U.S. Pharmaceutical Industry Maintaining Global Leadership
The pharmaceutical industry is a key part of the U.S. economy, with an expected value of $685.45 billion by 2023. Steady growth is driven by an aging and growing population, rising income levels, new markets abroad, and emerging illnesses or diseases that require treatment. At least for the short term, the U.S. is expected to retain its leading position in the global pharmaceuticals market, with a market share of 43.72% by 2023.
However, other nations—especially China—are eager to increase their share of the pharmaceutical market. This includes not only manufacturing, but also innovation and drug discovery—a category the U.S. has long dominated.
Although still at the top, U.S. biopharmaceutical manufacturing output has fallen by almost one-third over the last decade as the U.S. trade deficit in drugs and inputs has increased. Additional negative impacts have come from COVID-19, U.S.-China trade battles, supply chain disruptions, and regulatory changes.
“Fortunately, though,” says Stephen Ezell, vice president of global innovation policy for the Information Technology and Innovation Foundation (ITIF), “America still leads in innovation and drug development. This is largely due to significant federal investment in life-sciences research, robust intellectual property (IP) protections, effective technology transfer policies, investment incentives, and, importantly, drug pricing policies that enable companies to invest in high-risk drug development.”
Staying Innovative and Competitive
That said, the U.S. pharma industry is vulnerable, especially regarding innovation. The federal government’s plan to implement cost-control policies, along with more restrictive rules, will likely delay drug approvals and erode prices, which will have negative impacts on the growth of the U.S. pharmaceuticals industry. In addition, pharmaceutical companies have reduced their research and development (R&D) spending due to slower growth in recent years, especially regarding new drug discoveries.
To off-set these influences, the ITIF believes the U.S. government must develop a national biopharmaceutical competitiveness strategy. To increase innovation, drug discovery, and domestic production, the ITIF recommends:
- Strengthening price stability, tech transfer, and intellectual property—and avoiding drug price control schemes that damage competitiveness
- Boosting innovation through investment and additional tax incentives that promote research and development
- Increasing domestic production, via tax credits, and additional funding for key research institutions
- Combatting foreign mercantilism by making sure that America’s trading partners pay their “fair share” for new drugs, treatments, and other medical products
- Expanding R&D talent by creating a National Science Foundation Fellows Program that supports Ph.D. students in STEM (science, technology, engineering, and mathematics)
- Creating incentives for domestic production that encourage reshoring of supply chains and manufacturing operations to the U.S.
R&D = Innovation
The ITIF believes Congress should vigorously support pharma research and development funding, including “restoring National Institutes of Health [NIH] funding to 2003 levels as a share of gross domestic product, which would entail boosting NIH funding by $11.6 billion annually,” says Ezell. “The Department of Commerce should also promote the creation of R&D megafunds by establishing an office to develop and implement the needed incentives.”
It is also vital to support start-ups and early-stage pharma companies. Increasingly, this is where innovation happens, and where truly innovative drugs are born—not in the labs of large pharma companies. In 2018, for example, 64% of the 59 FDA-approved drugs originated from emerging biopharma companies.
Over the past five years pharma’s R&D model has evolved, with small biotech and large pharma companies collaborating to create faster, more cost-effective ways to bring new treatments to market. “Small pharma brings nimbleness and a focused-approach to science that is uninhibited by the bureaucracy of large pharma. At the same time, large pharma provides the funding, sales, and marketing muscle to bring these innovative drugs to patients,” states PharmaVoice.com.
“This is a dominant trend in the industry,” adds Nach Davé, vice president of development strategy for Premier Research. “Large pharma is deciding that rather than take the risk of developing a single drug over the course of seven to 10 years and spending $7 billion, they’d rather take their chances on innovative, small companies.”
Large pharma companies also help fund the start-ups they are interested in—including paying for high-tech research incubators where these young companies can cost-effectively carry out their research. By investing in their ideas, big pharma then has first shot at commercializing promising new drugs. For example, Johnson & Johnson recently launched its JLABS life sciences and healthcare incubator in New York City. The 30,000-square-foot facility houses more than 30 life science start-ups, many of them biopharma. In December 2019 NYU Langone Health opened a 50,000-square-foot biotech incubator in Manhattan that is supported by biopharma giants Bristol-Myers Squibb, Sanofi, and Boehringer Ingelheim. The incubator provides early-stage companies with affordable lab and office space, as well as operational support.
Big pharma’s new role is to partner and fund the innovation that it needs to put promising new drugs in its development pipelines. This is a cost-effective way for larger drug companies to leverage outside scientific talent to gain access to breakthrough discoveries.
The collaborative relationships between large and small pharma will likely lead to and sustain new business and R&D models across the entire industry.
“We have started to witness a shift in the balance of power over the past decade, with a burst of innovation from the early-stage and emerging biotech companies,” says Naheed Kurji, CEO for Cyclica, a biotechnology company. “As the market landscape for drug discovery evolves, early-stage biotechs are increasingly entering the spotlight with a combination of subject-matter expertise in the science and the benefits of a lean organization conducive to rapid innovation.”