What is the Solution to Shrinking R&D Budgets?

Megan McArdle at the Atlantic commented on an interview with Venture Capitalist Ken Kineslla at Xconomy about his perception that Big Pharma puts the squeeze on start-up biotechs to such an extent as to prohibit growth in the earlier phases of research. This would pose a problem for Big Pharma itself and the industry in general because larger pharmaceutical companies no longer have the internal resources to dedicate to early research, for a variety of reasons.

I found Kinsella’s argument interesting, although I don’t know much about it, but McArdle’s assessment of the industry’s options piqued my interest.

The problem is that if Kinsella’s right, this may be a nasty equilibrium:  all pharmaceutical companies (and people) would benefit if the deals were a little more generous, but every individual firm benefits from driving the hardest deal possible.  If that’s right, I don’t know how we fix it, other than to shift away from the pharma model, towards prizes or the alternative system Dean Baker has proposed where the government would directly do pharma research.  For a variety of reasons, I think the latter system is unlikely to do much good, but I think it’s certainly worth trying to see if the government can out-perform the private market in terms of cost-effective drug development.

This seemed relevant to a new conference I’ll be running in Boston in July, Pharmaceutical Research Collaborations Summit. I wonder if the topics on the slate represent several other options.  Big Pharma is more frequently working with universities in early stage research, and with biotech startups, not only providing some funding, but by working together on the research itself. In much earlier phases, there are pre-competitive networks, where pharma companies pool areas that are not their main competencies, such as IT, to conserve resources. Other companies use open innovation programs (the prizes refered to above) or other private-public partnerships between big-pharma, biotechs, universities, private foundations, government agencies and other stakeholders.  What the speakers at Pharmaceutical Research Collaborations have in common is that they are seeking to compensate for shrinking R&D budgets by looking outside their organizations in increasingly creative and collaborative ways.  I think lack of venture funding may be a trend for businesses in general. So, perhaps working together for mutual self interest is the trend of the future – as opposed to government taking the reins.  I’m definitely looking forward to hearing more about this in July. I will blog some upcoming highlights in the coming months.

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One Response to What is the Solution to Shrinking R&D Budgets?

  1. [...] was a response at Exonomy.com about the article I commented on a few days ago. I though this point was buried a little deeply in the story. But since the Xconomy story ran on [...]

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