The pharmaceutical industry portrays itself as a champion of innovation. That seems reasonable given that U.S. drug companies spent $33.2 billion on research and development in 2003, almost 18% of their domestic sales. Yet for all that spending, Big Pharma appears remarkably risk-averse compared to the armada of small biotech companies that increasingly produce the most novel drugs. Why? It's all about the type of organizations that large drugmakers have become. Hugely profitable thanks to a few blockbusters, Big Pharma is far too focused on looking for the next best-seller.
That means spending lots of development dollars on relatively safe bets, such as statins, the cholesterol-lowering drugs taken by millions. It's worth it for Big Pharma to invest $800 million or more to develop a new statin drug even if several are already on the market. After all, Pfizer Inc.'s (PFE) Lipitor and Merck & Co.'s (MRK) Zocor are similar statins -- and the world's two biggest-selling drugs.
But Big Pharma's focus on finding the next heart blockbuster means it is passing up an opportunity to deliver important breakthroughs. Compare the industry's strategy to that of biotech companies. They focus on cancer drugs because those tend to be more narrowly targeted and so are less expensive to test. Because biotechs are exploring new targets, four breakthrough cancer drugs have reached the market in the last three years. The tally for heart drugs: zero. "Biotech is typically more aggressive in working on novel technologies," says Robert Tepper, head of R&D of Millennium Pharmaceuticals Inc. (MLNM).
Big Pharma's less aggressive approach was on full display in early November, at the American Heart Assn.'s Scientific Sessions in New Orleans. There were virtually no new heart drugs highlighted at this year's meeting.
To be fair, developing a new blockbuster is hardly risk-free. Some 75% of experimental treatments fail in clinical trials, so it takes a strong constitution to spend $800 million on a completely new heart drug. And precisely because huge numbers of people will be taking them, heart drugs in particular face tough scrutiny from regulators. There is also the danger, demonstrated by Merck's Vioxx, that a new drug taken by millions could eventually cause side effects, leading to crippling class actions. Consequently, the only significant new heart drug in the past two years is AstraZeneca PLC's (AZN) Crestor -- another statin.
The outlook for heart drugs could improve in the next few years thanks to some new approaches now being tested. Pfizer is in late-stage trials with a drug that combines a statin with a drug that raises levels of "good" cholesterol, while GlaxoSmithKline PLC (GSK) is developing a drug meant to stop the inflammation that plays a key role in atherosclerosis. Those are encouraging signs. The sooner Big Pharma starts getting more creative, the better. After all, the world doesn't need another statin.
By Catherine Arnst