Pharma Investing Less in R&D: What Does the Future Hold?
It’s no secret that major pharmaceutical companies are no longer investing in internal drug discovery initiatives as much as they have in the past. However, I was unaware how drastic the decline in R&D spending was until I read an article entitled “Significant Change Predicted for Bioindustry” by Benjamin J. Conway in the July issue of Genetic Engineering & Biotechnology News.
Mr. Conway notes that in 1989 more than 50% of the pharmaceutical industry’s budget was spent on preclinical drug discovery and development. During the 1990s, the percentage slowly declined and was approximately 44% by 1999. He asserts that beginning in 2000, “the drop became precipitous” as pharmaceutical companies spent increasing amounts of their R&D budgets on downstream activities including expanded clinical trials. By 2006, big pharma was spending about 25% of its budget on R&D. Strikingly, Mr. Conway contends that “when measured in terms of constant absolute dollars, spending on pre-clinical R&D activities actually declined 0.4% annually over the period, despite annual increases of nearly 7% in total R&D spending.”
Not surprisingly, the almost decade-long decrease in pharmaceutical R&D spending is best reflected in the lack of new drug approvals over the past five years or so. According to Mr. Conway, throughout the 1990s more than 50% of all new drug approvals originated at big pharma companies. By 2001, these companies were responsible for approximately 60% of new drug approvals. However, since then, pharma’s new drug approvals have plunged to 25% to 30% of annual totals. Some analysts suggest that the figure has been as low as 15%. The decline in new drug approvals almost parallels the decrease in R&D spending at most major pharmaceutical companies. Many industry analysts and thought leaders contend that big pharma companies have gotten too big and unwieldy and can no longer innovate. The unprecedented drops in pharma’s new drug approval rates tend to support that assertion. Mr. Conway points out that the so-called “innovation gap” has been filled by biopharmaceutical companies that “today account for 75% or more of new therapeutics developed each year.”
These changing market dynamics suggests that big pharma must reconfigure the business model that it has clung to for the past 50 years to remain competitive. Not surprisingly, almost all of the major pharmaceutical companies have begun to do just that! For example, over the past three years more than 60,000 R&D scientists have lost their jobs with little likelihood that the vacated jobs will ever be resurrected. Further, big pharmaceutical companies have increasingly begun to outsource many R&D activities to Asia, Eastern Europe and elsewhere. Finally, most big pharma companies have publicly demonstrated—through mergers and acquisitions—that biotechnology products as well as small molecules are in their future.
While big pharma may be retrenching and evolving, don’t expect the pharmaceutical industry on internal drug discovery initiatives —or small molecules for that matter— to disappear any time soon. The industry is going through a transitional period and the companies of the future will look only slightly different than they do today. These companies will still be large and well capitalized, but likely more diversified in their product portfolios (which will surely contain biotechnology drugs). Also, they will continue to excel in new product development, marketing and distribution. However, unlike the past, much less emphasis will be placed on internal R&D programs to discover new molecular entities. This means that pharmaceutical R&D operations will remain lean and companies will increasingly rely on M &A and licensing deals (with smaller specialty pharma and biotechnology companies) to keep their pipelines full.
Until next time...
Good Luck and Good Job Hunting!!!!!!!!!!
Let me begin with the good news. The Indianapolis Business journal reported today 
