The pharmaceutical industry created many positive changes over the last century, but it has been a struggle as of late to keep up with expected results. Research has stalled for a wide variety of reasons and this has affected a number of new treatments. Here we are listing the top challenges pharmaceutical industry faces that must be overcome to achieve better results:
1. Bare bone funding: Funding has always been an area of concern for early stage companies in the pharmaceutical and biotechnology industry. One of the main reasons why investors are unsure about pharmaceutical companies is because of the health of pipeline in major companies. In general, it takes between 10 and 15 years for a prospective drug to enter the market if it is approved by the correspondent regulatory body. In the pharmaceutical industry, the pipeline does not flow freely in most of the cases, which is key measure for investment. Also, it is important to take into consideration if the product is financially successful when the company brings it into the market as there could be a number of substitutes available at the time of the launch. In 2014, an estimated $2.6 billion were spent to develop a new drug, which is 2.5 times more than the figure in 2003. Additionally, it is also becoming harder to find molecular targets for research as most important pathways have either been explored or are inaccessible through existing research protocols, and this puts more pressure on investors to justify investment and predict an effective ROI.
2. Regulation has become problematic: A cautious approach is wise in the pharmaceutical industry, but regulations have made it virtually impossible to innovate. If there is a question of safety at any stage of the testing process, regulations pull the plug on a new product and this forces a manufacturer to start over from square one.
The regulatory framework within the pharmaceutical industry varies from country to country and represents a major barrier for any prospective entrant that wants to acquire access at a global level. The costs of complying with clinical trails, licensing, packaging and manufacturing processes are high for prospective entrants and also for established companies in this industry. Governments are also implementing restrictions on price to cut healthcare costs.
3. Liability costs: Whenever there is a side effect, the pharmaceutical industry becomes exposed to costly litigation. The cost to bring just one new drug to the market is already up to $8 billion. Under the US framework, product liability claims fall under three categories: design defects (injury due to the design of product), marketing defects (inadequate instructions or fail to describe possible risks) and manufacturing defects (mistakes during manufacturing which alter the product).
4. Patent cliff: Over the past years, the industry has been threatened with a wave of patent cliff and this is expected to continue in 2015 and 2016 with estimated losses mounting to approximately $19 billion and $17.8 billion respectively. To make matters worse there has been a rapid growth of biosimilars, which are becoming a major competition for big pharmaceutical manufacturers.
One of the major consequences of the patent cliff will be the need for a change in the development process of medicines, as companies cannot rely on one blockbuster drug as it could face huge losses. As a result it is necessary to bring a set of products into the market for portfolio diversification and patenting purposes. R&D costs will also increase as a prerequisite for the creation of new drugs.
5. Research and development costs: These are one of the highest costs for pharmaceutical companies. Since 2010, the IRR (internal rate of return) of R&D costs has decreased from 10.5 to 4.8 percent. R&D expenses have rose over the years because of chronic diseases that require more clinical trials, the threat of patent cliff with products having a short-term lifecycle and also advanced technologies raising complexity in the manufacturing processes. The cost of these developments varies according to the type of disease.
An estimated of 11% of the drugs that enter into clinical testing are approved . These have to generate enough revenue to compensate all expenses incurred for bringing these drugs into the market. Companies are developing different strategies for more proficient R&D methods in order to increase their return on investment and improve overall productivity.
These challenges must be addressed if the pharmaceutical industry is going to be able to continue to innovate. Until then, we will likely see a continuation of the pattern of consolidation so that everyone can pool their resources together and limit their risks as much as possible.