Pharma companies must explore unconventional collaborations to survive economic crisis

Singapore, 5 May 2009 - According to new research by PricewaterhouseCoopers (PwC), even the largest pharmaceutical companies will soon need to step outside their sector and collaborate with other organisations. Recently announced activity such as GSK and Pfizer’s new HIV-focused venture confirms that pharmaceutical companies are exploring new ways to collaborate.

At the same time, a flurry of merger and acquisition (M&A) deals have been triggered. While M&A will continue, alternatives such as collaborations will actually be more flexible and value-enhancing in the long term PwC believes.

PwC also believes that the financial crisis may force many more companies into collaboration. In fact, the government’s response to the economic climate has allowed collaboration outside the pharma sector that would have been unthinkable before, such as waiving competition issues for mergers. Collaboration could address the current funding crisis for biotech firms which requires an immediate response. In fact, the pressure to change to new business models could come from outside the pharmaceutical sector, such as regulators, investors, and healthcare payers.

Non conventional models of collaboration

The changing face of the wider healthcare model globally, the demands from different stakeholder communities, including patients, will demand that pharmaceutical companies provide holistic solutions and not just narrow treatments. In tomorrow’s world, this means that pharmaceutical companies must work more with other parties. To do so they will have to ‘profit together’, by joining forces with a wide range of organisations, from academic institutions, hospitals and technology providers to companies offering compliance programmes, nutritional advice, stress management, physiotherapy, exercise facilities and health screening.

Companies will need to move fast, as several non-pharmaceutical companies have already entered the arena. Vodafone has, for example, joined forces with Spanish telemedicine provider Medicronic Salud and device manufacturer Aerotel Medical Systems to offer a wireless home monitoring service. Similarly, Prudential is collaborating with Virgin Active Health Club to offer a critical illness policy that provides subsidised gym memberships and rewards people who exercise regularly by reducing their premiums.

Abhijit Ghosh, Pharmaceutical and Healthcare Leader at PricewaterhouseCoopers Services LLP in Singapore, commented:

“In the future, collaboration will be necessary for both pharmaceutical companies and healthcare payers. Big Pharma’s traditional fully integrated business model enabled it to ‘profit alone’ successfully for many years. But this model is now under pressure and if not already broken is predicted that by 2020, will not work.

In future, it will be essential for pharmaceutical companies to develop effective medicines and address the demands of payers who will be increasingly well equipped to measure whether they are getting value for money. Obviously collaborative models will take many pharmaceutical companies out of their comfort zones, but may be the only way they will profit by 2020.

We already see the trend starting in the local market. A biotech company in Singapore, S*BIO Pte Ltd has recently entered into a Development Collaboration, and Option & License Agreement with Onyx Pharmaceuticals, Inc. of USA to develop and commercialise some of S*BIO’s proprietary compounds.”

New models to the pharmaceutical industry

A new model to the pharmaceutical industry is the federated model , whereby a company creates a network of separate entities with a common supporting infrastructure. These might include universities, hospitals, clinics, technology suppliers, data analysis firms and lifestyle service providers based in numerous countries. An example of this would be a federation to address cardiovascular disease, where the federation could include drugs companies, clinics and diagnostics to provide diagnosis and treatment as well as nutritional advisors and stress management services to prevent disease. All the players would be rewarded based on patient-centred measures such as increased quality of life.

The fully diversified model to be followed by the largest of pharma companies is one in which a company expands from its core business into the provision of related products and services, such as diagnostics and devices, generics, neutraceuticals and health management. Johnson & Johnson is pharma’s leading exponent of this approach. This model enables companies to reduce their reliance on blockbuster medicines and spread their risk by moving into other areas of the market.

Abhijit Ghosh concluded:
“Going forward, large pharmaceutical companies need to outsource R&D, manufacturing and promotional activities. This would allow them to focus on their main value-adding functions – project management, business development, regulatory affairs, intellectual property management, pharmacoeconomic analysis and the formation of good relationships with key opinion leaders and healthcare payers. The world is changing fast and those who are flexible and can adapt will reap the benefits.”

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