‘This R&D Malarkey, it’s broken, isn’t it?’
pharmafile | March 9, 2011 | Feature | Research and Development | R&D, Sandwich, research productivity
Pharmaceutical industry leaders are increasingly admitting that the very low productivity of its R&D pipelines is unsustainable – but no one can guarantee that current reorganisations will remedy the problem.
Major pharma companies have been very aware of low productivity of their pipelines for more than a decade, but profits from blockbusters have allowed them to maintain large in-house R&D organisations. But in the last few years, patent expiries on the top earning drugs has forced pharma to cut costs, and to reinvent its R&D business models.
GSK’s chief executive Andrew Witty summed it up in a piece for The Economist in November when he addressed why pharma is struggling to produce innovative new drugs.
“The reasons are complex. The cyclical nature of scientific discovery has played its part, as has the industry’s misguided belief that it could ‘industrialise’ the R&D process. Decoding the human genome has also not yet led to the wave of new medicines originally hoped for.”
Pfizer’s site in Sandwich is typical of the ‘industrialised’ research centre, using automation and sheer numbers of researchers to generate candidate drugs. Sadly, like many other large in-house research centres, Sandwich has produced remarkably few drugs in the last decade or so and is set to be closed by 2013.
David Redfern is chief strategy officer for GlaxoSmithKline and says investors will no longer support pharma spending on R&D unless demonstrable returns emerge soon.
Speaking at the same Economist conference as Lilly’s John Lechleiter, he said time was running out for the current big budget – low return era of R&D.
“I’m absolutely convinced this will be the last generation of R&D spending unless a decent return is generated,” he said, predicting that research budgets would be cut ‘very substantially’ unless an improvement was seen.
Hakan Bjorklund, chief executive of specialist pharma company Nycomed added: “This industry faces really significant challenges and it’s shrinking right now. It all has to do with R&D productivity. But it also has to do with the willingness of payers to pay, especially for innovation.
“What we’re seeing is that the industry’s drug makers don’t believe the money it has spent on R&D over the last few years was money well spent, and that’s why we’re seeing these dramatic reductions in R&D, the obvious case being Pfizer,” said Bjorklund.
“AstraZeneca announced the closure of two very large sites as well and I don’t think we’ve seen the end of that. There will be more of it, definitely.”
Kemal Malik, member of the board of management and head of global development, Bayer Healthcare said: “If you speak to chief financial officers in pharma companies they all say: what are we actually getting back from the billions we are spending on R&D? That’s a good question.”
Putting it into the British vernacular, many people were coming to the simple conclusion: “This R&D malarkey, it’s broken, isn’t it?”
Malik said stock market responses to contrasting moves by Pfizer and Merck demonstrated the mood among investors, with Pfizer’s cost-cutting seemingly rewarded with an increase in share price, while Merck’s increased investment in R&D produced a falling share price.
“One company decided to do a little less innovation, another decided to spend more on R&D – I am talking about Pfizer and Merck [respectively]. One company got rewarded [by investors] and it wasn’t the company that said it was going to spend more on R&D.”
Pharma isn’t just being squeezed by impatient shareholders, but by governments trying to contain rising healthcare costs as well, and that is also endangering innovation.
“Someone has got to pay for innovation somewhere – otherwise that will lead to the closure of more R&D sites,” said Malik.
Redfern said GSK was now trying to double R&D productivity, splitting its funding down the middle, with 50% being spent on external projects, and 50% being spent on in-house R&D.
The UK-based company has set itself a direct target for increasing return on investment in R&D. Redfern says the ROI currently stands at 11 per cent, and the company will aim to raise this to 14% in the medium term.
All major pharma companies are setting themselves similar targets; Lilly, for example, says it is now bringing some molecule to the proof-of-concept stage 12 months earlier, and at half the cost.
Malik says the pharma industry needs to enlist the support of patients in calling for innovation, as it is patients and the general public who have influence over payors.
But cost-cutting can only go on so long, and eventually the fundamental problems of finding advances in medicines has to be addressed.
“The companies that are cutting their R&D spending aren’t coming up with alternatives to how they are going to achieve sustainability,” concluded Malik.
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