Thursday, April 28, 2011
The Death of Large PhRMA
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Two news items filtered out over the past several weeks that inspired me to write this blog. I liked these stories since they agree with things I have been saying for the last several years. Not only is the big pharma model no longer sustainable, but it is killing innovation and losing our invested money.
IMS Health reported that US spending on pharmaceuticals rose an anemic 2.3% in 2010 – the second lowest annual increase in 55 years of data tracking. Major contributors to the slow growth rate included a lack of innovation with the meager supply of new drugs entering the market being unable to compensate for the large-selling drugs losing patent exclusivity and becoming generic. Other contributing factors included the economic recession and high unemployment causing some consumers to lose health insurance coverage. Consumers turned to generics or simply chose to forgo medications altogether in many cases. Spending on generics rose over 27% while spending on branded drugs shrank by almost 1%.
I spelled out the situation for antibiotics in a previous blog. The US antibiotic market has shrunk to only 25% of the global market. The Asia-Pacific countries (Japan excluded) now have greater antibiotic sales and market share than the US. This situation will only get worse with the FDA making development for the US market ever more difficult and expensive.
Around the same time as the IMS report became available, another report from Steve Burrill appeared. I haven’t read the actual report – its even more expensive than my book! But Burrill notes that the combined market cap of big pharma shrunk in the decade from 2000 to 2010 by around 50% or over $500 billion. This combined with the value of big pharma acquisitons of over $400 billion leads to a total loss of almost $1 trillion over the last decade. Big pharma is spending more and more on R&D and producing less and less. Most of them have already abandoned R&D in antibiotics. I am sure there is a good reason for people to invest in these companies – but I don’t know what it could be.
For antibiotics, and perhaps for other therapeutic areas, the next decade will be the era of the small company. Companies like Forest, Cubist, Actelion and Shire will thrive. Why? Because they are small. They are not weighed down with the large pharma bureaucracy, They have deep enough pockets that they can partner or even acquire biotech and therefore serve as the biotech exit driver of the future. They also have the opportunity to enter into more imaginative partnerships with biotech than most of their large pharma counterparts. Finally, because they are small, their sales goals are also smaller. Therefore, a company like Cubist can be thrilled with a drug with $200 million in peak year sales. Such a compound would never even be considered by large pharma. But if we want new antibiotics, especially ones active against the resistant strains we face today, companies need to think smaller. They need to think about slower sales growth curves. But for small companies, this all makes good strategic and financial sense.
So – I say let Pfizer go to China. They won’t be taking my money with them.