Pharma overhaul not a cure for industry blues
LAST week saw news of a major reshuffle in the pharmaceutical world.
Novartis will focus more on cancer, GlaxoSmithKline on vaccines, and Eli Lilly on animal health as the drug-makers announced a series of deals for a total of as much as US$28.5 billion (S$35.7 billion).
The transactions, as well as a plan to form a consumer-health joint venture with GlaxoSmithKline, are part of an overhaul of the pharmaceutical industry spurred by the loss of sales as best-selling medicines lose patent protection.
Pfizer, the world's biggest drug-maker, sold its infant-nutrition business to Nestle for US$11.9 billion in 2012, and then last year spun off its animal-health unit.
Novartis agreed to buy cancer drugs for as much as US$16 billion while selling most of the company's vaccines division to Glaxo for US$7.1 billion and its animal-health unit to Eli Lilly for US$5.4 billion.
Pharmaceutical blogger Derek Lowe puzzles over what this means.
"What's not clear (in what I've seen so far) is how this will work - for example, is Novartis just buying the existing drugs and the pipeline, and incorporating those into its existing research? What happens then to all the people in GlaxoSmithKline's oncology? And so on. We'll see what details emerge," he wrote.
I think we can be sure of one thing: The pharmaceutical industry, once a reliable source of large profits, is finding it harder and harder to make profitable new drugs.
You see this cycle in many industries, or maybe an undulating sine curve is a better geometric metaphor: Companies bulk up via mergers or expansion, in the hope that diversifying will insulate them from downturns in their core markets.
Over time, it becomes clear that this strategy has problems of its own, because broad-based conglomerates are hard to manage.
The folks at the top can't possibly have expertise in all the pies they now have a finger in, so the megacorporation loses strategic focus and bumbles around in markets it doesn't quite understand.
Eventually, some bold visionary decides the company needs to slim down and streamline its "core competencies", which makes management nervous because what if something goes wrong in its core markets?
"Let's diversify!" someone says, and the whole process starts anew.
The undulation speeds up when there's deep underlying trouble in the whole business - trouble that neither merging nor de-merging can really fix.
Focusing more intently on oncology drugs isn't going to help much if you don't have promising targets, and if regulators and insurers are pummelling you for lower prices on whatever you do manage to produce.
But no one really knows what to do about those problems.
Merging and de-merging at least gives a worried management something to do with its time - other than polishing up the old resume and finally getting serious about nursing school.