Drugs like Lipitor show that a single-minded focus on new mechanisms of action or first-in-class drugs is not the only—or
even the best—way of generating commercial value. Firms with high proportions of first-in-class drugs in their in-line portfolios
are not the best at creating blockbusters (see "When First Place Doesn't Win").
How Lucrative Is First-In-Class?
First-in-class will not guarantee blockbuster status in the future, either. Consider the 21 pipeline compounds deemed (in
2003) to have blockbuster potential (see "How Lucrative Is First-In-Class?"). Two-thirds of the compounds, and most of the
forecasted revenues, come from so-called non-innovative drugs, or follow-on compounds. Of the 13 follow-on compounds reviewed
in 2003, 11 (85 percent) have been launched or are still in clinical development. Of the eight first-in-class compounds, however,
only three (38 percent), remain in clinical development or have been launched.
What are the implications for the biopharmaceutical industry? First, pharmaceutical companies need to take a broader view
of innovation. Focusing on scientifically risky, but potentially important new medicines must continue. But it cannot be the
only road companies follow. Innovation needs to be assessed from the points of view of stakeholders—patients, physicians,
regulators, and payers—whose needs can often be met without scientific novelty.
Next, companies need to develop and maintain a robust mix of first-in-class, best-in-class, follow-on, and line extensions
in R&D portfolios that are calibrated to their unique situations. Key elements to take into account include:
- The profile of the compounds currently in the portfolio
- A company's unique strengths and competencies: Does it perceive itself to be a marketing powerhouse able to sell drugs that
are only moderately differentiated? Or must it rely on novelty to make up for less strength in the sales arena?
- The risk tolerance of the company's management and board. Some companies value predictability above all else, others are willing
to gamble on bigger successes.
All of these factors need to be addressed proactively. Otherwise, a company's portfolio-management process will drive its
R&D and overall strategy, rather than the other way around.
Pharmaceutical companies face a substantial pipeline gap, in part because they focus too narrowly on innovation as scientific
breakthrough. By taking a broader, more comprehensive view of innovation, and balancing their portfolio risk accordingly,
companies can raise their success rate and thereby increase the number of drugs they bring to market. Beyond improving commercial
returns, companies will lower their overall risk profiles, become more attractive to investors, and enhance shareholder value.
This is not to say that companies should minimize the value of scientific innovations. But they should take steps to manage
the overall risk balance of their portfolios by deciding in advance how many resources they will allocate to each type of
Michael G. Parker firstname.lastname@example.org
is global account manager and David Amar email@example.com
is partner at The Monitor Group.
The authors gratefully acknowledge the contributions of Daniel Teper and Adriana Samper to the concepts presented in this