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Business and Markets

Drug Companies Since 1950

There’s a data-rich paper out in Nature Reviews Drug Discovery on the history of drug innovation in the industry. I’ll get to its real conclusions in another upcoming post, but some of the underlying data are worth a post of their own.
The author (Bernard Munos of Lilly) looks at new drug approvals (NMEs) since 1950, and finds:

At present, there are more than 4,300 companies that are engaged in drug innovation, yet only 261 organizations (6%) have registered at least one NME since 1950. Of these, only 32 (12%) have been in existence for the entire 59-year period. The remaining 229 (88%) organizations have failed, merged, been acquired, or were created by such M&A deals, resulting in substantial turnover in the industry. . .Of the 261 organizations, only 105 exist today, whereas 137 have disappeared through M&A and 19 were liquidated.
At the high end of the innovation scale, 21 companies have produced half of all the NMEs that have been approved since 1950, but half of these companies no longer exist. . .Merck has been the most productive firm, with 56 approvals, closely followed by Lilly and Roche, with 51 and 50 approvals, respectively. Given that many large pharmaceutical companies estimate they need to produce an average of 2–3 NMEs per year to meet their growth objectives, the fact that none of them has ever approached this level of output is concerning.

Indeed it is – either those growth targets are unrealistic, or the number of new drugs thought to be needed to support them has been overestimated, or we’re all in some trouble. Speculation welcomed – I lean toward the growth targets being hyped up to please investors, but I’m willing to be persuaded.
And the fact that most of the new drugs come from a much smaller list of companies should be no surprise – that looks like a perfect example of a power law (aka “long tail”) effect. Given the way research works, I’d actually be surprised if it were any other way.Now about that figure of 4,300 companies, though: what could possibly be on it? All sorts of startups that I’ve never heard of, of course – but how can that account for such a large number?
It appears to come from this PDF, where it appears on slide 114 (whew). There’s no listing, just a breakdown of 1450 companies in the US, 450 in Canada, 1600 in Europe, and 740 in the Asia/Pacific region. Anyone want to hazard any guesses about how real those numbers are?

18 comments on “Drug Companies Since 1950”

  1. Wavefunction says:

    It’s interesting to see the author citing Nassim Taleb’s “The Black Swan”!

  2. Hap says:

    I don’t know if that’s interesting or ominous…
    I wonder how many of the approved drugs were purchased from smaller companies – while the number given of pharmaceutical companies that have existed or do exist seems high, maybe fewer of them achieved nothing than it seems if some of the drugs approved from other companies were sold to them by smaller companies.

  3. Biobug says:

    I did some similar analysis for a company about 1.5 years ago. I identified 530 public companies that trade in the US (so it includes some ex-US), and around 250 to 300 viable US based private companies. Both numbers likely shrank in the last financial crises, and they include diagnostics along with generic companies, pharma companies, and biotech. The public company number includes medical devices but the private number does not, and both numbers exclude medtech, insurance, hospitals, PBMs, etc etc.
    The Burrill numbers seem a tad high to me, they may be including other healthcare fields, and they may not have filtered for companies that have no substantive operations. VCs are especially good at failing to mention or remove from their websites those companies that fail or are nothing but some IP collecting dust under a name.

  4. Ed says:

    Nice typo on p.22 of that pdf from the life science experts at Burrill and Co. 🙂

  5. David P says:

    Thanks for the heads up on this article, interesting (and, as Hap says, ominous) stuff.
    Not sure about 4,300 companies: my question is what counts? A start-up with 2 people and an idea? Something a bit more developed than that? If the former, I am amazed it is only 4000.

  6. Hap says:

    Sorry. I haven’t read the article, so I don’t know how ominous the article is as a whole – I just figured that references to “The Black Swan” don’t tend to mean anything good and either imply imminent catastrophe or that something neglected has the potential to cause catastrophe.

  7. Mark says:

    I’m thinking the same thing as comment #2.
    I wonder how the compounds were counted. If a company was purchased, were all of its marketed products attributed to the company that acquired them?
    Take a look at Pfizer’s numbers from 2000 to 2009. It looks like about 8-10 NMEs were approved. But how many NME’s did Pfizer actually produce in-house in that period? I can’t think of many: Viagra, Chantix, Selzentry, ? ? ? ?.

