Is big pharma becoming big biotech?

3 min read
First Published: 
Jan 2008

Key Learnings contained in this article:

Recent reports in the Wall Street Journal and The Economist describe an imminent seismic shift in business models for pharmaceutical companies, as current blockbuster drugs are set to go off-patent and a rapidly dwindling pipeline of new drugs are under development or are being reviewed for approval.

The result? Big Pharma may become Big Biotech (or Big Biopharma, as it now refers to itself) as the focus shifts to protein-based biotech products from chemical-based pharma products.

Pfizer, Inc. recently announced the closure of its Ann Arbor, Michigan (USA) laboratories, laying off 2100 employees. Pfizer also announced it will eliminate 10,000 jobs by the end of 2008. But they are not alone. In 2007, Astra-Zeneca reduced employee counts by 7600 and Bristol-Myers Squibb by 4350. Other big pharma companies have reduced their workforces in recent years as well.

Pharma companies appear to be shifting business models, from chemistry-based research for new drugs, to biologics-based research for new treatments using biotechnology. In fact, Pfizer opened a new biologics center in San Francisco in October 2007, and many of the major drug companies have acquired biotechnology companies in the last two years (see table).

In addition, both Wyeth and Eli-Lilly have entered into collaboration agreements with biotechnology companies.

Why such a dramatic shift?

More than three dozen drugs will lose patent protection over the next four years. Moreover, the WSJ reports that 43% fewer new chemical-based drugs have been brought to market between 2002 and 2006 compared with the 1990s, despite more than doubling the R&D spending.

This paucity of potential blockbuster drugs, along with advances in diagnostics and data technology (high through-put gene sequencing, genomics, and personal phenotyping), and changes in regulatory processes (particularly at the US Food and Drug Administration), have provided an opportunity for biotechnology to emerge, filling in the healthcare gaps where pharma has been unsuccessful or neglected, namely more acute diseases or those that specific sectors of the population.

How will this affect health economists? As noted by The Economist, cost-benefit analyses will become even more crucial as health care payers consider the long-term benefits of innovative (and expensive) new biologic agents. Consider the decision by Britain’s National Institute for Health and Clinical Excellence to approve the use of Hercepin, a targeted cancer drug with a cost of nearly $50,000 per year, per patient.

Related articles

The Economist

Beyond the blockbuster: drug firms are rethinking their business model (28 Jun 2007)

Beyond the pill: drug firms are casting about for new business models (25 Oct 2007)

The Wall Street Journal

Big pharma faces grim prognosis (6 Dec 2007)

Paradigm lost: as drug industry struggles, chemists face layoff wave (11 Dec 2007)

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Mary Gabb
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