No Rx for ailing drug industry

The pharmaceutical industry has been struggling. How bad is it? A report on Monday from Deloitte and Thompson Reuters reveals that investment returns from the research and development (R&D) of new drugs have fallen nearly 30 percent in the last year alone. The average internal rate of return from R&D dropped from 11.8 percent to 8.4 percent at the world s top 12 pharmaceutical companies, the report says.

There are multiple factors that account for the decline in R&D returns, says ACSH's Dr. Josh Bloom, who worked in the sector for over twenty years. In particular, he pinpoints lower productivity (despite increased spending) that has resulted from attempting to target more challenging diseases than those of the 1990s. Very little has been discovered to fill the void left by the patent expiration of those former blockbuster drugs, he says. And the FDA isn t making it any easier: Only about two out of 10 drugs recoup what they cost to produce in the first place, he explains. And the rate of failure is going up because the FDA is increasingly risk-averse at the same time that companies are trying to develop drugs for more difficult targets.

It s hard to say what will happen next in the drug industry. However, many experts observe the trend of R&D collaboration and capability-sharing born out of these tight financial times. We have witnessed an era of consolidation in the drug industry analogous to the same pressures in Europe twenty years ago, notes ACSH's Dr. Gilbert Ross. The goal, unfortunately, here now as with the EU then, is not to enhance creativity, but to save money and that means retrenching R&D, cutting jobs, and outsourcing. In the 90s, European companies outsourced to America. We are now sending our jobs to India and China, and our drug pipelines show the result.