Lex: The research challenge
Published: December 27 2001 20:28 | Last Updated: December 27 2001 20:29
Pfizer, the world's biggest drugs company, has warned that its near- $5bn annual research budget will generate only about two new drugs a year. Other mergers have shown that combining research teams and budgets does not necessarily double the number of blockbuster discoveries. As industry R&D spending rises, the number of new molecular entities (novel drug compounds) approved has fallen from 53 in 1996 to 27 in 2000.
Meanwhile, regulators grow more cautious on drug approvals - witness the US Food and Drug Administration's surprise decision to block Zelnorm, Novartis's irritable bowel syndrome treatment. Improved post-marketing surveillance has led to an increasing number of withdrawals, such as that of Bayer's Baycol in August, as side effects have emerged. This could force drugs companies to conduct more clinical trials - raising further the cost of bringing drugs to market.
The key point for investors is that, although the sector remains highly defensive, some companies are more vulnerable than others. That necessitates a selective approach, focusing on stocks with healthy product pipelines and/or limited generic competition - such as Aventis, Sanofi-Synthelabo, Novartis, Eli Lilly, and Pfizer.
The industry, meanwhile, may need to rethink a business model based on a small number of blockbuster, $1bn-selling drugs. Continued mergers and acquisitions may not be the answer. Instead, the way ahead may lie in exploring more niche markets, broadening product portfolios and improving a poor record in biotechnology innovation. To safeguard its future the industry must take the right medicine.
As well as some more thoughts from Lex on the challenges facing Big Pharma.
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