Value Today for Drugs Tomorrow

The industry can help its bad rep by communicating the promise of its pipeline—and the value of its companies.
Oct 01, 2005
By Pharmaceutical Executive Editors

Fda-approved drugs represent a company's prospects today. Drugs in the pipeline embody the company's future. But when it comes to analyzing the value of a pharma company, the pipeline is often overlooked.

This is a major issue for the pharmaceutical industry, but companies haven't moved the needle much over the years. I remember back in the mid-1990s, an executive from a large pharma approached my firm, wanting to move away from relying on quarter-to-quarter sales growth to communicate the company's value and success. He knew that metric gave a dependable present financial value of a business, but it failed to hedge in favor of future-value increases. Today, most companies still communicate their value that way.

That's in stark comparison to how Wall Street and others assess the value of biotech companies—and not by chance. It's no secret that the biotech industry makes a practice of highlighting every major (and minor) clinical success, even when a drug is years away from potential FDA approval. Many companies would say that this approach is often born of necessity—biotechs must always be prepared to raise cash to fund trials, and therefore, have to keep interest consistently high for their programs. That may be true, but the approach also captures a potential product's excitement and helps place a financial value on it.

In fact, the majority of the 350 publicly traded US biotech companies have stock market valuations based only upon potential products. Collectively, those companies represent more than $311 billion in market valuation on Wall Street, but without bellwethers Amgen and Genentech, industry valuation drops to the $200 billion range. While it is hard to break out valuations resulting from Pfizer or Sanofi-Aventis R&D programs, a lot of the industry today says it is getting next to nothing for its development programs.

Keeping pipeline programs quiet is not only hurting the way analysts value traditional pharma companies, it's hurting the entire industry's reputation. Almost two decades of pushing R&D news has resulted in a potent branding of biotechs as innovators focused on exciting new science and on patients with rare and hard-to-treat diseases. Biotechs have taken ownership of technological breakthroughs such as monoclonal antibodies and stem cells. Meanwhile, instead of taking ownership of science and innovation, pharma is taking the blame for the high costs of new medicines and aggressive marketing techniques.

Pharma companies can learn from biotechs by developing a communications strategy for each Phase II and Phase III product. Pharma appears to take inconsistent approaches to which drug candidates are given high priority. For example, Pfizer put a lot of emphasis on Macugen (pegaptanib sodium injection), for age-related macular degeneration, during clinical development. On the other hand, Revatio quietly emerged as a new drug in pulmonary arterial hypertension—perhaps one of the more compelling areas of cardiovascular medicine—with what appears to have been little advance educational effort.

Pharma companies may believe they are choosing this strategy based on sales potential. But what is missed is exactly the element the industry needs most now—credibility. Regulators, disease advocates, the media, and consumers need to know that the industry is committed to finding better treatments for most diseases, not just the ones that present the most lucrative economic returns. Orphan and other small diseases pack an emotional punch. Biotechs have understood that all along.

That's not to say that pharma companies haven't made any progress in raising awareness of their pipelines in recent years. They have, mostly through annual Analyst Days. While this is a step in the right direction, it is a far cry from the comprehensive communications strategies that have made "biotech" a word that defines value and innovation in drug making.

Brad Miles is the founder of BMC Communications Group. He can be reached at

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