Costs for research and development of medicinal products have increased tenfold over the past three decades up to GBP 1.2bn, a survey, carried out by British company The Office of Health Economics and financed by the pharmaceutical industry, revealed. In the 1970s the costs were at GBP 125m.
This amount will further spur discussions within the pharmaceutical industry about tough negotiations concerning pharmaceutical prices and increased competition coming from generic companies. Only recently Roche and Johnson & Johnson announced at the „FT Global Pharmaceutical and Biotechnology Conference“ in London hat they will cut their research budget dramatically. The objective is to halve the costs in the next five years. As far as reasoning is concerned, Franz Humer, Chairman of the Administrative Board of Swiss company Roche, pointed out that an increasing drug market in emerging countries cannot compensate for the rising pressure on pharmaceutical prices in Western Europe.
Actually, it is no longer noteworthy when a pharmaceutical company states that they will reduce their R&D expenditures. But Roche was actually focusing on research until now. Roche is a representative of the classic pharmaceutical strategy as pursued by most of the companies only 10 years ago. Concentrating on innovation which will subsequently result in blockbusters. As recently as June the Basel-based company decided to close down US site Nutley and tuck the freed up capital into drug research. Now the company wants to increase productivity and prioritize development projects in order to counter escalating costs.
Another Roche strategy to counter price erosion is close interaction of the diagnostic and pharmaceutical divisions. Roche currently develops 60% of its pharmaceutical projects along with diagnostic tests. By now, the company already has established more than 200 cooperations between the two divisions. Therefore, the world market leader in cancer medicine has acquired a strong market position with regards to personalized healthcare. Though efforts to take over genetic engineering specialist Illumina failed last summer, Roche, with a market share of 20%, already is the biggest supplier in the diagnostic industry by far – ahead of Siemens, Johnson & Johnson and Abbott.
Personalizing medicinal products is a mega-trend in the pharmaceutical industry and could be a decisive constituent in research for years to come. Some pharmaceutical companies already have adapted to the trend. Roche is one of them – already developing therapeutics and diagnostics under one roof. Others will follow. In negotiations with healthcare insurance providers they will insist on the advantages of these treatments.
The most recent example showing the attractiveness of this segment comes from this week: US biotech company Amgen has taken over gene specialist Decode Genetics for $415m.