pharmaceutical new drugsThe pharmaceutical industry has long been criticized for concentrating on new drugs that are profitable but not innovative or even necessary. A recent study seems to confirm these charges, finding that American universities and biotechnology firms are responsible for most innovative drug products.

"Biotechs and universities that partner initially with biotechs are responsible for the discovery of a disproportionately high number of innovative drugs," the study's author, Professor Robert Kneller, of the Research Center for Advanced Science and Technology at the University of Tokyo and Visiting Professor at Stanford Medical School, told DailyFinance. "They are more likely to discover innovative drugs than established pharmas."

Further, "Without the contri­bution of biotechnology companies, the number of new innovative drugs discovered . . . that respond to unmet medical needs would have been substantially lower," he writes.

The study, "The Importance of New Companies for Drug Discovery: Origins of a Decade of New Drugs," published in the November issue of Nature, analyzes the organizational and national origins of 252 new drugs that were approved by the U.S. Food and Drug Administration from 1998 to 2007. The author was particularly interested in shedding light on the factors that promote drug innovation.

Pharmas vs. Biotechs

According to the study, pharmaceutical companies discovered 58% of new drugs, while biotechnology companies came up with 18%. Universities that transferred their discoveries first to biotech­nology companies got credit for 16% of the drugs, and universities that transferred their discover­ies first to pharmaceutical companies were responsible for 8% of the drugs.

While the numbers point to pharma companies as the major source, Kneller dug deeper to find not only how many drugs pharmas were able to crank out, but how many of those actually addressed unmet medical needs or were considered scientifically innovative.

Among the drugs granted priority review because they were believed to offer substantial therapeutic benefits over currently marketed drugs, universities and biotechnology companies were credited with over half (54%), while pharmaceutical companies discovered 46%.

Why lump biotechs and universities together? Because biotechs seem to be a bridge between innovative university discoveries and downstream commercialization, either by biotechs or pharmas (through acquisitions and licensing agreements), explains Kneller.

Not only that, but biotechs concentrated much more on this area, with 65% of the drugs attributed to them in the priority review category, compared with 38% for pharmas.

Similarly, when assessing scientific innovation, biotechs and universities are responsible for the discovery of 56% of innovative drugs. Big Pharma, with their much larger R&D budgets, are responsible for only 44% of innovative drugs. Universities and biotechs concentrated much more on innovation (nearly 70%) compared to pharmas (35%). And biotechs tended to take more risks and under­take some 70% of the early development of innovative university drugs.

As for orphan drugs, which are meant to treat rare diseases and are given special incentives, here, especially, universities and American biotechs shine. Sixty percent of the orphan drugs are attributable to U.S. inventors, and almost all of the biotechs in the field are based in the U.S.

Which Discoveries Lead to Higher Sales?

Critics charge that pharmaceutical companies focus on discovering drugs that are likely to provide large revenues, and that these not sci­entifically innovative or meeting medical needs. Is it true?

While total sales for pharmaceutical-discovered drugs during 1999–2008 were more than double those discovered by biotechs, when it comes to sales per drug, the story revealed in the study is much different. Mean peak year sales of drugs dis­covered by biotechs were $1.22 billion, considerably higher than those discovered by pharmaceuticals at $0.85 billion.

But less than who discovered the drug, sales were affected by the type of drug. Biologics -- complex medicines derived from living organisms rather than from chemical synthesis -- had considerably higher mean sales than any other category of drugs, with nearly 40% of them being block­busters.

Among all 252 drugs in the study, the five with the highest sales are biologics: Roche's Genentech's oncology drug Avastin; Amgen's (AMGN) and Pfizer's (PFE) arthritis treatment Enbrel; Genentech's breast cancer med Herceptin; Johnson & Johnson's (JNJ) inflammatory disorders drug Remicade; and Abbot's (ABT) arthritis med Humira. The first four were discovered by biotechs or universities, had 2008 sales of over $5 billion, was scientifically novel and was probably approved on a priority basis. Several orphan drugs have also achieved blockbuster sales.

Many of these findings go hand in hand with recent strategic trends of large pharmaceutical companies, as they devote more resources to drugs that target rare diseases or specific patient populations.

Finding a Cure vs. Finding a Source of Revenue

Despite the higher sales of biologics, pharmaceuticals seemed to benefit more financially from follow-on drugs (minor variations of old drugs) and new molecules rather than scientifically novel drugs. The opposite is true for drugs discovered by biotechs and universities that transferred discoveries to biotechs.

Kneller found that the early develop­ment of scientifically novel university drugs by major multinational pharmaceutical companies was rare dur­ing the period studied.

These results are similar to results from previous studies. For example, in a 2006 paper, "Biotech Drugs Blaze a Trail," author Stacy Lawrence finds that, "Despite a total research budget just one-quarter that of the largest pharmaceutical firms, since 2003, public biotech companies have shepherded more new molecular entities to approval than big pharma."

Professor Marcia Angell of Harvard Medical School also famously criticized the pharmaceutical industry in her book The Truth About the Drug Companies: How They Deceive Us and What to Do About It. Recently, Angell wrote "Big Pharma, Bad Medicine" in the Boston Review:
[T]he big drug companies now concentrate mainly on the late-stage development of drugs they've licensed from other sources, as well as on producing variations of top-selling drugs already on the market -- called "me-too" drugs. There is very little innovative research in the modern pharmaceutical industry, despite its claims to the contrary.

Pharmas, it seems, have decided that it "makes business and scientific sense" to let universities, biotechns and investors assume much of the greater risk associated with discovering highly innovative drugs, Kneller writes. At the same time, there seems to be closer discovery­-oriented collaboration between pharmaceutical companies and academic institutions than was previ­ously the case, the study notes.

