclusivity, is linked to the original discovery of the molecule that forms the medicine. Additional patents cover specific uses and delivery technologies, but the bedrock is the so-called ‘composition of matter’ patent.
While patents are all the industry has to protect its investments, they need to be staunchly defended – not just for the innovator’s sake but for the future patients who will benefit. But we need to start exploring systems of data protection and/or marketing exclusivity that could be better adapted to the current era of the industry, with its long development times and short periods of patent exclusivity; smaller, segmented markets; and more frequent migration of medicines from launch indication to others.
The forces at work in the pharmaceutical industry are challenging its ability to continue to pour billions of dollars in speculative long-term investment into the discovery of new medicines to meet the vast unmet medical needs that are still humanity’s lot. Unprecedented partnerships between companies and between industry, academia and health systems, will broaden economic evaluation of the long-term benefits of pharmaceutical innovation and radical new models for their development and protection – all these (and more) are needed if we are to overcome these challenges and make the next 30 years as productive for pharmaceutical research and development as the last.
Financial & competing interests disclosure
The author is the Director General of the Association of the British Pharmaceutical Industry (ABPI). The ABPI is the trade association for the UK research-based pharmaceutical industry, representing companies both small and large. Member companies research, develop, manufacture and supply more than 80% of the medicines prescribed through the National Health Service (NHS).
No writing assistance was utilized in the production of this manuscript.
References
- IMS World Review 2010. IMS Health (2010).
- Barker R. A flexible blueprint for the future of drug development. Lancet375(9712), 357–359 (2010).