Rx DRUG INDUSTRY: Pins Hopes on Marketing and Mergers
Faced with fewer research breakthroughs, pharmaceutical giants are heavily marketing their existing drugs in an effort to boost sales and sustain double-digit growth rates, the Wall Street Journal reports. This strategy poses significant risks for the industry, however, as companies may bump up against a "fundamental contradiction" of pharmaceutical advertising: the more companies succeed in convincing people to buy their products, the angrier consumers may get at the amount spent on advertising that drives up drug costs. Advertisements for drugs "make people really mad," Maine state Senator Chellie Pingree (D) said, adding, "People want (drug companies) to spend less money on that and to make sure drugs are affordable." But companies are spending an increasing amount on marketing and sales: while the industry's spending on research and development has tripled since 1990 to $26.4 billion, its marketing and administration costs exceed those of research and development by a ratio of more than two to one. Jean-Pierre Garnier, who will be CEO of the combined Glaxo Wellcome PLC and SmithKline Beecham PLC, also is disturbed by the trend. "It's the equivalent of the arms race. We could have a much more efficient system to promote the drugs, but you'd get blown out of the water. You can't be rational in this effort," Garnier said.
If You Can't Beat 'Em ...
Industry leaders are also pinning their hopes of continued growth on mergers. "One reason the industry is having consolidation is because the industry's ability to come up with research flow is not keeping with the attrition for products going off patent," Fred Hassan, chair of Pharmacia Corp., said. While mergers may provide short term help by reducing redundant support operations, many believe they do not boost research productivity and may actually prove "distracting" to the research and development process.
"There are all sorts of formulas out there saying that these firms will need to put out at least three or four new chemical entities per year (to sustain growth rates) and there's no firm right now doing anything more than one per year. It's a very tenuous time for the pharmaceutical industry," Kenneth Kaitin, director of the Tufts Center for the Study of Drug Development, said. Pharmaceutical researchers blame the current shortfall on the greater number of drugs on the market, which increases the chances that drugs under development will interact with one of them. Despite this difficulty, companies must produce blockbuster drugs which generate billions of dollars in annual sales. For example, even after Pfizer absorbed Warner Lambert, Pfizer still will need to produce three or four drugs a year by 2003 that can make $1 billion in annual sales to continue growing at double-digit levels. By 2007, when some of its patents expire, the company will need to launch five or six big-seller drugs each year. In response, some companies have purchased or forged alliances with biotech firms in their search for innovation. But this strategy also has its limitations. Garnier said, "I used to go to biotech companies all the time, and we were the only ones. Lately, everybody is looking at the same assets" (Harris, 7/6).