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This recent article from Economist.com is a good read about the current state of the pharmaceutical industry from a financial point of view.

Pharmaceuticals | Billion dollar pills | Economist.com

The article talks about many points I’ve made here before and even talks about bringing together scientists in one center and focusing on just a few therapeutic areas. It is an interesting read although think it still falls short of outlining what needs to be changed in the pharmaceutical industry.

One of the premises of the article is that the pharmaceutical industry tries to do it all and does many things in-house. The authors suggest more out-sourcing (although that terms is not used) and to concentrate on just a few strengths. The author uses the term “disaggreagted”. While this may work to some extent, I don’t think it will ever be as prevalent as say the automobile industry. While I do believe there are things the pharmaceutical industry can learn from other industries about how to become more efficient, I think you need to be careful and closely scrutinize the ideas before trying to apply them to pharmaceuticals. All ideas that work in other industry may not be applicable to pharmaceuticals.

One of the major problems from my perspective is still the blockbuster drug mentality. All of the things outlined in the article are still geared towards finding the billion dollar a year drug. This mentality is what has brought on the current situation for big pharma and will continue to be a major issue in the next 4-5 years. By this, I mean anytime the bulk of a company’s revenues are from one or two products, they are in a precarious situation. It would be much better in my view to have three or four $500 million products rather than a single $1 billion. They have basically put all the eggs into one basket. Too many times, projects that have good possibility are not pursued because they don’t meet this arbitrary mark of a billion dollar a year in sales. I would much rather have a company with four or five products generating hundreds of millions of dollars in sales that expire intermittently over many years than one product with a billion dollar a year in sales that expires in a few years.

Here are the top 20 pharmaceuticals companies and the percentage of pharmaceutical revenues generated by their top two selling drugs according to 2005 data. This data is generated from the Top 20 Pharmaceutical Companies article published last year in Contract Pharma.

Pfizer 38% from Lipitor and Norvasc
Sanofi-Aventis 18% from Plavix and Lovenox (increases to 25% if you include Taxotere, its third best selling drug)
GlaxoSmithKline 23% from Advair and Avendia
AstraZeneca 31% from Nexium and Seroquel
Merck 35% from Zocor and Fosamax
Novarits 29% from Diovan and Gleevec
Hoffman-La Roche 31% from Rituxan and Epogin
Bristol-Myers Squibb 40% from Plavix and Pravachol
Wyeth 36% from Effexor and Protonix
Eli Lilly 40% from Zyprexa and Gemzar
Abbott Labs 20% from Humira and Mobic
Boehringer-Ingelheim 25% from Spiriva and Mobic
Takeda Pharmaceuticals 40% from Actos and Prevacid
Scheringer-Plough 24% from Vytorin and Remicade
Astellas Pharma 28% from Prograf and Harnal (increases to 39% if you include Lipitor its third best selling drug)
Daiichi-Sankyo figures not available
Novo Nordisk 66% from insulin and insulin related analogs
Eisai 51% from Aricept and Aciphex
Bayer 27% from Ascensia and Kogenate

As you can see it ranges from a low of 18% for Sanofi-Aventis to a high of 66% for Novo Nordisk. The Novo Nordisk may be an unfair number since they lump insulin products and insulin analogs as their top two drugs and these are really aggreagates. However, the point is that for all the top pharmaceuticals, a large portion of their revenues are generated from only a few products.

Many of these either have patents expiring or have had bad press recently which combined with the decreasing number of potential products will likely lead to a desperate situation for the foreseeable future..

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