Pharma needs to adapt to survive, says PwC

Even the largest pharmaceutical companies will need to step outside their sector and collaborate with other organisations, according to PricewaterhouseCoopers (PwC). Recently announced activity such as GSK and Pfizer's HIV-focused venture confirms that pharmaceutical companies are already exploring new ways to collaborate.

At the same time, a flurry of mergers and acquisitions has taken place - Roche/Genentech, Pfizer/Wyeth, GSK/Stiefel and Merck/Schering Plough. While such activity will continue, there are alternatives such as collaboration, which PwC believes will be more flexible and value enhancing in the long run.

The current financial crisis is expected to force many more companies into collaboration. In fact, the UK government's response to the crisis has allowed collaboration outside the pharma sector that would have been unthinkable before, such as waiving competition issues for mergers. Collaboration could also address the current funding crisis faced by biotech firms.

The pressure to change to new business models could come from outside the pharmaceutical sector, says PwC in its report Pharma 2020: Challenging business models.

Pharmaceutical companies will also need to move fast, because several non-pharmaceutical firms have already entered the arena. Vodafone, for example, has joined forces with Spanish telemedicine provider Medicronic Salud and device manufacturer Aerotel Medical Systems to offer a wireless home monitoring service.

Jo Pisani, partner in the pharmaceutical and life sciences practice at PricewaterhouseCoopers, says: "In the future, collaboration will be a "do or die" requirement for pharmaceutical companies. Big pharma's traditional fully integrated business model enabled it to "profit alone" successfully for many years. The top companies saw their market value soar 85-fold between 1985 and 2000. But this model is now under huge pressure and, if not already broken, is predicted not to work by 2020."

A new business model to the pharmaceutical industry is the federated model, where a company creates a network of separate entities with a common supporting infrastructure. These might include universities, hospitals, clinics, technology suppliers, data analysis firms and lifestyle service providers based in numerous countries. All the players would be rewarded based on patient-centred measures such as increased quality of life.

The fully diversified model will be followed only by the largest of pharma companies, says PwC. This is one in which a company expands from its core business into the provision of related products and services, such as diagnostics and devices, generics, nutraceuticals and health management. Johnson & Johnson is pharma's leading exponent of this approach. This model enables companies to reduce their reliance on blockbuster medicines and spread their risk by moving into other areas of the market.

Simon Friend, global pharmaceutical and life sciences leader at PricewaterhouseCoopers, added: "There is no reason why many companies could not outsource r&d, manufacturing and promotional activities. This would allow them to focus on their main value-adding functions of project management, business development, regulatory affairs, intellectual property management, pharmacoeconomic analysis and the formation of good relationships with key opinion leaders and healthcare payers.

"The world is changing fast and those who are flexible and can adapt will reap the benefits."