Spotlight: Market analysis Beating the blockbuster blues

It is indisputable that big pharma companies are dependent on blockbuster drugs. Lipitor, the world's top-selling drug made by Pfizer, reaped sales of more than $10 billion last year. Such massive revenue generators are 'golden-egg-laying ducks' for big pharma companies. But is the blockbuster era coming to an end? The pipelines of major pharmaceutical companies are not promising enough and the bottleneck that they now face is being closely scrutinized by analysts worldwide. Speculation regarding the pharma industry's reaction to the declining blockbuster pipeline is mounting.

On average, it takes approximately $800 million and 11–15 years to bring a new molecule to market. A molecule has a one in 15 chance of getting approved; increased attrition rate is the norm. The guarantee that a molecule will attain blockbuster status is far from certain, so it is not always good business sense to invest 20% of sales to develop new molecules when a biotech company can be bought instead (Table 1).

Table 1. R&D spends by top 10 pharma companies against their revenues.

Generic competition

Major pharmaceutical companies that have blockbuster drugs are facing tough generic competition. Pfizer banks on Lipitor — its cholesterol-lowering drug. Unfortunately for Pfizer, it is going to face generic competition soon despite the fact that Lipitor could be a $20 billion brand by the time it loses its patent.

Table 2. Top 10 blockbuster drugs in 2004.

Merck's blockbuster Zocor is coming off patent this year and, Pfizer is conducting studies that compare Lipitor with Zocor. Patients may shift from Lipitor to Zocor because it is cheaper, which would dent sales of Lipitor. Additionally, generic cholesterol-lowering drugs are likely to cost around 70–80% less.

Paxil and Wellbutrin of GSK will soon fall off the pedestal too. Stiff generic competition is on the rise (Figure 1) and out of the 10 top-selling drugs, six are generic. Most of the listed drugs are on their lag phase of the patent life cycle. The revenue generated by these drugs exceeds $45 billion, but losses as a result of patent expiration are estimated to slice off a big portion of current revenues. Drugs with the calibre to block the expected revenue gaps are lacking. Do the companies in Table 2 have alternative revenue generators?

Figure 1. Top 10 products - prescription share in millions (2004).

Time for a revolution

The dwindling pipelines suggest that a revolution in the pharmaceutical industry is on the horizon. Coalition between the pharmaceutical and the biotech industries will only improve the chances of new molecules entering the market. The number of drugs that come out of this partnership seem to outnumber those that are produced in the pharmaceutical companies' research labs.

Biotechs seem to have a better infrastructure, pipeline of drugs that are potential blockbusters and the technology to produce new drugs at a faster pace. This attracts players in the pharmaceutical industry to undertake collaborative ventures or, if they have a fat purse, buy them out. This allows companies to control their R&D investments and so help to increase their profits.

Advanced technologies

Infusing informatics into R&D can cushion the impact of rocketing R&D expenditures. Developing new and advanced technologies to shrink the time frame of producing a new molecule can even assist with targeting the right lead molecule.

Some big pharma companies welcome this change and have embraced new technologies enthusiastically. Pfizer, GSK, Novartis, Lilly and Roche are all in the race to fine tune their R&D — late entrants will be left far behind.

Less is more

So is the pharmaceutical industry turning away from the blockbuster mania? Probably. The downfall of Vioxx affected the COX-2 inhibitor market as a whole. Pharmaceutical companies realize it is not a good idea to rely on blockbuster drugs alone. Medical needs are many and to bring in new molecules to target a small audience can help them avoid the problems that Vioxx faced.

Johnson & Johnson has a number of drugs contributing to its sales and not even one drug in its portfolio contributes to more than 10% of the total sales. This strategy will help it to face tough generic competition and patent expiration.

Isn't it time for the drug companies to fish out drugs that will treat rare diseases or ailments? Instead of chasing the same goal, perhaps it is wise to try capturing niche markets. Such drugs will be the future hits and saviours of some companies, but this paradigm shift will bring about many changes in the pharmaceutical industry. These cost-cutting measures will be a major upheaval for pharma. This will warrant a major shift in the R&D structure, investments, and most of all the sales and marketing strategies. Are pharmaceutical companies ready for this revolution? Resistance will mount, but change will be the only viable option.

As most of the current blockbusters will go off patent, it's time for pharmaceutical companies to turn to different avenues, particularly given the state of their unpromising pipeline. If the pharma giants enter the niche markets, R&D expenditures can be reduced and two or three new molecules could be produced for the same cost. This will require collaboration with the biotech industry.

Experts in the pharmaceutical field say that this revolution is sure to happen, but not just yet. As always, changes are difficult to accept and this industry is no exception. The importance given to blockbuster drugs is high. Some top players in the market believe that the search for blockbusters will continue until orphan drugs are used to treat specific medical needs.

Customer savvy

The decline of Vioxx and Imclone Systems has tarnished the image of pharmaceutical companies. The increasing number of drugs appearing on websites such as worstpills.org has made the public more aware of the side-effects of many treatments, and they are now more suspicious of enticing ad campaigns by pharmaceutical companies.

Pharmaceutical companies have spent huge sums on advertising their drugs; the industry spent $4.45 billion in 2004. Pfizer spent almost $88 million for Viagra and Merck & Co. $78 million for Vioxx. Are the pharmaceutical firms trying to woo people into buying their drugs, turning them into blockbusters? New drugs are now often viewed with great scepticism by the general public.

FDA has tightened up the approval of new drugs, ensuring careful scrutiny of clinical data and stringent scanning to analyse the probable side-effects of a new drug. The reduction in the number of new entrants was a direct reflection of the FDA's initiative — after all it doesn't want another Vioxx debacle!

The pipeline of drugs now awaiting approval is very small. The pharmaceutical industry is sure to see some blockbuster material down the line: Sanofi-Aventis has Rimonobant (Acomplia) up its sleeve — a sure-fire blockbuster; Novartis has some solid pipeline drugs such as Exjade (for chronic iron overload) and Aclasta (for osteoporosis); and Lilly has Cymbalta (for depression) and Byetta (for Type 2 diabetes), which is expected to reach blockbuster status.

Pfizer has already invested $800 million for Trocetrapib — another cholesterol-lowering drug, but clinical trials for this drug are expected to soak up another $200 million. Merck, Bristol-Meyers and Lilly have also shelled out ample resources to launch new molecules, but it remains to be seen if they will grab the blockbuster limelight.

Sylvia M. Findlay is a research analyst at Healthcare, Frost & Sullivan, UK