2.1 INTRODUCTION

Knowledge about the causes and treatment of illness expanded rapidly during the last century and research into new medicines played an important part in this growth. At the beginning of the twentieth century, aspirin was the only widely available modern medicine. In the 1940s, the first antibiotic, the first mass-produced antimalarial and the first antitubercular medicine were introduced. In the 1950s and 1960s, oral contraceptives were introduced, as well as medicines for diabetes, mental illness, many infectious diseases, cardiovascular disease and cancer. “By the 1970s effective medicines - though not always ideal - existed for nearly every major illness we know”.ⁱ This progress continued throughout the 1980s and 1990s with the development of new drugs against HIV/AIDS.

ⁱ Dr Gro Harlem Brundtland. Access to essential medicines as a global necessity: Seminar to mark the 25^th Anniversary of the WHO Model List of Essential Medicines. Geneva, 21 October 2002.

Since the publication of The World Drug Situation in 1988, the development of medicines has undergone a major transformation - moving from a chemistry-based R&D process to molecular biology-based processes. Advances in the analysis of DNA have opened up the possibility of understanding the genetic causes of disease. As a result, many new genomics-based companies have emerged, recognizing the commercial potential of this knowledge for medicines development. Some of these are owned or partnered by major transnational pharmaceutical corporations, whose initial response to these new research opportunities was often slow.^1,2 The full implications for major pharmaceutical manufacturers of the potential use of advances in genetic science are not yet clear. One possibility is that discovery of new mechanisms of biological action could lead to the development of multipurpose medicines to treat several disease pathologies. Another is that “targeted” medicines may be developed, tailored exclusively to the treatment of population groups with the same genetic characteristics. The R&D and marketing implications of these alternatives are obviously very different. Data presented later in this chapter indicate that the recent shift in the medicines research and discovery process has not yet had an impact on the number of medicines entering clinical development.

New pharmaceutical products are a key component of improved knowledge in health, though several other components are also important. The Global Forum for Health Research,³ in its comprehensive analysis of global funding for health research, identifies five principal content areas and resource flows:

1. Basic research
2. Research into health conditions, diseases or injuries
3. Exposures or other risk factors that impact on health (determinants)
4. Health systems research
5. Research capacity building.

This framework helps to put the R&D of new medicines into the wider context of new medical, or health improving knowledge. While content area number 5 (capacity building) may be seen as an input into the previous four, new knowledge in any of the first four areas can contribute to improvements in the health of individuals and populations. Research on the development of new medicines is most likely to fall into category 2 of this list.

2.2 TRENDS IN RESEARCH AND DEVELOPMENT

Table 2.1 gives estimates of the sources and amounts of global health research and development funding in 1998, totalling some US$ 73.5 billion. Private funding for R&D by the pharmaceutical industry is estimated to account for 42% of this total, slightly less than total public funding of health R&D by the high-income and transition countries. Private not-for-profit funding sources also make a measurable contribution to health R&D. In 1998, the two biggest were the Wellcome Trust (UK) and the Howard Hughes Medical Institute (USA). In 2000, the Bill and Melinda Gates Foundation was established in the USA, and has rapidly become a major source of global health research funds, spending over US$ 500 million on global health in 2002.

The 1998 estimates show a substantial increase from previous estimates for 1992 (US$ 55.8 billion), using a broadly similar approach. Some of this US$ 17.7 billion increase is from improved reporting. About one-third of the remainder is estimated to be a genuine increase.

TABLE 2.1 Estimated global health R&D funding, current US$, 1998

 

* A global estimate by PhRMA for 2000 gives a figure of US$ 35.4 billion
Source: Global Forum for Health Research, 2002

The notion of a broad perspective on health R&D is relatively recent and so data are scarce. Country-specific data are generally limited to OECD member countries, and even these are not always collected in a consistent way.⁴Table 2.2 uses OECD data to estimate overall spending (public and private) on health R&D in selected countries, and the proportion of this accounted for by the private sector pharmaceutical industry.

