The drug company GlaxoSmithKline employs 12,687 people in its research and development division to search for and test new drugs. Despite that huge staff, around half of the company's $6.3 billion R&D budget goes to people who don't work for Glaxo at all.
The money instead flows to companies like Epizyme, a small biotechnology firm that, since last year, has received $24 million from Glaxo to support research on a novel type of cancer drug. That's money the biotech firm needs to survive, and if its efforts yield a drug, that would be a success for Glaxo, too.
Drug companies have always kept ties with academics and done deals with biotech firms. But the search for outside ideas has never been as urgent or as wide as it is today, say drug industry officials. The reason is the plummeting productivity of in-house research. Compared to 1980, the drug industry today spends 10 times as much money on R&D (even accounting for inflation), yet the number of novel drugs getting approved by the U.S. Food and Drug Administration has remained flat, at around 23 per year.
Glaxo's efforts to outsource (or "externalize," as they say in the industry) its R&D isn't only a result of its own labs' waning success in finding drugs. Funding for biotech companies from venture capitalists and IPOs has been drying up as well, and companies like Glaxo now worry that if they don't do more to support smaller enterprises, they might not have as many promising drugs to bid on.
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