7 minute read
Clinical Cosmos
Why do some launches fail in the pharmaceutical industry?
The commitment to innovation is the reason for being of the pharmaceutical industry, whose efforts and investments are devoted to researching and developing new drugs to improve people’s health and quality of life. This enormous task, with its successes and also its failures, has meant that in recent decades medicine has made such progress that people today live longer and better than ever before, which is one of the great achievements of modern history.
However, it is important to bear in mind that it takes an average of 10 to 12 years from the time a company in the pharmaceutical industry starts researching a molecule until it is marketed. It only takes about four years to reach the clinical trial stage, that is, when the drug is tested on humans, during which time a promising compound is identified and the first tests are carried out to verify its safety. Fewer than 10% of those compounds that reach the clinical trial stage become drugs available to physicians and patients. Of these, only three out of ten will generate revenues that exceed average research and development (R&D) costs.
According to a study by McKinsey & Company, approximately 66% of pharmaceutical product launches fail to meet pre-launch sales expectations, or more than half of them. Moreover, for those that do, only 53% continue to exceed third-year forecasts. In a market where the Food and Drug Administration (FDA) has approved 167 new drugs in the last five years, each launch must be optimized to take advantage of the current market opportunity.
So why do they fail?
The reasons may be several, and no, we are not going to discover warm water, I know, but we may not be asking the right questions at the right time in this regard. From 2005 to 2022, only 7.8% of drugs that moved from clinical trials to the FDA approval process were approved. By 2022, Forbes estimated that 92% of drugs were approved by the FDA. This dramatic growth opened up a huge opportunity for pharmaceutical product launches.
In the past, companies such as Somaxon, makers of an insomnia drug called Silenor, experienced massive failures due to lengthy FDA approval times. In Somaxon’s case, multiple attempts at the FDA approval process ended in a $170 million loss. By the time they managed to enter the market, the sales team was downsized amid stiff competition. Did you see that? Extended times, for a drug in a captive audience, where not only did a health problem have to be solved, but a secondary need had to be “generated” as well. If we think about it, it was destined to fail for obvious reasons. This from the total planning of the business case. Timing, audience, indications, consumption/usage projections, not always being innovative in the market is enough to determine the success of a launch, we must take all these factors into account, as we are talking about millions of dollars in losses.
A look at the numbers: the sample comprises 210 new molecular entities launched between 2010 and 2019, for which consensus forecasts of evaluating one year before launch were available.
Looking at another pharmaceutical launch failure would reflect a similar fate: small sales teams burdened by declining salaries during the commercialization phase of a launch, ultimately leading to failed sales quotas. Not a happy ending.
This is the focus of the international report by the consulting firm Deloitte, Ten years on. Measuring the return from pharmaceutical innovation 2019. For the past ten years, this consulting firm has annually evaluated the performance of innovation in the biopharmaceutical sector based on the evolution of the portfolio of drugs in their final R&D phases of a group of twelve leading pharmaceutical companies from around the world. The study reveals that the expected return on R&D investment in new drugs for pharmaceutical companies currently stands at just 1.8%, the lowest historical record in the last decade. And it adds that this return accumulates a decline of 8.3 percentage points since 2010, when the first study found a return of 10.1%.
The Deloitte report also notes that peak sales per new drug reaching the market have fallen by as much as 54% over the past decade, from $816 million in peak sales in 2010 to $376 million in 2019. And by contrast, the average cost of developing and commercializing a new drug has risen by nearly 70% since 2010, reaching $1.981 billion. This represents an increase of $800 million per drug since the first report was released, when it was $1.188 billion.
High patent costs plus lost revenue: chaos
Yes, although there were more FDA approvals, the pharmaceutical industry is still very expensive. R&D and patent costs have driven extreme consolidation in recent decades. The top 30 pharmaceutical companies that existed in 1989, merged and there were only 9 companies left by 2010. Even with the merger, big pharma companies still have patent and operating cost issues leading to revenue losses and budget constraints. As a result, sales teams are constantly stretched beyond their capacity, impacting the success of launches and sales quotas.
So, there is a lot of innovation, but these conditions persist. Shouldn’t there be a greater focus on using innovation to reduce operating costs and produce high sales figures? Technology can improve the sales pipeline, reduce marketing and search time, and improve communications. Digital products and marketing tools have added a new dimension to the sales pipeline. A 2015 report published by Cegedim Strategic Data found that 25% of physicians are active consumers of digital communications to exchange information.
That percentage is only growing and growing; pay attention. It’s the same case with in-person meetings, they’ve become less necessary, and sales forces continue to adapt; pharmaceutical salespeople must stay on top of that wave, not wait for a new one to come along. After a scary stretch between 2010 and 2012, where we witnessed massive industry layoffs, a more optimistic report from the Bureau of Labor Statistics predicted a 16% annual employment growth rate for pharmaceutical salespeople through 2020, obviously due to the new pandemic reality; it changed everything.
Now this issue is less about growth and job security and more about the fit and value of the vendor-physician relationship. Since the implementation of the Sunshine Act, a financial regulation to increase payment transparency, some physicians have become reluctant to meet with vendors due to increased scrutiny for any activity involving cash or incentives.
Another medical report from DIG’s Connected found that 29% of U.S. physicians agree that the Internet has decreased their trust in vendors, but 26% of physicians surveyed went online after meeting with a vendor. This is important, as technology hesitations should be a natural extension of current processes on both sides. Sales reps have the opportunity to make this gradual shift by using technologies to drive productivity and convenience.
In short, the pharmaceutical industry has analyzed the market lightly and has failed to understand it well and to assume its changes promptly. It is valid and necessary to resume strategies fundamentally aimed at minimizing these risks.
Oscar Mata, PhD
Physician, Specialist in General Surgery, PhD in Human Physiology. Scientific advisor in the pharmaceutical industry in Latin America. Researcher and academic.
