Thursday, 31 January 2008

Is Big Pharma going down?

The pharmaceutical market is huge, worth around $640 billions yearly. Within this industry the 10 largest companies represent about 40% of the yearly sales. But how are this companies doing?

A lot has been written lately about their questionable business strategies and behaviour. Furthermore, there is lot of talk about their pipelines being weak and their best-seller, so called blockbusters, having patent running out. In this industry, dependent on intellectual property, this is a threat. But is it true?

Many blockbusters are running out of patents soon, but there is also many new drugs in the late stages of the pipelines coming up to fill this spots. Also the first generation of drugs built on biotechnological applications have recently reached, or will soon reach, the customers. This is not a real threat. Also many of the larger companies have acquired smaller companies to use innovative drugs in their pipelines.

What however is threatened may be the blockbuster business model. The objective in this model is developing those best-selling drugs, rather than a broad range of drugs. Today, the buzz is about pharmacogenomics and the ability to make drugs specific for the (genetic) characteristics of a person. This is not in tune with the blockbuster business model and may give larger room for smaller players. It remains to see how Big Pharma will adapt.

Furthermore, another threat is the increased generics market (generic drugs are copies of another drug which has run out of patent protection). This are gaining ground due to the fact that they can be sold to a lower cost, because of lower R&D expenditures. But this is only a threat after the patent has expired, and by then a drug should have sold enough to cover it's development process and then some.

There will still be a place for Big Pharma, however these companies will probably change to adapt to new settings.

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