"The industry is turning increasingly to a niche-buster strategy by utilising increased licensing, R&D collaborations and small-scale M&A deals to harness innovation and provide access to markets with high unmet need," said Datamonitor healthcare strategy analyst Dr. Mark Belsey.
With this switch from blockbuster to niche-buster, the dynamics of R&D activity and company strategy are changing. With greater focus on niche drugs, the industry is becoming increasingly R&D focused.
Rather than being centred on sales and marketing, which has driven the success of many current blockbusters, much greater emphasis is being placed upon R&D because it has to generate a greater number of drug candidates.
For at least two decades, blockbusters (drugs with more than $1bn (€784m) in sales annually) have played a central role in driving the very strong growth of the pharmaceutical/biotech market.
These drugs have supported massive company expansion and have motivated significant investment in the industry.
From a drug company's perspective, utilising blockbusters to drive growth has been an attractive strategy because it helps companies achieve investor demand for double-digit sales growth and pays for spiralling drug development costs.
The report claimed that drugs for niche indications had historically been less of a focus for the industry, because smaller patient numbers were thought to restrict revenue generation possibilities.
However, drug companies are beginning to awaken to the substantial sales potential from these markets because of lower marketing costs, limited competition and greater support from regulators.
"Furthermore, niche markets tend to be less attractive to generics manufacturers, and so generic incursion following patent expiry is unlikely to be as rapid," said Belsey.
The more R&D-intensive focus on niche indications will also help power a more personalised approach to treatment, he added.
"Central to the development of the niche-buster model is the raised importance of personalised therapies, which is being driven by increased use of diagnostics. This trend is helping to clarify market segmentation and will boost the size of the total drug industry."
The way that sales and marketing is carried out is also set to change. Unlike the direct-to-consumer dominated blockbuster strategy of the past, the success of the nichebuster depends on prioritising cost-effective targeting of specialist physicians, using targeted marketing spend to access specialist physicians to drive clinical trial progression, approval and successful uptake.
To maximise value from the nichebuster model, it is important for Big Pharma to select the right geographical and disease markets to target. The US provides fertile ground for innovative therapies and should be prioritized as an optimal launch market for nichebuster developers.
The targeted therapy-focused biotechnology market is dominated by oncology, which is the leading focus of R&D collaborations and licensing deals. With a range of relatively low-incidence markets characterised by a high unmet need, oncology represents a leading focus for niche drug developers.
"A classic example of a niche-buster drug is Novartis' cancer drug Glivec, which was initially approved for chronic myeloid leukaemia (CML) in 2001," said Belsey.
"Despite the fact that this was a niche indication with a small patient population, it generated $2.2bn in annual global sales by 2005. Part of its success is that it has since been approved for other oncological diseases as well, even though these are also niche indications."
As the industry begins to realize that a blockbuster-driven growth strategy is not in itself sufficient to drive growth in the future, drug companies are beginning to move away from the 'one size fits all' approach towards more personalised medicine, as they focus on the niche-buster model and smaller markets characterised by a high unmet need. Regulatory authorities and market dynamics are helping to drive this transition.
"However, to maximise value from the niche-buster model, Big Pharma must take into account a number of important considerations, in terms of the geographical market and indication selected, and it must also be flexible enough to adapt its strategy to harness greater innovation," added Belsey.