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Pharma's queasy feeling

Overdependence on 'blockbuster' drugs is taking a toll on the industry.

January 27, 2008|Melody Petersen | Melody Petersen covered the drug industry for the New York Times from 1999 to 2003, and is the author of "Our Daily Meds," which will be published in March.

The strategy that has made the pharmaceutical industry one of the wealthiest and most powerful on Earth is finally starting to betray it.

Beginning in just a few weeks, and continuing over the next several years, some of the biggest-selling and most profitable drugs in history will lose their patent protection. When the 20-year patent on a drug expires, its sales plummet because other companies can sell generic versions for a fraction of the price.

Merck, for instance, will lose its patent on Fosamax, the top-selling osteoporosis medicine, on Feb. 6 -- and can expect to see a swift decline in its $3 billion in annual sales. Then, later this year, Johnson & Johnson is expected to lose its monopoly on Risperdal, the $4-billion-a-year antipsychotic drug. The greatest loss of all will be suffered by Pfizer, the maker of Lipitor, the bestselling drug in the world. The $12-billion cholesterol-lowering pill is expected to go generic as early as 2010.

Of course, it was no secret that these patents would expire. Everyone in the industry knew that time would run out on these monopolies. The real problem is that the industry's scientists have hit a dry spell. They are not discovering enough new drugs to replace the aging standbys. Last year, the U.S. Food and Drug Administration approved just 19 new medicines, according to preliminary data, the fewest since 1983.

Moody's, the bond-rating company, sounded the warning on Wall Street last fall. The firm said the financial outlook for the wildly profitable pharmaceutical industry had turned sour. Some companies, the firm said, faced the loss of as much as half their revenues. The Wall Street Journal followed up on the report last month with a front-page story headlined "Big Pharma Faces Grim Prognosis."

Lost in all the hand-wringing on Wall Street is a recognition of how the industry got itself into this fix in the first place. For 25 years, the drug industry has imitated the basic business model of Hollywood. Pharmaceutical executives, like movie moguls, have focused on creating blockbusters. They introduce products that they hope will appeal to the masses, and then they promote them like mad. The strategy has created not only Fosamax and Lipitor but Prozac for depression, Nexium for heartburn and Viagra for sex.

Only now is it becoming clear that this business model couldn't work forever. The strategy had a flaw that executives have long ignored: It required extraordinary amounts of promotion at the expense of scientific creativity. To make the strategy work, the drug industry put its marketers in charge; scientists were given a back seat. Is it any wonder that executives at many companies have watched their pipelines of new drugs slow to a trickle?

The story of the industry's first blockbuster pill -- the heartburn drug Zantac -- helps illustrate why marketing has long ruled over science inside the big drug companies.

Introduced in 1983, Zantac was not actually a new drug. Glaxo, its maker, simply copied the innovative work done by scientists at a rival company. Those scientists had worked for years before discovering a drug so original that it changed the practice of medicine. Their invention, Tagamet, was the first pill to heal ulcers. Before its introduction, ulcer-plagued patients had few options other than a surgeon's knife.

Rather than spending money on research to find its own breakthrough drug, Glaxo went after the easy money. Its scientists tweaked the chemical formula of Tagamet so that it was just different enough to secure its own patent. Glaxo then set the price of Zantac as much as 50% higher than Tagamet and poured the extra revenue into a marketing campaign so effective that executives still talk about it. Glaxo promoted Zantac not just for ulcers but for heartburn (or what the company preferred to call the more frightening "gastroesophageal reflux disease"). By 1988, Zantac was the industry's bestselling drug.

This focus on copycat pills is not terribly different from what movie studios have been doing for decades -- seeking mega-profits by promoting the sequel to the sequel of the blockbuster released years before. Hollywood has long understood the magic of marketing. As the late movie producer Joseph E. Levine reportedly explained, "You can fool all the people all the time if the advertising is right and the budget is big enough."

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