R & D, new medicines, and long-term profit

Louis R Godena louisgodena at ids.net
Tue Oct 8 19:03:32 MDT 1996


A major new rationalization of the pharmaceutical industry seems to be
underway.    In August,  Glaxo Wellcome announced that it was cutting
immediately more than 2,000 jobs in its research and development (R & D)
departments (out of 11,500) while maintaining its annual R & D budget of
nearly $2 billion.    Like Pfizer the previous month (1800 laid off out of a
total of 7500),  Glaxo Wellcome intends to spend more on automation in house
and on "external collaborations",  presumably with temporary consultants and
independent research firms.

Eli Lilly announced in late 1995 its long term plan--the most ambitious in
the industry--to improve productivity and harness R & D more closely to the
marketplace.    Fully a third of its workforce would be made redundant by
the year 2005,  while its overall R & D budget would increase by nearly 70%.
Their formula (in house automation and "contracting out") set the stage for
similar annoucements by Upjohn (February) and Hoescht (May).    Some
laboratories such as Dista (developers and manufacturers of Prozac) will,
apparently,  be "consolidated" into existing labs (probably overseas) or
fazed out altogether.    According to a recent article in *Science*,  South
Asia is being eyed as a potential manufacturing "hot spot" for American and
West European drug companies.

The growing costs of R & D in the drug industry (it takes about a decade or
more to steer a new drug through the development process,  from discovery of
the molecule to large-scale clinical trials) is driving a good deal of this
rationalization.     It is also having its effect on the type of drug being
devleoped.    Obviously each company is trying to develop drugs that will
produce the highest commercial returns.    And under present pricing systems
the return is likely to be lower for a quick cure than for a long term
maintenance therapy that keeps symptons under control without solving the
underlying problem.

Compounding the problem of new R & D is the question of reliability in the
significance of new discoveries or potential discoveries.    Most biotech
companies expect to lose money for the years that research and devlelopment
is funded without having the product on the market.    There is a
corresponding urge to exaggerate the new drug's potential in order to keep
investors sweet.    This can lead to distortions in planning future research
endeavors and actually impede the development of new medicines.    For
example,   earlier projections for a "cure" for bowel and breast tumors
proved overly optimistic,  delaying by some years the development of
research into alternatives.

There are three features,  then,  to note about the growing rationalization
of the pharmaceutical industry     worldwide.   First,  technological
changes are not driven by research itself,  but by entrepreneurial
capitalism.    Second,  in nearly all cases,  but especially for automation,
labor process is at the heart of the change.    Finally,  the effect of the
technology has been to reduce the value added in the lab and increase the
value of purchased inputs (the fruits of contracting out).

Given the realities of the market,  it is likely that these trends will
continue and become,  in turn,  part of a new rationalization of overall
health care under capitalism.

Paradoxically,  there are now calls from some within the industry for
governments and health services to "change" the system to give companies
more incentive to cure diseases,   and to work on priority projects,   such
as finding new ways to kill bacteria that are becoming resistant to todays
antibiotics.    A recent delegation to socialist Cuba to view the seminal
advances in biotechnology (Cuba is now exporting more "quality"
biotechnology than most western European states) led the president of Pfizer
to suggest a reordering of R & D priorities more or less along the lines
pioneered by the Cuban government.


Louis Godena



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