Assessing the crowd effect on biopharma's risky R&D strategy

Let's suppose, for a moment anyway, that stock prices indicate that investors have come to believe in the pipeline prospects at Big Pharma companies. Let's also suppose--and this requires a much bigger leap of faith--that R&D productivity has fundamentally improved at the average biopharma company, providing reason to believe that future drug sales growth can be expected.

Then what should we make of the heavy, some would say unhealthy, concentration of drug R&D in certain hot categories like oncology and inflammation?

That imbalance could be a real problem, says the Wall Street Journal's savvy "Heard on the Street" columnist Helen Thomas. Barclays crunched the numbers and found that oncology and inflammation get a third of all the R&D dollars out there, even though the diseases those categories represent account for less than 17% of all projected revenue. And Thomas noted that the numbers indicate that biopharma may well be trading development risk--which has been off the charts for the past decade--with payer and commercial risk.

So even if pharma companies win at research, they could lose on the marketing front. And that fate is also being tempted by the distinct possibility that today's big new medical innovation can quickly give way to tomorrow's me-better or me-much-better follow-up drug.

Thomas raises some excellent points in her column. You'd have to be deaf, dumb and blind to overlook the way pharma has crowded into the cancer arena looking for the next big immunotherapy or the next big targeted oncology drug--or both. The gold rush mentality is also evident in hep C as well as diabetes, where every new GLP1 or SGLT2 drug is closely followed by another, possibly better new entry.

The blockbuster franchise model of old that used to sustain a company for years is being replaced with a new generation of blockbusters that may often amount to nothing more than a flash in the pan. And as Thomas suggests, that could set the stage for a migration to lonelier diseases or drug theories, where true pioneers can be years ahead of the next competing therapy. In that scenario, the best and the brightest biotechs could well outstrip bigger, slower pharma companies still focused on the past.

CNS is held up as a logical countertrend opportunity. Big pharma has been pulling out of the field, waved away by disastrous failure rates and enormous scientific uncertainty. But as the Journal notes, depression and schizophrenia amounts to a $33 billion market. It's worth noting, though, that the first time someone does something solid in Phase III, the rest of the industry will plow back in right behind it. -- John Carroll, editor-in-chief (email | Twitter)