Pharma R&D Today
Ideas and Insight supporting all stages of Drug Discovery & Development
From mega-merger to big bang?
Posted on October 3rd, 2017 by Dr Andrew A. Parsons in Pharma R&D
It was not so long ago that there was a perception that the biopharma industry was consolidating and becoming leaner and more focused in its operations, moving to a regional hotspot model from having central areas of excellence based internally (1). The mega-mergers of the past led to the loss of some famous company names (e.g. Pharmacia, Wyeth, etc.) and a concentration of revenues within the largest of the remaining companies. The nature of the business since 2005 has changed. The market share of the top 10 companies has decreased over time and global revenues are projected to be close to $1 trillion by 2020, with over 60% being held by companies out of the top 10 (1). Meanwhile the nature of innovation is changing as well, with recent history showing increased patent approvals from biotech companies and approvals sourced from Asia (2).
Against this backdrop, it is perhaps not so surprising to see that the business model is adapting, too. The source of know-how and drug development skills has evolved, and there has been an explosion of contract research and other organizations over this period. Organizations are managing their infrastructure to reduce costs and increase profits. A consequence of this approach is that organizations are outsourcing many activities that traditionally would have been conducted inside, and their experiences range from being highly successful to those where it did not work so well. In 2012, AstraZeneca entered a long-term strategic relationship with an external provider to deliver a range of preclinical activities, and the relationship has clearly been successful and has developed over the years to provide an integrated process between pharma and contract organizations. The focus on how to operationalize the strategic relationship led to significant process innovations to allow efficient and effective workflows (3).
A review of the academic literature identifies five key areas of interest for business collaborations. These include (4):
- External orientation – openness to share and develop ideas from outside the organization
- Learning capabilities – to recognize and absorb new opportunities
- Cluster participation – creating a “footprint” in a technically relevant biocluster where high-quality science attracts an infrastructure for commercial success
- Qualified business management – access to tacit knowledge of the overall drug discovery and commercialization process
- Organizational controls – risk management of technical and financial considerations to maximize success
This whole biopharma sector appears to be in a “big bang” moment. With increasing numbers of organizations generating revenue from products, the need for technical and risk-management expertise and a geographic shift away from traditional centers of expertise, the total market (including IP generators, commercial specialists and service-based companies) appears to be set for significant and rapid growth.
One thing to focus on during this time is how to ensure quality and governance of the system. We can take some learning from the “big bang” identified in the financial markets in 1986, as there are some patterns of boom and bust that we may want to pay attention to. It seems the world might be coming out of a global recession driven by de-regulation of the financial industry and the selling of debt. Perhaps this experience may relate to the biopharma industry? The importance of appropriate regulation and the inclusion of checks and balances into the system might be a good place to start. It is interesting to note that regulators are well aware of the challenges in the system (5). There is a need to adapt to the new types of medicines and business models that are emerging across the industry, and there is a priority for stakeholders to engage in this process sooner than later. One thing we all need to avoid is a rapid implosion of the currently rapidly expanding biopharma universe.
- Gautam, A. & Pan, X. (2016). The changing models of big pharma: impact of key trends. Drug Discov. Today 21: 379-384.
- Kinch, M.S. & Raffo, J. (2015). Sources of innovation: an assessment of intellectual property. Drug Discov. Today 20: 500-504.
- Martin et al., (2017). Use of a collaborative tool to simply the outsourcing of preclinical safety studies: an insight into the AstraZeneca-Charles River Laboratories strategic relationship. Drug Discov. Today. http://dx.doi.org/10.1016/j.drudis.2017.08.007
- Downs, J.B. and Velamuri, V.K. (2016). Business model innovation opportunities for the biopharmaceutical industry: A systematic review. J. Comm. Biotech. 22: 19-63.
- Gottlieb, S. (2017). Speech to Regulatory Affairs Professionals Society (RAPS) 2017 Regulatory Affairs Conference https://www.fda.gov/NewsEvents/Speeches/ucm575400.htm
For more on this topic see: Mergers and Acquisitions in the Pharma Industry
All opinions shared in this post are the author’s own.
R&D Solutions for Pharma & Life SciencesWe're happy to discuss your needs and show you how Elsevier's Solution can help.
Dr Andrew A. Parsons
Director of Reciprocal Minds Limited & Chairman of Pharmasum Therapeutics AS
- Unifying Data Standards to Promote Innovation
- Quantitative Proteomics: A Major Piece in the Precision Medicine Puzzle
- Compound Discovery May Spur Therapies for Autoimmune Conditions
- How Pharma Can Make the Most of Gene Tech CRISPR
- Chemists Concerned About How Their Field is Viewed