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JANUARY 5, 2004
What's Next for Pharma? Experts from the Tufts Center for the Study of Drug Development discuss the outlook for R&D, mergers, and the FDA's changing role For several years, the pharmaceutical industry's fundamentals have been in disarray. Large companies have been plagued by patent expirations on key drugs and a spate of late-stage disappointments for drugs in development. As Wall Street demands earnings growth, drugmakers have been turning more than ever to make deals with smaller companies for new product possibilities. While a more proactive Food & Drug Administration and the recently passed Medicare drug benefit could offer some relief, issues related to productivity will remain vexing, says Kenneth Kaitin, director of the Tufts Center for the Study of Drug Development. The nonprofit Tufts Center, affiliated with Tufts University, has been analyzing the pharmaceutical industry since 1976. It's famous, or perhaps infamous, for coming up with the figure of $802 million as the average cost –- direct and indirect –- of bringing one drug to market. From his perspective, Kaitin believes "the topics that were very hot last year are still hot." On Dec. 23, BusinessWeek Online Reporter Amy Tsao met with Kaitin and three senior research fellows from the Tufts Center in Boston about the major issues facing the pharmaceutical business. Kaitin addressed the broad changes coming in industry dynamics. Christopher-Paul Milne discussed legal and regulatory concerns. And economist Joseph DiMasi defended the center's methodology for determining the cost of drug development. Joshua Cohen, specialist in pricing and reimbursement, talked about how changes to Medicare will affect companies and consumers. Edited excerpts of the conversation follow: Q: What do you consider the major issues for companies involved in drug development? Kaitin: Productivity concerns continue to be the most compelling. We're looking at how [lack of] productivity affects the relationship between big pharma and smaller biotech companies. Mergers and acquisitions [between big drug companies] are now being looked at as a possible reason for the productivity issue. International factors also play a part. Europe is trying to draw some of the research and development back to European companies because of the fear that too much of the burden has shifted to the U.S. Q: This year, much was made of the notion that the U.S. is bearing too much of the cost of new drugs. Is this true? Kaitin: We have an FDA commissioner [Mark McLellan] who's very attuned to these things. The economic prowess of the researched-based industry is [critical for] providing new drugs for patients. The fact that McLellan is both an economist and physician gives him the ability to see that you must maintain the vitality of the industry to make new drugs possible. Germany and France are good examples of major markets [for drugs whose] contribution to R&D worldwide is very small by comparison. There clearly is a disparity. Milne: Profitability is higher here in the U.S. It's about the only free market left for the industry. In that sense, the money that sustains the industry throughout the world is because of the profits made in the U.S. market. Q: How worrying is the productivity problem? DiMasi: In the short run, you can see a productivity decline in the form of [fewer] drug approvals and fewer new-drug applications. What's not clear is if this problem will persist. Innovation generally comes in waves –- some short and some long. I was reviewing hearings from the late '50s. A Senate report noted an [unexplained] research-productivity decline. I had to chuckle at that. We're seeing the same thing 45 years later. Obviously the pharmaceutical industry came back from the productivity problems it had back then. Q: What about the various discovery tools like gene databases that were supposed to help fill companies' pipelines with more and better drugs? Kaitin: The industry embraced these new technologies with the hope that they would revitalize dwindling pipelines. There were some very outspoken CEOs -- like former SmithKline Beecham CEO George Poste -- saying this was going to completely change the way drug development was done. Skip forward and Hank McKinnell, head of Pfizer (PFE ), says the reason why we have a productivity problem is we overinvested in discovery technologies. These technologies provided many more leads but few ways to validate them. Slowly the industry has backed off [from these technologies]. I don't know any major company now that wouldn't say [embracing them] was a mistake. There's a future for this technology, but we're at a turning point. Many companies have said they won't give up on these technologies. GlaxoSmithKline (GSK ) is a good example. They still believe that this is going to be the way drug discovery and research occurs.
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