It seems like every article this month written on Big Pharma R&D is chronicling its demise. Refer to this article from Pharma Marketing Network Forums as an example. No doubt we have a significant restructuring of an industry that is maturing - resulting in the mega-mergers and other consolidation that we're seeing. This of course has lead to downsizing of R&D groups (among others) within the industry to help pay for the mergers. Major examples include announced downsizings at AstraZeneca, GSK, and Pfizer this month. Sanofi-Aventis is expected to follow suit.
But is this the right path? It's true that R&D spending has NOT resulted in good ROIs on research activity in the past decade. Interestingly, Roche/Genentech have resisted these type of cuts. I believe most observers would agree that Genentech, in particular, has one of the strongest R&D groups in the industry. By sustaining their R&D function - are they going to be able to further secure their competitive position and continue their move towards number one?
Novartis is another company that has so far resisted cuts. Their chairman, Daniel Vaselia recently counseled restraint when it comes to cuts,
"You can improve margin up to self-dissolution. You save and you save and you cut costs and cut costs -- and then you have no sales anymore and then you have a collapse."
I agree with that point of view. You can't save your way to prosperity. That hasn't changed, even in a world of many changes. I do see a need for Big Pharma to rethink. There is a need to balance internal R&D with external in-licensing programs. However, I think it would be a critical mistake to eliminate internal R&D in favor of an mostly external model - which AstraZeneca appears to be doing.
This still is a research intense industry and I think those companies that are able to sustain a productive internal R&D program will be in the best competitive position going forward. I think it is also vital to maintaining any type of leadership in Western companies as the generic wave begins to hit in the next decade.
Posted by Bruce Lehr Feb 10, 2010