Is Pharma’s Perfect Storm Biotech’s Greatest Opportunity?
Many folks within pharma lament the current challenges and look back to a gilded era when blockbusters provided rivers of cash flow and supported growth based activities – both R&D and marketing. And yet, could this present biotech’s greatest opportunity as an industry?
We are all too familiar with how the economics for big pharma have changed in the last few years. Factors include:
patent expiries (existing and imminent)
declining R&D productivity (as measured by more dollars for fewer approved products)
healthcare payor pressures as governments search for budget cuts in all areas
paucity of future blockbusters in the pipeline
Biotech has often been suggested as a saviour with the suggestion that a focused research style based on deep insights, rather than wide pools of area expertise and serendipity, would lead to greater R&D productivity. After over 30 years of trying, there doesn’t seem to be any conclusive evidence that biotech’s research approach has had any more success. Yet, there is still cause for hope, though for reasons driven by necessity and economics rather than just science.
Biotechs by their nature start out (and often remain) as small, nimble companies having to find a niche within a much greater ecosystem. As with any small organism or business, you survive by being really good at a focused area or developing niche expertise. You simply do not have the resources to compete with the big players.
Considering target markets, despite the top-line attractiveness of blockbusters, biotechs often target niche indications.
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While these may be small and initially only have sales potential in the hundreds of millions of dollars, that can still make a big difference to a small company. The equation for big pharma is much tougher as they need new drugs, for growth or to replace patent expiries, to generate greater sales to move the performance needle. And yet some drugs which start of in niche (or even orphan) indications, gain approval and then widen their market opportunity through label extension. Some examples include:
Amgen’s erythropoietin stimulating agent, or ESA, franchise, including Epogen (also know as epoetin) and Aranesp. Epogen was initially approved in 1989 for anaemia in patients with end stage renal disease, selling $100 million in 1989. By 1997, the American Society of Clinical Oncology (ASCO) and American Society of Hematology (ASH) were considering an “evidence based clinical practice guideline on the use of epoetin in cancer patients”. Since Amgen had licensed non-chronic kidney applications to J&J (developed as Procrit), they further capitalised on growing use of Epogen in cancer anaemia by developing Aranesp, approved in 2001. By 2010, Epogen and Aranesp had combined sales of around $5 billion, from Amgen 2010 10K SEC filing.
Other orphan drugs can end up being priced so richly that even these can lead to blockbuster status eventually. An example is Genzyme’s Gauchers disease franchise and Cerezyme which has over $1 billion in sales (and in no small part driving Sanofi-Aventis acquisition of Genzyme this year for $20 billion).