Pharmaceutical research and development is critical and offers health and hope to millions…. but it’s very expensive. A Deloitte study from 2018 reported that the cost to develop a new drug from discovery to launch ranges from $1bn to $4bn (average about $2.2bn) and this has been rising ahead of inflation for decades.  It also takes between 5 and 10 years to bring a drug to market (average 6.7 years).  This trend of stubborn inflation (or friction) is in sharp contrast to most technological disruption we see today.  Given these high and rising costs, it is easy to understand why pharmaceutical companies are predominantly focussed on generating a return on these investments. It is the economics (i.e. potential number of patients multiplied by the achievable price) and not societal benefit, which are the ultimate determining factor. It’s all about size, scale and pushing prices up. Furthermore, cultural frictions and conflicts of interest clearly arise within the system, thus delaying the development of promising new discoveries.


Source: Deloitte 2018: Measuring the Return from Pharmaceutical Innovation

In short, the barriers to drug development are very high and research and development productivity is low. Navigating your way to and through a phase III trial is a monumental undertaking for any scientist or entrepreneur, so success is highly unpredictable.  It’s a hero or zero binary outcome that even the experts have difficulty predicting.  Factor all this into the context of treating rare diseases (i.e. developing ‘orphan drugs’) and it is also obvious why they receive relatively limited resource. This is probably fair in an economic context, but that’s not much comfort to those who might have been cured.


Source: Deloitte 2018: Measuring the Return from Pharmaceutical Innovation

The appropriate mechanism(s) for encouraging new drug development – whilst also ensuring safety, efficacy and keeping prices low – is fraught with politics, but there are some things that everyone can agree would be good…..

  1. Increase the efficiency of the drug discovery / screening process
  2. Improve data quality & quantity throughout the process to maximise R&D resource allocation
  3. Increase the efficiency of human trials to minimise suffering, reduce time and reduce costs
  4. Improve drug efficacy and reduce side effects via more personalised medicine (without an associated decrease in the returns on investment)

We do not directly invest in any pharma or biotech companies within our representative global sustainable equity strategy, but we do invest in companies that are focussing their efforts on solving at least one of the above problems within the R&D process.

Company Country Kames Sustainability Area of focus Brief description and examples of positive disruptive potential
PeptiDream Japan Improver Drug discovery platform A proprietary drug discovery platform which contains trillions of peptides and allows researchers to screen for new drugs hyper efficiently versus traditional methods. Peptides have relatively high potency, high selectivity and low toxicity versus traditional antibodies. This means a much higher chance of finding efficacious drugs which have less side effects. As a result, peptide drugs have the potential to vastly expand the number of addressable and ‘drugable’ targets, including rare diseases.
Medidata US Leader Drug R&D data analytics platform A software as a services (SAAS) platform specifically developed for the drug R&D process. This mission-driven business was formed specifically to help bio-tech & pharma companies do detailed and dispassionate data analytics on nearly all aspects of a clinical drug trial. This improves resource allocation, increases success rates and drives cost efficiencies. Medidata are also pioneering the concept of “synthetic” trials which could dramatically reduce the required number of human participants needed.
Illumina US Leader Genomics Illumina are the global leader in gene sequencing or ‘genomics’, a rapidly evolving industry at the intersection of biology and technology. Illumina enables researchers to better understand genetic variations and thus unlock potential new treatments. Illumina has driven down the cost (per genome) which we believe has led to an inflection in research activity across a range of unsolved disease classes and under-researched rare diseases.
Icon Ireland (US listed) Improver Drug trial management A clinical research organisation (CRO) used by pharma & biotech industry to accelerate and improve their drug trial process. CRO’s add value by leveraging their experience and data in large scale late stage trials. CRO’s also provide small biotechs with access to this scale, thus meaning small players can hold on to and commercialise their own IP rather than selling out to big Pharma.

Technology-led innovations typically drive up the chances of success whilst also taking cost out of the system but such trends have been very slow to manifest within pharmaceutical R&D. We believe some technologies are now reaching tipping points that could provide a step change in productivity across multiple areas in this R&D process. This would be a win / win for everyone, including – we believe – the shareholders of companies who enable such positive advances.

Source: Illumina, JP Morgan healthcare conference presentation, January 2019

About the author

Craig Bonthron is an investment manager in the Equities team, responsible for actively co-managing high conviction global equities portfolios. He focuses on analysing disruptive and sustainable investment trends within the technology, healthcare, industrial and consumer sectors in order to identify high conviction stock specific investment ideas. He joined us in 2014 from SWIP, where he was an investment director in global equities. Prior to SWIP, he was a portfolio manager at Kleinwort Benson Investors. Craig has a 1st Class honours degree in Building Surveying and an MSc with Distinction in Business Information Technology Systems from Strathclyde Business School. He has 18 years’ industry experience. (As at 30 April 2019).

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