NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, February 8, 2017

The business model of research-based pharmaceutical companies is under significant pressure. Their return on R&D investment has dropped to its lowest levels in decades, and their public reputation in the United States and abroad is worse than ever.

One antidote to these problems is to transform “access to medicine” from a relentless activist slogan to a fully-fledged business strategy. By that I mean that pharma companies should develop innovative treatments for pervasive unmet medical needs; avoid corruption, collusion, and other unethical marketing practices; and make sure that their products reach as many patients around the world as possible. This strategy will tap potential growth in emerging markets, limit the risks of misconduct, and improve public trust in the industry.

It’s a fact that the current business model of pharma companies is not working efficiently. For each $1 billion spent on R&D, the number of new medicines approved has halved roughly every nine years since 1950. The estimated return on these (fewer) products has itself declined substantially since 2010, from 10.1% to 3.7%.

This decline can be partly explained by the transition from one-size-fits-all blockbuster drugs to niche therapies (which have smaller patient groups). However, it also reflects stronger pressures to lower medicine costs in traditional pharmaceutical markets.