Preparing For an Uncertain Future

For anyone who likes to ponder the business of biopharmaceuticals, there has been plenty of news to chew on recently, as companies make moves that hint at important shifts in strategy.

Laura Bush

AstraZeneca (AZ), GlaxoSmithKline (GSK), and Pfizer all have announced significant cuts in drug discovery investment. Are they inching closer to becoming virtual companies? I exaggerate a bit, but many big firms have already embraced contract manufacturing, and one could argue that they have been outsourcing significant amounts of R&D for years, by buying individual drugs from start-ups and whole pipelines through acquisitions of large and medium-sized competitors. Will some of them outsource R&D completely, and focus on what Steven Burrill considers their core competencies: post-discovery drug development, and sales and marketing?

Meanwhile, many are buying or partnering with generics companies, particularly firms selling in emerging countries. Recent deals involve AZ in India, GSK in India and South Africa, Sanofi-Aventis in Brazil, Mexico, and the Czech Republic, and Pfizer's failed bid for Germany's Ratiopharm. Big Pharma ownership of generics units is not new, but these recent deals show a strong interest in diversification among product types and geography. Pharma traditionally has made its biggest profits in the US because of the lack of price controls here, but they may wish to reduce their reliance on North America and take advantage of new opportunities in emerging markets.

Given ongoing industry challenges and the evolving nature of the pharma business, traditional strategies were bound to change. But of course, there is one more big threat—and perhaps opportunity—on the horizon: US healthcare reform. Now that reform once again seems imminent, there are many questions to consider, such as:

• How strongly will biologics manufacturers feel the effects of biosimilars? At what discount will biosimilars sell compared to the price of their reference products?

• How will reform affect the way companies negotiate drug reimbursement and formulary coverage with government and private payors?

• As US government spending on healthcare increases, will the need to reduce costs lead to even greater use of small-molecule generics?

• Will we start to see more comparative effectiveness studies?

• How will healthcare reform affect innovation, and the US role in the industry?

• Will cost pressures lead to more outsourcing and offshoring of manufacturing?

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