Marketing and innovation

numbers of possible drugs. Third, mass screening techniques
allow this plethora of possible drugs to be subjected to at
least a preliminary testing of their effectiveness in a very short
time span. Processes of this kind are only preliminary, but they
prevent a large number of dead-ends very quickly so that the
much more expensive and time-consuming phase of full testing
focuses on putative drugs, for which the chance of success is
reasonably high. The result is that the number of diseases for
which a cure may be found has risen substantially and continues
to grow.
Reflecting these advances, an increase in the number of
early stage R&D projects (phase I and II, see Figure 4) provides
some reasons to be hopeful in the coming years. GlaxoSmithKline
could be the focal point for the industry on this front. The company
expects to report phase II results for 15 new drugs as soon
as 2005.
GLOBAL INVESTOR 2.05 Healthcare—23
The future belongs to innovators
Typical analyses of the industry tend to focus on the decline
of new product launches, but we believe that these analyses
very often exclude biotechnological products. If we include the
approvals of products from biotechnology and smaller pharma
companies, we arrive at a positive trend over the last years (see
Figure 6). What is more, the importance of biotechnology companies
is gaining significance in terms of new product output.
In summary, we believe that innovation is still the lifeblood of
the pharmaceutical industry. Overall, the biotechnology industry
has generated higher returns (see Figure 7), which seems only a
fair reward for the greater risk taking and willingness to genuinely
innovate. Can the pharmaceutical industry balance the power
between research and marketing in a better way? This is an issue
that is even more concerning since many of the large blockbuster
products will lose patent exclusivity over the next three
years, and it is difficult to see enough pipeline opportunities to
make up for the lost sales. Some views in the financial markets
point to the inevitability of a reduction in sales force for companies
with significant patent expirations, which would avoid a sizable
earnings shortfall in the near term. Some in the industry have
said that an initiative by industry leader Pfizer to reduce its sales
force would be greatly welcomed. However, the same circles
emphasize that cost savings from such a move would be reinvested
in R&D. It may still be only wishful thinking, but we see it
as an encouraging sign. |
Figure 7
Performance of biotechnology versus
pharmaceuticals over ten years
Source: Datastream
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World DS Biotechnology price index
World DS Pharaceuticals price index