DRUGMAKERS: Mergers Driven By R&D Costs
If drugmakers don't "hone" their research and development efforts they could see "sharply" falling returns in the future, according to a new PricewaterhouseCoopers (PwC) study that says pharmaceutical firms are spending too much money bringing new drugs to market. The solution, according to PwC: band together. PwC's Steve Arlington said, "Costs must be slashed. It's not possible to maintain total shareholder returns at this level unless costs are driven back substantially." The London Times reports that it costs an estimated $700 million to bring a new drug to market, much of which is spent on drugs that "fail in expensive clinical trials." While recent headlines have trumpeted the success of blockbuster drugs, the Times reports that "90% of all drugs earn annual revenues of less than $180 million a year," and that "the total returns from the top 20 pharmaceutical companies have averaged 29% a year." Even more foreboding, according to Arlington, is that increased competition is cutting the "period of exclusivity" enjoyed by new drugs, and the advent of new genotype-specific drugs means the market size for many drugs will shrink.
Rx For Success
While exhorting drugmakers to be "much more ruthless in weeding out drugs with a poor chance of success," Arlington advises drugmakers to cooperate with each other to cut down on "wasted research" and "duplication of safety testing" (Durman, 11/12). The PwC report also predicts that a major coping mechanism of the large pharmaceutical companies will be consolidation. According to the Financial Times, the PwC report predicts that within the next seven years the number of drugmakers will have "coalesced" from 20 into 13 merged groups (Leonard, 11/11).