Pharma firms face big test

01 December 2011

NEW YORK: Major pharmaceutical companies such as Pfizer, Abbott Laboratories and Novartis are adapting to emerging trends reshaping the healthcare sector.

A study by Booz & Co, the consultancy, found that patents for drugs with combined sales of $120bn – like Pfizer's Lipitor, AstraZeneca's Seroquel and Eli Lilly's Zyprexa – will soon expire, allowing cheaper generic alternatives onto the market.

Other pressures include rising regulation, rivalry and shareholder pressure, alongside the fact few categories remain "unaddressed". In sum, new strategies, such as entering the consumer, health and wellness or biosimilars markets, are now vital.

"I don't think there's been a time in recent history where the industry has had a more divergent approach to the future," Cavan Redmond, Pfizer's group president, corporate strategy, said.

"It means that we'll have different ways of dealing with healthcare, especially on the pharmaceutical side, and less homogeneity."

Booz quoted data showing the classic pharmaceutical model provided margins of 29%, versus alternative segments like biologics on 25%, diagnostics and devices on 22% and consumer healthcare on 20%.

Abbott Laboratories is currently splitting into two companies, one focusing on diagnostics and devices and the other on prescription drugs. It suggests certain firms may find it hard to adapt profitably.

"Some will, some won't, because there won't be as big a proprietary market to go around in the near term," Miles D White, Abbott's chief executive, said. "My sense is there are several models that will ultimately succeed."

The Booz & Co study also praised Novartis for taking a similar "strategic bet" by developing a new unit to create generic drugs alongside its existing operations that deliver branded lines.

"We have a highly competitive and robust pipeline ... and higher success rates at every stage of development than our competitors," said Joseph Jimenez, CEO of Novartis.

"Fundamentally, we are pro-patent," he added. "But we believe that when those patents expire, it is our obligation to offer low-cost, high-quality generics to help lower total healthcare costs."

Novartis also purchased eye care specialist Alcon for $51.6bn in April 2011, and Booz &Co predicted mergers, acquisitions and divestitures would to play a key role in the sector going forward.

Data sourced from Booz & C; additional content by Warc staff