[Ip-health] Financial Times: Drugs groups diversify away from patents
thiru at keionline.org
Mon Oct 25 08:20:22 PDT 2010
Drugs groups diversify away from patents
By Andrew Jack in London
Published: October 21 2010 01:34 | Last updated: October 21 2010 01:34
Two-thirds of large pharmaceutical companies are focused on
diversifying away from patented drug development as they grow
increasingly sceptical about the returns from future innovation.
A survey by Roland Berger, the strategy consultancy, of 50 top
industry executives showed that 65 per cent considered their sector
was facing a “strategic crisis” and 67 per cent saw diversification as
a potential solution.
Almost half believed that current investments in research and
development would yield a negative return, although two-thirds
believed future scientific advances could yield positive returns over
the next decade.
The negative perceptions towards innovation reflect the view of the
financial markets, which are giving higher valuations to more
diversified companies. “The industry does not trust its own innovative
capabilities. We are burning money,” said one industry executive
Roland Berger interviewed.
The report also highlights a growing divergence between companies.
Sanofi-Aventis of France placed greatest emphasis on diversification
from 2004-2009, boosting non-patented drug sales from 5 per cent to 12
Pfizer, Merck, Johnson & Johnson, Novartis and GlaxoSmithKline also
moved in this direction. Groups facing a steep “cliff” of patents
which expire in the coming years have generally moved furthest in
diversifying in response, led by Sanofi-Aventis, which will soon lose
exclusivity on its blockbuster Plavix.
Industry-wide, it estimates 57 per cent of 2008 sales will be off
patent within three years and 75 per cent within five years.
But some companies with similar patent pressures, including Eli Lilly,
have diversified far less, while Bristol-Myers Squibb has instead shed
non-core activities to bet on enhanced innovation in its pipeline of
A few other drug companies have also concentrated on pharmaceutical
operations, led by Roche and – until recently – AstraZeneca, which
since 2008 has also diversified a little and expressed some interest
in generic drug sales.
The report stressed that there are significant variations in the
approach taken to diversification, with the majority focused on de-
risking through a shift into generics, consumer health and vaccines.
While these tactics increase the scope to boost sales and expand into
emerging markets, the report suggests greater value could come from
diversification into more innovative areas, notably into personalised
healthcare and diagnostics.
The report stresses the potential to increase efficacy and value in a
way sought by healthcare systems and insurers – from integrating drugs
with genetic markets, imaging and molecular markers, and with medical
While integration into enhanced “healthcare value” could boost
returns, Roland Berger concludes: “Most executives still shy away from
this path due to the perceived magnitude of change required.”
One anonymous interviewee said the industry was a “victim of its own
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