By Martin Grueber, Research Leader, Battelle and Tim Studt, Editor-in-Chief, Advantage Business Media
Friday, December 16, 2011
The life science segment includes diverse firms such as multinational pharmaceutical corporations, large medical device and instrument companies, and both large and small biotechnology firms. Though primarily engaged in human health care, firms in this segment are also involved in animal health and agricultural biosciences, and many operate in multiple areas. Eight of the top 10 U.S. firms in life science R&D are in biopharmaceuticals, with only Medtronics, in medical devices, and Monsanto, in agricultural biosciences, also making the top 10.
As pharmaceutical companies continue to rationalize their R&D activities and deal with financial and investor pressures, budget and employment reductions have become more strategic, undertaken to reduce costs and renew focus and efficiency to their R&D operations and portfolios. For some firms, such as Novartis, cuts in some areas have led to additional positions in higher-priority technical areas, though these new positions are often in lower-cost global locations. Such geographic migration to lower both production and R&D costs has been a trend for at least a decade, and is likely to continue for the foreseeable future. Among U.S. medical device manufacturers, R&D activities have continued to be focused within the U.S., even
as device or component production is moved to lower-cost locations.
| Life Sciences |
2009 |
2010 |
Q1-Q3 2011 |
| Top U.S. R&D Expenditures |
Millions, U.S.$ |
| Pfizer |
7,845.0 |
9,402.0 |
6,516.0 |
| Merck & Co. |
8,425.0 |
8,669.0 |
6,048.0 |
| Johnson & Johnson |
6,986.0 |
6,844.0 |
5,393.0 |
| Lilly (Eli) & Co. |
4,326.5 |
4,884.2 |
3,665.5 |
| Abbott Laboratories |
2,743.7 |
3,724.4 |
2,978.2 |
| Bristol-Myers Squibb Co. |
3,647.0 |
3,566.0 |
2,831.0 |
| Amgen |
2,864.0 |
2,894.0 |
2,318.0 |
| Medtronic (e) |
1,451.0 |
1,491.0 |
1,147.5 |
| Biogen Idec |
1,283.1 |
1,248.6 |
880.7 |
| Monsanto |
1,113.0 |
1,241.0 |
1,084.0 |
| Source: Battelle/R&D Magazine/Company information; (e) = estimated |
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Reconfiguring Pharma
In many recent large mergers, the combined company experienced a period of reduced R&D productivity due to the process of rationalizing research budgets, pipelines, and staff. This makes further large-firm mergers less likely, though not impossible, over the next few years.
It remains probable, however, that the remaining large pharmaceutical firms will still seek to acquire smaller firms with derisked molecules and target-specific R&D capabilities. The rate of future consolidation is up for debate. Some expect it to accelerate over the next few years, leaving a biopharmaceutical industry with two types of firms—(1) those specializing in innovative, higher-value treatments (often targeted to smaller sub-populations) that can manage the cost structure accompanying the required development work or (2) those with significantly lower-cost structures that compete on a larger scale with mass-market and generic drugs. This
two-pronged structure is interesting to note, especially in conjunction with Abbott Laboratories' recent announcement that it will split the company into two components somewhat along these lines.
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Life Sciences. Source: Battelle, R&D Magazine |
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Changing R&D Strategies
Due to impending patent expirations and the widely reported decline in productivity in the development and approval of significant new medicines, many in the pharmaceutical segment have evaluated, reevaluated, and restructured their R&D operations. Specific efforts have been made
recently to reduce the costs and improve the return associated with their R&D activities, to focus their internal R&D on a smaller portfolio of diseases, and/or to modify their overall R&D approach. Pfizer recently announced that it plans to reduce its overall R&D budget to between $8.1 billion and $8.4 billion in 2011 (down from $9.4 billion in 2010) and to $6.5 billion in
2012. This may be the strongest sign yet that the enormous R&D budgets of the pharmaceutical companies are coming to an end. However, the cost of R&D is not the only issue facing the industry.
In a recent report, KPMG calls for a significant change in how global pharmaceutical companies capture and manage the returns on their R&D investments and improve their ability to justify these R&D expenditures. The report states that pharmaceutical industry returns on research expenditures have fallen from an ROI of 17% in 1990 to just over 10% in 2010. This
concern over ROIs is magnified by the substantial revenue that many large pharmaceutical companies will lose because of patent expirations.
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Global industry leaders in life science R&D. Source: Battelle, R&D Magazine Survey |
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In addition to streamlining global R&D infrastructure, many pharmaceutical companies are rationalizing their pipelines. For example, as Pfizer announced its R&D budget cuts, it revealed a continued focus on oncology and inflammatory conditions, among others, but a shift away from areas such as urology and internal medicine.
Open R&D
The retrenchment of pharma's conventional model has created significant R&D opportunities for universities, non-profits, and the government. Continuing to consider the Pfizer example, while reducing internal R&D, it has expanded its presence in Cambridge, Mass., specifically to have
better collaborative access to the great research institutions of the area and to adopt an open innovation posture. In a larger example intended to accelerate drug development, GlaxoSmithKline, Novartis, Pfizer, and Eli Lilly have joined the Structural Genomics Consortium, a public-private partnership that supports the discovery of new medicines through open access research. Yet another open model is "One Mind for Research," an effort to build a global repository of relevant data, imaging, and patient information for collaborative neuroscience and brain disorder research.
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Key life science technology development areas by 2014. Source: Battelle, R&D Magazine Survey |
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At the same time, the federal government has become oriented to a larger role in early-stage drug R&D with initiatives like the afore referenced National Center for Advancing Translational Sciences, and the National Institute of Health's (NIH's) Common Fund. Foundations are also taking a more active role in funding and R&D toward treatments for the often difficult diseases in which they have an interest.
This convergence of public and private life science R&D toward open innovation and open source information—especially in areas needing considerable fundamental research—is a major change in the approach to funding and performing life science R&D.
