Big Pharma’s sales forecast is not likely to improve anytime soon. Consulting firm Bain and Company predicts that the top 25 drug companies’ annual sales growth will be no more than 1% through 2016. To compensate for reduced revenue, investors are urging manufacturers to cut expenses that do not add value. One such expense, in many investors’ eyes, is research and development (R&D).
Many drugmakers have taken their investors’ advice to heart. One salient example is Pfizer, whose CEO Ian Read plans to slash R&D budgets by about 25% over the next two years. Chris Viehbacher, CEO of Sanofi, told Reuters that R&D cost cutting would increase throughout the industry this year and next. Companies are likely to focus their discovery efforts on the most lucrative areas in an attempt to get more bang for their R&D buck.
But, profitable or not, don’t patients need new and better drugs? Where will they come from? Drugmakers may well outsource innovation by partnering with entities such as universities and contract research organizations, Tim van Biesen, head of Bain and Company’s healthcare practice, told Reuters. They’d be following Hollywood’s strategy of sourcing “movies and scripts from all over the place,” he said. Shire already seems to have started along this path.
Big Pharma also might take advantage of its scientific expertise and marketing muscle by creating follow-on biologics. Cheaper versions of biopharmaceutical treatments for rheumatoid arthritis and cancer are in big demand, said David Snow, CEO of Medco Health Solutions, to Reuters. Making follow-on biologics could be a way for Big Pharma to boost sales. In addition, the discount for these medicines likely will be less than that for small-molecule drugs because they’re tougher to copy—and fewer competitors will manufacture them.
While these strategies might eventually improve Big Pharma’s bottom line, they also represent a shift away from the traditional model of what a drug company is. And even if it helps the drug industry, will the emerging model serve patients’ interests?