Insights

Big Pharma R&D Productivity Continues to Slide

Allan M. Green, MD,PhD,JD

Churchill felt that success is "the ability to move from one failure to the next with undiminished enthusiasm." The assumption of risk is a basic attribute of pharmaceutical research. George Rathmann, founder of Amgen and ICOS, has often noted that Amgen did not succeed because it was successful on its first research program. The Company's major success, erythropoietin, was achieved only after the failure of several other projects. Nevertheless, one constitutionally expects the rate of successful drug development programs to increase with increasing experience and greater resources. Recent data from the FDA have challenged that expectation.

Through the end of November, 2003, the FDA Center for Drug Evaluation and Review had approved only 20 significant new drug compounds, known as new molecular entities (NME's); and only 9 of those were given priority review because they were deemed to represent a significant improvement compared to marketed products in the treatment, diagnosis, or prevention of a disease. This compares to 17 NME's approved in 2002, seven of which received priority review and 23 NME's approved in all of calendar 2001, seven of which were deemed to represent a significant improvement and received a priority review.

The Tufts Center for the Study of Drug Development has estimated the cost of developing a new drug in 1976 as $54MM. By 1991, drug development costs had risen to $231MM; and in 2001 they topped $800MM. Despite this enormous increase in R&D spending by Big Pharma in the last 25 years, there has been no sign of an increase in productivity, as indicated by the number of significant new NME approvals annually. From 1980 through 2000, FDA has approved between 20 and 30 new NME's annually. By conventional economic definitions, this suggests a significant deterioration in the productivity of large company pharmaceutical R&D.

Perhaps the explanation for this trend lies in a switch from small molecule chemicals to biotechnology products. However, the FDA data on that subject suggests otherwise. There was a surge of biotechnology approvals in the period 1996 through 2000, when a total of 26 new biological therapeutics were approved in four years. Over the next three years, 11 additional biological therapeutics were approved. Of course, most of those agents were the product of the relatively small and relatively young biotechnology industry.

Is it possible that successful drug development continues to be a process of lead generation produced by innovation in the small laboratory, whereas the large pharmaceutical industrial enterprise has evolved into a development and marketing engine? Perhaps the most productive unit for new drug identification is the small lab group with an associate/assistant professor, a post-doc, grad students and technologists. If so, emerging biotechnology companies and Big Pharma alike will do well to attend to technology transfer opportunities offered by universities and research hospitals.

Argil Management, LLC, has deep expertise in technology transfer issues, representing both licensors and licensees for many years. In addition, Argil principals have specific skills in evaluating the commercial potential of early stage science; and can assist inventors and investors in evaluating and structuring licenses to boost drug development productivity.