Increasing healthcare costs, aging populations, and rising prevalence of chronic diseases are among the factors that will continue to shape the direction of industrial life science R&D in 2013. Technology deployment in healthcare information technology and analytics will also have an increasing impact on research while contributing to efficiency and quality.
Life science is a diverse global business, but one industry and one country dominate R&D funding. While drug costs amount to 10 to 15% of worldwide healthcare expenditures, pharmaceutical and biotechnology companies comprise the majority of research spending in the life science sector, which also includes medical devices, agricultural biotechnology, and animal health. Innovation remains vital since patent expirations of blockbuster drugs continued in 2012.
Among nations, the United States spends the most on healthcare per capita, as a percent of GDP, and in absolute terms. Public sector payers (notably Medicare) account for nearly half of U.S. expenditures. Considering these factors along with the now certain implementation of the Affordable Care Act, NIH funding over US$30 billion in research, and the FDA’s role as a gold standard for regulatory oversight, it is clear that U.S. public policy will continue to influence global life science R&D.
Leading U.S. R&D Firms
The trend toward reducing R&D investment levels continues among many of the leading U.S. life science firms. Both Pfizer and Merck are currently on track for 2012 investment levels significantly below 2011, with R&D budget decreases of $1.5 billion and $500 million, respectively. Johnson & Johnson will also likely spend less on R&D in 2012 than it did in 2011. Both Lilly and Abbott Labs will likely end 2012 having invested slightly more than in 2011.
One of last year's top ten life science R&D spenders, Biogen Idec is also on track to exceed its 2011 investment level, but its lower spending level removed it from this year's list. One of the largest increases is likely to come from Gilead Sciences, which currently ranks 11th among our leaders. Gilead has already exceeded its 2011 R&D investment total through the first three quarters of 2012, and will very likely enter the top 10 list next year.
U.S. Industry Perspectives
Life science industry representatives were asked whether they were satisfied with their 2012 R&D budgets. A majority of respondents were positive, though with nearly a quarter negative in their budget perception, the industry as a whole still has concerns over R&D spending levels. This concern is shown with nearly 40% of respondents saying their budget outlook for 2013 became more negative over the last six months. Though their outlook may be cloudy overall, more than half (53%) expect their 2013 R&D budgets to increase over 2012.
With these increasing life science R&D budgets come additional concerns and opportunities. Nearly half (47%), report they expect even tighter budgeting requirements going forward. Over 40% report they will likely be involved in more collaborative research in 2013, and 39% expect their R&D efforts will take on a more global context in 2013.
U.S. life science industry researchers are still optimistic about the state and pace of technology development. More than 80% cite positive developments in life science technologies over the last few years. There is some concern regarding the U.S. leadership in life science R&D—44% of the life science respondents felt U.S. leadership was somewhat at risk, with 17% concerned that U.S. leadership was significantly at risk.
U.S. and Global Industry Forecast
The life science industry has experienced both recession-driven reductions in R&D spending and also a significant shift in the type and distribution of R&D investments by major pharmaceutical firms over the last few years due to fewer products in their pipelines and some shifts to biological rather than small molecule products.
Even with the ongoing reductions in R&D spending by some of the largest U.S. life science firms, we forecast a slight 1.4% increase in total U.S. life science R&D to $82.7 billion in 2013. This U.S. growth, combined with similar lower levels of growth among European life science firms, but significant growth among Asian life science firms, will lead to 2013 global life science R&D spending of $189.2 billion, a forecast increase of 4.2% from 2012 to 2013.
The estimates and forecast show that U.S. industry should turn the corner and begin increasing their R&D investment in 2013. The global industry, while affected by a slowdown from 2009 to 2012 is on a stronger R&D growth trajectory into 2013.
Promise of Healthcare Information Technologies
Fueled by American Recovery and Reinvestment Act funding as well as incentives and penalties from the Centers for Medicare & Medicaid Services, implementation of electronic health records in the U.S. is now well over half completed. Integrated healthcare information systems are expected to improve efficiency, quality, and clinical decision support, and to become enabling technology for new provider models like Accountable Care Organizations, which are intended to deliver value-based outcomes.
With security and privacy safeguards, analysis of data from these systems also offers great potential to guide and validate R&D in therapeutics and diagnostics, improve prediction and diagnosis in the clinic, and accelerate development and adoption of "connected health" technologies.
Such improvements in life science research and outcomes depend on continued technology development in the field of big data analytics. Having applications in multiple markets, technology and services for big data analysis are becoming an entirely new industry. Information integration and analysis at this scale, however, will require challenging computational research to accommodate data heterogeneity, scale, variable timing and origins, complexity, and security.
"Connected health" is the patient-based, mobile dimension of healthcare information technology. Many believe that this evolution of telemedicine will improve diagnosis and chronic disease management, increase cost-effective, coordinated access to healthcare, and empower healthcare consumers. Data analysis is already underway, such as one project to stratify re-admission risk for heart patients based on monitored wellness and compliance behavior. Other R&D includes adaptation of social technologies and integration from sensors to workflows to enterprise. Venture capital is an important source of innovation funding in this domain.
New Innovation in Diagnosis & Treatment
Enriched access to healthcare information will also accelerate pharmaceutical R&D, particularly when integrated with proliferating data sets from fast biology instrumentation. Techniques like genome-wide association studies could reveal new druggable targets and associated biomarkers. Comprehensive post-marketing surveillance integrated with phenotype data could provide new insight on drug safety. The overall result will be new vectors of attack on major chronic diseases that are drivers of healthcare costs, as well as greater efficiency to stimulate progress on underserved diseases.
Translational science will be another key biopharmaceutical research area in 2013. NIH Director Dr. Francis Collins wrote that "little focused effort has been devoted to the translational process itself as a scientific problem amenable to innovation." With a mission to catalyze private sector R&D, NIH's National Center for Advancing Translational Sciences recently became operational. New translational technologies will model disease and systems biology more effectively, predict drug safety and efficacy earlier and more accurately, and provide clinical biomarkers for diagnosis and prediction of therapeutic response.
The medical device industry has traditionally leveraged venture capital to fund early-stage innovation. The outlook for 2013, however, may follow a recent trend of restraint, with medtech venture investments in the first nine months of 2012 at only 76% of the prior five years' average. Some attribute the issue to pricing and tax uncertainty under the ACA, while others see emphasis on capital-efficiency and ROI. Although some operating decisions have been linked to these uncertainties, research at larger companies appears to be less sensitive. In addition to continuing to develop innovative products in their core markets, companies like GE and Medtronic are making R&D investments to improve value to customers. Partnering is gaining momentum as a risk-managed way to integrate capabilities from multiple domains into increasingly sophisticated devices.