Biotech Values

[DewDiligence]

Big Pharma Is Becoming Less About Pharma

[A factoid from below: 57% of the pharma industry’s 2008 worldwide sales of parented drugs will go off-patent by the end of 2011 and 75% will go off-patent by the end of 2013.]

http://www.ft.com/cms/s/0/d6fb3f60-dc9d-11df-84f5-00144feabdc0.html

›By Andrew Jack in London
October 21, 2010

Two-thirds of large pharmaceutical companies are focused on diversifying away from patented drug development as they grow increasingly sceptical about the returns from future innovation.

A survey by Roland Berger, the strategy consultancy, of 50 top industry executives showed that 65 per cent considered their sector was facing a “strategic crisis” and 67 per cent saw diversification as a potential solution.

Almost half believed that current investments in research and development would yield a negative return, although two-thirds believed future scientific advances could yield positive returns over the next decade.

The negative perceptions towards innovation reflect the view of the financial markets, which are giving higher valuations to more diversified companies. “The industry does not trust its own innovative capabilities. We are burning money,” said one industry executive Roland Berger interviewed.

The report also highlights a growing divergence between companies.

Sanofi-Aventis of France placed greatest emphasis on diversification from 2004-2009, boosting non-patented drug sales from 5 per cent to 12 per cent.

Pfizer, Merck, Johnson & Johnson, Novartis and GlaxoSmithKline also moved in this direction. Groups facing a steep “cliff” of patents which expire in the coming years have generally moved furthest in diversifying in response, led by Sanofi-Aventis, which will soon lose exclusivity on its blockbuster Plavix.

Industry-wide, it estimates 57 per cent of 2008 sales will be off patent within three years and 75 per cent within five years.

But some companies with similar patent pressures, including Eli Lilly, have diversified far less, while Bristol-Myers Squibb has instead shed non-core activities to bet on enhanced innovation in its pipeline of experimental drugs.

A few other drug companies have also concentrated on pharmaceutical operations, led by Roche and – until recently – AstraZeneca, which since 2008 has also diversified a little and expressed some interest in generic drug sales.

The report stressed that there are significant variations in the approach taken to diversification, with the majority focused on de-risking through a shift into generics [including branded generics in emerging markets], consumer health and vaccines. While these tactics increase the scope to boost sales and expand into emerging markets, the report suggests greater value could come from diversification into more innovative areas, notably into personalised healthcare and diagnostics.

The report stresses the potential to increase efficacy and value in a way sought by healthcare systems and insurers – from integrating drugs with genetic markets, imaging and molecular markers, and with medical devices.

While integration into enhanced “healthcare value” could boost returns, Roland Berger concludes: “Most executives still shy away from this path due to the perceived magnitude of change required.”

One anonymous interviewee said the industry was a “victim of its own pipeline focus”.‹