Why Big Pharma Mergers Magnify Failures

This week, Merck announced a $41 billion offer for Schering-Plough. Last month Pfizer agreed to purchase Wyeth for $68 billion. Roche is negotiating to buy the part of Genentech it does not already own. Rumors of other impending mega-deals swirl. I believe that this current wave of mergers reveals a disease at the heart of the pharmaceutical industry.

The fact that so many companies are now merging reflects the failure of each company to discover and develop its own replacement pipeline. To maintain growth, a pharmaceutical company must either produce enough new products to replace those that have gone off-patent or acquire rights to distribute drugs created by others. This is clearly not happening on a large enough scale. A small number of patented drugs, each with annual sales of $1 to $5 billion, accounts for most of the profits of the large pharmaceutical companies, and these profits are vanishing as the patents expire. Meanwhile, the number of new drugs approved for sale annually has steadily decreased over the past 15 years.

What has gone wrong? Are today's unsolved medical problems more difficult than those of previous generations? Are regulatory barriers higher? Such is the common wisdom.  However, my 30 years of experience as a consultant, and as the founder and CEO of several biotechnology companies, suggests a different primary problem: the marketing-driven demands of the global giants.

Consider the following paradox: despite the declining productivity of the pharmaceutical industry, the past 20 years have been a golden age for biomedical research. We have decoded the entire human genome as well as those of most of the viruses, bacteria, and parasites that have plagued us for centuries. Our ability to understand the differences between normal and disease states has increased exponentially. New opportunities to treat hitherto intractable diseases such as Alzheimer's, cancer, and heart disease abound. Advances in imaging permit us to detect diseases that were previously hidden, often at a stage early enough for life-saving intervention. Computer models have given us powerful new tools for linking biological causes, disease effects, and probable consequences of specific treatments, while computer-driven robots allow us to sort though libraries of new drug candidates at a vastly accelerated rate. In fact, the research departments of each large pharmaceutical company produce hundreds of ideas for new drugs each year. Why, then, the slowdown in bringing these drugs to market?

I believe that it is not a failure of science but rather the context in which such science is practiced. The process of drug development is long and arduous, and throughout the entire process, a candidate is continually evaluated for market potential. At large companies, products that are technically promising are terminated if the marketing potential is thought to be too small. And the height of that market hurdle has risen as the profits of the large companies have grown. Today, programs that are thought to have an annual sales potential of less than $1 billion are usually stopped in their tracks. Some companies have abandoned their work in entire areas of medicine, such as antibiotics, because they believe the markets are too small to make a difference to their total sales.

This emphasis on the bottom line even influences the way clinical trials are designed. Companies are in a position to choose how each new drug is deployed, and drugs that are approved for limited use have limited market potential. Therefore, most clinical trials are designed to optimize sales, not to optimize the chance that a new drug will be approved for its most effective, if limited, use.

Presented by

William Haseltine is a former professor at Harvard Medical School, where he researched cancer and HIV/AIDS. He is the founder of Human Genome Sciences, where he served as chairman and CEO, and the president of the William A Haseltine Foundation for Medical Sciences and the Arts. He lives in Washington, D.C.

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