TABLE 2.2 Share of pharmaceutical industry R&D in total health R&D in selected countries, current US$ billions, 1988 and 1997

 

Source: OECD Health database 2001

These data show that combined non-industry sources of health R&D remain dominant in the USA, Japan, France, Germany and Canada. However, in all five countries, industry-funded R&D in medicines has grown faster over the decade than total health R&D, with the growth in the industry R&D share being particularly fast in the USA, France and Canada. Figure 2.1 shows longer-term trend data on industry spending on pharmaceuticals R&D, as a percentage of total health R&D, for these countries over the period 1980 to 1999. The gradual increase in the role of private pharmaceutical R&D in total health R&D in all countries is apparent. Most conspicuous is Germany, where private pharmaceutical R&D is 72%-84% of total health R&D. In the other countries, public and private funding are more evenly balanced.

FIGURE 2.1 Private expenditure on pharmaceuticals R&D as a percentage of total health R&D, selected countries, 1980-1999

Source: OECD Health database 2001

An OECD study on health R&D broadly confirms the above results and shows much variety in funding patterns for health R&D in industrialized countries. Different public and private bodies contribute significantly to total health R&D. However, data sources on public funding are often fragmented and are seldom organized into the five categories of health R&D set out above. Figure 2.2 groups the results of in-depth analyses undertaken in several countries on health R&D and are probably more accurate than the data in Table 2.2. The figure shows the relative importance of R&D funds from the public sector, industry and the not-for-profit sector in these countries in 1997.

FIGURE 2.2 Public, private for-profit and private not-for-profit shares in health R&D, selected OECD countries, 1997

Source: Measuring expenditure on health-related R&D, OECD, 2001

Among these seven countries, the UK’s health R&D spending in 1997 is the most heavily dominated by private sector pharmaceutical research and Norway’s the most dominated by public spending. The presence of funding by not-for-profit agencies is visible in the USA, UK, Canada and Australia. The share of GDP allocated to health R&D in these countries in 1997 varied from a high of 0.4% in France and the UK, to 0.2% in the USA and Denmark, and 0.1% in Australia and Canada (1997 data are not available from the same source for Norway).

Table 2.3 shows the estimated value of health R&D spending and its percentage of GDP for six countries in economic transition (1998). All six countries allocate less than 0.25% of GDP.

TABLE 2.3 Health R&D 1998, selected countries in transition

 

Source: Global Forum for Health Research, 2001

Data on health R&D from some developing countries suggest that, as income levels fall, an even lower proportion of national income is devoted to this type of investment. Table 2.4 shows that Thailand, the Philippines and Malaysia together spent some US$ 30 million in 1998 on health R&D. But the proportion of GDP (0.01%-0.049%) allocated for health R&D is generally much lower than in countries in transition, or in high-income market economies.

TABLE 2.4 Health R&D, selected Asian developing countries, 1998

 

Source: Global Forum for Health Research, 2001

2.3 R&D SPENDING BY THE PHARMACEUTICAL INDUSTRY

Innovation is an essential part of the identity of the major transnational pharmaceutical companies, which distinguish themselves as the “research-based industry” in contrast to the manufacturers of generic medicines. Innovative capability conveys scientific prestige, a competitive advantage over other manufacturers and, when a new product or process is sufficiently important, protection under national patent (intellectual property) law. This is of special importance as it allows the patent-holding company exclusive rights over the product for a defined period so that it is protected from competition, except where independent therapeutic advances are made in the same area by competitors using a different technology. Patent protection allows the manufacturer to set prices according to what the market will bear, which is likely to be well above production cost for breakthrough medicines that are effective in tackling widespread and severe illnesses in high-income markets. The temporary monopolies which patents create are said to be necessary to reward firms for taking expensive risks in new medicines development. These can be extremely valuable to companies, as their efforts to prolong patent life beyond the original period show. However, critics query the actual costs of new medicines development and point to the neglect of disease problems affecting poor populations.⁵

The role of medicine patents in an era of increasingly global trade rules is a key issue in arguments over access to essential medicines, as demonstrated by the conflict over access to antiretroviral medicines for people with HIV/AIDS in low-income countries. Possible routes to achieving lower prices for essential medicines in low-income countries are discussed in Chapter 7. Patent protection is also a contentious issue in high-income countries, wherever access to effective treatment is impeded by high medicine prices.⁶

