from the real problem for the industry: the rate of new drug approvals wasn’t just flat; it actually declined during the last decade. Data compiled by CMR International and IMS Health show that while drug sales increased nearly 2.5 fold from 1997 to 2007, the number of new drug approvals dropped nearly by half. The increase in drug sales paralleled the nearly 300 percent increase in direct-to-consumer prescription drug advertising from 1997-2005, according to the Government Accountability Office. Prescription drug advertising dollars, once unshackled for television in 1997, went primarily to promote new drugs with the longest patent lives. Unfortunately, pharma R & D spending from 1996 to 2007 looks to be inversely proportional to the combined number of new molecular entities plus new biologics approved. The equations here are pretty simple. More spending on direct-to-consumer prescription advertising has generated more sales. More spending on research and development has generated fewer drugs. To paraphrase Bob Dylan, you don’t need to be a weatherman to see where this wind is blowing.
So if Big Pharma company executives knew that they faced major patent expirations that would be accompanied by large revenue losses, how did they deal with this? There were six basic approaches they could take to fill the revenue hole:
1) Increase their investment in research and development (or revamp their efforts) and come up with new drugs.
2) Update existing drugs with slightly different (often longer lasting) versions protected by new patents.
3) Acquire other companies and their pipelines for additional revenue growth.
4) Pay generic drug makers not to enter the market (so-called “pay for delay” agreements) to protect their revenue streams.
5) Ramp up selling existing drugs in newly expanding consumer markets, like India and China.
6) Diversify their core business by adding over-the-counter drugs, veterinary medicines, and diagnostics.
Note that only one of these approaches (the increased (or revamped) investment in research) actually leads to new (as compared to newly acquired or modified) drugs. I recognize that drugs acquired from other companies that are still in clinical trials are often new. However, the other paths merely lead to new revenues, or to block a loss of revenues. Given the lack of research productivity
