Big Pharma II: Marketing vs. Research

Big Pharma's "in-house" researchers are not simply bureaucratic. As stated in Part I, drugs come from three venues: internal development, alliances and acquisitions. Internal development can be more profitable, but those resources are more frequently directed to evaluate effective alliances and acquisitions.

Once a drug "candidate" is identified through one of these venues, it must be produced. Like the movie business, production is a capital-consuming process. In order for a drug to become available to consumers, the FDA defines an approval process which moves from the "candidate" level through three successive phases before becoming an "NDA" (New Drug Application) and then finally a "product."

The process typically requires a six year period of time, as each level has a higher hurdle to overcome. The success rate to move from "candidate" to "product" averages somewhere between 1 in 10 and 1 in 20. Given the level of competency and pre-screening to get to a "candidate," these are not favorable odds. (Here is where the movie studio analogy breaks down. If the movie business had odds of 1 movie in 15 being profitable, we would have few movies.) The resulting cost is somewhere between hundreds of millions or over two billion, depending on how many of the failures are included in the cost of a success.

Because of this extraordinary cost, the major pharmaceutical companies are very desirable partners. Just as a writer prefers a major movie studio's assistance in production, so too do governments, academics and small firms look to Big Pharma for financing, testing and developing the prospective drug.

But, like the movie business, the costs do not stop once there is a "product." Once a film has been produced, movie studios must advertise and sell through "windows" such as theater, cable, DVD and various networks. This is similar to the pharmaceutical process, where companies must advertise and then sell to doctors, consumers, government agencies and managed health care providers. Just as sales of movies may be supplemented through related CDs, toys or clothing so too,there are even supplemental pharma applications, as demonstrated by the reapplication of Viagara from pulmonary problems to erectile dysfunction.

The one critical exception is the limited life of the patent. At the very beginning, the patent is applied for and the "clock" starts running. By losing years to simply get the product into the marketplace, Big Pharma races to ramp up understanding and usage. Otherwise, the ability to fund the development and testing of drugs is impaired. Typically a company has just nine years left to recover its costs (which necessarily includes the failed attempts) and make a profit adequate to incent continued investment.