Gold BondSanofi-Aventis [is] spending $1.9 billion to buy Chattem, a U.S. company that makes drug-store staples like Selsun Blue shampoo and Gold Bond foot powder. Why is a fancy drug maker that spends billions of dollars a year on R&D interested in shampoo and foot powder? For an answer, take a look at Abbott’s third-quarter earnings: Sales of prescription drugs were down compared with the year-earlier period, hurt by generic competition, but sales in the unit that sells Similac baby formula and Ensure drinks were up 10%. With drugs representing tens of billions of dollars of annual revenues set to lose patent protection in the next few years, it’s not surprising that the steady revenues of boring, reliable products like foot powder seem pretty appealing to some drug company CEOs....In another of this year’s megadeals, Merck’s acquisition of Schering-Plough brought the company household brands like Dr. Scholl’s and Coppertone. Still, at least one drug maker is sailing against the tide of diversification: Bristol-Meyers Squibb is spinning off its Mead Johnson subsidiary, which sells baby formula and other products. In an unusual move these days for a pharma company, Bristol said it wanted to focus on prescription drugs.
When and if the core competency of a pharmaceutical company becomes marketing, I suspect that a perfect product would be Gold Bond foot powder, Ensure, and Coppertone. There's often not much difference between competing products in the marketplace and the quality of your advertising message is critical because you need to convince consumers that your product is somehow superior despite evidence to the contrary. You are also relieved of the responsibility of managing clinical trials -- the FDA poses less of a threat. You can shed much of your compliance and regulatory staff. Generic foot powders will be of little concern.
However, there is one flaw in such a strategy. If this is the major direction of many of our most prestigious pharmaceutical companies, where do they then look for new drugs in order to replenish their product pipeline? The answer to this question, obviously, is to small, single-product biotech start-up companies, often launched by scientists with new ideas. Many such companies are funded by venture capital firms with the hope of a major payoff at some later time. Such emerging companies are very focused on research and thus far removed from a marketing orientation. The only worry in this regard will occur if and when those small companies with good drug candidate ideas are not supported by VC money. I don't see this happening in the near future because the payoff for successful drugs can be enormous.