The pharmaceutical industry is a high-stakes venture with both a fiscal and moral bottom line, the leader of pharmaceutical giant Roche Holding Ltd. told an MIT audience recently.
While investors have come to expect double digit returns each year, development costs are steadily rising and productivity has stalled. "The biggest challenge for us is how to cure the sick and run a profitable business at the same time," Roche chair and CEO Franz Humer said in Wong Auditorium on Nov. 20.
Costs and risks have accelerated in recent years, Humer said in his talk on "The Pharmaceutical Industry in the Global Economy," co-sponsored by the Office of Corporate Relations and the Center for Technology, Policy and Industrial Development. The cost of a new drug program runs about $800 million and drug development costs have risen more than 7 percent a year for the past decade.
These costs are significant since so few drugs make it to market. "Of 10,000 compounds in the test tube, only 10 make into human testing," Humer said in his talk, this year's third Industry Leaders in Technology and Management lecturer. "Only one makes it to market. And only one of four that make it to market returns its investment." A further obstacle is the slowdown in the government approvals. In the 1990s, the FDA approved 35-45 new compounds a year. In the first nine months of 2001, only 11 were approved, he said.
During Humer's time with Glaxo Holdings PLC from 1981-94, the patent exclusivity period for the heartburn medicine Tagamet was eight years. "When Roche launched the first protease inhibitor for the treatment of AIDS, the second and third one followed 11 and 12 months later," he said.
Despite these challenges, Roche posted nearly $15 billion in sales and 12 percent growth in 2001. Under Humer, who became chairman in 2001, Roche is refocusing its energies. He has abandoned the 1990s mergers and acquisitions trend in favor of alliances among equals.
"Large mergers, large acquisitions in this industry destroy value, destroy innovation," Humer said. "You do need critical mass to compete globally, but once you have that, size does not give you an ability to innovate. What you need is agility, focus, speed, and the ability for research, development and marketing to work together."
The dual goal of relieving suffering while making a profit has made the industry vulnerable to recent charges of overpricing AIDS drugs in developing countries. Humer, who says Roche does not patent drugs in the least-developed African countries, says the problem is not so simple. He said lack of transportation, cold storage and medical personnel have meant wasted medications and the rise of resistant strains.
"To produce long-term benefits, price cuts on AIDS drugs can only be useful as part of a comprehensive approach that includes prevention, information, education and reliable means of transportation and monitoring of treatment," he said.
Humer said drug resistance is becoming an acute problem worldwide, with as many as 50 percent of AIDS patients in pockets of the United States and Europe resistant to known treatments.
"Our industry's obligation is to develop new, better AIDS drugs that can tackle the emergence of resistance in the developed world and, in the years to come, in the developing world," he said.
A version of this article appeared in MIT Tech Talk on December 18, 2002.