The primary objective of the pharmaceutical industry is to deliver long lasting benefits to both patients and the wider public. The industry is made up of large (Big Pharma), medium (Biopharma) and small (Biotech) companies. In the UK, the sector makes a positive contribution to our trade balance, generates and maintains high value jobs, and makes a significant contribution to public health. This country has a long history of successful medicines research that has made a significant impact on both global health and local wealth. Thus, 25 of the current 100 top selling drugs were discovered and developed here and in 2007 pharmaceutical exports totalled over £14.6 billion. However, since then, the fortunes of this sector in the UK have tumbled.
Major divestment has led to the loss of thousands of jobs with the closure of major research facilities, including those at Harlow (both GlaxoSmithKline and Merck), Loughborough (AstraZeneca), Newhouse (Merck) and Sandwich (Pfizer). This is in response to the stark economic realities of the 21st century.
Big Pharma is no longer delivering double digit growth. According to a recent study by Deloitte and Thomson Reuters, the average internal rate of return from R & D at the world’s 12 largest Big Pharmas has dropped from 11.8% to 8.4% over the past year. A major contributing factor is the expiration of patents for numerous blockbuster drugs. On top of this, the ensuing emergence of generic medicines has raised the cost/benefit bar for subsequent drug candidates.
Alongside problems at Big Pharma, there has been a near complete market failure in the Biotech sector, with the flow of finance to emerging Biotech companies reduced to a trickle. This is largely because investors (particularly venture capital companies) are no longer realising handsome returns on their investments. This, together with the substantial loss of the market capitalisation of a number of the UK’s major Biotech companies, has undermined confidence in the sector. However, these dark clouds may have a silver lining as the corporate venture arms of Big Pharma have now moved into this space.
In the past, the Biotech model was to make shares liquid by listing on public markets. However, this door is now firmly closed so a trade sale has become the major exit strategy. The notable exception is drug discovery companies that have a revenue stream through the provision of contract research services.
In spite of current challenges, the fundamentals of the medicines research sector remain good: the Global market for pharmaceuticals is expected to increase to $1 trillion in 2014. Growth is expected to continue as medical need increases, largely because of the marked increase in the number of people aged over 65 in the decades ahead and the continued rise in the incidence of obesity. Although the number of biologic drugs continues to rise, most medicines are small molecules.
The process of small molecule drug discovery depends on a unique partnership between chemistry and biology, which serves to optimise the pharmacological properties of lead molecules in order to identify drug candidates. It is on the basis of the synthesis of optimised new molecular entities (NMEs) that patent applications are filed, which, if granted, provide a period of market exclusivity. Thus, without the generation of NMEs, the potential for subsequent commercialisation diminishes substantially.
With drug discovery research moving offshore (Big Pharma) or being starved of cash (Biotech), this sector of the UK economy is now under serious threat as world-class knowledge and expertise is lost.
Large amounts of government capital have rightly funded University-led research, but very few university spin-outs that have gone on to become substantial commercial enterprises; Oxford BioMedica is one of the rare examples. It may be more fruitful to provide direct funding to Biotech companies engaged in medicines research through competitive grants; the Technology Strategy Board provides a good example of this approach. However, the fragmented nature of research funding in this country stifles (rather than supports) innovative medicines research. On top of this, the public sector contribution to health-related research in the UK is dwarfed by that of the US National Institutes of Health (NIH), which has an annual budget of $30 billion. The US is also very good at funding and coordinating public and private research, and bringing together scientific knowledge through the creation of centres of excellence. In short, the US excels in directing taxpayers dollars towards medical need.
Many of the beneficial aspects of health-related research in the US are now being employed in the emerging economies. For example, China recently announced very ambitious plans to generate a million new Biotech jobs by the end of 2015, supported by $308 billion of hard cash for science and technology. This bold commitment to science is even underpinned at school level: In the latest OECD comparative review of 15 year olds around the Globe. China-Shanghai came top in maths (the UK came 28th), with similar results for science. Therefore, the UK is off the World pace and so needs to sharpen up if it is to continue to compete effectively in the medicines research arena.
It is essential that taxpayer’s money effectively supports innovation in medicines research and facilitates its translation into new medicines or novel medical devices. The same is true for medical research charities. However, the UK lags behind the USA in this area also.
The US has many charities and foundations that make a significant impact on human health by directly supporting medicines research. Notable examples include the Bill and Melinda Gates Foundation, the Michael J. Fox Foundation for Parkinson’s Research and the Huntington’s disease Society of America. In the UK, medical charities account for one third of all public expenditure on medical and health research. However, the majority of these charities exclude medicines research companies from applying for funding. This questions the ability and intent of such charities to meet their charitable objectives. They are rejecting the very organisations with the know-how and expertise to translate research into tangible benefits to patients. Important exceptions are the Wellcome Trust, Medical Research Council Technologies and Cancer Research Technology. These World-leading organisations illustrate what can be achieved outside of traditional pharmaceutical business constructs, particularly in early stage translation.
To counter the erosion of medicines research in the UK, a bold, long-term strategy is urgently needed. An important start has been made with Government support of the Francis Crick Institute in London, and funding of science parks, particularly the Stevenage Bioscience Catalyst (in association with GSK) and the Babraham Research Campus. In addition, this week the Government launched its Life Sciences Strategy, which includes a £180 million BioMedical Catalyst Fund. This is very welcome, but it may not be sufficient. What is needed is a vision for how medicines research in the UK can be re-energised and re-imagined.
Change brings opportunity and so there is now a great opening for the creation of new business constructs to combine bioscience knowledge creation and medicines discovery for the benefit of patients, healthcare providers and scientists.
Written by Alan M. Palmer
The One Nucleus blog is written by individuals and is not necessarily a reflection of the views held by One Nucleus.