Headache for Pharma as R&D Spending Climbs While Number of Approved Molecules Falls

Monday 17 September 2012, Amsterdam

Low research and development (R&D) productivity, combined with the patent cliff and a stringent US Food and Drug Administration (FDA) approval process, is resulting in climbing expenditure without the corresponding output, states the latest report from industry experts.

The new report says that, despite efforts made by pharmaceutical firms to cut down on costs, R&D expenditure expanded at a Compound Annual Growth Rate (CAGR) of 6% from $26 bn in 2000 to $50 bn by the end of 2011. Conversely, the number of new molecular entities (NME) approved during this same period has dropped on average, decreasing at a CAGR of 1%.

R&D is a core and integral part of the pharmaceutical industry, but poor productivity means there may soon be a drought in the R&D pipeline. This report estimates that currently as much as 55% of the entire late stage pipeline is made up of life cycle management (LCM) projects, while a 28% share of the industry’s top 20 companies’ pipelines is devoted to LCM research.

To compound the frustrations of the industry, the FDA has adopted a stricter drug approval policy. Following controversies regarding products such as Vioxx and Exubera, as well as product recalls for ‘Made in China’ drugs, the agency has been more cautious in analyzing the risks and benefits of drugs before approving them, slowing down or cutting out potentially marketable treatments.

Additionally, the patent cliff has damaged company revenues, severely curbing the selling power of blockbuster medications and opening the market to generics. The reduction in NME approvals has meant the big pharmaceutical firms are less able to offset the loss of revenue resulting from patent expirations, with new drugs offering therapeutic superiority to the generic versions of their predecessors.