How to Save Your Drug Company - Pharmaceutical Executive

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How to Save Your Drug Company

Pharmaceutical Executive


M&A vs. R&D

Figure 3: The average impact of M&A on small and large pharmas


Figure 3
Getting bigger has been no better at upping output than spending more. In fact, the Big Pharmas that have grown organically rather than through M&A activity have outperformed the high-dealing firms (based on an analysis of 24 acquisitions, six mergers, and 10-plus years of before-and-after data). "Only small companies show a slight, but significant, increase in new drug output. For large companies, M&As do not seem to create or destroy value.... [Their] impact can be summarized as 1 + 1 = 1," Munos writes. But industrywide consolidation could have an overall negative effect on productivity. Munos detected an unexpectedly close correlation between the number of new drugs produced and the number of companies operating in any given year. "A larger number of companies [may] accelerate the acquisition of knowledge, creating...a spillover—an industrywide benefit that enables all companies to be more productive."

THE FORECAST

Figure 4: Predicted income for the top 13 pharmas, 2009–2018


Figure 4
The patent cliff over which the industry is currently plunging is likely to result in a 5 to 10 percent loss in sales and a 20 to 30 percent loss in net income between 2012 and 2015. Sales should recover through 2018, but income may continue to suffer, clawing back only 5 percent. That scenario will make any pharma CEO tremble. "If the performance of the current business model cannot satisfy stakeholders, M&A are not a solution, and the process improvements and cost-cutting measures commonly used cannot make a sufficient difference, perhaps the industry ought to embrace a more radical change and seize the opportunity to redesign the model," writes Munos.

TO-DO LIST

"Venture outside [the] comfort zone" when redesigning its engine of innovation.

Embrace experiments like open-source R&D, innovation networks, and public-private partnerships to "harness the 'global brain" and access the best science.

Increase the odds of breakthrough discoveries by creating "a separate, protected area the sole purpose of which is disruptive innovation."

Cut back on the process culture that "create[s] little value in an industry dominated by blockbusters."


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