Big pharma changes its model

FT story.

Guts of piece:

With some of his most profitable medicines going off patent, and the uncertainty of replacement drugs continuing to rise, US healthcare reform has been the least of Andrew Witty’s recent worries.

When the chief executive of GlaxoSmith Kline presented his company’s most recent financial results last month, he gave a sense of how the UK’s biggest drugmaker – and the industry more generally – is responding to structural pressures: diversify to survive.

For his company, he says, this means a shift away from “white pills in western markets”, with the proportion of traditionally core patent-protected, chemically based drugs, which are sold mainly in North America and western Europe, falling to just more than a quarter of total sales.

For many years, large companies such as GSK have relied on a handful of typically high-priced, mass-market “blockbusters” that generate billions of dollars a year in sales. But as patents expire on drugs such as Lipitor, Pfizer’s anti-cholesterol medicine that is the biggest selling medication in history, big pharma is having to rethink its business model.

Most large pharmaceutical companies have adopted four principal strategies to diversify. First, expand the range of products in the research and development pipeline and the use of external as well as in-house scientists to discover them. Second, expand geographically, especially into emerging markets. Third, increase sales of products other than patented prescription medicines. Fourth, experiment with greater flexibility in pricing in different countries and with ways to ensure drugs provide value for money.

Sounds eminently correct to me and an example of how you handle the rising, mostly non-Western emerging global middle class.