It's been a tough few years for the pharmaceutical business, with fierce competition from generic drugmakers, harsher regulatory scrutiny and high failure rates for drugs in the lab.
With the average drug costing some $800 million to bring to market, both Pfizer and Glaxo recognized perhaps better than others that good science is not enough any more. Aggressive marketing and deep pockets are needed to compete in Big Pharma these days. In short, matters.
One major front in a high-profile marketing battle between the two biggest pharmaceutical companies in the world is the competition over market share for male impotence remedies. First to market was baseball slugger Raphael Palmeiro, one of the pitchmen for Pfizer's Viagra. The new competitor is an anonymous baby boomer, depicted in a TV ad for GlaxoSmithKline's Levitra, zipping footballs in his back yard.
Pfizer and Glaxo compete in several areas, including the huge anti-depressant and cholesterol-lowering markets. But their contest for dominance in the billion-dollar-plus male impotence market perhaps the best example of the changing nature of the drug business.
"They are not only going after each other in market share, but also recognizing that whichever becomes the leader in the class will benefit from the potential expansion of the market," said Hemant Shah, a New Jersey-based drug industry analyst.
With projected 2004 revenues of $54.5 billion and $7.9 in research and development spending, Pfizer remains the biggest drug maker. Glaxo, with $41 billion in revenues and $5.25 in R&D spending, is solidly in second place. Both companies have reached the top of their industry by navigating change in a hostile market.
Listen to Glaxo CEO Jean Marie Garnier:
"We embarked on a very difficult journey which was to take on the number one challenge in the pharmaceutical industry which was the decline in the R and D productivity which has emptied most pipelines," he said. "We are no different. We're suffering from that and we took on a very different path."
Though Garnier was referring to Glaxo's new research centers, the real key to success in the new world of Big Pharma has been consolidation. U.K.-based Glaxo took the merger route, while a more American Pfizer resorted to hostile acquisitions.
"(Pfizer's) approach has been if they see a pipeline or a product they need, they go out and have the clout and the resources to take over that company," said Dr. Kenneth Kaitin, director of the Tufts Center for the Study of Drug Development.
Analysts say the market is big enough for both. And that the two giants, especially Pfizer, have some big advantages.
"Maybe it's true that it will be difficult for Pfizer to sustain the kind of growth on the revenue line that it seems pharmaceutical companies have pursued in the past," said Barbara Ryan, an analyst at Deutsche Bank Securities. "But on the same token, they have reduced the risk of their (profit and loss statement)."
The big risk is for smaller competitors that face the challenge of getting bigger or being dwarfed by Pfizer and Glaxo.
"The pipelines of these companies are very rich," said Kaitin. "And though I suppose investors will remain cautious, the fact is that these will be the leaders in the industry, without question, over the next ten years or so."