Speeding the flow of new products to market and reinvigorating their research programs have become top priorities for pharmaceutical companies, rather than efforts to slash costs, a consultant's survey of industry executives found.
While many big drugmakers have announced plans to make major shifts in strategy, there's little to no evidence that any have done so. In fact, most still haven't made the organizational changes needed to accomplish those shifts, according to a new report by consultants Ernst & Young.
Indeed, the few changes that drugmaker disclosures and earnings reports indicate are hardly revolutionary: boosting sales of drugs that face generic competition in populous emerging markets such as China and India, trimming U.S. sales forces and better focusing their efforts, and outsourcing functions such as information technology and payroll.
“Many of them have not ventured very far down the path of what their (stated) new business model is going to be, and some are still struggling to choose a direction,” Mark Hassenplug, global pharmaceutical sector market leader at Ernst & Young, said Tuesday. “The companies are trying to go back to the drawing board and rethink what they want to be as an organization.”
The study, based on interviews with 40 senior executives at 15 large and midsized pharmaceutical companies, was begun in the spring and completed in early September – just before the Wall Street meltdown began in earnest.
While drugmakers generally are cash-rich, they now have to look for safe places to store their money, and their stock prices have fallen, so the financial crisis has become “a new catalyst” pushing some to try to accelerate planned changes, Hassenplug said.
“They're not immune to the financial pressures today,” he said.
Like other industries, pharmaceuticals until recently have been loath to change, he said, even though they have seen their biggest problems mounting for years.
They include blockbuster drugs losing patent protection, nothing with comparable sales potential in development, payers from insurance plans and government agencies down to patients increasingly resisting high prices, growing scrutiny of drugs' effectiveness and more hurdles to get regulators to approve new drugs.
The survey found the top pressures on executives include: getting new medicines approved for sale, cited by 72 percent; producing medicines that patients and payers will value over existing ones, including cheap generics (47 percent); and shifting to serve new “customers,” including patients, insurers and government agencies instead of just doctors (36 percent).
Asked for their top initiatives to transform their company and boost future growth, 40 percent chose cutting costs, less than half of the 92 percent who said so in a similar survey in 2007. This year, 66 percent cited invigorating research and development, and expanding into new markets and restructuring marketing each drew 40 percent.
Possible strategies to reinvigorate pipelines include narrowing their focus to specific disease areas, shifting from drugs for the saturated mass markets such as heart disease to those for smaller numbers of patients with no good treatment options, and partnering more with biotech companies and small pharmaceutical companies.
The slow progress on those and other changes raises the question of how the public can have confidence pharmaceutical companies can pull this off, said analyst Steve Brozak of WBB Securities.
“The people that got them in this position are the same people that are going to have to lead them out of this,” he said, adding that the report confirms that the business model of large pharmaceutical companies not only is broken but can't be resurrected.
Brozak said most biotech companies that have “blockbuster science” don't have enough cash on hand to stay alive for a year – less time than it takes for a big pharmaceutical company to complete an acquisition or other deal.