The Pharmaceutical Industry: Specifi city, Challenges, and What You Can Learn from this Topic - Innovation and Marketing in the Pharmaceutical Industry - page 5

structure or ones that target a similar signal pathway) and/or redundancy strategy
where a fi rm funds two or more molecules treating the same disease (Ding and
Jehoshua 2002 ); and/or by developing expertise in the same therapeutic category so
learning can be more fruitful and uncertainty is reduced.
Uncertainty is closely associated with return : a fi rm needs to balance uncertainty
with potential return. As mentioned above, each innovation (new drug) tends to cre-
ate substantial value for the fi rm. A fi rm must select innovation projects that can
potentially provide large-scale return (to at least make up for future lost income due
to patent expiration of existing blockbuster drugs). Conditional upon this, the fi rm
must also assess how much uncertainty it is willing to bear to target an even larger
return. For example, many fi rms now settle for developing me-too drugs instead of
aiming for fi rst-in-class molecules. This is not necessarily a viable long-term strat-
egy, and it creates a public opinion backlash. The fl ipside of this strategy is that the
time between the launch of the fi rst and the second drugs in a therapeutic class has
shrunk from an average of 10.2 years in the 1970s to 1.2 years for drugs launched
between 1990 and 2003 (Tufts CSDD). This creates additional pressure on the fi rst-
in- class innovator.
Finally, fi rms need to consider another moving part in their innovation strategy:
time . The majority of the income of a pharmaceutical fi rm comes from drugs with
patent protection, and this income will evaporate as soon as the protection ends. As
a result, the revenue of a pharmaceutical fi rm undergoes large-scale discrete changes
instead of even increase/decrease as in most other industries. To smooth out these
kinks, it is critical for a fi rm to plan ahead so that new drugs can be launched at least
in time to replace the expected loss in revenue due to patent expiration. Due to the
long time horizon of development, which usually lasts 12 years, this balancing act
is extremely challenging. In sum, a successful pharmaceutical fi rm must be able to
balance return, uncertainty, and time, while constrained by a fi nite budget. This is
not easy, especially given the constant pressure from fi nancial analysts for fi rms to
deliver results on a regular basis. This pressure has brought about more short-term
rather than long-term optimization of innovation.

1.1.2 Marketing

Society sees pharmaceutical drugs as having “double personalities”: as a conven-
tional product that addresses certain consumer needs, and as something to which
human beings have a fundamental right. As a conventional product, all rules of
commerce should apply to it. However, as something human beings have a basic
right to, many standard marketing practices must be modifi ed. For example,
nobody will complain if his or her neighbor owns a BMW sports car while he or
she cannot afford one. However, if his or her neighbor is able to receive expensive
but effective medicine for a disease, he or she will most likely demand that, if the
need arises, he or she too should have access to the same medicine regardless of his
or her fi nancial status.