Eli Lilly asks: Are blockbusters necessary?
Pharmaceutical maker Eli Lilly has announced a strategy that bucks the trend in the drug market. It has announced that it has stopped trying to pursue the blockbuster drugs favored so much by its competitors, in favor of developing more focused drugs and more of them. In other words, the sixth largest pharma company wants to score frequently in place of scoring big on occasion.
Indeed the dangers of dependence on blockbusters is all too apparent. Companies like Merck and Pfizer are desperate to replace the big moneymakers that come off patent. Worse yet are blockbusters that are withdrawn or compromised in mid-course (Vioxx and Celebrex, for example).
Even worse, as with blockbuster movies or hit records, the average cost of getting new drugs on the market is growing rapidly. It's not just the development and testing costs, but also the sales and marketing effort that has grown. One study has the average cost rising from a little over $200 million in 1987 to over $900 million dollars in 2003.
In addition, the desire to stake everything on big winners has slowed the development of new drugs at big companies to a trickle, at rate of just a few per year. And this is in spite of every big labs from merged companies.
Lilly's announced plan is to specialize in drugs for targeted conditions and less widespread conditions. Like other pharmaceutical companies, Lilly is starting to specialize in areas where it already has a track record, rather than going after all segments of the market. These include diabetes, cancer, mental illness, and cardiac conditions. Furthermore, Lilly is seeking to develop drugs that provide therapies for more focused groups of patients rather than medicines that work for everyone. It is concentrating more on selling to specialists treating the diseases rather than trying to sell directly to the public. The hope is that they can get more drugs faster into the field at a lower cost, while forgoing the occasional blockbuster discovery.
Lilly has already been pursuing this strategy quietly, and has had some success. According to a New York Times article ("Blockbuster Drugs Are So Last Century", 6/3/05)
Since late 2002, Lilly's labs have produced five truly new drugs, including treatments for osteoporosis, depression, and lung cancer. The total exceeds that of many of its much larger competitors. And at a time when the drug industry seems adrift, that Lilly has any vision at all for the future is striking.
Still, this may not be the way out. Lilly itself is dependent on one blockbuster drug, Zyprexa (used to treat mental disorders), for 30% of the company's total sales. The company has been declining for years, and its profit are down for the last year. Nevertheless, by defining the conventional wisdom, Lilly may be finding a way to avoid the perils of blockbuster fever that have so amaged Merck especially.
