Is pharma addicted to the big bang?
Oct/25/2007 06:28 Filed in: Pharma
Business
Blockbuster products, those with annual sales in excess of one billion dollars, are in danger. Lipitor the biggest selling drug of all time comes off patent soon and others, like Avandia and Zyprexa, have run into side effect profile issues that may affect their sales. The business model for pharma seems to be to replace the current blockbuster with a "new and improved" version but as Pfizer found out that can be extremely risky. Although Lilly's Cymbalta is doing well it has not reached the level of sales of its predecessor Prozac. Pharma seems to be addicted to the big bang blockbuster cash cow but to find this cash cow is becoming harder than looking for weapons of mass destruction in Iraq.
Let's face it the days of the blockbuster maybe coming to an end. Formulary managers are under a lot of pressure to reduce costs and one of the best ways is to go generic vs. branded. If new products really are "new and improved" than big pharma may have to prove it in head to head clinical trials with its predecessor. Why prescribe Nexium when there is OTC Prilosec? Why recommend Celebrex when store brand Ibuprofen will do?
Pharma CEO's really need to embrace the Long Tail now more than ever and understand that the current business model of blockbusters may be too risky to rely on. Yes costs to develop and market drugs are increasing but there is so much bloat in marketing budgets (do we really need more tissue boxes?) that management is going to have to learn to do more with less. After all if a product generates sales of $300-$400 million a year for seven years then that is $2.1-$2.8 billion. If you have three or four products that can do that you can quickly satisfy investors and Wall Street.
It also seems that there are no new breakthrough products anymore. Cancer death rates are declining not because of new drugs but because of early detection and screening. Instead of developing new products pharma goes on a buying spree and gobbles up small biotech firms who may be developing a great new drug. I recently had dinner with a couple who worked for a biotech firm that was recently purchased by big pharma and they were amazed at how much their corporate culture changed from speed and can do to chew and review. They were so disgusted that they left to join a new biotech startup. "It was like working for Google and being acquired by a Fortune 100 company", he told me. "We immediately had to develop these elaborate presentations over and over again with ROI models and projected scenarios". "Marketing also got very involved in the clinical trials and label development which set the product development back at least 3 years". Gee, imagine that....
So now when drug sales start to decline pharma implements Plan-A: lay off people, cut staff, and cut expenses. How novel. Instead of finding ways to increase sales through the development of new products let's cut our balance sheet so that we can make Wall Street happy. Of course it's never really been about patients it's always about the stock price isn't it?
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