Abstract: The model for big pharma has changed. So, now what?…
If there’s one thing big pharmaceutical companies and their investors agree on, it was captured yesterday in the words of British Prime Minister David Cameron: “the old big pharma model is in flux – a new model is emerging.”
The Prime Minister was speaking at the FT Global Pharmaceutical and Biotechnology Conference in London, where he laid out the Government’s plans to encourage life sciences research in the UK.
The words came at a time when many big pharmaceutical companies are in fact looking more at emerging markets such as India and China, not only as markets for their products but also as locations for research facilities. The most recent evidence came just a few months ago when Pfizer announced the closing of its research and development facility in Sandwich, Kent.
The lure of emerging markets
Their reasons for doing so are complex. Many governments in traditional, developed markets are under pressure to reduce their healthcare costs by cutting the amount they spend on pharmaceutical products. At the same time, tightening regulations have been seen as further hurdles by the pharmaceutical companies and encouraged them to rethink the focus of their markets. Sir David Cooksey, Chairman of The Francis Crick Institute, agrees: “the regulatory framework has become more risk averse”.
On the other hand, developing countries such as China, Brazil, Russia, India, and parts of Africa have more relaxed regulatory structures and are showing strong economic potential. They are also the traditional homes of a former nemesis of big pharma, which may soon become an income stream: generic medicines – medicines that contain the same active ingredient as branded medicines, but are invariably cheaper.
According to Alex Kandybin and Vessela Genova from the strategy management firm Booz & Company, branded pharmaceuticals amounting to some US$120 billion in annual revenues will be coming off patent over the next few years. This means they will then be a target for generic pharmaceutical companies.
This is the primary reason that major pharmaceutical companies GlaxoSmithKline, Novartis, and Pfizer have recently stated that generic medicines – popular in emerging markets – are now part of their investment focus area.
Whereas big pharma agrees that the era of blockbuster drugs may be over, there is still opportunity in research. With great advances in research into HIV and malaria and the promise of using genetic technology for personalised medicine, there is still a need for more R&D. In the words of Miles D White, the CEO of Abbott: “There’s never been better science and innovation” in pharma.
Challenges of emerging markets
But moving into emerging markets carries its own risks and challenges, as Jörg Reinhardt, Chairman of the Board of Management, Bayer HealthCare AG, explains: “Established R&D paradigms cannot just be ‘exported’ to the emerging markets.”
For instance, companies must find the necessary local talent and develop partnerships. According to Lars Sørensen, the president and CEO of Novo Nordisk A/S, “it’s not about bringing products to market, it’s about bringing solutions.”
Emerging markets are also highly complex. There are often multiple markets within a single country – public markets for high volume/low price products and lower volume private markets that support innovation.
Investing in emerging markets has also brought other challenges that are associated with lifestyle. Novo Nordisk A/S, which focuses strongly on research into diabetes, has discovered that because diets in China differ to those in the US, the insulin market in China was initially quite unpredictable.
Emerging markets are also, by their very nature, dynamic. As their economies grow, lifestyles and drug use change, which can be expensive for drug developers as it may necessitate brand-new clinical trials.
According to Sørensen, if big pharmaceutical companies are to include emerging markets in their strategy – and he believes they should – they need to be prepared to run the gauntlet of business, reputational, political and financial risk.
They just need to ask if it’s worth it.
Originally published in Elements, 6 December 2011