'Small is beautiful' - Is it the end of the road for the block-buster model?
Notwithstanding its recession proof nature, the global pharma industry currently faces unprecedented challenges related to pricing and regulatory pressures, thin late-stage pipelines, shifting demographics, efficacy issues and globalization. Today, one of the major issues that can seriously impede its growth is patent expirations. For decades, blockbuster drugs like Lipitor, Plavix, Advair, Diovan, to mention a few, have been driving the revenues for the top global pharmaceutical companies. However, sales of more than $235 billion are at risk in six years as many blockbuster drugs are slated to go off patent. This could lead to high price erosion post genericization. While top pharma majors are trying to put up a bold face to this imminent threat, their leaders recognize the need for a transformational change in their organizations and are searching for new ways to transform business models to drive innovation and better demonstrate the value of their products. Majority of companies have announced major strategic shifts and choices that have the potential of transforming the business and the business model.
It is a fact that blockbuster drugs have, till date, supported massive company expansions, incentivized significant investments in the industry and have helped to power strong research and development (R&D) investments to broaden the range of drugs available across a wide spectrum of diseases. However, a closer analysis, on the one hand, reveals an industry-wide, mid-stage R&D pipeline gap, implying the next blockbuster isn't just around the corner, and marketable compounds will be scarce; and, on the other hand, it reveals a growing demand for personal, customized health care, which, the current blockbuster model cannot accommodate.
Historically, focus of majority of the pharma companies has been centered on sales and marketing that has driven the success of many current blockbusters. However, to drive strong future sales, drugs companies need to increasingly turn towards developing drugs for niche indications i.e. to say, transform from block-buster to a niche-buster strategy. To successfully capture market share in niche markets, drugs companies will need to considerably adapt, particularly in terms of how sales and marketing is carried out, and how innovation is successfully captured. The industry should leverage increased licensing activity and R&D collaborations to harness innovation and provide access to markets with high unmet need. It is also important for the industry to select the right geographical and disease markets to target.
To maximize value from the niche-buster model, pharma companies, considering poor returns from in-house R&D, should look to merge or acquire to grow. This strategy is particularly favored as a means of securing access to late-stage products. Also, networked growth works because specialist vendors and (bio)pharmaceutical companies are now arguably more efficient and progressive at what they do than are many major pharmaceutical companies. Of late, the industry has witnessed high profile M&A's where big pharma entered into agreement either with other pharma or biotech companies. The best examples being the recent pacts between Pfizer and Wyeth; Merck and Schering Plough; Roche and Genentech , Lilly and Imclone.
There is nothing surprising or shocking about the impending patent expiry of present blockbusters. What makes it worrisome is the failure in finding replacement for these blockbusters. Irrespective of the fact that investment in R&D has increased, the outcome from the same has been very depressing since there have been only few products that could make it to the market. Having said this, the R&D pipeline products would still continue to be the primary market drivers in the next decade. To ride this wave, companies will need to maintain their investment in research. However they will need to move away from the current 'blockbuster' mentality as therapies evolve to become more specialized and patient-customized. It's time to pursue alternative growth strategies.