Following several years of rapid innovation from 1980 to the mid-1990s (measured by new drug approvals in the USA) there is increasing evidence of a recent fall in the output of global R&D into new medicines .^7,8 While R&D spending tripled between 1990 and 2000, the annual number of new medicines approved fell from its peak of over 50 in 1996 to 32 in 2000, the lowest output for over 20 years. Only one in about 5000 early drug candidates survive to reach market approval. It is considered likely that over the period to 2006, major companies will launch an average of 1.3 new active substances each per year. A forecast published in October 2002 indicated that only four companies were likely to have more than two new medicine launches in 2003.⁹ According to an annual review of the industry in 2000, “Pipeline sizes remain static, the number of submissions is decreasing, and the output of new molecular entities has fallen to a 20-year low”.¹⁰

After marketing costs, R&D is typically the second biggest item in the spending profile of large pharmaceutical companies. However, significant differences exist among the major companies in this respect, as Figure 2.3 illustrates.

FIGURE 2.3 R&D spending by 10 major pharmaceutical companies, 2001

Source: Moses Z. The Pharmaceutical Industry Paradox. Reuters Business Insight, 2002

Pharmacia (merger with Pfizer completed in April 2003), AstraZeneca, Aventis and Pfizer all spend at least 15% of their sales revenue on R&D, whereas Merck spends about 5%, though the actual R&D budgets of these 10 big companies vary less than these percentage differences.

Many companies involved in the R&D of new medicines, particularly those specializing in biotechnology, are relatively small and some of these spend far higher proportions of sales revenue on R&D than the established major companies. Data for 1998 indicate that several biotechnology firms with sales of between US$ 4 million and US$ 140 million were spending more on R&D than they were receiving in sales revenue in that year, in one case 2.4 times more.¹¹ Although annual sales figures are volatile in this sector, such patterns are clearly not sustainable in the longer run unless companies have significant non-sales sources of revenue such as research grants or licence revenue. Such data indicate the levels of both risk and opportunity associated with new medicines discovery.

Figure 2.4 shows R&D spending as a percentage of sales in the five biotechnology companies with the largest research budgets for 2001. In these companies, the size of the R&D budget in relation to sales more closely resembles that of some major pharmaceutical companies.

FIGURE 2.4 R&D spending by five major biotechnology companies, 2001

Source: Moses Z. The Pharmaceutical Industry Paradox. Reuters Business Insight, 2002

2.4 PHARMACEUTICAL INDUSTRY R&D INVESTMENT: WHERE THE MONEY GOES

Most of the R&D budget of the major companies goes on the different stages of clinical evaluation of new products. Pharmaceutical Research and Manufacturers of America (PhRMA) data for the USA in 1998 indicate the breakdown as:

The increasing costs of R&D and recent falls in productivity have been factors in encouraging mergers. Much of the analysis of merger prospects is conducted in terms of companies’ product pipeline size and complementarity. Rising R&D costs are also prompting manufacturers to develop strategic alliances with small research companies, particularly biotechnology companies, with partial equity, financing and commitments to buy products. Over 700 such alliances were consolidated in 1997 and 1998, compared with 319 in 1990 and 428 in 1992.¹ Contractual outsourcing of some research and product testing is also being used. In addition, companies are increasingly trying to implement rational drug design strategies to guide their R&D efforts.

In terms of product development, the diseases and conditions that affect people in the world’s major markets largely determine where the pharmaceutical industry’s investments go. The Global Forum for Health Research highlights the fact that only 10% of R&D spending is directed to the health problems that account for 90% of the global disease burden - the so-called 10/90 Gap.³

In 1998, over 60% of total R&D investment was allocated for the development of medicines for the central nervous and sense organs, cancers, endocrine and metabolic diseases and cardiovascular diseases. Table 2.5 shows that in the period 1981-1996 there was some growth in investments in anti-infective and antiparasitic diseases, as indicated by the number of new compounds. This probably reflects the HIV/AIDS epidemic and the spread of antimicrobial resistance. However, no new class of antituberculosis medicine has been developed in almost 20 years despite the high burden of this disease. In 2003 Médecins Sans Frontières, with the support of several ministries of health and research institutes, and assistance from some pharmaceutical manufacturers, launched the Drugs for Neglected Diseases Initiative. Initially focussed on drugs for sleeping sickness, leishmaniasis and Chagas disease, this not-for-profit research organization is specifically concerned with developing new knowledge in areas with little profit-making potential.¹²

TABLE 2.5 Compounds under R&D by therapeutic class, 1981, 1986 and 1996

 

Source: SCRIP Yearbook 1999, World Drug Situation Report 1988

In 1999, 6046 products were in development worldwide and 10 companies accounted for over 15% of all new pharmaceutical products under development.¹³Table 2.6 shows which companies had most R&D products in development in 1999.

