Marketing and innovation

effort. The figure indicates that companies continue focusing their
efforts on the largest commercial opportunities. In our view, they
do not seem to be taking into account the fact that if they all do
the same, they will be paving the way for tough competition and
decreasing value at a later stage!
GLOBAL INVESTOR 2.05 Healthcare—19
The marketing/lifecycle management game cannot last forever
Before patents expire and in the absence of a truly novel molecule
to replace the old one, companies attempt to launch so-called
line extensions, or second-generation drugs, which correspond
to minor improvements over the older product. While the old
product is charged at 30% of the price in the USA once it goes
generic, a line extension can retain a price similar to the original
price of the old drug. It is this sort of strategy that annoys healthcare
payers and damages the reputation of the pharmaceutical
industry.
The combination of lifecycle extension tactics with the blockbuster
strategy described previously has been almost consensual
in big pharma. In our view, it explains the developments of
recent years of increased pricing pressure already before patents
expire. Healthcare payers have resorted to tools such as increasing
patient co-payments for the more expensive drugs within a class,
so that they are encouraged to use generics or the cheaper drug.
A further downside to the blockbuster strategy is the dependecy
it creates on few drugs. This can pose high risk of a sharp decline
in earnings once patents expire and there are no substitutes.
Best innovators moved away from supremacy of marketing
Under this new, more competitive environment, analysts have
started to evaluate companies’ portfolios to identify the better
placed companies, i.e. the ones with more unique products that
are subject to less pricing competition (see Figure 4).
The rise in importance of marketing has meant that marketing
departments have gained such a high profile in pharmaceutical
companies that the key decision makers and best-paid workers
are the marketers. Dissatisfaction with this state of things has led
many scientists and medical developers to start their own businesses.
We believe this was a main driving factor beyond the
emergence of the biotechnology industry. As biotechnology companies
matured over the last 20 years, their importance has
become evident in terms of the weight of their products and R&D
pipelines. A good case in point is Genentech.
Genentech
Genentech is a very innovative company within the healthcare
sector. Since its founding in 1976, it has remained at the forefront
of innovation based on its scientific strengths. Scientists at
Genentech have focused on the understanding of the molecular
basis of disease. The strong expertise in oncology allowed the
development of several cancer drugs with novel and more specific
mechanisms of action. Although these drugs are commonly
used in combination with existing chemotherapeutic agents, they
represent an important step into targeted and less aggressive
therapies. Rituxan, the first therapeutic antibody to treat cancer
in the USA, was approved in 1997. Rituxan works by binding to a
particular protein on the surface of healthy and malignant B-cells,
making them susceptible for the body’s natural defenses. After
treatment, new normal B-cells regenerate from the bone marrow
and return to normal levels within months. Avastin, approved in
2004, is the first therapy that inhibits angiogenesis (the process