Value destruction: pharma has only itself to blame
pharmafile | February 10, 2012 | News story | | R&D productivity
Pharma has only itself to blame for destroying value from its R&D pipeline, according to Andrew Baum, managing director of European Pharmaceuticals at the investment bank Citi.
He said: “The destruction of the value of pharma in recent years lies squarely at the feet of the strategy of the previous management of the industry.
“I must say we have seen some world champion value destruction from some executives over the last ten years, some of whom may be in this audience.”
He was speaking at The Economist Pharma Summit on risk and reward in the industry, and the issue of the decline in productivity.
A doctor by training, Baum has been named the number one pharmaceuticals analyst in the Thomson Reuters Excel rankings for four years running.
In a combative mood from the off, Baum said that value destruction came from pharma investing heavily in a flawed R&D model, and then not seeing the results.
And these research costs were still rising, he said, because pharma was ‘failing late, failing more and failing expensively’.
“As a consequence, the industry has destroyed value over the last decade. In fact, the performance of the pharmaceutical industry has underperformed compared to almost all other markets for seven of the last nine years.”
Baum illustrated his point by saying that in 1969, pharma spent around $3 billion a year on developing drugs, and the FDA approved 20 new drug applications.
In 2009 the industry spent over $50 billion on drug development, but again saw just 20 new drug approvals
He believes that pharma is quick to blame everyone but themselves for these failings, and said that they would ‘inevitably trot out the clichés’ that all the low hanging fruit was gone, regulation is too tough, or that the goalposts had moved.
He also said that many in the industry blamed him – the investment banker – for demanding value from pharma, claiming his focus on shareholder returns was too short-termist.
But his ‘strongly personal view’ was that pharma needed to look at its immediate past to see where things had gone wrong, rather than seeking external causes.
Pharma can bring value
Speaking at the same event Anders Ekblom, executive VP and head of R&D science and technology integration at AstraZeneca, rebutted Baum’s pessimism.
He said that the industry does bring value to society and to patients who need new medicines.
For Ekblom, the value came from the science pharma has created over the years, and cited the creation of antibody drugs to treat different types of cancer and autoimmune diseases.
But in terms of the productivity crisis, Ekblom said that it wasn’t so much an industry issue, but an issue for society.
“We take a lot of things for granted,” he said. “If you look at antimicrobial resistance – if we don’t get new antibiotics things we take for granted things like hip replacements cannot continue – without the right medicines, these things simply couldn’t be done.
“And who would deliver that if it were not for the pharma industry? No one.”
But he admitted that pharma needed to figure out how it would manage the productivity crisis, and agreed with Baum that it would have demonstrate value better than it has been over the past 10 years, both the shareholders and to patients.
Ben Adams
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