Pharmaceutical sector shows growth in advanced drugs

A report on the pharmaceuticals manufacturing industry says its success can be measured by a jump in the number of drugs in advanced development.

The report by consultants LECG follows a study commissioned by New Zealand Trade & Enterprise and the Foundation for Research Science & Technology to calculate how much gross domestic product and how many jobs the industry generates, and to identify better ways funding agencies can invest in it.

LECG said the sector now generated revenues of $200 million a year and employed nearly 900 people, almost three times as many as in 2000.

The compound annual growth rate between 2000 and 2009 was 16.3 per cent and between 2005 and 2009, 6.3 per cent. On average it generated $38m in output, $85m in GDP and 2000 jobs across the economy a year.

"A measure of the success of the New Zealand industry is the increase in the number of drugs in phase II and phase III. In 2000, there was only one drug candidate in phase II. By 2008 there were seven in phase II and two in phase III," LECG said.

There are five phases of drug development: discovery, preclinical, phase one, phase two and phase three. Phase one is when the compound is tested on humans, affirming or denying preclinical testing. Phase two involves crucial tests on how the compound performs in humans, and phase three is definitive trials and the first stage of commercialisation.

The study found niche manufacturing was increasing and two companies, Douglas Pharmaceuticals and NZ Pharmaceuticals, generated more than 90 per of the sector's revenue.

Douglas Pharmaceuticals is owned by founder and managing director Graeme Douglas. NZ Pharmaceuticals was started in 1971 by a consortium of meat companies and Tasman Vaccine Laboratories.

Today it is 51 per cent owned by private equity firm Direct Capital.

Funding to the sector had been increasing, peaking at $130m in 2007. Ten per cent was from grants and nearly 50 per cent from overseas private investors.

The sector spent more than 60 per cent of its money in New Zealand between 2000 and 2009.

The study found some companies had taken "alternative, faster and lower risk" routes to market, by, for example, providing elements of other pharmaceutical compounds, making lesser therapeutic claims (listed probiotics company Blis Technologies being an example) and participating in the diagnostic market.

LECG said it could not assess the likely future value of the industry with any precision.

"Assuming something close to a one-in-10 success rate, then on average, we would expect the sector to contribute around $200m to the economy annually from revenues, licensing deals and milestone and royalty payments.

"Relative to the current estimate of around $90m annually in terms of value-added contribution to the economy, this suggests that a sector contributing around $300m-$450m per year to the economy (with a balance of new start up and existing, mature firms) is comfortably feasible with the next five to 10 years."

- © Fairfax NZ News