The pharmaceutical sector in the United States has taken a lot of beating in recent months, particularly after Vioxx recall in September 2004. Now there is already speculation that Celebrex and Bextra may be recalled as well. And the latest one is about Eli Lilly that it might have known as early as 1988 that Prozac was a dangerous drug and this is likely to lead for renewed calls for Prozac recall.
Apart from the billions lost in shareholder value, there will be another change: the drug approval process may become more difficult. In other words, the cost of drug development will go up further, making it more difficult for pharmaceutical firms to keep their costs under control. As FDA becomes more cautious, drug applications will get bogged down in the federal bureaucracy not only in the United States but elsewhere as well as confidence in the FDA takes a nosedive. And that's not all. A longer drug approval process also reduces the time for the drug to keep its patented status. While many analysts expect that the drugmakers can make up for the loss through higher prices (managing supplies/launch dates), most management consultants like me do not think that there is so much price elasticity.
How to reduce drug development cost?
Apart from the billions lost in shareholder value, there will be another change: the drug approval process may become more difficult. In other words, the cost of drug development will go up further, making it more difficult for pharmaceutical firms to keep their costs under control. As FDA becomes more cautious, drug applications will get bogged down in the federal bureaucracy not only in the United States but elsewhere as well as confidence in the FDA takes a nosedive. And that's not all. A longer drug approval process also reduces the time for the drug to keep its patented status. While many analysts expect that the drugmakers can make up for the loss through higher prices (managing supplies/launch dates), most management consultants like me do not think that there is so much price elasticity.
How to reduce drug development cost?
- Outsource/offshore drug development processes
- Strategic alliances with foreign companies. Now that India will honor patents awarded in foreign countries, there are tremendous new business opportunities in India (sell new drugs, testing/development in India, manufacture in India since many plants are FDA-approved, etc.)
- Portfolio management by shifting focus from blockbuster drugs to a portfolio of drugs that includes some blockbuster drugs but derives most of the sales/income from a core component that includes drugs that are less risky.
Recommended article: It is indeed possible to reduce the cost of drug development in the US