Business July/August 2010

No Refills

In 2009, only 25 new drugs were approved—less than half the number in the mid-’90s. Why are new pharmaceuticals so hard to bring to market? Overcautious regulators and profit-hungry conglomerates make easy scapegoats, but they’re only partly to blame. While we’re waiting for both sides to reinvent themselves, even little things like better monitoring of side effects can lead to big new discoveries.
Edel Rodriguez

The golden age of drug discovery.” That’s how Martin Mackay, Pfizer’s president of pharmatherapeutics research and development, recently described the state of his industry. That surprised a lot of drug researchers, many of whom feel more like the Indians than the conquistadors. Although Mackay said the Pfizer pipeline was “replete” with new drugs, nothing on the horizon seems capable of replacing the revenue his firm will lose when Lipitor, the best-selling patented drug of all time, goes off patent at the end of next year. Pfizer is not the only company whose pipeline is tapping out. What most people think of when they imagine “drug discovery” is what the Food and Drug Administration calls “new molecular entities” (NMEs)—entirely new compounds. And the number of these being approved as drugs has declined.

In 1996—arguably the peak of pharmaceutical productivity in the past two decades—the FDA approved 53 NMEs. These days, breaking the 20 mark is rare; last year 19 were approved, plus six “biologics,” substances such as vaccines and antibodies that are based on proteins made by living cells. Most analysts seem to think that U.S. companies just aren’t turning out as many valuable new drugs as they used to.

How can this be happening now, just when we’ve decoded the human genome, developed new techniques for synthesizing drug compounds, and built powerful computer models of how compounds interact with their targets? Why aren’t the pipelines overflowing with new blockbusters? That’s a good question. “Blame the FDA,” say conservatives and drug companies. “Blame the companies,” respond liberal activists and good-government types. But as viscerally satisfying as such finger-pointing may be, it offers half-truths at best. For a variety of reasons, we may be entering an age when a miracle cure is just that.

Ask a conservative—or a chemist whose compound is in the advanced stage of clinical trials—about drug development and you’ll get an earful about the FDA. Over time, critics say, high-profile disasters like Fen-Phen and Vioxx, which killed or seriously harmed some of the people who took them, have encouraged ever-more-stringent review. The number of clinical trials required to support a new-drug application has more than doubled since 1980, while the number of patients needed in each trial has almost tripled. As a result of these and many other factors, the clinical-trial stage now costs more than four times as much, even after adjusting for inflation.

Making drug trials more expensive can have a big effect on development. Once they’re developed, most drugs are nearly pure profit (a topic of much complaint among consumer activists). The cost is all in the R&D—somewhere between hundreds of millions and nearly $2 billion per drug, depending on which estimate you use. And the single biggest portion of that cost is the very, very expensive clinical trials, in which pharmaceutical companies try to show the FDA that their compound is safe and effective.

This means that clinical trials have unwanted side effects. Because of their astronomical expense, one drug with a huge market is more commercially desirable than 25 drugs that each treat a less common disease, because only one set of trials is necessary. If you’re targeting a disease that affects relatively few people, one of two things will happen: the drug will be very expensive, or the drug will be shelved because it’s unlikely to earn back its R&D investment.

Tougher safety and efficacy standards may also be keeping good drugs out of the public’s hands. Most people agree that today’s FDA would not have approved aspirin; even penicillin, the miracle drug that helped dramatically extend the human lifespan when introduced in the early 1940s, is questionable. Allergic reactions to penicillin kill a higher percentage of its takers than Vioxx ever did, while the gastrointestinal bleeding produced by aspirin means it probably would have flunked while still in animal testing.

But there’s another side to the story. For starters, the stodgy FDA may be changing. Roger Longman, a former managing partner at Windhover, a health-care-analysis firm, says that while “the rank and file is sort of resistant” to streamlining its clinical-testing system, “there’s an interesting split at the FDA. At the top of the FDA, they’re not getting more conservative—in fact, I think that they’re going the other way.”

Besides, as Pedro Cuatrecasas, a biochemist and professor of pharmacology at the University of California at San Diego, points out, attrition rates—the percentage of compounds that fail in clinical trials—haven’t actually increased. That makes it hard to blame overfussy regulators for the decline in new drugs—though Derek Lowe, a pharmaceutical researcher who also writes about the industry, notes that firms do take the agency’s newer and stiffer requirements into account when deciding whether to take a drug candidate into trials. However, Lowe adds, some of these safety requirements are less a reflection of increasing FDA risk aversion than of our ability to test for more things. Even without the FDA breathing down their necks, lawsuit-shy companies have plenty of disincentives to pour millions into a drug that causes gastrointestinal bleeding.

Hence the left’s counterclaim to conservative complaints about the FDA: that companies, not regulators, are the ones who are too risk-averse. Pharmaceutical companies are blamed for focusing on marketing at the expense of innovation: they allegedly kill promising compounds because of fears of small markets, then concentrate on “me too” drugs that aren’t really any better than their competition’s. Or they tweak existing drugs in ways that don’t necessarily make the drugs any more effective, but do give companies a new patented drug for which they can charge the Earth. (Remember how we got Clarinex around the time Claritin was going off patent?) Then, when pharma companies have exhausted these strategies, they shore up their finances by merging with other companies and downsizing their research staff.

The complaints about mergers hold some truth. Even without the customary lab closings and shelved projects, mergers can trigger uncertainty and personnel turnover, causing good projects to languish. And yes, pharmaceutical firms do bring out a fair number of tweaks to existing drugs, or old drugs approved for new disease indications.

But those who want to chalk up empty pipelines entirely to mismanagement may be confusing cause with effect. Firms don’t merge because it’s fun; they merge because a big hole in their pipeline can lead to financial troubles. Mergers spread the risk. Companies naturally start obsessing about costs and marketing when their products become less profitable.

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Megan McArdle is The Atlantic’s business and economics editor, and the editor of the business channel at

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