According to a recent story in the Times of London, at least one big drug company may be changing it business model – GlaxoSmithKline to break up research and development operations:
The world’s second-largest pharmaceuticals group is to abandon its big-is-beautiful model and run its businesses more like small biotech outfits.
Andrew Witty, who took over as chief executive of GlaxoSmithKline in May, unveiled the change in strategy yesterday as he said that profits had fallen from £1.3 billion in the second quarter last year to £1.2 billion this time.
The company will also make its first move into the branded generics market through an alliance with Aspen Pharmacare Holdings, a South African group, in a sign that it is trying to target emerging markets as the West becomes more challenging.
. . .
Mr Witty expressed concern for the state of the pharmaceuticals industry, saying: “I can’t help but see that the sector has lower ratings by shareholders and that anxiety exists about where the sector is going.”
GSK is trying to tackle the problem by dividing its research and development, which is in seven centres, into smaller groups of up to 80 scientists. The groups will have to apply for funding to a central investment board.
Rather than the traditional model of chasing blockbuster drugs that achieve more than $1 billion in annual sales, GSK hopes that its new approach will lead to more drugs that earn a modest amount being developed by the company, reducing the risk of relying on a few big sellers.
One more example of how companies are moving away from the large corporate lab approach to a decentralized research strategy. The one thing the article doesn’t talk about is the fact that big pharma has been practicing this model for years — relying on smaller, mostly bio-tech companies to keep their product pipeline full. Looks like GSK is just internalizing what companies have been doing in their external research relationships.
It is interesting to note that part of the strategy is a link up with generics. As we discussed earlier, such a tie-up has benefits for both sides. Look for more changes in the drug industry’s business model as they work through how to compete in this new I-Cubed Economy.