Outlook: Avandia ahead

SMITHKLINE BEECHAM is this summer expected to get clearence for the launch of its new diabetes drug, Avandia. FDA approval is expected in June and the roll out in Europe will begin from the Autumn onwards. This is a big thing for SmithKline; Avandia is widely seen as a potential block buster, with huge potential.

In order fully to realise that potential, SmithKline wants the right to advertise its new product in Europe. This is already possible in the US, where prescription drugs are widely promoted to the public at large. The result is that doctors and health care plans come under intense public pressure to prescribe those products. In Europe this is not allowed. The only way a pharmaceuticals company can market its products is through doctors and hospitals. Word of mouth and the press can help a lot, but there is no direct route to the consumer. And quite right too, many will say.

However, governments may not be able to resist the tide for much longer. The internet is changing the world before their eyes. Extensive information is available on Avandia through the net, where it is widely listed as a revolutionary new treatment for type two diabetes even though it is not yet available. Despite the ban on advertising, then, extensive brand awareness has already been established.

The net is also going to change the way pharmaceutical products are sold in other ways too. At the moment this is a highly regulated industry in which it is often a criminal offence to sell a product cross border.

For instance, wholesalers are not allowed to import pharmaceutical products into the US from Europe, so if the price is cheaper in Europe, they cannot take advantage of it. On the other hand, there seems little the authorities can do to stop individuals buying their prescription drugs in this way over the net, so over time the price of pharmaceutical products can be expected to fall to the lowest common denominator.

All industries are going to be affected by this deflationary effect on prices to some degree, but for pharmaceuticals, it is plainly going to be more dramatic, if only because the present high degree of regulation causes big price differentials between countries.

It would none the less be wrong to assume the industry will lose out as a result of these influences. By promoting consumer awareness on the one hand, and price transparancy on the other, the net might eventually allow drug companies to charge what they like for their products globally, or put another way, what the market will take, rather than having their prices set by governments.