Pfizer - R&D in the pharmaceutical industry

PFIZER CASE

The pharmaceutical industry has to continuously develop new products (patents). The different phases requested ahead a new product launch involves long gestation periods, and the development of a new product takes around 10 to 15 years.

In general, most large pharmaceutical firms have a centralized R&D unit.

R&D trends in Pharmaceutical industry:

In the past, increase of R&D costs for a new drug (for one: 1975: € 150m / 1987: € 344m / 2000: € 870m  1/3 of all medicines generate revenues above R&D costs)
Recent development of “new sciences” and growing trend to “personalized medication”. This evolution tends to increase the importance of Universities and smaller biotechnology firms in the R&D process as they are generally more innovative than big pharmaceutical firms.
It is possible that the big firms tend, in a foreseeable future, to decentralize their R&D in order to have more flexibility at the research front
The 20 years average of patent protection is not expected to be reduced, but the time that a “breakthrough products” exists on the market without any competition decreases continuously and that pushes pharmaceutical companies to research in new therapeutic areas

Significant indirect drivers for the R&D in the pharmaceutical industry:

Proportional increase of ageing population.
A need to develop innovative and expensive medicines has risen and increase
The average spending on health care in OECD countries (as % of GDP) has increased over the past decade (and the part of medicine expenses within health expenses also tends to increase).

Hypothesis

Signs that the “simple discoveries” have already been made are a clue to forecast that the time and money spent in discovering new products should keep increasing in the future.
There is no significant evidence that the tendency of the increase in R&D costs (c.+500% in 25 years) might stop. The fact that only 1/3 of all medicines actually generate revenues higher than their R&D costs is not necessary a hindrance for the increase of R&D costs as the global demand for medicines is forecast to keep increasing also (ageing population, new strains of diseases…)
The ageing population (and the development of “high age symptoms”) and the new strains of diseases (cancer, AIDS…) have created new goals, which are the very beginning of the research on a new product. The “number of goals” and their variety might increase
Otherwise, the development of scientific controversies around the medical effects of existing medicines and the increasing “fear” of unclear or unknown side effect in Western countries might be seen, in a way, as a challenge for pharmaceutical companies to increase their R&D expenses and the time spent in it in order to be able to 1) anticipate and discover more side effects of their products, 2) appear as more “trustful” for the consumers. Thus, if as of today around 10,000 preparations are tested and evaluated during the pre-clinical test phase, a tendency for this number to increase might appear.