San Francisco Chronicle - Thursday, June 14, 2007
Bernadette Tansey, Chronicle Staff Writer, btansey@sfchronicle.com

Global demand for medicines will expand substantially due to a host of factors, the study released Wednesday by accounting and consulting firm PricewaterhouseCoopers predicts. These include longer lifespans, aging populations, rising national incomes, mounting obesity and global warming, which worsens infectious disease rates, the report says.

To take advantage of the expanding market, drug companies will have to develop innovative drugs rather than making modest improvements to treatments and trying to boost sales through intensive marketing, PricewaterhouseCoopers spokesman Tony Farino said.

The cutting-edge model advocated in the report is already being followed by biotechnology companies, said Alan Eisenberg, spokesman for the Biotechnology Industry Organization.

"It certainly seems to point out the benefit biotech provides in terms of substantial innovation," he said.

That could bode well for the Bay Area's biotech industry.

While big pharmaceutical companies have delivered declining returns to investors in recent years, major Bay Area biotech companies such as Genentech and Gilead have produced rapid revenue increases with new drugs. Gilead of Foster City, a major supplier of HIV drugs such as Viread, has seen revenue increase from $467 million in 2002 to more than $3 billion in 2006.

While the total drug market will increase, drug developers will face increasing price pressure, according to the PricewaterhouseCoopers report. Governments, patients and health care plans will increasingly look for drugs that prevent or cure disease, and prices will reflect the performance of pharmaceutical products, the report concludes.

That means that the prevailing pattern of drug development is unworkable, according to the study. Big pharmaceutical companies have traditionally aimed to create "blockbuster" drugs with more than $1 billion in annual revenue and mobilized huge sales forces to promote their mainstay products. Rather than taking the risk of breaking scientific ground, large drug firms have tended to market new products that make only slight improvements on existing drugs, the report says.

Pharmaceutical giants that stick with that blockbuster model will be edged out by nimble, innovative companies that tailor their drugs to specific patient populations and advance the standard of care, the report says.

If the current global drug market of $520 billion more than doubles by 2020, the rise will not necessarily make health costs unaffordable, Farino said. New drugs could be cost-effective if they work better, help patients avoid more expensive treatments or hospitalization, and save health insurance payers money in the long term, Farino said.

In the United States, prescription products accounted for 10.1 percent of the nearly $2 trillion spent on health care in 2005. Hospital spending claimed 33 percent of all expenditures, according to government figures cited by PricewaterhouseCoopers.

Total spending on health care in the United States increased 7.7 percent in 2006, while spending on prescription drugs rose 7.2 percent, the financial services firm said.

The recent research efforts of big pharmaceutical companies are not paying off in innovative new medicines, the consulting firm said. Only 22 new drugs were approved by the Food and Drug Administration last year, when North American companies spent a record $55.2 billion on research and development. In 1996, when the industry spent less than half that on R&D, the FDA approved 53 new drugs.

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