From Blockbuster to Nichebuster

A Report by Datamonitor

Niche therapies drive future drugs growth and incentivize R&D investment over sales spending

As pressures on the blockbuster model increase in terms of the perceived failure to harness R&D innovation, increased generic threat and greater P&R hurdles for me-too drugs, drug developers are turning to niche indications for future sales growth.

To successfully capitalize on the nichebuster model, drugs companies should focus on characterizing the target market, and use targeted marketing spend to access specialist physicians to drive clinical trial progression, approval and successful uptake.

EXECUTIVE SUMMARY

Introduction

For at least two decades, blockbusters have played a central role in driving the very strong growth in the pharma/biotech market. These drugs have supported massive company expansion, incentivized significant investment in the industry and have helped to power strong R&D investment to broaden the range of drugs available across a wide spectrum of diseases. However, there is increasing pressure on blockbusters, in light of the fact that both regulators and payers are shifting favor away from me-too drugs, and a large proportion of current blockbusters are me-toos. Furthermore, blockbusters attract significant generic competition on patent expiry and may also be stifling R&D innovation. To drive strong future sales, drugs companies are increasingly turning towards developing drugs for niche indications. A move which is helping to transform the industry into being R&D focused rather than being centered around the sales and marketing that has driven the success of many current blockbusters. To successfully capture market share in niche markets, drugs companies will need to considerably adapt, particularly in terms of how sales and marketing is carried out, and how innovation is successfully captured.

Scope and coverage of this report

Blockbusters are drugs that generate at least $1 billion in sales per year. Historically, blockbusters have been small molecule therapeutics that treat highly-prevalent chronic diseases most frequently diagnosed by primary care physicians (PCPs). Pfizer’s antidyslipidemic drug Lipitor (atorvastatin) is currently the most successful blockbuster, generating sales of more than $12 billion in 2005.

This report provides an overview of the problems facing blockbusters, and identifies factors driving the shift away from blockbusters towards niche therapies and the effects that this transition will have on the market. With this report, you will be able to:

• identify why blockbusters have played such an important role inpharma/biotech market development and understand why it is no longer optimal for this strategy to play a central role in driving future growth;
• examine how a number of different drivers such as regulatory initiatives are incentivizing the nichebuster model;
• gain insight into how the transition towards the nichebuster model will change overall market dynamics in the future.
  

Key findings from this report

• Over the last 25 years, growth of the drugs industry has been driven by blockbusters, which remain an attractive growth strategy because of investor demand for double-digit sales growth and spiraling drug development costs. However, blockbusters are facing increasing generic incursion, stronger pressure to justify reimbursement, and accusations that they are stifling R&D innovation. As a result, the industry is looking for new growth opportunities and is turning towards niche indications to drive future sales;
• to maximize value from the nichebuster model, it is important for Big Pharma to select the right geographical and disease markets to target. The US provides fertile ground for innovative therapies and should be prioritized as an optimal launch market for nichebuster developers. The targeted therapy focused biotechnology market is dominated by oncology, which is the leading focus of R&D collaborations and licensing deals. With a range of relatively low-incidence markets characterized by a high unmet need, oncology represents a leading focus for niche drug developers;
• dependence on blockbuster-generated revenue is set to fall from 2004-2010 as the industry turns to a nichebuster strategy, utilizing increased licensing activity, R&D collaborations and small-scale M&A deals to harness innovation and provide access to markets with high unmet need. The aim of these deals is to buy in early-stage technologies and drug targets. However, very early-stage technologies such as genomics are being shunned due to the lack of tangible results that such technologies have delivered. Dependence on later-stage deals is also lower because increased competition is leading them to become increasingly expensive and difficult to locate, increasing the risk and potentially limiting the return on investment from such deals;
• the drive towards niche markets is helping power a more personalized approach to treatment. Central to the development of the nichebuster model is the raised importance of personalized therapies, which is being driven by increased used of diagnostics. This trend is helping to clarify market segmentation and will boost the size of the total drug industry.