Wednesday, May 9, 2012

Reinvention and Survival in the Pharmaceutical Industry

This week’s article, Lessons in Longevity, from I.B.M., describes how I.B.M. redefined its business by focusing more on software and services after nearly going bankrupt.  The article talks about the difficulty of staying competitive and surviving industry changes.  While this particular article focuses on the technology sector, I saw an article this past week about Pfizer trying to stay afloat in the pharmaceutical industry. 
In the pharmaceutical industry, companies’ longevity is dependent upon research and development: their ability to manufacture new drugs that are effective, innovative and popular.  Once a company develops a “blockbuster” drug and obtains a patent, they are in good condition for at least a few years.  However, once the patents expire, companies often face financial challenges and must either develop new blockbuster drugs or look for ways to reinvent themselves. 

The New York Times published an article this past week of Pfizer, whose patent on the popular drug Lipitor (the “best-selling drug in history”) expired last fall.  Since the expiration of its patent of Lipitor, Pfizer’s  profits have decreased 19%.  According to the article, Pfizer’s strategy for surviving this change is to downsize, an extreme tactic in the pharmaceutical industry.  Pfizer recently sold off its infant nutrition business to Nestle, will divest its animal health business by next year, and cut its research budget by 30% to dedicate resources towards only the most “promising” (potentially profitable?) conditions & diseases.  Even more surprising is the fact that the infant nutrition and animal health businesses were the profitable parts of the company.  Pfizer justified its decision by saying it is narrowing its focus and that it is a biopharmaceutical company at its core.

I found this article very interesting because there are a number of popular, best-selling drugs that either lost their patent last year or will be losing their patent in the coming year, including Plavix (Sanofi-Aventis), Seroquel (AstraZeneca), and Singulair (Merck).    It will be interesting to see how other pharmaceutical companies will be responding- will they also try to downsize/focus?  Will R&D shift towards certain diseases?  How will these other companies reinvent themselves and improve longevity? 

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