A new business model or just rewrapping the old one this holiday season?
I read with great interest a recent Reuters article on its Health Summit in New York in late November (www.reuters.com/article/Health08/idUSTRE4AK66820081121) .The author, Lewis Krauskopf, described the gathering as leaders of the worlds largest drug makers under the hood working to overhaul a rusty business model.
Krauskopf notes that investors have accused pharmaceutical companies of failing to change sufficiently in the face of looming patent expirations to major products and lacklustre returns on their research pipelines. But he says chief executives at the summit bristled at the charges of inaction.
Mercks CEO Richard Clark says he gets upset when people say the industry has to change its business model. Theres not a part of Merck thats not changing as we speak, he says.
Joe Pieroni, head of US commercial operations for Japans Daiichi Sankyo echoed Clarks stance, saying reinvention is needed, but is happening throughout the industry.
I dont doubt their assessment of their own companies efforts or their commitment to change and reinvention. But some of what summit participants had to say made me wonder if, for many, its just business as usual in slightly updated packaging.
CEO David Brennan of AstraZeneca told Reuters that his company has more to go at in slashing costs. The company announced 1,400 job cuts the same week.
But are those cuts really aimed at reinventing pharmas business model or are they a necessary and unfortunate short-term response to the current economic crisis and a not-sure-what-else-to-do reaction to pharmas ongoing blockbuster/patent/pipeline crisis?
Im not picking on Brennan. He, better than anyone, knows what AZs situation is and I dont doubt hes doing the best he can to steer his company to success. I just question if its really a valiant attempt at adopting a new business model.
After all, some of the biggest cuts at many leading pharmas are coming in R&D, a crucial fuel for filling the pipelines that are so weak and so often blamed for pharmas current patent precipice predicament. OK many argue innovation can be bought or brought in through mergers and acquisition. But Im with Arthur Higgins, Bayer Healthcares chief, who told Reuters that he cant see any logic in combining two poorly performing businesses when at the heart of what keeps it sustainable is innovation.
Surely if most of the businesses that were talking about werent poorly performing (or very soon to be), we wouldnt be having this discussion at all.
Higgins called the pharma business model very broken and very challenged. Hes right. The problem is that no one really seems to have a good handle exactly how to fix it. One things for sure - cost cutting and layoffs do not, in and of themselves, constitute a new business model - theyre a stop-gap. And while they may be absolutely necessary for now, there needs to be a Part B to the new business model plan. And for now, there doesnt seem to be one, or at the very least its not being communicated very well.
Some, like Higgins, argue that diversity is the answer. He says he plans to keep at least 30% of his companys healthcare business in non-pharma areas like non-prescription drugs, animal health and devices. Others, like Merck, say theyll focus on scientific innovation being a pure science company.
For now, much of whats immediately being done seems little more than business as usual in slightly new packaging, and whats being proposed is sketchy and remains to be proven.
What isnt clear is exactly what the specs are of this new business model that pharma and its investors are hoping to find in their stockings this year. In the meantime, the new model, at least from here, is still looking a little rusty.
As always, wed love to hear what you think