Transforming big pharma
Paul Tunnah interviews John Ansell, author of ‘Transforming Big Pharma – Assessing the Strategic Alternatives’ on what inspired him to write a book and successful strategies for pharmaceutical companies moving forwards.
This month, ‘Transforming Big Pharma – Assessing the Strategic Alternatives’ is published by Gower Publishing. Written by John Ansell, this book takes a critical view of how strategy currently works and needs to evolve in the pharmaceutical industry. Paul Tunnah spoke with the expert pharma author to find out more.
PT: What inspired you to write this book?
JA: Over the last decade I’ve noticed that many big pharma companies have been pursuing alternative strategies to developing their own new products. I began to become concerned that some of these strategies were not really going to be effective. There was a strong feeling of pessimism that the industry was finding it ever more difficult to find enough new products, but since 2000 the situation has been stabilising, and over the past three years the number of new products has actually been increasing.
So companies ought to have more confidence in their abilities to find and develop new products. They also need to become even more active in acquiring rights to the many products out there in early stages of development, which they could licence in, rather than pursuing alternative strategies.
PT: So can pharma companies realise greater efficiencies in R&D processes?
JA: It’s possible, but I think history has shown over the last 15 years that when companies have suggested that they’re going to make development more cost-effective they found it very difficult in practice to do this. One of the key issues here is how profitable the pharmaceutical industry is. For example, the Tufts Institute studies say that only a small proportion of new products ever launched on to the market are profitable, but this is wrong – 40 to 60% of all new products launched do become profitable. If companies realise that and did their calculations in a more rational way then they would realise that they could afford to be doing more R&D without undue concern about eventual profitability.
PT: What other industries should pharma be observing?
JA: There are certain aspects of other industries which can be helpful, but the pharmaceutical industry has its own characteristics which make it difficult, in many cases, to just adopt techniques from outside. For example, manufacturing costs in pharmaceuticals are far smaller than they are in other industries, thus limiting the scale of further efficiencies, and many promotional techniques from other industries will not work. For example the scope for promotion directly to consumers is for prescription pharmaceuticals limited for legal reasons.
“…40 to 60% of all new products launched do become profitable.”
On the other hand the lifecycle of pharmaceuticals is so much longer than it is for most other types of products, so companies from outside could learn a lot about lifecycle management from pharma!
PT: If you were the CEO of a big pharma company, where would you invest?
JA: Companies need to increase their presence in emerging markets, but be more selective than they have been. Most big pharma companies – like GlaxoSmithKline – now understand that some strategies, such as further mega-mergers are not going to be terribly helpful. On the other hand buying one-off smaller companies, for enabling technology or securing good products, can make a lot of sense. Overall, pharma should have more confidence, and invest more, in R&D.
PT: Who do you think is getting it right in pharma?
JA: I’m very impressed by the progress of Roche in the last decade or so, as they seem to have realised earlier than most that the future was not going to be in primary care products. I’m also impressed by the other major Swiss company Novartis, which has not gone quite so whole heartedly as Roche over to specialist orientations, but also has a good variety of products in its pipeline.
“I’m very impressed by the progress of Roche in the last decade or so.”
PT: What are the biggest external market influences on pharma?
JA: Well the whole area of market access is a very important one. It’s becoming clear that you cannot just apply a central strategy, because even within countries the situation is going to vary depending on local factors. The more successful the pharmaceutical company is in developing new products the greater the problems are going to be for the payer. For example, in cancer it’s becoming clearer now that patients are likely in future to be treated with several different drugs, which produces all sorts of awkward problems for the payer. Companies need to be able to predict the market access situation a number of years post-launch.
PT: Should pharma companies pursue broader services?
JA: During the late 1980s Merck & Co. became the leader in the US in buying pharmacy benefit management companies in healthcare. It acquired a PBM called Medco, for $6.6 billion, and several other big pharma companies felt they should do likewise. Eventually the US Federal Trade Commission forced the companies to separate, due to conflict-of-interest, and Merck has to sell Medco off for only $2 billion. Eli Lilly and SmithKline also sold out with big losses.
So you have to very careful going into other areas of healthcare and remember that the margins are often much lower than for prescription pharmaceuticals. Most of the historic examples in the book show how unsuccessful such ventures have been in the past.
About the interviewee:
John Ansell is the author of over 50 articles and reports on pharmaceutical issues. His book Transforming Big Pharma is available from Gower Publishing.
He had been an independent consultant for over 20 years and since 2012 also a Senior Partner at TranScrip Partners where he deals with the commercial side of projects.
He has also acted as chairman at well over 30 pharmaceutical conferences, on a wide range of topics including biotechnology, R & D, business development and licensing, technology transfer, due diligence, marketing, promotion, pricing, life-cycle management and corporate governance.
John Ansell is a frequent speaker at industry conferences on various aspects of deals and marketing and R&D strategy.
Should pharma be looking to other industries to improve its strategies?