Wednesday, 22 August 2012

The New Age Pharma Business Model: Part 1 - The Case of The Collapsed R&D Department


Patent Cliff or not, changes in the pharma world are undeniable, if not unavoidable. Nearly every Big Pharma player has been affected by the cliff in some way—or, more generally speaking—affected by the unsustainability of the conservative R&D business model.

So what are the new individual strategies emerging from the debris of a seemingly crumbling industry?

There are the obvious, general trends: the gold rush to Pharmerging markets, the apparently ubiquitous diversification into generics, biologics and consumer healthcare, the panic buying of small biotechs, and, naturally, the mass downsizing, fragmentation and near-extermination of the bulky, unproductive in-house R&D. 

But under a certain microscopic vision one can find a diversity of strategies entirely uncharacteristic of the pharmaceutical industry, which is perhaps a clear sign of a much-anticipated awakening from a deep, comfortable slumber. Most importantly: it seems that steadily, albeit as of yet involuntarily, the industry is shifting towards a more serendipitous and perhaps a more “open-source” innovation model, which in our opinion is one sure way of economizing and innovating across the whole pharma sector.

Over the next few weeks Bioassociate will be embarking on a series of articles covering the obvious and the not-so-obvious changes emerging in the business models of Big Pharma and Small Biotech alike. Follow us on Blogger for a glimpse of an altogether new, more efficient pharma future.

PART 1: THE CASE OF THE COLLAPSED R&D DEPARTMENT

Where did the R&D department go? What happens to the counts of skilled and informed staff, the ongoing projects, and the precious clinical data, and how can immense potential be extracted from them post-closure?

Over the last 5 years, Big Pharma was plagued by colossal redundancies which have amounted to over 60,000 since 2009 (fig. 1). For the most part, this has affected giant marketing departments of expiring drugs, but R&D workers have certainly seen better days.

Figure 1. Big Pharma job cuts announced during the patent cliff, 2009-onwards


Company
Announced job cuts
Merck (including Schering-Plough and Serono)
13,500
Pfizer (including Wyeth)
13,000
AstraZeneca
7,600
Bayer
6,540
Johnson & Johnson
5,000
Takeda
2,800
Amgen
2,600
Novartis
2,500
Abbott
1,900
Sanofi-Aventis
700
Total
56,340

Note: not all Big Pharma redundancies are represented

The issue with letting go of thousands of employees armed with immense skill and confidential knowledge is obvious: aside from essentially forsaking an investment (in terms of skill and resources), conglomerates are also leaving virtual knowledge portals open for competitors to exploit. According to statistics, ex-employees aren’t likely to respect confidentiality either, as a recent IT survey found that nearly half of employees admitted they would walk away with confidential data if fired.


Considering the famously secretive nature of the industry, and, most importantly, considering the vast potential still remaining amongst collapsed R&D departments, one can certainly see the incentive for downsizing pharma to keep in touch with alumni.

Recently Merck Serono, having made the decision to axe its Swiss Serono HQ, has agreed to fund a €30 million “Entrepreneur Partnership Program”—an opportunity for former staff to spin out of Serono’s ashes.
Essentially hitting two birds with one stone—extracting potential from un-finished projects with a reduced price tag, and maintaining relationships with former employees, Merck has already funded its first spin-off: Prexton Therapeutics was formed around Merck’s discontinued portfolio in the field of Parkinson’s disease, and will be headed by one of Merck’s former senior and most experienced scientists.

This type of behaviour in the industry is supportive of the emerging trend for Big Pharma to pick up later-stage, clinical, rather than pre-clinical pipelines—as companies have figured out they can essentially skip out on the most costly and annoying step in the drug development process.

Where do the rest of Big Pharma veterans go? Statistics say as much as 40 to 50%  assimilate into the smaller biotech sector, while the rest get intensely head-hunted by the bludgeoning CRO industry: they hardly need to be re-trained, and will most likely be providing services to their very own previous employers. Quintiles has readily offered to adopt 100 ex-Merck staffers, while in a “Big Brother”-esque deal similar to Merck’s, Lilly voluntarily transferred 26 of its drug-discovery workers to the CRO Advion BioServices—a longtime provider to Lilly—to continue existing projects there.


WATCH THIS SPACE FOR PART 2 NEXT WEEK: THE NEW BIG PHARMA BUSINESS MODEL..

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