Biopharma’s R&D Productivity Problem Resurfaces as We Enter 2014

While FDA approvals of truly new drugs and biologics soared to 39 in 2012, the story as we enter 2014 shows a striking reversion to lower productivity levels that have long plagued the industry. The number of FDA approvals dropped to 27 in 2013. Big Pharma can take credit for only 14 of the approved new products.  Was the increase in 2012 approvals a breakthrough or a blip?

John Carroll of FiercePharma sees the reversion to lower productivity as ominous. Writing in Forbes, Bernard Munos sees a more complex picture, with productivity for the present and future dividing the top tier of the industry into groups of relatively healthy haves and endangered have-nots.  Munos also notes that the more successful big firms tend to excel at outreach to “bold thinkers from startups and academia.” This raises questions about whether Big Pharma is innovating or becoming adept at identifying, funding and acquiring the innovations of others.

David Grainger at Drug Baron takes the most optimistic view of the product class of 2013. He shifts the focus from number of approvals to projected revenues for the products approved. Grainger writes, “For 2013, the number of approvals may have gone down, but the quality (in terms of clinical impact and sales potential) has increased dramatically.” He adds, “Indeed, arguably, 2013 may be the best year ever in terms of future sales potential for newly approved products. Predicted global sales of these medicines five years after launch dwarf the equivalent figure for the class of 2012 by as much as 10-fold.”

We owe Grainger thanks for pointing out how favorably the industry’s output of new products in 2013 will affect revenues. Nevertheless, with the number of approvals so low in proportion to the number of companies trying to survive by creating new products, the count of approved new products remains an important barometer of industry health. Most participants in the drug development lottery held losing tickets in 2013. PhRMA alone lists 53 member companies. The Biotechnology Industry Organization has 1,100 members. Not all are developing medicines, but BIO states that there are currently 400 biotechnology medicines in clinical trials. Reformulations and approvals of existing products in new indications generate substantial revenues, but the number of truly new products approved still seems paltry in relation to the number of active companies. As for this year’s winners of the drug development lottery, more power to them – but investors can hardly count on them to win the lottery again next year and the year after that.

Furthermore, actual future revenues may fall short of projections for the class of 2013. Payers around the world are resisting industry pricing with increasing frequency. In some countries, formularies may exclude products based on cost-benefit analysis. In others, governments may even override patents on humanitarian grounds with devastating effects on future revenues of patent holders. A current Deloitte Thomson Reuters report, Measuring the Return from Pharmaceutical Innovation 2013, analyzed information from “12 of the leading life science companies” and noted a 43% reduction in projected peak sales per asset, from $816M to $466M.

The Deloitte report also noted reemergence of another disturbing trend in pharma development: the cost of developing and launching a new medicine increased 18 percent in the four-year period 2010-2013. Others sources show that even the most productive companies in the industry are spending vast sums on R&D for each approved drug. Forbes published data from Bernard’s Munos’ consultancy, Innothink Center for Research in Biomedical Innovation, showing that the average cost for a new drug from a big pharma company ranges from $4 billion to $11 billion.

Some industry observers attribute the biopharma industry’s high rate of attrition to selecting poor candidates for clinical development. In my view, the larger problem is making poor decisions during development, primarily because timely information needed for decision-making is unavailable.  Standard industry practice waits too long for information needed to manage within budget and make decisions essential for maximizing chances of study and program success.

Whether the central issue in industry productivity is poor candidate selection or poor decision-making during clinical development and whether we gauge productivity by product count or projected revenues, this is clear: the biopharma industry still confronts an R&D productivity problem. In 2014, this blog will continue to focus on improving productivity during clinical development by every means possible.

 

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