Research is the lifeblood of the biotech and pharmaceuticals business. The pharma and biotech industry spent some $65 billion dollars on R & D in 2008, according to the Pharmaceutical Research and Manufacturers Association. That’s a tremendous amount of money considering that the FDA only approved 24 new drugs (21 new molecular entities and 3 biologics) that same year. If the PhRMA numbers are true, this would imply that it cost about $2.7 billion/drug to win FDA approval, a very poor return on investment since few drugs would ever be able to recoup that expense.
These numbers suggest that drug makers need to find a more efficient way of developing medicines. A recent report from financial analysts at Morgan Stanley recommended that large pharma companies abandon their own early stage drug development programs, and switch to a less costly licensing model. Rather than try to discover drugs, Big Pharma should simply buy them from smaller, more nimble and innovative biotech companies. It was claimed that such an approach, as reported in the Financial Times, “would boost success rates, lower costs, and triple returns”. This scheme would certainly fit into the plans of most venture capital (VC) firms, who could cash out large profits if Big Pharma acquires the biotech startups that they have invested in.
Even before the Morgan Stanley report came out, Big Pharma had embarked on a major job shedding binge, eliminating positions duplicated as a result of mergers and a number of research programs. Merck is eliminating 16,000 jobs after buying Schering-Plough, Pfizer around 19,500 positions after acquiring Wyeth, and Roche about 1,500 jobs after purchasing the remainder of Genentech. Layoffs, however, were not confined to companies making acquisitions. To stay competitive, Johnson & Johnson is cutting 8,000 jobs this year, Eli Lilly is axing 5,500, and GlaxoSmithKline around 6,000 positions.
In seeking additional resources to fill holes in their drug development programs, many Big Pharma companies have partnered with academic institutions. Pfizer and Genentech have both partnered with UCSF, GlaxoSmithKline with the Immune Disease Institute, Solvay Pharmaceuticals with Emory University, and Janssen Pharmaceutica with Vanderbilt University. These alliances provide money to academic investigators, usually in exchange for licensing rights that arise from any discoveries made. Grant pressure on academic investigators (80 to 90 percent of applications to the NIH do not currently get funded) makes them willing partners to help solve Big Pharma’s empty pipeline problem.
These academic collaborations, though quite helpful to Big Pharma, are not a substitute for real drug discovery and development work. If Big Pharma ramps down its research efforts, can smaller companies ramp up their research programs to compensate? I have no doubt that some of these organizations could provide a true fountain of research innovation that the larger companies can drink from. But are these companies sufficiently productive to shoulder a much larger share of the responsibility for the industry?
I believe the answer is no. Many of the smaller companies will not be up to the challenge. Tight finances have caused numerous companies to reduce or even eliminate their research staffs. Here in Seattle, two of the oldest and most established biotech companies, ZymoGenetics and
