Over the last several years, Pfizer, GlaxoSmithKline, and Novartis -- and most other pharmaceutical giants, which once seemed unassailable -- have announced huge layoffs. Drug discovery jobs have disappeared by the thousands in the United States and by the hundreds in Europe as the industry has cut costs in order to adjust to what is widely perceived as the end of the blockbuster-drug era.
"It's a whole big mess the pharmaceutical industry is in," says industry journalist Ed Silverman, who edits the Pharmalot blog. "It's an unfortunate set of circumstances. ... The companies have had fewer new drugs in their product pipelines and ... at the same time they're facing expiring patents on the biggest sellers."
The problem is fairly easy to define: the industry is just not producing enough new medicines to sustain revenues in the face of massive patent expirations set to occur over the next several years. And, to add insult to injury, drug development costs are going up even as R&D productivity is basically flat or declining. By one estimate, per-patient clinical trials costs have gone up by a stunning 70% in just the past three years, with the largest increases coming in the pivotal Phase III trials required by the FDA. There, costs were up by over 85%.
With development costs rising sharply and revenues plummeting, companies basically have two choices: cut costs or rapidly increase productivity. The popular approach has been to cut costs, particularly through attrition. But no one - at least not yet - seems to have found a magic bullet to improving R&D productivity. And without improving productivity, the current industry model isn't sustainable in the long run.
As the global leader in biomedical innovation, the U.S. has the biggest economic incentive to find ways to improve industry efficiency. The U.S. biopharmaceutical industry employs 675,000 people directly, and another 4 million indirectly. It also contributed $382 billion to U.S. GDP (in 2009), and is among the top five U.S. exporters - and is the largest exporter among R&D intensive U.S. industries.
But helping the industry retool is not only about saving jobs and tax revenues, but increasing the pipeline of innovative new medicines that can save lives and help people live longer and healthier lives. Reducing the burden of diseases like Parkinson's and Alzheimer's will also reduce pressure on government health care programs like Medicare and Medicaid, and help us rethink our other retirement and pension obligations.
Unfortunately, "big thinking" on streamlining drug development doesn't seem to be on order at the Obama Administration at the moment. The FDA is making all the right gestures, and saying all the right things, but the changes proposed seem incremental compared to the enormity of the challenges involved.
Contrast that to the recently announced U.K. Strategy for Life Sciences announced by British Prime Minister David Cameron. Cameron proposes to spend £180 million (about $280 million dollars) helping companies and academics bring promising new therapies to market, and wants to give companies and researchers access to de-identified patient data from the NHS to use to in clinical trial recruitment and observational studies. He also proposes creating a new Health Research Authority to help streamline regulations.
Cameron's motive isn't a state secret: he wants to keep more biotech jobs in the U.K., and to attract more jobs from the U.S. and Asia. And the U.K. isn't the only U.S. competitor looking to become more attractive to companies and investors.
The E.U. has launched a $2.7 billion Innovative Medicines Initiative to remove bottlenecks in drug development. China has committed $1.36 billion to funding drug R&D. In 2009, Singapore, another rising biotech powerhouse, was ranked #1 in innovation leadership by Boston Consulting, thanks to "business-friendly policies, a commitment to public-private collaborations, strong IP protections, and outstanding science education." The U.S. was ranked a distant eighth.
Make no mistake, the U.S. is still far and away the global leader in biomedical innovation. But, as the Milken Institute noted in a recent report, the U.S. is more in danger of slipping behind than it is of pulling ahead:
Multiple factors leave the U.S. vulnerable to falling behind: increasing complexity, rigidity, and uncertainties in the Food and Drug Administration's regulatory approval process; funding cuts at the National Institutes of Health and at the state level; a corporate tax rate and R&D tax credit that are not globally competitive; unfavorable coverage and payment policies that limit access to new medical advances; and public policies that hamper the nation's ability to develop and retain human capital.
The dominance enjoyed by the U.S. biomedical industry does not come with a long-term guarantee. The U.S. assumed the mantle of leadership by being the first to commercialize recombinant DNA research--and that achievement was made possible only because it had built an environment and infrastructure that allowed innovation to flourish. But if another nation duplicates or improves upon this formula by building a similar ecosystem and subsequently makes a pivotal scientific breakthrough in nanotechnology, personalized medicine, embryonic stem cell research, or some other cutting-edge field, it could tip the scales in the other direction.
The pharmaceutical industry is in a midst of a crisis, but this crisis presents an attractive opportunity for the U.S.'s foreign competitors. Cost cutting pressures will increasingly force U.S. firms to outsource clinical trials and R&D operations to lower cost countries like China and India. Regulatory competition will also encourage companies to outsource R&D to countries where they can reach market without enduring the FDA's onerous and costly requirements, as well as develop closer relationships with regulatory authorities in emerging markets.
The industry will, sooner or later, reinvent itself and emerge from its current malaise. Where it will reinvent itself is the real question.