Seeking to revive pharma's R&D missionPharmaceutical R&D productivity hasn't always been an oxymoron. What has gone wrong, and how to improve it, was the subject of a Bernstein Research investor conference in May that pulled together eight industry experts from a variety of backgrounds.
“It appears that no sudden, radical changes are on the horizon,” wrote senior Bernstein analyst Tim Anderson in a brief report of the conference. “Rather, what is being ushered in is a slow, soup-to-nuts rethinking of how to make R&D better.”
Lagging R&D productivity is seen as the root of many of the industry's current problems. It certainly exacerbates the other main issue facing companies—upcoming patent expirations on major drugs. Improving it would be the best way forward, and would keep pharma true to its historic mission of discovering, developing and marketing new treatments for unmet needs, the analyst noted.
Productivity peaked in the late 1990s, experiencing a few more decent years in the ‘oughts. Compared to those two periods, its current status can be characterized as somewhere between anemic and moribund. Just 21 new NMEs and BLAs were approved by the FDA's Center for Drug Evaluation and Research in 2010, versus 25 in 2009. For comparison's sake, recall that 2004 saw the sanctioning of 36 new drugs, while 1996 had 56 entrants.
The success of the late 1990s led to indiscriminate spending on R&D and a “multiple shots on goal” approach by companies, partly because they could afford to, Anderson noted. That approach has not panned out. Other factors, like M&A activity, disrupted R&D further.
As for the cures, collaboration was a major theme among discussants, including ex-NIH chief Elias Zerhouni. Companies need to be more outward looking, whether that entails working closer with government entities like the NIH, academia, patient and advocacy groups or with NGOs like the Gates Foundation. Some situations call for companies to work directly with each other, spreading out the know-how, and the risk.
The consensus by all speakers was that R&D spending will decrease in the future as companies right-size their R&D engines. Smarter spending was discussed as a way to boost returns. One consultant said fixing productivity will be more like an evolution than a revolution, and investors should not expect any sudden or immediate payoff.
That said, Anderson struck a hopeful tone. He sees pipelines slowly improving, “at least when measuring the novelty and number of late-stage compounds.” Cancer research is one bright spot for drug development, although neurodegenerative disease has been more elusive.
He's optimistic R&D productivity will continue moving in the right direction: “Returns on R&D spending are still inadequate on balance but hopefully—for both drug companies and investors alike—they are capable of improving.”