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The New Business Model of Pharmaceutics

 3 min read / 

In 2013, Pfizer’s blockbuster drug Viagra came off patent after 15 years. The drug generated $2billion/year and would cost over £10 per tablet. With the expiry, the price has fallen to less than $1. The same has happened to many other drugs including Lipitor, which is used to reduce bad (LDL) cholesterol. So why are the cost of drugs so high? The cost of developing a single drug from start to finish ranges from $800 million to $2 billion in a process which takes 10 to 20 years. This includes screening 50,000 molecules in order to find the correct molecular structure to make a single medicinal product. However, in 2008 the US Food and Drug Administration approved only 21 new drugs for marketing in the USA which is less than the number needed to secure the future of the pharmaceutical industry.

Pharmaceutical firms such as GSK and Pfizer have been downsizing their R&D departments due to the lack of success in drug discovery. Despite the shift to natural products, there seems to be little success in new medicines. An article on nature cited in 2009, there were currently 4300 companies engaged in drug discovery, of which only 261 (6%) have registered at least 1 New Molecular Identity (NME) since the 1950′s. Only 32 of these companies are still around today with 137 of these disappearing through Mergers and Acquisitions (M&A). Making things worse, the cost of pharmaceutical R&D is increasing from $1.1b between 1995-2000 to $1.7b between 2000-2002; with the reason being cited as the increase in Phase II failure rates.

The increasing issues in new medicinal development

Lars Rebien Sorenson, CEO of Norvo Nordisk, in BusinessWorld 2004 stated “most of the easy wins” have already been made. Originally, pharmaceuticals only concentrated on the top 4 diseases: central nervous system, cancer, cardiovascular and infectious disease causing major saturation in the market. With most of the patents coming to the end for these medicines, pharmaceuticals now have to concentrate on different areas to compete by targeting novel areas. New areas mean less available research therefore less success.

This is where academics and startups come in. The big pharmaceuticals need to cut their losses so downsize, and instead invest their money in promising projects.  Once a company develops something promising, the pharmaceutical company will either buy the patent, or simply acquire the company. They will then carry out all the further tests and if possible take the product to the market. This saves them both time and money.

The trend of increasing low-value deals is expected to continue and North America is still the most active region in terms of both number and value of deals. The pharmaceutical and biotechnology stock market indices continue to outperform the S&P 500 index. Biotechnology deals witnessed higher stock premiums compared to the pharmaceutical sector.

Pharmaceutical drug discovery is a somewhat risky business where success has low probabilities and costs are very high, comparable to the oil industry. With the level of progress and development in the technological field and a shift to digital testing, there is no question the large pharma giants will continue to win.

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