Wednesday, March 23, 2005

The Economist on big pharma

from The Economist, March 19, 2005:

Indeed, critics argue that society is largely on the losing end of
its dealings with the industry. Drug firms benefit tremendously from public largesse, be it basic research from universities and government-funded laboratories, or tax breaks on R&D, yet fail to reward this by putting a brake on pricing. For their part, drug firms argue that in order to keep innovation
moving, they must maintain high prices, and therefore high profits. Yet many Americans doubt these arguments. A poll conducted last month by the Kaiser Family Foundation found that only 14% of the 1,200 Americans surveyed believe that current drug prices are justified because of the high cost of R&D, and that
46% favoured greater government regulation of drug prices
, although this might lead to lower profits and therefore less research.

Big drug firms are having a hard time defending the argument that
higher profits mean more innovation
. New drug launches have slowed to a trickle in recent years. Companies plough 15-20% of their revenues back into R&D; global spending on pharmaceutical R&D has doubled over the past decade, to $56 billion
this year according to CMR International, a research group. Yet the
number of new drugs approved by the FDA-a rough measure of productivity-fell to a low of 18 in 2002.

Economics, more than ethics, may force the pace of change. There are roughly 102,000 pharmaceutical "detailers", or salesmen, all trying to meet the top-prescribers among America's 870,000 physicians. They get only a few minutes with the doctor, not much time to sell the fruits of modern science. There is a
growing realisation-if not yet dramatic action-that the industry's marketing model needs to slim down and take a new shape to boost returns. Some firms are turning their drug development away from mass-market blockbusters to
specialist products, which need smaller salesforces to target fewer doctors, who tend to make more time for such products.


The industry is also struggling with another central element of its business model: its reliance on patent protection for high-profile blockbuster drugs. Lehman Brothers reckons that, at best, drugs worth $8.8 billion will face generic competition; at worst, $15.5 billion-worth of branded drugs will meet their copycat makers in America. As the past few years have shown, the expiry of
a patent on a blockbuster drug-such as Prozac-can be a painful
experience for a drug firm, wiping billions off its market capitalisation. Alas, many of the tactics firms use to tighten their grip on their intellectual property are also coming under fire.

This year's patent litigation has special significance for the whole industry, not just the individual companies involved. Generic
drugmakers are challenging the big companies in court over three blockbuster drugs-Zyprexa for schizophrenia, Lipitor for high cholesterol and Plavix for heart attacks and
strokes. These lawsuits question the original "composition of matter" patents on these products, not just the industry's efforts to spin out protection for a few more years of profit. If any one of these were to go against the big companies, it would affect the whole industry.


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