How Drug Making is Like Hollywood

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Includes: JNJ, MRK, NVS, PFE, WYE
by: Derek Lowe

So, if we’re not going to learn from the chip-making industries, who should we be learning from? That question came up in the comments to the Andy Grove polemic, and it’s worth thinking about. I’ve wondered in the past about which industry is the closest to pharmaceuticals in its risks and payoffs, and I think I have a candidate. You might not like it, though: it’s Hollywood.

Think it through. The match isn’t perfect, but it’s a lot better fit than the semiconductor industry. The movie business, just like the drug industry, incurs most of its costs in the R&D and marketing areas - production costs are comparatively minimal. (Piracy, naturally, is a problem under these conditions). Sequels to past successes are a somewhat lower-risk way to make money, but those aren't sure things, either

And for both groups of companies, figuring out what will be a hit is extremely hard, sometimes next to impossible (remember screenwriter William Goldman's maxim about Hollywood: "Nobody knows anything"). Companies try to live from blockbuster to blockbuster, banking enough money to find the next one.

The differences? Well, there are several, with the advantages mostly going to Hollywood. There's regulatory pressure, for one thing. The entry barrier to getting a movie distributed is a lot lower than getting a drug past the FDA. That reflects the relative differences between entertainment and medical care - the latter is clearly going to get a lot more serious scrutiny than the former.

Another difference is that movies can continue making money for a much, much longer time than drugs can. Copyright just keeps on getting extended - roughly every time the early Disney characters start to come close to going into the public domain, by some odd coincidence - but no one's talking about similarly lengthening patent terms, are they? And movies continue on in other money-making forms after their theatrical run [DVDs and the like]. For their part, drugs go generic, and while there's still plenty of money to be made, it's not as much as during their patent lifetimes, and not much of it is made by the original company.

On the other hand, the studios have probably managed to target just about every possible need of their audience at one time or another over the years, whereas we in the drug business have a lot of unmet medical needs waiting for us to do something about them. And our knowledge base (what to target, why, and how) is increasing with time, albeit slowly and jerkily, while the movie industry doesn't look to become a science any time soon.

The single biggest breakdown in the analogy are the salaries paid to the top stars, and their role in making a movie popular. I can't think of a clear correlate in the drug business. Even so, are there some lessons we might be able to learn from those guys? The way different studios have been set up, perhaps, or how they work out portfolios of releases or handle different sorts of production deals? Worth thinking about. . .

Update: In a clear great-minds-think-alike situation, this exact analogy was covered here earlier this year. And for a crack at the same analogy from 2005, check out The Stalwart here, who got the idea from James Surowiecki in the New Yorker.