Is There a Decline in Financial Returns From New Drugs?

Industry observers predicted that the profitability of the pharmaceutical industry would decline as a result of the expiration of patents of blockbuster drug. Blockbuster drugs generate $1 billion in revenue a year and include Lipitor (Pfizer) at $12.5 billion/year, Plavix (Bristol-Myers Squibb Sanofi) at $9.1 billion/year and Advair (GlaxoSmithKline) at $8.7 billion/year to name a few as of 2011. Lipitor and Plavix’s patent expired in 2011 and Advair in 2010. Profitability was expected to fall once patents on blockbuster drugs expired, and thus was termed the “Patent Cliff.”

The purpose of this study was to look at newly launch drugs and compare them to different cohorts, based on when the drug was launch in the past 25 years.

Has profitability declined for new drugs?

Compared with cohorts of drugs launched in four-year cohorts starting from 1991 to 2009, the lifetime global net sales for new drugs has declined.

Research and Developed (R&D) cost is usually cited as increasing cost. A PowerPoint Presentation “Cost of Developing a New Drug-November 18, 2014” at by Dr. Joseph A. DiMasi from Tufts Center for the Study of Drug Development was used to justify that R&D costs have risen more than the authors had expected. This appears to be the effect of lower clinical approval success rates and higher attrition.

For newly launched drugs, the economics profits are about zero.

Are small molecule drug sales similar or different than biologics?

There was an upward trend in global net sales of all drugs from 1991 to 2004. During the upward trend, biologics’ sales have been about $1 billion higher than small molecules, except in 1995 to 1999, where biologics’ sales were almost double.

But, 2005-2009 saw net sales levels at its lowest levels, and small molecules and biologics sales were about on par at under $3 billion.

How are R&D costs different for small molecules versus biologics, and how does that affect revenue?

R&D costs for small molecules has always been higher than biologics. R&D for small molecules costs $1,032 million in 2000’s versus $699 million in the 1990’s. Comparatively, R&D for biologics cost $972 million in the 2000’s, up from $658 million in the 1990’s.

Is it profitable to make pharmaceutical drugs?

What drugs are you making? The latest cohort (2004-2009) saw for the first time costs exceeding revenues. Looking at the lifetime (~launch to loss of patent exclusivity) returns (net sales-costs) we can see that biologics are around twice as profitable as small molecules. Only in the recent cohort is small molecule returns negative. This is said to cause a lack of innovation.

So, there was a great boom in drug sales in the 1990s and early 2000s but recently has seen their lowest levels. Cited for the downturn is a lack of demand and rising R&D costs.

Article Based On:

Berndt, Ernst R., et al. “Decline In Economic Returns From New Drugs Raises Questions About Sustaining Innovations.” Health Affairs 34.2 (2015): 245-252.
Berndt, Ernst R., et al. “Decline In Economic Returns From New Drugs Raises Questions About Sustaining Innovations.” Health Affairs 34.2 (2015): 245-252.

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