If Pharma Can’t Be Good, At Least It Should Be Clever


By guest blogger Daniel Hoffman:

It’s not exactly a secret that the rate at which pharmaceutical companies submit new drugs for approval has been declining the past several years.

That’s only one source of a coming crunch for the industry. Absent compelling reasons to use new brand-name drugs, third-party payers (governments, insurers, employers) will increasingly constrain physicians and patients to use cheaper generics.

The industry bought itself an extra five or six years by making a deal with Obama to support his healthcare legislation, but by 2014 when the costs for it begin to kick in, pharma will again present a prime target. Even without the government as a factor, there’s enough going on in the private sector to give the industry’s top executives pause.

Pharma faces two tough choices. Either they have to do breakthrough science that advances standards of care or they have to be very innovative business developers and managers. Right now the evidence of them doing either is slim, but there are at least rumblings beneath the surface.

Science proceeds at its own pace and the pharmacology that undergirds the drug industry will eventually make the top executives look like the mavens of yore, for which they will be only too happy to take the credit. When that will be, exactly, remains anyone’s guess, but the time periods for up and down cycles in this matter generally run to decades. In the meantime, glimmers are beginning to emerge that on the business side, at least a few managers have stopped pretending it’s still 1994.

One knock against Big Pharma, for example, is that it moves with painful sluggishness. Generic houses, for that reason, can run circles around the biggies on price cutting and other matters involving the time value of money. The biotechs and small startups can pursue scientific leads and change directions five times before the giants finish all their meetings and get the signatures to do it once.

Of all places the biggest pharma company, Pfizer, recently took advantage of the repose afforded by the industry’s languid pace to fashion what may be emerging as a clever strategy for entering the diabetes market, a therapeutic and service area rendered highly lucrative by the world’s growing corpulence.

Arguably the two leading pharma companies in this space are Novo Nordisk and Sanofi-Aventis. The basis of their prowess lies with insulin, the injectable hormone that scientists have been tweaking ever since Banting and Best developed it in Canada during the 1920s. To this base the two companies have added oral medications. They both have plans to add devices to their mix as they pursue product lines to span the range of diabetes care.

It is not easy to be a formidable competitor in the insulin business. Few pharmaceutical companies even compete there. For that reason it was a surprise when Pfizer this week announced it obtained the rights to market the bioengineered insulin of an Indian company, Biocon.

The move appeared interesting, but few people perceived a competitive advantage for Pfizer in this tough market. Just the previous week, Pfizer paid roughly $3.6 billion to buy King Pharmaceuticals, a small company with $350 million annual revenue derived from a pain medication, a small medical device business and some animal health products. That too was hardly a news item on the scale of China-and-US-merge, and few wags saw a strategic connection between the two moves.

But King’s product lineup includes the EpiPen, an emergency auto-injector for severe allergic reactions. Its application to insulin delivery at this point remains purely speculative, but in a parity market where one company’s insulin is hard to differentiate from another’s, a better injection device can determine market share. Time will tell if these two moves actually do represent a Pfizer strategy to enter the diabetes market. Until the lab scientists and the clinicians develop the next wave of breakthrough drugs, though, it’s good to see pharma’s business strategists churning water to keep the ship afloat.

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