The pharmaceutical industry worldwide launched only 31 new drugs last year, the lowest number for almost three decades.
This continues a long decline from what seems now like a golden age of productivity in the late 1980s, when the industry was launching 50 to 60 drugs a year while spending less than half as much on research and development as it does today.
For several years, observers have been predicting - wrongly - that the tide was about to turn. They have pointed to the vast amount of new science and technology brought to bear on pharmaceutical research, from genomics and combinatorial chemistry to high-throughput screening and bioinformatics, and to the industry's growing financial commitment to R&D, which is now close to $50bn a year.
No one seems sure why R&D productivity continues to decline. The argument that it is just a matter of time before the benefits of new technology feed through - this is because of the long lag between the discovery of a new drug and its launch - is wearing thin. Biotechnology and automated screening have been used widely since the early 1990s.
Nor is there much prospect of an upturn in the near future. According to CMR International, the UK-based medicines research centre which monitors the R&D pipelines of the large pharmaceutical companies, the proportion of products moving successfully through clinical trials has fallen sharply in recent years.
"If you look at what is going into phase one trials and predict what is going to emerge from the pipeline, the figures look less optimistic than they did two or three years ago," says Stuart Walker, CMR chief executive.
One consequence of these trends is a rapid rise in the cost of bringing a drug to market. According to Tufts University's Centre for the Study of Drug Development, based in Boston, the average cost to develop a new prescription product reached $802m in 2000. This estimate is the fully capitalised resource cost, including research on drugs abandoned during development.
The corresponding figure in 1987 was $231m and this would have reached just $318m in 2000 if the cost had risen at the pace of general inflation, says Joseph DiMasi, director of economic analysis at the Tufts centre.
Clinical trial costs, he adds, are the most important factor. "The difficulty in recruiting patients into clinical trials in an era when drug development programmes are expanding - and the increased focus on developing drugs to treat chronic and degenerative diseases - has added significantly to clinical costs."
The industry has not even succeeded in cutting the average time taken for drugs to come to market. The period from discovery to market approval remains stuck at 10 to 15 years. Biotechnology companies are contributing an increasing share of the industry's new products - a record 35 per cent in 2001, according to CMR International. This means that traditional pharmaceutical R&D is doing even worse than the overall figures would suggest.
Companies are responding in various ways to this crisis. Jim Hall, of PA Consulting's Life Sciences and Technology Practice, talks about two camps in the industry: Atlantic and Pacific. The large pharmaceutical companies based in Europe and in the eastern US follow what he calls the Atlantic strategy that "bigger is better" and sheer scale can produce a successful R&D pipeline.
In contrast, the Pacific strategy, first championed by biotech companies in California and the Pacific rim, emphasises "lean and flexible" operations and outsourcing of all but the core competencies of the organisation.
Some large companies are trying to rekindle innovation and productivity by reorganising their R&D so as to create smaller and more nimble units - like internal biotech companies.
GlaxoSmithKline (GSK) has gone furthest in this direction, creating six units called Centres of Excellence for Drug Discovery (CEDD). Each CEDD is dedicated to a specific therapeutic category; each is responsible for taking lead compounds forward to the point where the large-scale clinical trials are justified. "Agility is the watchword," says GSK.
Within the CEDDs, scientists take charge of their research direction, studying disease mechanisms, identifying drug candidates and elucidating functional effects of the most promising compounds. But they collaborate with colleagues across the company to ensure that the huge resources of GSK are directed toward transforming the compounds exhibiting the greatest potential into medicines.
Until recently, most companies were trying to make their R&D and commercial departments work more closely together, so that the scientists could concentrate on developing drugs with good market prospects and the commercial people would have early warning of hot new products in the pipeline. But this has not succeeded, says Ann Baker, a partner in Accenture's pharmaceuticals and medical products consulting group.
"The contrasts between commercial and R&D organisations range from varying skillsets and objectives to performance metrics, project timeliness and culture," she says. "The marriage between commercial and R&D may be nearing an end."
In its place, Accenture is advocating a new model in which the two operations work more autonomously than in any pharmaceutical company today.
The commercial organisation would develop a product portfolio based on therapeutic franchises, such as diabetes and hypertension, using clearly defined business relationships with external R&D partners. In turn, this arrangement would free in-house R&D to discover and to develop innovations beyond the commercial portfolio strategy.
© Copyright The Financial Times Limited 2002.
