Monday, November 28, 2011

Decline of Content in Pharmaceuticals

Fortune has a story pointing to the same problem in big pharma that has already stung the major record labels and the newspaper business: the decline of content. Dan Primack writes “No new drugs? Blame Wall Street.” The big companies are cutting research and abandoning more products before release because the bean counters believe they can make a quicker profit by investing in things like marketing and lawsuits. The inevitable result is that big pharma will fade away the same way as the record and newspaper businesses. With few real musicians and writers, the giants of these industries are shadows of what they used to be. With fewer new drugs invented and tested, big pharma will become, in essence, a giant sales force selling empty pills — and that, obviously, won’t fly.

The decline of a few large companies would not be such a big deal if new companies were coming along to pick up the trajectory of the pharmaceutical industry, developing the next generation of drugs, but that is a problem too, with the big money pulling back. Primack writes:

Early-stage startups are having a much tougher go of it, with 17% fewer raising venture capital during the first three quarters of 2011 than during the same period in 2010. Moreover, a number of veteran VC firms are formally ending their pursuit of pharma startups.

The decline of big pharma will be blamed on other things five years from now, such as consumers’ growing skepticism of commercial medicine, but you are seeing the real cause here. It is the reluctance of executives and investors to pay the expenses that are required to keep the industry going. Big pharma will continue to put out new drugs, just as the major record labels continue to put out new records, but most of them will be products of limited consequence, ones that you may never hear about.