What Makes the U.S. Unique?

While Angell criticizes the way academia and companies collaborate, saying that increasingly the "industry is setting the research agenda in academic centers," the study shows that despite certain drawbacks, "Countries where biotechnology companies and universities are active in drug discovery are also countries with high proportions of scientifically or medically innovative drugs."

"In all but a few countries, pharmaceutical companies discovered the overwhelm­ing majority of drugs," Kneller adds. "The most notable exception is the U.S. where over 60% of the attributed drugs were discov­ered in universities or biotechnology companies." This is true also for scientifically innovative drugs.

This is partly the result of the the U.S. government support for such research, which has been typically higher than other govern­ments. The U.S. spent 0.231% of GDP on health related R&D -- primarily through the National Institute of Health -- in 2004, over twice the percentages for Japan and major European countries.

"New companies are essential for the discovery of innovative drugs," Kneller told DailyFinance. "But it probably is not easy to create an environment that is supportive for science based entrepreneurship, and even in the U.S. this environment should not be taken for granted."

Diminished early­-stage venture capital for new companies, poor prospects for initial public offerings, diminished immigration of sci­entists and science students into the U.S., and moves towards patent 'reform' in the U.S. "all raise questions about the future of this 'US model' of innovation that relies so much on new companies."

Increase your money and finance knowledge from home

Income Investing

Grow your nest-egg.

View Course »

Bonds for Beginners

Learn about fixed income investments.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:


December 01 2010 at 8:10 AM Report abuse rate up rate down Reply

U.S. Biotechs lead the way, and when it comes to pay for the research, the U.S. consumer will lead the way, by paying 3 or 4 times more than the rest of the world for the cost of the medication, because their goverment will set a low limit on the cost of the medication in their country. I say they should pay their share of the cost of the research, or DIE, why should they pay a lower price than the actual cost of research, and production. Why should the U.S. consumer pay for their medication.

December 01 2010 at 7:03 AM Report abuse +1 rate up rate down Reply

Do you know what plain old periwinkle is used for? It's a naturally growing flower and sounds safe, right? It's VINCRISTINE, which is used to treat cancer. It's POISON, and it kills the cancer, and hopefully not the patient. Docs have taken that knowledge, and synthesized it so it's so much less dangerout to the patient but still targets the cancer. And what is foxglove? It's DIGITALIS. If you or your pet eats that plant, your heart may stop and you will die. The pharmaceutical companies managed to synthesize that decades ago and it's so much safer. You people are commenting from a position of pure opinion and what the "vitamin-supplement" stores are filling your heads with.

December 01 2010 at 2:15 AM Report abuse +2 rate up rate down Reply
Robert & Lisa

Every manmade drugs have bad and sometimes deadly effects. Go to your local health food store. They have natural remedies for high blood pressure, Gout, obesity, and just about every other common malady. The best one I've found is in East Texas called Granary St. They have 10 family run stores and if they don't already beat the internet prices on their products, they match them... 936-622-6601 is the # for my local store.

December 01 2010 at 12:34 AM Report abuse -2 rate up rate down Reply
1 reply to Robert & Lisa's comment

Sorry, but the "natural suppelements" can be just as or more dangerous. There are some that claim to lower cholesterol but you take them without a doctor's knowledge or having your liver function studies monitored and you can easily end up with liver damage. That goes for many supplements, and you fail to acknowledge that so many of the "man made drugs" and nothing more than the natural products that have been synthesized and are virtually identical in a chemistry lab. I worked in the hospital setting as a CCRN for over 30 years and have seen what the "natural supplements" can do TO you instead of FOR YOU, when you're not being monitored by a doctor who does frequent labwork.

December 01 2010 at 2:08 AM Report abuse +3 rate up rate down Reply

If you think the Universities are stores of higher education; you're in for a surprise! Keep looking threw you're fingers for a return on this investment!

November 30 2010 at 10:31 PM Report abuse -2 rate up rate down Reply
3 replies to witteyjb's comment

Drug companies spend more on advertising and public relations than R & D. Fully half of the new drugs are researched, created and tested under the auspices of the National Institutes of Health ... (as in "by the government") ... then turned over to corporations for production and distribution and can charge whatever they want. I wonder why we never hear about that. PHIL

November 30 2010 at 9:45 PM Report abuse +1 rate up rate down Reply
2 replies to Phil's comment

After you fund a series of controlled studies for safety control on people who are taking newly developed medications for a period of years, then you will deserve to comment; as it is now, you simply don't have all the facts. You have no clue how much money goes into research and extensive controlled drug studies that last for years.----just an old RN

December 01 2010 at 2:11 AM Report abuse +2 rate up rate down Reply

Why does everyone forget that drug companies are COMPANIES, not benevolent, philanthropic organizations? No one seems to criticize retailers for charging 5000% markups on clothes made by oppressed children or on jewelry harvested off of the backs of indentured "servants".

As Americans, we are fortunate to have access to the latest and greatest medications and technologies. We continually confuse our ability to purchase high quality, cutting edge medical treatments in a free market with some sort of non-existent right to live forever through advancements in science.

April 02 2012 at 6:29 PM Report abuse rate up rate down Reply
Patriotic Paul

Killing you softly with their pills, killing you softly for your money

November 30 2010 at 8:51 PM Report abuse +1 rate up rate down Reply

In the year 2025 - you wont need to tell the truth and you'll tell no lies - Everything you think, do and say is in the Pill you took today. Yummy, More Pills

November 30 2010 at 8:43 PM Report abuse -2 rate up rate down Reply
1 reply to erink91321's comment

Caution.....may cause anal leakage.

December 01 2010 at 12:04 AM Report abuse +1 rate up rate down Reply