TABLE 2.6 Total number of products in R&D, top 10 companies, 1999

 

Source: SCRIP Yearbook 2000

However, many of the products under R&D may not be new molecules. Only 40 new molecular entities were launched in 1999.

Seen in the wider context as part of total health R&D, pharmaceutical companies and governments are the two major players in the development of new knowledge. Four decades of rapid advance in the second part of the twentieth century have been followed by a recent plateau, as the potential of new scientific approaches to aid medicine development slowly unfolds. A small number of national and corporate entities continue to be the major locomotives in new health and medicine knowledge, though this may change rapidly in the decades ahead.

The relevance of today’s medicine product mix to the world’s health problems could be greatly improved. Some initiatives are already working to this end. In the vaccines area, the Global Alliance for Vaccines and Immunization (GAVI) aims to enhance the commercial attractiveness of the market by stimulating demand in developing country markets, strengthening infrastructure and guaranteeing some purchasing of products. The idea is that a firm advance commitment to purchase safe and effective vaccines will reduce the risks faced by private sector manufacturers and help redirect research towards the vaccines that are a priority for low-income countries.¹⁴ The Medicines for Malaria Venture (MMV), founded in 1999, is a public and private partnership concerned with the discovery, development and registration of new medicines for the treatment and prevention of malaria.¹⁵ A Global Alliance for TB Drug Development¹⁶ was begun in 2000, committed to delivering a new anti-tuberculosis medicine in a decade. And, as mentioned above, in 2003 the Drugs for Neglected Diseases Initiative¹⁷ was launched, driven by public sector stakeholders, to develop or adapt drugs for patients suffering from important diseases with little apparent commercial market, such as sleeping sickness and Chagas disease. These mechanisms fill some important gaps between the opportunities which face commercial medicine manufacturers on the one hand, and the global burden of disease on the other.

In the meantime, the medicines market continues to be dominated by lifestyle-related and convenience medicines for richer populations at the expense of the medicine needs of the poor. This will not change without more extensive management of the global medicines market. Redeployment of a small portion of current public and private R&D funds and/or private medicines marketing funds could make a major contribution to the development of new medicines for neglected diseases. New incentives are needed for such a shift to occur.

REFERENCES

1 Moses Z. The pharmaceutical industry paradox: a strategic analysis of the countertrends of consolidation and fragmentation. Reuters Business Insight, Datamonitor, 2002.

2 Dyer G. A risky therapy. Financial Times, 24 July 2002.

3 The 10/90 Report on health research 2001-2002. Geneva, Global Forum for Health Research, 2002.

4 OECD health data, 2001.

5 Trouiller P et al. Drug development for neglected diseases: a deficient market and a public health policy failure. Lancet 2002 June 22;359:2188-94.

6 Mallaby S. Cadillacs for rickshaw riders. Washington Post, 7 October 2002.

7 Pollack A. Drug research yields a decreasing return. New York Times, 19 April 2002.

8 Taylor D. Fewer new drugs from the pharmaceutical industry. British Medical Journal 326 (7386) 408 26 February 2003.

9 Eli Lilly: bloom and blight. The Economist, 26 October 2002.

10 Ogg MS, van den Haak MA, Halliday RG. Pharmaceutical investment and output. CMR International, 2000.

11 SCRIP phamaceutical company league tables, 1991.

12 Médecins Sans Frontières, Press release 3 July 2003, (http://www.msf.org/countries/).

13 SCRIP yearbook 2000. Vol. 1: Industry and companies.

14 State of the world’s vaccines and immunization. Geneva, World Health Organization, 2002.

15 Medicines for Malaria Venture, (http://www.mmv.org).

16 Global Alliance for TB Drug Development, (http://www.tballiance.org).

17 Drugs for Neglected Diseases Initiative, (http://www.accessmed-msf.org/dnd/dndi.asp).