  8. cliffintokyo says:

    #6 Hap,
    Far too clever for most people; why don’t you spell it out?
    I can think of several neglected major-league issues that could potentially lead to Teva being the only pharmaceutical company left standing and making products that both physicians and patients trust….

  9. Petros says:

    Pfizer’s inhouse NMEs launched since 2000
    eletriptan (Relpax) 2001
    Ziprasidone (Geodon) 2001
    Fosfluconazole (Prodif) 2003 Japan only
    varenicline (Chantix) 2006
    maraviroc (Selzentry) 2007

  10. RB Woodweird says:

    There is no way of telling whether the trends in the business since 1950 are ominous or typical unless some the numbers from some other industries are given for comparison.
    Organic chemistry, graduate school, vengeful ghosts, high explosives. What could possibly go wrong?

  11. Jordan says:

    1450 companies in the US and 450 in Canada? Canada only has 10% of the population of the USA. Seems fishy to me.

  12. Druggist says:

    I don’t think the number of 4,300 companies is unreasonable….I work in competitive intelligence and we are tracking over 3,500 active companies with at least one defined drug development project. Of course, many of these are very early-stage start-ups. We don’t track generics firms, which would bump up our numbers considerably if we did.
    Vast majority are in the US, followed by UK, Japan, Switzerland and then Canada.

  13. Ed says:

    Surprised Germany isn’t on that list Druggist – where does das Bundesrepublik come in at?

  14. Anonymous says:

    Yeah…ignore my last post…was counting drugs per country not companies per country. Hence Switzerland being so high (the Novartis effect).
    It’s actually USA, then Canada, Japan, then Germany and France (almost tied) and the UK.

  15. Ed says:

    And now I’m surprised that France beats out the UK (given the number of French chemists that come to the UK to find work!)

  16. SteveM says:

    If you extract out the me-too drugs with marginal additional clinical value from the success count, the innovation picture becomes even less impressive.
    Moreover, under a more stringent future cost containment paradigm, the Nexiums and Pristiqs of the new product world may never see the light of day. So the pipelines may be even more shallow.

  17. Sumontro says:

    Why would these companies have so few innovations? I thought drug companies spend a LOT on research.

  18. Mutatis Mutandis says:

    They spend a LOT on research, but they do it with dumbfounding inefficiency. I think the fundamental cause is very simple, which makes the repetition of the error even sadder.
    Modern drug discovery research is an incredibly complex process, which requires great attention to a large number of factors, and a complex blending of skills. The number of requirements that have to be met is large, or if you prefer to put it the other way, the number of possible causes for failure is vast. The average success rate is dismal. For the lucky people, success may come by being incredibly talented; for most of us success depends on learning from our (numerous) errors and gradually adjusting our ideas and teams until we arrive at something that works.
    The fundamental problem is that this concept is very hard to sell to the management of a large pharma company. For one reason or another, often on the advice of some consultant who knows next to nothing about the drug industry, management reaches instead for an endless series of golden bullets. According to these modern day snake-oil sellers, you will inevitably be successful if only you screen at least a million compounds, or if you look for natural compounds, or if you gamble everything on biologicals, or if you invest in fragment-based screening, or if you do drug design by cheminformatics, or if you do phenotypical screening and systems biology, or if you gamble on portfolio management and process excellence, and so on. Most of us have seen too many of these waves come and go to remember all of them.
    Often these things have real value, although at least equally often management grasps for straws that are rooted in very loose soil. But that doesn’t matter. The point is that there are no golden bullets, no magical formulas for success, and focussing your investments in one area while neglecting the others is wasteful because the things you neglected invariably come back to bite you. To get a good drug, you have to look at all the facets of the problem simultaneously, and even then you need to be lucky.
    (Of course no single person can do that, which is why good teamwork is so important. The kind of reorganization in which pharma specializes, is often madly destructive of good teams.)
    But this is not just an industry problem. It is equally true at large academic institutes.

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