The global R&D based pharmaceutical companies which have been responsible for the discovery, development, manufacture and distribution of new drugs to the patients who need them, is today at crossroads. While trying to re-establish its ability to survive and grow in an environment of declining pipelines of new products, low productivity, escalating costs, low returns due to decrease in exclusivity for products in the market place due to patent expiries , fast eroding public image and pressure on costs and prices, it is obvious that an introspection of its current business and R&D models has become imperative. The strategies needed to address these important issues have as such very little commonality. They vary a great deal depending on the nature of the company, the changing and emerging market and medical needs, health policy initiatives at the national and international levels and the availability of viable technologies for effective change.
Need for better public image
The public's perception of the industry is that its primary objective is to continuously increase returns and ensure higher values to its shareholders without adequate regard for its social obligations of making available at affordable prices much wanted drugs, particularly to the poor and needy patients . Some of the issues that most critics of the industry emphasise are lack of transparency in the activities of the industry, flooding of the market with a large number of new generation me-too drugs with questionable benefits over more affordable alternatives, unethical and unjustified promotional practices , high spending on marketing, improvements in ethical standards while conducting clinical trials, concealing and mis-interpreting clinical trial results including adverse drug reactions, exploitation of the patents system by monopolistic practices on pricing of drugs and the perceived or real nexus between the industry, medical professionals, insurance agencies and healthcare institutions.
How can the industry improve its image ? One thing which needs to be done is to address each of these issues and take corrective steps where warranted. Much has been done in the recent past on most of the key activities of the industry to make them transparent and acceptable to the stakeholders. The acceptance of guidelines on Good Clinical Practices (GCP), Good Laboratory Practices (GLP), Good Manufacturing Practices (GMP), international marketing code of IFPMA etc are just a few of those.. The reality of any situation is best transmitted through the correct presentation of facts. However, perceptions often times change only over time even when they are borne by facts. Continuous awareness creation and dialogue with the public are the only answers.
Shift in global markets
In 2008, the world pharmaceutical production was worth $773 billion with growth over the previous year at 4.8%. Of this, North America accounted for 40% ($311.8 billion) with a very low annual growth of 1.4%. European sales was 32% at $247.5 billion growing at 5.8%. Asia, Australia and Africa together accounted for 11.7% at $90.8 billion while Japan had sales of $76.6 billion (10%) growing at 2.1%. Latin American countries had sales of $46.5 billion growing at 12.6%. What is interesting about these figures is that the annual growth of this segment in the developed world of North America, Western Europe and Japan is all in low single digits (1.4 - 5.8%), while that in the developing world of Asia, Africa and Latin America are between 12.6 to 15.3%.
The low growth in the developed markets is only partly due to increasing saturation of the market; even importantly it results from lower prices due to larger proportion of generic products replacing patented products. In any case, whatever be the reason, the future growth of pharmaceutical products and services are getting skewed in favour of the developing world. Such a scenario should have a major impact on R&D and business plans of global players , since after all business pursues markets. In reality, however this fact has not sunk into the strategies of big pharma companies as yet. For example, most of the diseases of the developing world are even today not in the priority list of R&D portfolios of most of the global leaders even though some companies such as GSK, Novartis, Pfizer, Merck and Novo Nordisk are devoting more R&D efforts on diseases endemic to emerging markets.
Decreasing pipelines and high costs of R&D
The fact that R&D expenditure in the US went up from $16 billion in 1993 to $40 billion in 2004 indicates that the cost per every new drug discovered and developed for the global markets has reached an all-time high of around $2 billion. Even assuming that a fair quantum of this amount is spent on initial promotional and marketing efforts, even then the expenditure on new drugs R&D is unaffordable even for the large MNCs. The worlds largest pharmaceutical company, Pfizer spends over $7 billion an year for this activity, equivalent to the turnover of the Indian pharmaceutical industry catering to the needs of over a billion people
The last three years have seen the lowest number of new drugs approved for marketing. In 2006 only as few as 18 and in 2008 only 21 new molecules were launched in the US. At the same time, industry's spending on R&D had escalated to an all time high of $65 billion. To add to its woes, drugs worth $67 billion has gone off or will go off patents during the period 2007 -2012 . The generic versions of these drugs will fetch a market of not more than $10 - 12 billion. The largest selling single branded lipid lowering drug, Lipitor with global sales of over $14 billion goes off patent in 2011.
It is well accepted that the current R&D model for discovery and development of new drugs is totally unsustainable. Sidney Taurel of Eli Lilly commented recently that 'I think the industry is doomed if we don't change'.
The model of drug discovery used since the second half of last century needs a basic change if cost -effective new drugs are to be discovered and developed for use by humans and animals. Currently available therapeutic products address issues related to symptoms of diseases and are largely palliative in character.
