The research and development pipeline has officially flattened out.

 According to Citeline Intelligence Solutions’ new report, Pharma R&D Annual Review 2011, the total number of active drugs in trials in 2011 was 9,713—almost unchanged from 9,737 in 2010 and from 9,605 in 2009.

But the report’s author and editorial director of Citeline’s Drug Information Services, Ian Lloyd, said this is good news. Lloyd, who’s been tracking R&D movement and trends since 1987, writes in the report, “In a year which has seen more R&D job losses and faltering recovery in many of the world’s economies, it is probably a comforting sign that the number of drugs in development has more-or-less held up.”

Others who watch the industry closely don’t agree.

“I’d say this is just more evidence that the pharmaceutical industry is in turmoil,” said John Kreger, a financial analyst with William Blair who has been scrutinizing the clinical research outsourcing space for almost 20 years. “Over the decades, the industry has had phenomenal growth and was viewed as untouchable, even through its ups and downs. Now it looks like R&D is no longer untouchable.

“Does this mean that healthcare and the pharmaceutical industry are cyclical and becoming more of a discretionary consumer purchase than it was five or 10 years ago?” he asked. “Does it lend more credence to the skeptical view that all the easy drugs have been found? The pharmaceutical industry is under tremendous political pressure and every consumer feels the costs. We think the industry has finally realized this and has begun a painful period of restructuring, and the question now is: what model?”

Perhaps the winning model lies more in the hands of small companies than big pharma. Though pipeline volume has leveled out, the number of companies actively spending money on R&D continues to increase, and many of those companies are small.

“The number of companies is still heading up quite spectacularly,” Lloyd said. “The number of niche or small companies is exploding. This indicated a lot of start-up activity, which is perhaps surprising in an era of austerity.”

Another positive sign: the volume of phase III trials is up, showing the biggest year-on-year jump so far recorded, with this year’s 637 drugs representing a rise of 83—or 13%--from 2010, according to the report. “It had obviously been worrying that phase I and II had been going up and phase III was staying flat,” said Lloyd. “We took this to be an encouraging sign.”

“While molecules can still fail in phase III or have their approval applications turned down, the phase II to III hurdle is a major one to overcome, so if this apparent improvement continues in the coming years it should lead to an uplift in the numbers of drugs successfully reaching the market,” wrote Lloyd in the report.

The report showed similar, although proportionally smaller, increases at phase I and phase II, and at pre-registration, continuing the trends seen in recent years. Kreger finds this worrying, saying that if volume flattens out in early stages that will translate, in a few years, to low volume in phase III.

“That’s troubling,” he said. “Does that set the industry up for another pipeline crisis? The industry is suffering now because it didn’t have a healthy, robust pipeline as it came out of the 1990s.”

Given all factors, Lloyd pronounced 2010-11 a good year and indicated that the future is looking decent.

It “was a year which has seen little wholesale change, which in the shadow of the world’s woes following the financial crisis should arguably be seen as more of a comfort than a concern,” Lloyd wrote. “Ultimately, it will only be successful drug launches and subsequent portfolio management which will refuel the industry, but if the pot is not exactly boiling over yet, it looks like on a number of fronts, the ingredients are simmering away nicely.”

Suz Redfearn