Are Drug Pipelines Really Getting Better?

This is a crucial question, of course, and the impression some may have had recently is that, yes, the pharmaceutical industry is gradually replenishing its supply of needed new medicines. After all, more new and innovative drugs have been approved over the last couple of years. But data from a research group suggests the reality may be otherwise, at least according to recent R&D trends measured by a research group.

In an investor note, Sanford Bernstein analyst Tim Anderson writes that data from KMR Group, reveals what he calls "several potentially disturbing" trends. "Pipeline success rates across all phases of development have been slowly worsening or at best staying flat, depending on the phase." For instance, success rates for Phase III drugs went from 70 percent to 67 percent to 65 percent from 2003 through 2007; from 2005 through 2009, and from 2007 through 2011, respectively.

For Phase II drugs, success rates fell from 34 percent to 25 percent to 22 percent during the same periods. And the number of preclinical drugs needed to yield one approved drug also rose. From 2003-2007, 12 preclinical drugs were required to yield one marketed drug, but then jumped to 24 from 2005 through 2009, and 30 between from 2007 through 2011. In other words, this more than doubled in less than a decade, he writes.

And when you measure the time needed to go from preclinical to development to regulatory approval, so-called 'cycle times' have also risen. From 1999 through 2001, it was 11.4 years and rose to 13.7 years between 2009 and 2011. Between 2008 and 2010, cycle times increased to 13.6 years, Anderson notes. However, the discovery segment remained fairly constant at an average of about 4.5 years, he adds, while the development portion rose from 7.1 years a decade ago to 9 years.

Obviously, such data is sobering for those, like Anderson, who believe the industry pipeline has been improving. So how does he explain the seeming contradiction? He offers several possibilites. As he notes, the KMR data is "grouped by several years at a time which could mask a more recent potential inflection point." He also speculates that the three mega-mergers of the past few years disrupted pipeline progress.

What else may explain this? Perhaps, "increased attrition rates in Phase II development could merely be capturing the newer 'kill early' philosophy that drug companies have been implementing as a way to more expeditiously weed out subpar pipeline candidates." Finally, he posits the data may reflect the ongoing move away from 'me too' drugs towards "more novel, higher-value - and almost by definition, higher risk - products."

Whatever the reason, the take away is that, perhaps the overall outlook needs to be tempered somewhat. Yes, approvals may be on the rise and some novels drugs have been approved for various cancers, hepatitis C, thinning the blood, but the trend may not hold, at least if the data foretells a larger story. Only the crystal ball knows for sure.