The failure of a drug during a late phase clinical trial entails enormous costs. The failure of Pfizer's anti-lipidemuic drug torcetrapib resulted in loss close to $800 million to the company. In spite of all diligent care and scientific evaluation, followed by careful scrutiny by the most stringent regulatory control agencies, many drugs fail even after they are introduced for use in large populations. Serious side effects or even fatalities have occurred when drugs approved for human use based on limited and controlled clinical trials were extensively used by large populations. That is primarily because clinical trials are necessarily restricted to small representative samples with respect to age groups, genders, ethnic backgrounds and time frames for evaluations.
A recent study by the National Institute of Standards and Technology (NIST) has concluded that better control of data and analysis in all departments of the industry could reduce overall costs in R&D and manufacturing by as much as 40% and the time required for R&D from 122 months to 98 months. Such strategies need to be further developed for optimising costs.
What then are the options for industry?
The problems of high costs of R&D and unacceptable returns have been a feature of the industry for almost two decades now and various strategies have been adopted by different companies over these years to reduce their impact on overall business. The most popular one adopted by most MNCs in recent times have been entry into mergers, acquisitions and formal and informal alliances with other companies to complement their strengths. The assumption in this approach, apart from the belief that large deeds can be successfully carried out only by large corporations, is that the new entity will not only have financial strength to meet the increasing and often times unaffordable R&D costs , but also will complement the management and technical skills as well as business and product portfolios of the partners.
Over a dozen mega mergers between large pharmaceutical companies have taken place over the last few decades, the first important one being in 1962 between the Swiss giants, CIBA and GEIGY. Since then the momentum of continuing to deploy this approach has been increasing in the U.S., Western Europe and recently even in Japan. Whether this strategy which was also aimed at increased spending capacity for R&D, really improved the productivity of R&D vis-à-vis those of the partners is still not established. In fact in one study it was implied that size is indeed a deterrent to creativity and innovation, both of which are essential pre-requisites for drug discovery programmes. In yet another report it was mentioned that the recent mergers and acquisitions in the pharmaceutical sector in fact has made the situation in the industry worse.
Contract research and manufacturing services accessed through outsourcing of one or more activities which offer substantial cost reductions are being increasingly resorted to by large pharmaceutical companies notably from the US and Western Europe, much less from Japan. No major study on the impact of such strategies on costs is yet available.
At a relatively mundane level, if failures during the development phase of R&D can be reduced or even predicted there could be considerable savings in time and costs. The development of new delivery systems with better pharmacokinetic properties, discovery of newer indications for existing drugs, evaluation of properties of chiral molecules are some of the other strategies for reducing costs. Modern tools of drug discovery such as the development of molecular targets, combinatorial libraries, high throughput screening and the extensive use of knowledge from genomics and proteomics are all in relatively nascent state even though there have been a few successes and some very promising leads and candidates.
The advent of biotechnology as a major conduit for new drugs has added a new dimension to drug discovery. In 2008 , biotechnology drug sales in US grew by 20% to $40.3 billion while traditional drugs grew only at 8% to $278 billion. In addition, as of now, generic competition in biologicals is considered less problematic due to unclear regulations on the question of bioequivalence of biosimilar drugs. From the developing countries' perspective however the high costs of biotechnology drugs pose major problems of affordability for the majority of patients who need them. For example, the cost of treatment with Avastin of Genentech is $4400 per month while an year's treatment with Genzyme's Cerezyme is $200,000. Hybrid models of pharmaceutical and biotechnology companies through acquisitions, collaborations, joint ventures, in - licensing or through in-house efforts are increasingly used as growth strategies by all the leading pharmaceutical companies.
Interventional modalities in the field of regenerative and replacement therapies including stem cell or gene therapies offer promise, however it will be at least another decade before their utility is established.
Overall, from the early days of drug discovery starting with random screening, serendipitous discoveries and chemical manipulation , current approaches rely on basic biology models based on systems biology of diseases and vectors. These are still early days and whether the new approaches are indeed capable of more precisely predicting safety and efficacy of newly discovered molecules is still to be established. Yet another major concern is the fact that majority of the new approaches are meant to lead to better and more specific medicines catered to individual patient needs. It is a moot point whether the shift to personalised medicines is the real answer, particularly for the patients from the poorer countries who cannot afford the inevitable high prices of personalised medicines.
For an industrial segment which has revolutionized healthcare globally, albeit in limited areas and with limited success, there are a large number of unanswered questions begging for meaningful answers. For addressing some of the critical issues which affect the survival and growth of this vital industry, a paradigm shift in mindsets and approaches is urgently needed.
(The author is a senior research scientist and industry expert based in Chennai)