GBI Research, the leading business intelligence provider, has released its latest research "Innovative R&D Strategies and Models – Outsourcing, Strategic Partnerships and Licensing to Improve Productivity and Contain Costs" which provides the key data, information and analysis on the major pharmaceutical R&D practices undertaken at the global level in order to improve efficiency and effectiveness. The report provides comprehensive insights into major challenges in the current pharmaceutical R&D landscape. It analyzes the key measures and practices (mergers and acquisitions, R&D restructuring, outsourcing and active lifecycle management) adopted by the pharmaceutical industry to tackle these challenges and improve the R&D efficiency. The report substantiates the analysis with various case studies to study the effect of the measures post-implementation. The report also provides an analytical insight into the potential solutions that have tremendous potential to improve the future pharmaceutical and biotechnology R&D productivity.
This report is built using data and information sourced from proprietary databases, primary and secondary research and in-house analysis by GBI Research's team of industry experts.
Declining ROI on R&D Investment is Among the Biggest Concerns in the Current Pharmaceutical Industry
While R&D has always remained an integral and most vital function of the pharmaceutical industry, its declining productivity has raised concerns among the key stakeholders of the industry. One of the simplest, yet most important, indicators of the declining return on investment (ROI) has been the widening gap between the R&D expenditure and the number of new drug approvals, especially since 1996 when the Food and Drug Administration (FDA) approved 53 New Molecular Entities (NME) in 1996, the R&D expenditure of the industry stood at approximately $21.9 billion.
Source: GBI Research, US FDA, PhRMA
However, the NME approval rate reached an all-time low within just six years with just 17 NME approvals as the R&D expenditure almost doubled to $42.3 billion. R&D expenditure is steadily increasing, but this is not being reflected in the number of new drug approvals. This has increased the cost of new drug launches to astronomical levels. While it used to cost less then $1 billion ($842m) to launch a drug in 1999, the cost went as high as nearly $2 billion ($1,778m) in 2010. In addition, the negative pricing and reimbursement pressures are adding to the woes of the pharmaceutical companies who try to generate high revenues from their novel drugs. With key blockbuster drugs in the industry set to expire within the next five years and a clear lack of potential blockbusters in the current pharmaceutical industry pipeline, the industry experts are looking for ways to mitigate the risks and improve their return on investment on R&D expenditure.
The pharmaceutical industry has in the past performed all the functions related to drug discovery and development in-house. Large volumes of sales of blockbusters justified the expense and the time required to develop drugs in-house. But now the situation has changed due to the increase R&D costs, increased time required in the R&D process, low approval rates and high regulatory failure rates for drugs. As a consequence, the pharmaceutical companies now can not afford to invest huge sums of money in many large scale R&D projects. Most of the drugs that are being approved are not for prescribing at mass levels and achieving sales similar to the blockbuster- mass-prescribed drugs is becoming difficult.
As a response to the changing scenario, the industry has adopted a more networked approach to drug discovery and development. Now pharmaceutical companies rely upon a number of external partners for carrying out many R&D activities. In this scenario, each external partner has developed capabilities in a particular set of R&D functions and the R&D process can be made more efficient using expertise of these external partners. Small and medium sized innovative companies, academic institutions, drug discovery research organizations, contract research organizations (CROs), regulatory agencies and IT companies are some of the major externalized partners to the pharmaceutical industry in the R&D process.
Another trend that is promoting externalization is the increasing focus of pharmaceutical companies. Major Pharmaceutical companies are focusing on a few core therapeutic areas where they are in a position to offer more therapeutic benefit and externalize the product pipelines in the therapeutic areas where they are unable to do so.
Source: GBI Research, Outsourcing Pharma, Pharmaceutical Outsourcing
The advantage of using this approach are reduced costs and time required for drug development, increased focus for the pharmaceutical company, reduced risk of failure for the pharmaceutical company and low requirement of working capital. This approach also offers small and medium sized pharmaceutical companies a chance to bring their innovation to market w
ith the help of the networked partners.
Outsourcing and In-Licensing Activities are Helping the Pharmaceutical Companies to Achieve their R&D Objectives
Long-term R&D outsourcing and in-licensing are helping the pharmaceutical companies to replenish their R&D pipeline and to exploit existing opportunities in the market. Using long-term outsourcing, companies such as Eli Lilly, Sanofi Aventis and GlaxoSmithKline (GSK) are looking to improve efficiency in their drug discovery and development process. Strategic outsourcing offers advantage of quick drug development to the pharmaceutical companies, which is essential to bring new products to market quickly.
R&D outsourcing in emerging nations such as China, India, Brazil and Russia has picked up in recent years. R&D outsourcing to these nations saves between 40-60% of the R&D costs. Major global CROs such as Covance, PPD, Quintiles, ICON and PAREXEL are operating in these nations and offering a complete service package.
In-licensing of promising molecules from academic institutions and small and medium research-based pharmaceutical companies is now an important method in which pharmaceutical companies are replenishing their product pipelines. In-licensing also offers the option of risk-sharing to the pharmaceutical companies. Earlier pharmaceutical companies used to in-license late stage molecules, but now they are also making in-licensing agreements for earlier phase molecules too.
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