The Centre for Medicines Research, a drug industry think-tank, reckons that in 1993 the industry spent almost 15% of its $200 billion worth of global sales on research and development.
In return, drug companies have sold lucrative products and even received the odd Nobel Prize. But the results are no longer proportional to ballooning expenditures. The flow of new drugs is slowing, and drug companies are under financial pressure. The companies and their massive R&D departments will have to improve their performance and widen their scope.
Drug R&D has always been expensive, but it used to be relatively straightforward: choose an interesting disease: find animals that suffer from it: take molecules off chemists' shelves; inject them into the animals: repeat the process until you come up with a potential winner; try it on people; and get it approved. It's straightforward, but expensive and time-consuming. About two-thirds of the time and expense goes into getting regulatory approval. In the last decade, genetic engineering and related technologies gave scientists new ways to understand the mechanisms of disease, but they also made the process more complicated, which may have increased costs. Moreover, the increased complexity made companies' self-sufficiency impossible to sustain.
As the sophistication of drug technology has increased, drug companies have also become better at breaking into each other's niches. According to the Boston Consulting Group, 90% of patented drugs have direct competitors: in 15 of the 20 most lucrative therapeutic categories, there are three or more drugs available with similar properties. At the same time, the buyers of drugs have become more finicky.
Once it was enough to show governments that a new product was safe and did something beneficial; to advertise: and to throw free pens and a few trips to exotic places at doctors. Now health care providers have become crazy about cost-effectiveness. On this basis, they are opting more often for surgery, rather than long-term treatment with drugs. With sales squeezed, drug companies are looking ever more closely at their R & D budgets.