Is the Future of Big Pharma Really that Blue? I Paint a Bleaker Picture
I paint a bleak outlook for Pharmaceuticals
Over the next 10 years, there will be an increasing demand for effective medicines due to an increase in population age as well as the fact that the disease burden in the developing nations is slowly resembling that of the developed world. The current 7 emerging markets (India, Brazil, China, Indonesia, Mexico, Russia and Turkey) are set to triple their gross domestic product over the next 13 years and thus by 2020 these countries could account for as much as one fifth of global medical sales.
So if there is an increasing demand for medicinal products, why will pharmaceutical firms still struggle? The underlying key issue is that Pharma firms are just not being productive enough. As the population in developing and developed countries becomes older and more prosperous, their healthcare expectations rise, however the industry is finding it difficult to fulfill their hopes.
The figure above shows just how dire the current situation is. Even allowing for inflation, the Pharma industry is investing twice as much into research and development than it did a decade ago to produce only two fifths of the amount new molecular entities (NMEs) and Biologicals than it used to produce. Further research carried out by PriceWaterCoopers (PWC) shows that in 2006 only two Big Pharma companies earned more than 10% of their revenue from “major” products less than three years old.
Can we blame the Big Pharma firms for their apparent “lack of innovation”?
No, we can’t. The research and development process that pharmaceutical firms have to go through to finally put their drug on the market is remarkably complex and cumbersome. It typically takes 15 years for a drug to be available to the market; this coupled to the fact that it costs around 1 Billion dollars to develop one drug (bearing in mind the money invested is lost if the drug gets rejected at any point in the development pipeline which often happens) proves that drug development is no easy feat. Furthermore the current maximum patent license for intellectual property stands at 20 years, which translates into a 5 year window in which firms have to recuperate their investment (as drug development is 15 years).
The fact that current drug regulations are much stricter than they use to be as well as the potential legal problems after the drug has reached the Market also reduces investor appetite in pharmaceuticals. For example the drug Avandia has cost GlaxoSmithKline $1.45Bn in lost revenue due to legal proceedings.
Understanding of some of the major disorders is also limited. Even though there have been substantial developments in research processes, the mechanisms of important disorders such as Alzheimer’s and Parkinson’s continue to elude scientists.
In addition to the above, the 13 large pharmaceutical companies which make up the “Big Pharma” universe are all corporate firms. Their best interests lie in the happiness of shareholders and therefore these companies are largely profit driven.
As a result of this, Big Pharma firms have minimised their risks by limiting their investment into the research and development of new drugs, and instead have invested into extended research of current drugs in the hope they might be useful for another disease/disorder. Thus innovation is limited due to their realistic cost:risk analysis of drug development.
So what does the future hold for Pharmaceuticals?
Well to be honest, unless major changes are realised in how drug development is approached, the future for the Big Pharma is bleak. The fact that so much money is effectively “wasted” through research and development coupled with the slowdown in scientific discovery is just not the right equation for investors and increased company revenue.
One step in the right direction would be to increase the intellectual patent length of major drugs. Research has shown that this could increase Pharma revenues by a minimum of 30%, obviously this is something which Pharma companies have no control over however if they pressure patent authorities such as the European Patent office, there is a possibility that it could happen. This would increase risk appetite for research into new drug products.
Another solution is to simplify the drug development process and make it more economical through restructuring. To do this however would need approval from all the drug licensing bodies across the globe such as the FDA and MHRA.
PWC talks of the virtualisation of research and development; although this could potentially be a future prospect we are still a long way off. The idea is to build computerised models of the human body and then test drug efficacy based on these models. Currently this is impossible given the complexity of the human body. Furthermore, it’s important to bear in mind that there are many neurodegenerative disorders amongst the older generation and to be quite frank, science is still a long way off finding solutions.
Another way to speed up the development process is to introduce new drugs into human testing quicker, thereby evaluating the drug in human models via a cumulative (as a pose to the current all or nothing approach) approach in which newly approached therapies will receive “live licenses” conditional on further in-life testing to substantiate the safety and efficacy of treatments more quickly.
As simple as the above solutions sound, the fact is that they are near impossible. The above implementations would require deft co-ordination between patent authorities and drug licensing authorities and would lead to a complete overhaul of how the Pharmaceutical industry implements research. Furthermore I’m not sure that the general public will warm to the idea of being used as human guinea pigs for new drugs. Nevertheless, given the current Pharma scenario I’m sure it’s an idea they will have to start getting used to.
By Souvik Das
