Falling innovation levels fuel pharma/biotech collaborations

By WaiLang Chu

- Last updated on GMT

Related tags Pharmaceutical companies Pharmaceutical industry Pharmacology

A new report suggests the increasing number of collaboration
between pharmaceutical and biotech companies is fuelled by a steep
decline in innovation levels as well as the growing threat from
generics and drug recalls.

With the cost of a drug's life cycle anywhere between $500m - $1bn, drug companies are spreading the investment and risk by entering mergers, acquisitions and/or alliances to give them every chance of producing the next blockbuster drug.

The report details the effect falling productivity levels, as well as stricter legislation has had on the fortunes of some pharma companies. The Vioxx episode and the impending patent expiry of drugs that account for $72bn in present-day sales, hit the industry at a time when it was at an all-time low.

As evidence of this, the report points to The Pharmaceutical Index, which has been continuously underperforming the S&P Index, resulting in negative returns for the first time in 2004.

Perhaps the most high profile collaboration, and some would argue, the most successful has been the alliance between Roche and Genentech in 1990 that provided Roche with access to Genentech's innovations.

The deal set a precedent, driving large pharmaceutical companies to focus on licensing and alliance deals with other companies.

In addition, as pharmaceutical companies such as Merck, best known for their internal R&D efforts, are pursuing feasible alliances and licensing deals, the report reckoned this trend is expected to continue.

The success of Merck's alliance has naturally led to an upsurge in license deal formations. Currently, 70 per cent of the industry's drug pipeline is with biotech companies.

Moreover, the industry is exhibiting significant changes as an increasing number of pharmaceutical companies are focussing their efforts on licensing early-stage compounds due to spiralling costs of late-stage compounds.

However, while early-stage compounds are less expensive, they possess a higher risk quotient.

With more than 1,500 alliances formed in the period 1997-2002, the contribution of licensed products towards total sales is predicted to increase from 20 per cent in 2002 to 40 per cent in 2010.

Further, fast-growing generic drugs are contributing to about 48 per cent of the total drug sales in the US pharmaceutical market (currently the world's largest pharmaceutical market), thereby creating impediments for pharmaceutical companies.

The report argued that although research and development (R&D) expenditure has been rising steadily, the number of new molecular entities (NMEs) submitted to the Food and Drug Administration (FDA) has drastically reduced, thereby indicating a drop in R&D productivity.

"In response to this, pharmaceutical companies will need to intensify their efforts to reformulate and discover new applications,"​ said Frost & Sullivan research analyst Raghavendra Chitta.

"While this may involve reduced costs in comparison to the costs involved in the discovery of new drugs, it will become essential for pharmaceutical companies to concentrate on improving their productivity and efficiencies to sustain long-term growth."

The report hailed the significant impact the human genome project (HGP) has had on the drug discovery industry, transforming beliefs related to disease and patient homogeneities.

At the same time, significant advances are being made in genomics, proteomics and other allied areas, which are expected to encourage pharmaceutical companies to revise their R&D operations.

Over the period of the next five years, pharmaceutical companies will need to increase efforts to strengthen their pipelines in order to sustain the historic growth rates of sales revenues.

Frost and Sullivan's report: "Regulatory Hurdles in European Drug Discovery, World eClinical Trials Markets, Drug Discovery Markets in Europe," is available to buy by visiting >here.

Related topics Preclinical Research

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