Industry observers have been saying for years that the blockbuster-driven, marketing-intensive business model for Big Pharma is obsolete, and that the companies who use it have some serious rethinking and restructuring to do. An article by a trio of Bain & Co. consultants, published in 2003, is still relevant. One of their key points:
Greater scale alone won't solve the problem of unproductive pipelines and best sellers that are more the result of marketing than innovation.
Now Pfizer Inc., the archetypal Big Pharma, is getting even bigger, buying Wyeth for $68 billion in cash and stock. But the deal isn't just about scale, the companies insist. Consider this subhead from the
press release:
"Unique and Flexible Business Model Features Focus and Agility of Smaller Enterprises Backed by Resources and Scale of Global Company."
All this, and $4 billion in cost savings too. Part of the picture seems to be a matter of tying R&D more closely to business units and focusing it on later-stage work, a path Pfizer is already
headed down.
But how the rest of the picture is filled in will be interesting to see -- the more so, since it will probably be filled in amid some of the most far-reaching regulatory change the industry has ever seen, thanks to the new Obama administration.
A big chunk of the projected cost savings are to come from slashing Wyeth's R&D spending. (Breaking Views, which likes the deal, posits
a 50% cut.) Incoming Health and Human Services Secretary Tom Daschle, set to lead the charge on healthcare reform, would agree with the implicit premise that there's duplicative and inefficient work going on in the industry.
But here's a wrinkle on that front, courtesy once more of the folks at In Vivo. The many billions that the industry spends on R&D may not be terribly effective these days, but the outlays do serve as a first line of
counterargument when people complain about pharma's profit margins.
Wonder how the discussion would go if it took place in front of the
National Healthcare Board that Daschle wants to create?
Pfizer CEO Jeff Kindler doubtless has a view ( or perhaps some scenarios) for how all this will sort out, and what kind of a business model he'll be needing in five years or so. Meanwhile that flexibility -- if the company can deliver on it -- may come in handy. -
Kenneth Klee
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