The Pipeline Conundrum
The latest data on the drug development pipeline from IMS (provided to us by an equity analyst who tracks the CRO industry) indicates the continuation of a disturbing trend: the number of drug candidates in early development continues to grow, but the number of candidates in Phase III and registration remains flat. As the chart indicates, this picture has been the same for 5 years now, and there is no indication that it will change any time soon.
The pipeline data contrasts with other indicators we track, especially the continuing climb in CRO backlogs (work under contract but not yet performed). It's also at odds with the anecdotal reports we get from contract manufacturers, who seem to be having a strong year for new signings. However, the data is very much in sync with the low number of NME approvals by the FDA in recent years.
We've seen little discussion of why the sharp fall-off in candidates from Phase II to Phase III continues. Although there are many novel therapies in the pipeline, e.g., gene therapy and antisense drugs, we haven't seen an indication of a massive failure of candidates in any particular classes of drugs. Of course, there are a large number of oncology candidates in the pipeline and they have an inherent high failure rate.
Another hypothesis is that companies are trying to move more candidates from discovery into early development but then killing them before they get into costly Phase III trials. This suggests that industry is pursuing strategies based on accepting that the only way to bulk up late stage pipelines is to offset high early attrition rates with the sheer volume of new candidates.
One implication of this picture is that CMOs should probably not be too optimistic about their future prospects despite a large number of new contract signings. It seems that the probability of candidates actually making it to commercial success is pretty slim.
If you've got some hypotheses on what is going on in the pipeline, we'd like to hear them.
