Global pharma: Pressed for delivery amid regulation

The pharma industry's return on investment (RoI) to bring new drugs into the market is worse than ever before. And yet, expectations from the industry are to deliver more, observes Dr Steve Arlington, Global Advisory Leader (Pharma and Life Sciences), PricewaterhouseCoopers.

Singling out increasing “regulatory hurdles” as a key reason, he says: “You cannot continue to increase the pressure all round the business. …You cannot decrease prices, increase controls, increase legislature and hurdles to delivery,” as that chokes the industry.

New product introductions have come down in the last few years. And this is despite the increasing spend on research and development (R&D), observes a senior research analyst with a multinational investment banking company. “So, RoI on innovative R&D is pretty much the worst the industry has seen so far,” he agrees.

Steep regulations

Drug companies have a steeper regulatory environment, in the US, for instance, the yardstick of “comparative effectiveness” has been introduced, where a product needs to be more efficacious than others in its class.

Over the last couple of years, especially because of the economic downturn – Governments in more countries are leaning towards generic drugs (chemically similar to innovative medicines), as they are less expensive – in an effort to control increasing healthcare costs.

Drug prices come under scrutiny because they are identifiable, says Dr Arlington. In fact, say PWC representatives, it was found that in a US healthcare claim of say $100, about 33 went in administrative cost, 10 was the cost of drugs and the rest was the hospital cost.

Two huge areas of inefficiency are claim-processing and hospital costs – a problem that is getting addressed in the US healthcare reforms, he says.

Attitude towards healthcare

Pointing out that the general healthcare model needs to change, he said, until now, it was “Do what you like, when you like and when you get sick, pay!”

Drug companies are faced with a finite number of resources to be put into good candidates in different therapeutic segments and they have to place their bets on what could emerge as a viable product. So to increase the regulatory pressure at this stage, affects industry viability, he observed.

“Markets are always forward-looking. So, while there is no reason to say this is the trough and it won't get any worse – some contrarians are already saying that the trimming of R&D costs, moving work to low cost geographies and new models of innovation will improve ROI on R&D going forward. But that as of now is more of hope than anything facts can support,” says the analyst.

Companies need to take the waste out of the system, and show greater differentiation when it comes to their products, Dr Arlington says, explaining how companies will scale the hurdles in their way.

“Companies will be rewarded not for the next beta blocker but the first Alzheimer's drug,” he says, underlining the importance of break-through research.

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