Niche drug portfolios the way forward for smaller pharma

Opportunities for smaller drug companies to build strong portfolios of niche drugs are opening up as a result of big pharma's single-minded pursuit of blockbuster drugs, according to professional services company KPMG.

These niche drugs, which include treatments for insomnia, muscle relaxants and kidney disease, generate sales of less than $200m a year, and therefore have limited market potential in large companies' eyes. Furthermore, they are often battling established competition or treating a relatively small patient population. However, industry commentators KPMG point out that smaller and medium-sized companies are now capitalising on big pharma's indifference to these products and are increasing their own sales by promoting and marketing such drugs.

Major pharmaceutical companies have invested their efforts in developing blockbuster drugs and have not put as much sales and marketing effort behind smaller, existing products. That has created a tremendous opportunity for smaller drug and biotech firms to benefit from these niche drugs,' said John Morris, global head of pharmaceuticals at KPMG. 'The major pharmaceutical companies are only interested in mega blockbuster drugs with sales of $1bn or more - meaning that there are large numbers of unwanted specialty or niche drugs out there.'

As an example of this, in June 2003, King Pharmaceuticals completed a $750m deal with Irish drug maker Elan to acquire the US rights to two drugs and a sales force of 375 individuals. The products included Sonata, a treatment for insomnia, and Skelaxin, a 40-year-old muscle relaxant redeveloped by Elan. The two drugs had combined sales of $238m in the US in 2002. King said the acquisitions would serve as 'cornerstone' products for them and illustrated the company's strategy of boosting sales with promotion and marketing.

Similarly, Shire Pharmaceuticals recently paid $31m to acquire the patent rights to Fosrenol, a drug aimed at reducing high levels of phosphate in the blood of patients suffering from severe kidney disease. By targeting specialists, Shire is confident that it can boost sales of Fosrenol to $250m a year.

Such acquisitions enable smaller and middle-market pharmaceutical companies not only to build a portfolio of established, approved drugs but to generate sufficient sales to plough cash into r&d for new drugs, KPMG believes. Putting a sales and marketing commitment behind an existing drug can also help a smaller drug firm develop into a broader-based, more formidable 'biopharma' company, capable of developing new products and selling existing ones.

'Many of these existing products tend to be good cash generators. They require little or no research and development. They provide cash-flow support and allow companies to spend more on the research and development of their own new drugs. Building a portfolio with approved drugs can also give sales representatives more 'face time' and 'voice' with general practitioners,' Morris added.

'There is a large range of products that is no longer of interest to big pharma. Those drugs simply fall below their threshold. However, there are now plenty of companies which are more than comfortable with drugs generating $200-400m a year - and who can blame them when the cash from sales of such drugs today can fund their r&d efforts tomorrow.'