In our previous article, we discussed how a more attentive FDA and a more demanding healthcare market are forcing pharmaceutical companies to change the way they have done business for decades. Research and development (R&D) is perhaps the most impacted by both of these market dynamics. After all, without new products you don't have to worry about marketing and sales or manufacturing.

The new market mandate is that you have to discover truly-innovative new products that are better than what is currently available. The managed market is no longer willing to accept and pay for high-priced new products that don't have definitive advantages over alternative treatments.

To meet this new market expectation, drug companies have two options. They can prove their newly-discovered product has clinically-meaningful advantages over other available treatment alternatives. Or, they can discover and develop products for diseases for which there are few or no treatments (orphan drugs).

So what does this really mean? It means finding these new treatments either through their own discovery research or by acquisition.

Unfortunately, in the early 2000s the "quick to market" strategy with marginally better "me too" products and the ease of inexpensive acquisitions replaced the drudgery and time required for productive expertise driven discovery research. Many Big Pharma companies downsized or totally abandoned discovery research programs.

The very foundation for robust discovery research, basic science and therapeutic expertise, has been lost or significantly diminished in many Big Pharma companies.

So who is going to do this discovery research to find the desperately-needed treatments for all the debilitating and life-threatening diseases that remain? It’s looking more and more like the pharmaceutical industry is depending on academia and the government to find new treatments while pharma companies provide funding and rely on acquisitions to fill their development pipelines.

But even if academia, government or even a Big Pharma company is successful in finding truly innovative new compounds, they will still need well-designed clinical trials. These trials demonstrate safety and efficacy for regulatory approval, but now they'll also have to prove (not just claim) comparative value to meet market expectations. Drug companies are being asked to prove their products are better in clinically-meaningful ways and prove (with data) that the price they are charging is worth the expense.

Designing and executing trials that prove efficacy and safety are challenging and expensive enough. Studies to prove comparative value go well beyond FDA requirements, are less well defined in terms of what needs to be studied or what can be proven, and are likely to be even more expensive than traditional clinical trials.

For years drug companies ignored academia as a legitimate source of innovative new products. This resulted in a backlog of technologies that biotech and Big Pharma have since picked over and harvested over the past decade.

While there may be a continuous flow of innovation from academia and government, the numbers of viable products will slow substantially as the backlog is worked off and Big Pharma awaits the results of the fresh crop from the time-consuming, laborious task of drug discovery.

This means products that make it to market will be better than available alternatives, but they will come at a much slower pace than we might have seen in the past. And, because of the "proven" innovation and value, the prices may be better aligned with value but will be much higher than we might have expected in the past.

So, let's just assume a drug company has developed an innovative new treatment and they have data to demonstrate clinical superiority and cost effectiveness. The drug company will now face its next dilemma of how to market and sell in this new commercially-constrained environment.

We'll discuss this challenge in the next post.