As Takeda is set to buy Shire for £46Bn, might it be time that Pharma investors ask for something more imaginative than another mega consolidation of product portfolios? I posted on LinkedIn last week that Paul Major, portfolio manager at Bellevue Asset Management commented in PharmaTimes:
“It is not that we have no faith in drugs…we have a fundamental structural issue with the traditional large cap pharma business model as regards R&D productivity…which is both below any reasonable estimate of the cost of capital for such firms and declining rather than rising.”
These massive mergers have been going on for years and as Paul Major rightly points out, ROI is declining. Failing strategies call for radical change, and there is no sign of investors calling for it.
If they were to make that call, they could do worse than heed these words from the concluding chapter of my book Supply Chain Management in the Drug Industry: Delivering Patient Value for Pharmaceuticals and Biologics:
“…fragmentation grew into full disconnectedness when pharmaceutical companies began to re-trench into the opposite ends of the business – discovery research and marketing. In metaphorical terms, the brain kept its head and legs and threw away its body, with arms attached. The body is now in no-mans land, making do as best it can with little meaningful contact with its previous fellow body parts.”
So what does that mean? Fundamentally, the industry has split into product license holders (commonly termed manufacturers), service providers and wholesalers/distributors. In a previous blog, “WHERE IS PHARMA TODAY – FULSOME PLUM OR DRIED UP PRUNE?” I asked the question, “Having abandoned vertical integration and the corresponding control over drug development and supply, what is Pharma doing to stay afloat?”
The answer, according to this latest news, appears to be more of the same; and the same typically involves rationalisation of people, facilities and other key resources.
Thus, the vicious circle of decline continues unabated…
…but what if investors suddenly provided the imagination themselves? What if they pushed for a re-building of the development and manufacturing skills base within Pharma companies, either through acquisition or organic growth? No longer would they have to pay through the nose to develop their products; nor would they have to wait at the back of the queue until its their turn for some attention.
This may seem like science fiction to many reading this, but for those with an interest and a fertile imagination, you can read more, click on the link below to ‘look inside’: