We’re killing the development of new drugs

Pundits have long predicted that biology would dominate the 21st century, just as physics dominated the 20th century. But biomedical research has yet to achieve the kind of productivity increases that accompanied the industrialization of combustion, electricity and electronics. Will the “century of biology” turn out to be little more than a fantasy?

The problem largely comes down to a decrease in biomedical research and development expenditure. As it stands, roughly $270 billion is invested in the field each year, producing an impressive half-million research publications but only 20-30 new medicines.

The discrepancy between spending and output adheres to what has come to be known as “Eroom’s law”, Moore’s law in reverse. Moore’s law observes the increase in computer processing power over time – specifically, that the number of transistors that can be placed cheaply on an integrated circuit doubles every 18-24 months. By contrast, Eroom’s law charts the regress in new drug approvals, noting that the costs of developing a new medicine double roughly every nine years.

This phenomenon is rooted in high rates of drug failure and lengthening technology cycles. The probability that a drug entering clinical trials will gain approval from the US Food and Drug Administration has dropped from 23.9% in 1997 to 10.4% today. While the first recombinant insulin in the 1980s took less than a decade from testing to approval, monoclonal antibodies and gene therapy took more than 20 years to reach the same milestone.

So far, pharmaceutical and biomedical research firms have responded to Eroom’s law by cutting R&D or moving it to less expensive sites in Asia, shifting their focus to less prevalent diseases, and sourcing innovation externally. As a result, growth in biomedical R&D spending has declined from more than 9% annually in the early 2000s to less than 3% today. But, while this strategy will moderate the impact of Eroom’s law, it will ultimately prove inadequate to sustain the industry.

The industry’s ability to support R&D budgets has already led to the closure of more than 30 major research sites. The United States bore the brunt of these closures, with biomedical R&D expenditure declining by more than $12 billion from 2007 to 2012. And Asia – where biomedical R&D is growing rapidly, but from a small base – is unlikely to pick up the slack. Asian countries have tended to be reluctant to shoulder the cost of developing new medicines, with reimbursements falling far short of US levels, and their R&D productivity will not match that of the US and Europe for several more years.

Moreover, biomedical research firms are abandoning certain diseases to avoid the large-scale trials that they require, focusing instead on “orphan diseases” such as cystic fibrosis, which demand smaller clinical trials that have a higher probability of success, leading to drugs that can cost more than $100,000 annually per patient. But, with insurers and payers worldwide becoming increasingly vigilant about controlling costs, this business model’s long-term prospects are unclear.

Finally, while drugs are increasingly produced by small companies that larger pharmaceutical firms then acquire, funding for these start-ups is drying up. Likewise, universities – the main source of biomedical innovation – are facing dwindling budgets. This year, funding for the US National Institutes of Health (NIH) – one of the world’s leading medical research centres – is a billion dollars lower than in 2012.

Restoring funding for basic biomedical research appears to have lost favour with policy-makers, because it does not offer immediate self-sustaining economic returns. And funding for basic research remains a low priority in emerging economies such as China, where it accounts for less than 15 cents for every research dollar spent (compared to 35 cents in the US).

With no panacea in sight, several other solutions are gaining traction. To maximize investment, the public and private sectors are increasingly pooling resources. For example, under the Accelerating Medicines Partnership, the NIH and 10 biopharmaceutical companies will fund a five-year effort to validate promising targets in three disease areas. Other initiatives include efforts in Alzheimer’s research to test competing drugs against one shared “placebo arm” in clinical trials, and in cancer research to test multiple therapies in a single trial and identify the most responsive patients.

These pooled resources will be directed to a few high-priority diseases, identified through an evaluation of the marginal benefit of additional R&D. Japan’s focused strategy to champion stem-cell R&D should serve as a model for other countries.

At the same time, governments will have to implement policies aimed at guiding investment toward specific diseases. For example, increased NIH funding, extended market exclusivity, and relaxed regulatory hurdles in the US resulted in a renaissance in antibiotic drug development.

Society will also have to share the cost of drug development. Regulatory agencies worldwide may follow the United Kingdom’s lead in embracing adaptive licensing. Under this approach, drugs are conditionally approved and marketed, with the revenue generated following the conditional approval covering the costly trial for proving efficacy. Such a scheme facilitates lower drug pricing, while overcoming the effect of Eroom’s law on investment in treatments for many diseases.

Whether these efforts will succeed in putting biomedical research on a more sustainable footing remains an open question. This could still turn out to be biology’s century. But it is not a sure thing.

Published in collaboration with Project Syndicate

Author: Justin Chakma is an investor with Thomas, McNerney & Partners, a life sciences venture capital firm

Image: Human genetic material is stored at a laboratory in Munich May 23, 2011. REUTERS/Michael Dalder