Blockbuster drugs fall into the same category as blockbuster films, blockbuster novels, blockbuster albums and blockbuster video games. Investors expect a high probability of a big pay day in exchange for investing heavily in a project. When that probability declines, the amount of money they’re willing to invest similarly declines. Think of Hollywood - who wants to finance a $100 million movie if the chances are low that the movie will ever make back all the up-front production and marketing costs? When the cost of failure is too high, conservatism reigns. This leads to highly bankable franchise films with well-known characters and stock plot lines that appeal to specific demographics.
Now, apply this same mentality to the pharmaceutical sector. When the complexity, cost and risk of moving drugs through the clinical trial process are too high, we start to see follow-on drugs rather than pioneering new treatments. According to Stephanie Marrus of Startup America, we’re already seeing evidence of this behavior: a shift of money from risky, early-stage ventures to the (relatively) low-risk areas of the life sciences sector: drugs in late-stage clinical trials, diagnostics and health care IT.
To some degree, pharmaceutical companies have started to embrace the new reality. They are adopting more collaborative R&D procedures and beginning to share their data from clinical trials. The FDA innovation initiative could accelerate this behavior and lead to new blockbuster drugs. In addition to reducing the time and risk associated with clinical trials, the FDA is taking steps to pair entrepreneurs with smaller firms to help them navigate the approval process.
However, the much-hyped Patent Cliff looms in the background. In terms of how much pharmaceutical companies stand to lose in revenue, there are a number of estimates. Author, professor and business leader Don Tapscott has cited a 25-40 percent revenue loss in two years. (Lipitor, for example, goes off patent in November, creating a huge multi-billion-dollar chasm that Pfizer desperately needs to fill.) From this perspective, the FDA’s moves could not have come at a better time: they may end up providing a cure to a patient badly in need of a life-saving treatment.