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Saturday’s bombshell from Pfizer that it is suspending all global development of its late-stage cholesterol drug, the elegantly-named Torcetrapib, has followed a number of high-profile failures and delays from big pharmaceutical companies this year. AstraZeneca took a blow in October when another potential blockbuster, NXY-059, failed to reach the market. GlaxoSmithKline has suffered a number of disappointments recently while Novartis’s diabetes drug Galvus was delayed last week.

Global drugs chart

Are these setbacks just a coincidence or is something amiss within R&D? Certainly, Pfizer’s announcement caught the market by surprise; with more than $1bn invested in the project, management must have been pretty confident too. Unfortunately, clinical trials remain games of chance for big drugs companies, as well as for the biotech sector where blow-ups are part of life. The biological mechanism that caused the 60 per cent increase in death rates in Pfizer’s 15,000-patient trial remains unknown.

Productivity in the industry, however, is falling. In the US, spending on research has roughly doubled since 1990, to $32bn last year, while the number of products approved by the FDA has remained flat. This crude measure of productivity ignores a 40 per cent increase in revenue per drug over the same period and also the opportunity cost. In other words, drugs companies are taking bigger bets, leading to an intense focus on blockbusters.

Drug failures are compounded when pipelines are thin and patents are expiring – as is the case with Pfizer. Torcetrapib was key to Pfizer’s strategy of protecting its other cholesterol drug, Lipitor, which goes off-patent in 2010 and accounts for more than 30 per cent of revenues. By combining the two drugs, Pfizer was hoping to extend the life of its most profitable product. This failure leaves its cholesterol strategy in tatters.

More broadly, the proliferation of such disappointments creates a niggling worry that thinning pipelines may be encouraging more companies to go for broke. If so, this must make the sector a riskier bet for investors too.

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