Report urges new tactics to end drug-development drought

Drug developers must drastically change tactics to confront a "new normal" development drought that persists despite greater R&D spending, consultants at Oliver Wyman find in a new report.

Pharmalot highlighted the results in a story that places the report in context. Things have been bad for a while, the publication notes, as the industry continues to deal with massive consolidation, patent expirations and an overall tougher time in finding new drugs. (Not everyone agrees with this assessment. Eli Lilly CEO John Lechleiter (photo) recently told Xconomy that he believes that his company ($LLY) will move past the loss of patents on key drugs by relying on its own R&D programs and external company partnerships.)

Oliver Wyman made its sobering conclusion by comparing the "boom" years of 1996-2004 with 2005-2010, and looking at 450 new drugs the FDA approved during those years. Some of the findings, they argue, explain the extent of the sluggishness of current drug development:

  • R&D spending soared to an average of $125 billion during the drought period, from $65 billion in better times. But the return on investment dropped like a stone to an average of $75 million in sales during a product's fifth year for every $1 billion spent on R&D, down dramatically from $275 million in better days.

  • The development drought also led to a declining economic value of approved drugs, to an average $430 million from $515 million. 

  • Drug approval itself plunged about 40% in the dry years, amounting to 22 FDA approvals per year on average, versus 36 in the better years.

  • Drugs produced an average of $9.4 billion in fifth-year sales in the dry period, half of the $18.3 billion during the more productive years. Fewer blockbusters and fewer new drugs overall contributed.

  • In all, 17 of the 20 companies faced productivity declines, though Novo Nordisk, Bristol-Myers Squibb ($BMY) and Johnson & Johnson ($JNJ) did better than most, the report notes. Dips in high levels of productivity hit everyone, however.

"What's needed is more change and faster change," Oliver Wyman's Jeff Hewitt told Pharmalot.

Here's what that means: The paper's authors recommend raising standards for product innovation and working more closely with payers as they face pressures to hold down costs due to aging baby boomers and the Affordable Care Act in the U.S. They also want companies to treat new compounds as rare, rather than abundant (don't take development success for granted, in other words), with focused investments that don't rely as much on speed to market.

Another recommendation: Play to win. That sounds like a football coach's call to action. But this means using strategies like closely assessing the competition, seeking alternative financing and joint R&D efforts with other parties, and making everyone focus more on business development overall, the consultants said. Their report, by the way, is called "Beyond the Shadow of a Drought."

- here's the Pharmalot story