Cure for What Ails EU

I write my column Cure for What Ails EU in TCS Daily on 21 June 2005.

Innovation is still moving rapidly, but regulatory costs are also skyrocketing

In Making Immunity More Than Skin Deep I described the troubles of the pharmaceutical industry when it comes to producing vaccines. In fact, things are going in the wrong direction for the pharmaceutical industry in general. New drugs that will finance future research and development are not reaching the market as quickly as they used to, and the cost of developing new drugs is steadily increasing.

There is a clear risk that the introduction of many medical discoveries made recently will be delayed. Innovation is still moving rapidly, but costs are also skyrocketing. It has been estimated that to develop a new drug from basic research to sale in the pharmacies costs more than €700 million.

In Europe 89 new drugs were introduced by the industry between the years 1995 to 1999, at a research cost of €11.4 billion in 1995. Between the years 2000-2004 this had dropped to just 57 new drugs introduced to the market while research costs had increased to an estimated €21.5 billion for 2004, according to the European Federation of Pharmaceutical Industries and Associations.

The costs have risen and the number of new drugs introduced have fallen in the US too, but not to the same degree as in Europe.

To some extent, rising costs are to be expected. Research today involves more complex work with larger and more diverse patient groups, and involves the results of a higher numbers of scientific studies from differing disciplines.

Pharmaceutical corporations have up until now depended on developing blockbuster drugs (a prime example is Astra Zeneca's famous ulcer drug Losec). Blockbuster drugs are medicines that are efficient on very common diseases and ailments and thus produce large amounts of revenue. A small number of successful products must carry the costs for the many failed research projects or the medicines that did not get approval from the drug testing agencies.

In fact, the average time required to develop a new drug has risen from 3 years in the 1960s to 10-12 years today, and the number of criteria for passing a drug have increased greatly since the late 1990s. Add in the strict restrictions on animal testing and the research is made even more difficult. The long development periods have also dented profitability on the market, as introduction is delayed and thus the time it is protected by a patent is effectively shorter.

The European Commission is of course quite worried about this trend and the European Medicines Agency (EMEA) states that presently the methods for research are too inefficient. Only the best drugs should reach the final stage in the drug pipeline for an evaluation. The problem is of course that it is difficult to know precisely which drug to pick as the most likely to succeed, especially since the regulations change and tighten. While some of the recommendations do have their merits, they seem to rely on the further tightening of relations between large corporations, government authorities and academia, thus risking restricting competition even further.

R&D departments are often pressured today to increase profitability. This should be achieved by increasing the number of marketable drugs developed, but since "the drug pipeline" is often outside the control of the R&D department the increase in profitability is often made by cutting costs. This is a troublesome development for innovation, and it moves research away from Europe to low-cost countries.

The high costs, partially caused by the increased burden of regulation, have brought on a wave of corporate mergers. It is doubtful this will increase efficiency in the development of pharmaceuticals, and unfortunately the mergers have too often been just a defensive reaction to the cost problems by downsizing administration and production.

Pharmacogenomics could be a part of the solution. Much of the fear driving the regulations concerns the possible side-effects of drugs, and drugs are removed from the market when serious side-effects are discovered, but if the side-effects could be isolated to smaller, genetically more specified groups, an otherwise efficient drug could still be used on other patients. Pharmacogenomics could also help the development of new drugs by enabling digital tests of the drugs. This is a significant cost reduction, because it finds the drugs that are unsuitable at an early stage, and unnecessary tests are avoided without restricting the market even further. Research is made more efficient as firms can concentrate on test subjects with similar genes and minimize clinical variation. As fewer test subjects are needed, costs diminish and thus speed up the development of new pharmaceuticals.

Another way to raise revenues is by changing medicine itself, from merely curative to preventive or even improving (of which Viagra and Xenical are early examples). Often the term "lifestyle medications" is used negatively, implying that the drug is unnecessary. But then one forgets that a group of lifestyle medications has already been widely introduced in society, namely the birth control pill. The same argument regarding "unnecessary lexicalization" would be valid, but it seems unlikely that the pill would be banned on the basis that it does not cure a formal disease.

The market for enhancing medicines is probably huge (compare it to the market for health food, alternative medicine and functional food), and so far largely unexploited. The pharmaceutical companies search for blockbusters, drugs for broad patient groups, so the opening of such a market could be welcome indeed. But this would require changes in the regulations surrounding medication, increasing the patient's control of her own health and treatment. Here the attitudes of the medical profession and the patients will play a vital part. European healthcare systems are mainly financed by taxes. This forces health care administrations to focus on costs instead of benefits, and there are always areas in need of trimming. This is going to be a futile search. As medicine and the concept of health become more individualized, the old centralized "one-size-fits-all" health care is being challenged.

Improving the conditions for such an important business as pharmaceuticals is not easy. It involves generally improving the business climate, providing better opportunities for entrepreneurs to do the unexpected, instead of trying to find the best drugs from a top-down perspective. Smaller companies might specialize better in particular ailments. But it also involves the industry thinking in new directions regarding its own nature.

What seems likely is that free markets and consumer choice, in combination with free research and innovation, will provide the European pharmaceutical industry with better opportunities than collusion and regulation, as these created many of the problems in the first place.