Where It Works

Forty percent of US branded pharmaceutical sales are derived from products that sell less than $150 million annually. Despite their importance to the industry, growing these products has proven difficult. The techniques and strategies that are effective for larger sales compounds, such as reformulation and indication expansion, can rarely be justified for smaller products. What's more, there's little ROI for these small drugs in tapping the usual media mix. Instead, these compounds gain attention only when a generic drug launches a patent challenge—or the company decides the drug no longer fits within its strategic priorities, and sells it off.

While the personalized medicine approach does work with larger volume sales products, it must compete with more traditional life cycle management techniques, which may generate similar or better returns. AstraMerck's decision to acquire the marketing rights to a hand-held diagnostic gastric ulcer test (HPChek, in 1996) offers an example. At that time, Prilosec was the leading proton pump inhibitor, with annual US sales approaching $2 billion. AstraMerck obtained an indication expansion for Prilosec for the treatment of gastric ulcers in combination with the antibiotic Biaxin. The test developed by the now-defunct Chemtrak was an inexpensive ($12), disposable, single-use, whole-blood test that provided confirmation of H. pylori antibodies as an alternative to endoscopy and biopsy. HPChek received FDA approval in 1996.

First Mover Advantage

The first-mover diagnostic that helps identify and segment patients by disease can potentially affect multiple drugs in a class. After an initial diagnostic is available in a particular disease area, roadblocks appear. For the drug developer that starts to see sales of traditionally stable products decline, there may be insufficient time to mount a competitive response.

The second mover who attempts to leverage a diagnostic test will need to launch a differentiated test that provides additional medically relevant disease information. Given the nature of the small-molecule drugs that do not exclusively bind to a single target, this can present an expensive technical hurdle.

The explosive growth in diagnostics based on advancements in molecular medicine will drive more opportunities for this approach. In many cases, the diagnostic will already be FDA approved, and the challenge will be integrating the product, diagnostic, sales, marketing, and reimbursement capabilities. In other instances, the diagnostic will need additional development and clinical validation. Nevertheless, the additional costs for these activities will be less than the costs of manipulating the molecule or paying for clinical trials to expand indications.

The source of this innovation will not necessarily be the original drug developers. Academic researchers, diagnostic companies, clinical labs, and specialty companies will also play a critical role in providing content. Pharma companies that need to extract the maximum value from their current portfolios will also play a role. While pharmaceutical companies that have diagnostic divisions may have an initial advantage over "pure plays," the availability of strong diagnostic sales and marketing capabilities at clinical labs and independent diagnostic developers will provide strategic and alliance opportunities for pharmas to take advantage of.

Amit Agarwal is a partner with Scientia Advisors. He can be reached at aagarwal@scientiaadv.com