The most important challenge facing the pharmaceutical industry in 2009 is the need to improve R&D productivity. Since the mid-1990s, the total number of novel drugs, including new chemical entities (NCEs) and biologic license applications (BLAs) approved per year, has generally declined.
At the same time, the cost of bringing a drug to market has risen precipitously. In 2001, the cost to discover and develop a drug that successfully reached the market was approximately $800 million; it had risen to approximately $900 million by 2004. Some R&D executives have predicted that the cost to develop a marketed drug will reach $2 billion by 2010.
Declines in the number of approved drugs in a given year are mainly the result of high rates of attrition of pipeline agents during the preceding 10–12 years.
For example, in a 2004 analysis in Nature Reviews Drug Discovery, Ismail Kola and John Landis found that the ten largest pharmaceutical companies experienced an average success rate over all therapeutic areas of only 11%—only about one in nine drugs made it from first-in-man to approval by U.S. and/or European regulatory agencies.
Moreover, since the R&D cost per successful drug includes costs for both drugs that reach the market and those that fail, pipeline attrition (especially in late-stage development, where costs of conducting clinical trials are the greatest) is the major contributor to the alarming rise in R&D costs. Thus, reducing developmental attrition is a central issue both in increasing R&D productivity and containing R&D costs.
Industry analysts have determined that the greatest amount of attrition occurs in Phase II. Kola and Landis found that 62% of compounds entering Phase II trials failed. Phase III attrition was also high, with 45% of compounds entering Phase III failing. Based on such analyses, the pharmaceutical industry speaks of the “Phase II attrition problem”, which carries over into Phase III and in some cases into the preregistration and postmarketing phases as well.
According to Charles Gombar, Ph.D., vp of R&D strategy and business improvement at Wyeth, “Phase II attrition definitely got a lot of people’s attention in the industry. Quite frankly, I was more worried about Phase III attrition, because that’s the very expensive part of development.”
Low R&D productivity, increasing R&D costs, and the impending patent expiration of blockbuster drugs (with a dearth of new high-valued drugs to replace them) have been major factors in the wave of mergers, acquisitions, and restructuring in the pharmaceutical industry in the late 2000s. A major goal of large pharmaceutical company mergers has been to reduce R&D costs via consolidation and staff reductions. Some corporate restructurings have been aimed at making large pharmaceutical companies more biotech-like, to achieve the R&D productivity of the best biotechnology companies.
However, as shown by the results of an earlier wave of big mergers in the late 1990s and early 2000s, pharmaceutical companies cannot merge or restructure themselves out of the industry’s productivity crisis, at least over the medium to long term. They need to also develop viable R&D strategies that can enable them to improve productivity.