IDEA Pharma, a leading drug industry consultancy, has released its 2018 “Freshness Index”—one of my favorite parts of the firm’s much-awaited annual Pharmaceutical Innovation Index (which is slated to arrive at the end of this month).
If you want a single snapshot of the state of creative production in Big Pharma, well, here it is:
What the chart above shows is simply the percentage of 2017 revenue that derived from products launched in the previous five years. In other words, how much of each company’s sales are coming from drugs fresh out of the pipeline versus how much are coming from older meds?
In that regard, the picture above is worth a thousand words: Nearly all of Big Pharma is riding on fumes, it seems.
On average, the 30 large and small pharmaceutical and biotech companies IDEA Pharma examined got just 11% of their 2017 revenue from drugs developed within the past five years, says Mike Rea, the firm’s CEO and one of the most insightful people I’ve met—no exaggeration—when it comes to pinpointing innovation choke points in the drug industry. Take out Gilead and Biogen from the mix and the group average drops to 8.1%. Nineteen of these 30 companies, meanwhile, got less than 7% of sales in the last calendar year from “new” products, says Rea. Please read his LinkedIn essay on this for more context (and you might want to follow him on Twitter, too).
Sure, a single chart will miss some nuances and may not capture every aspect of innovation churning in each company. But that said, dollars talk.
“I’ve heard several arguments over the years about how this doesn’t really matter, but I believe it does,” writes Rae in his LinkedIn post. “One of the issues we face, as an industry, is the familiar reputation/ pricing issue. But the real issue on pricing is the year-on-year rises on old drugs—the deflection is to talk about new drug prices, but the sleight of hand is on the double digit rises taken every year on the portfolio staples. Without those rises, however, just imagine how those companies with no new blood to talk about would be doing…?
For all the talk of ‘innovation’ in pharma, a term that is used with loose abandon, and even looser definition, the challenge of seeing ‘return on invention’ is clearly still a significant one.”
Well said.
This essay appears in today’s edition of the Fortune Brainstorm Health Daily. Get it delivered straight to your inbox.
