OrbiMed Advisors LLC senior managing director for Israel Dr. Nissim Darvish does not see any change in the structure of the global pharmaceutical industry, even as it plans to invest $200 million in Israeli pharmaceutical companies in the coming years.
In the past decade, the idea has been growing that pharmaceutical companies should forego trying to base new products on in-house R&D. Analysts asserted that these companies were good at conducting clinical trials, obtaining insurance indemnification, and sales and marketing. Darvish adheres to this view and takes one step farther: he does not think that pharmaceutical companies are good at any of these tasks.
"What are today's growth engines in the pharmaceutical industry?" he asks. "First is the natural growth and aging of the population. Second are the many deadly diseases that have become chronic. Cancer is an example. In the 1950s, 53% of cancer patients died within five years of diagnosis; today 66% of patients survive for more than five years."
Darvish adds, "The era of blockbuster drugs suitable for the whole population is over. Today, companies carry out clinical trials for a particular segment, and should specialize in this specific field. Companies should conduct good and cheap trials instead of big pharma trials."
Darvish cites an example. "What would happen if Pfizer were to conduct trials on Protalix Biotherapeutics Inc's (AMEX:PLX; TASE: PLX) treatment for Gaucher's disease, instead of Protalix doing it? The trial would be more expensive and the results would not necessarily be any different. Today, only 24% of the drugs that succeed in Phase III clinical trials come from big pharma."
Darvish says that clinical trials are not the only business that big pharma should quit; they should also abandon sales and marketing. "Drug companies currently spend half of their budget on marketing. This says it all - when a drug is excellent and meets a real and unmet need, it's not necessary to spend so much to market it. Patients are now demanding change - they want to be curing not just treatment."
If marketing costs can be reduced, drug prices could come down too, which would greatly ease the financial burden on healthcare systems.
"Globes": What would drug companies do under your model?
Darvish: "Their core business will be money and management. Drug companies know where to invest money and which projects ought to be fostered. They would be the winners over the orchestra of organizations that operate through outsourcing."
So big pharma will end up like a fund?
"Yes, except that funds aren’t interested in selling drugs."
Would this model create an advantage for newer and smaller companies?
"Yes. All subcontracting services - clinical trials, sales and marketing - will also be available to them, so long as they have money, in contrast to the current situation in which big pharma dominates clinical development, sales and marketing."
Darvish says that the new model would not change the investment patterns of funds such as Orbimed by much. "An investor still has to look for innovation and solutions to problems that justify the cost. This model might teach one lesson: do not flee from products of only $100-200 million. There's no need for another blockbuster."
Published by Globes [online], Israel business news - www.globes-online.com - on October 4, 2011
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