How Drug Making is Like Oil Drilling

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

OK, now that we’ve thought over the Hollywood analogy to drug discovery, what about other industries? And if none of them fit, what is it about the pharmaceutical world that makes us so different?

Wildcatting for oil has come up in the comments, and that’s a pretty good one. The ratio of dry holes to gushers is probably pretty similar, and using geology to figure out where to drill isn’t that much different than trying to figure out what screening hit to start a new drug program with. The lead time between discovering something and making money off of it (and the amount that has to be spent first) also lines up pretty closely.

One difference, though, is that all oil wells yield the same thing [oil!], while drug discovery comes up with all sorts of things. The variety of our products can make it hard to do good comparisons. We can find exactly what we’re looking for, sometimes, and still lose our shirts because no one turned out to want it (Exubera!) or because the competition got there first. By contrast, everyone wants oil. That also means that the competition is much more direct in the petroleum business than across pharma. Light sweet crude, once it’s on the tanker, might as well be from anywhere, and will trade wherever you can dock and pump.

It goes for fluctuating prices, to be sure, which isn’t something that we worry about day-to-day over here. Our prices follow a more discontinuous model – as high as we can make them during the lifetime of the patent, and then down to a mere fraction once it expires. Patents are the very definition of wasting assets, and that’s another difference that makes many of these analogies break down. Not as many other industries have big ticking Jame-Bond-villain-style clocks sticking to the sides of their moneymaking products, counting down the days until they lose most of their value. (Fashion and food are two that I can think of, and cars to some extent).

Finally, we have the regulatory aspect, and that really sinks a lot of industry-to-industry analogies, as many people pointed out in the comments to the Andy Grove post. Intel does not have to submit its new designs and its test data to the Federal Chip Administration for approval, and its chips, if they behave in unexpected ways, are still unlikely to directly sicken or kill their users. The closest analogs I can think of are the aircraft and auto industries, particularly the former, since trouble with FAA certification has wiped out many new plane designs and sometimes the associated companies as well.

So, imagine drilling for oil. . .but instead of oil, you’re looking for something a bit different each time you drill, often something that no one’s ever looked for before. And if you manage to find it, you have to make sure, as much as you can, that it doesn’t harm or even kill your customers, because you never know, and satisfy a very hard-edged government agency of that before you can go to market. And after a set number of years, you don’t own it any more.