Is Novartis leading the way in pharma R&D restructuring?

Big pharma companies have undoubtedly been suffering from low R&D productivity pushing them to revise their business strategy. Although inorganic R&D strategies through M&A and in-licensing deals have boosted big pharma’s late stage pipeline, a viable organic R&D model to secure long-term survival is paramount. Novartis is a bright example of a big pharma company that tries to revisit its R&D model. The company recently announced that is abandoning 20% of its pipeline as an attempt to refocus on its innovative medicines division (see here).

Other moves include the company’s intention to spin-off its eye care devices business unit of Alcon (see here), as well as its divestment of its consumer healthcare business, which was sold to GlaxoSmithKline in a $13bn deal (see here). In addition, Novartis recently teamed up with Pfizer to develop an innovative portfolio of medicines treating nonalcoholic steatohepatitis (‘NASH’), a sub-type of fatty liver disease (see here). Both Pfizer and Novartis have a good track record within cardiovascular indications; Novartis cardiovascular franchise includes three key marketed products (Exforge indicated for hypertension, Diovan indicated for high blood pressure / congestive heart failure, and Entresto indicated for heart failure, which is expected to reach c.$4bn in sales by 2024), while Pfizer generates c.$1bn from Norvasc (indicated for high blood pressure and coronary artery disease) as well as c.$2bn from Lipitor, a product which was expired on November 2011. Therefore, this strategic collaboration aims at utilising the companies’ complimentary capabilities in the cardiovascular space. In particular, through this deal both companies expect to leverage Novartis’s existing proprietary non-bile acid product (tropifexor) in order to gain the first mover’s advantage in a segment that has huge revenue potential (fatty liver space has a global prevalence of c.3%) and is expected. Although the anti-hyperlipidaemics segment had been dominated by Lipitor (c.30% market share) and Crestor (c.15% market share) and the market size of this category has been declining since 2011 (due to the higher availability of generics products), there are a few potential blockbuster products that have already been launched (Sanofi’s Praulent, Amgen’s Repatha and Amarin’s Vascepa). NASH is a specialty indication and there are no products in the market for treating this diseases. There are high hopes for many drug development candidates such as Ocaliva (Intercept pharmaceuticals), Elafribranor (GENFIT), MGL-3196 (Madrigal pharmaceuticals), and GR-MD-02 (Galectin therapeutics). These products are estimated to reach c.$4bn in combined revenue. As a result, it is highly probable to see higher deal activity within this space in the future.

But what do the R&D refocus and specialisation into certain indications mean to the industry as a whole? Novartis is not alone in this restructuring journey aiming at building a sustainable, high-return internal R&D model; Other examples are Shire, which is attempting to follow similar path (the company recently divested its oncology business to Servier in a $2.4bn deal) as well as Merck KGaA (which sold off its consumer healthcare unit as well as its biosimilars portfolio to Fresenius and Procter & Gamble, respectively).

Will such moves lead to a more effective drug development in the future? Formulating a hypothesis as to how the industry will look like in 10 or 20 years from now would be a speculation at best. However, recent events in the sector indicate that big pharma companies tend to focus on core therapeutic areas leveraging established internal capabilities. This is a fascinating trend demonstrating that big pharma companies are trying to adopt big biotechs’s model in order to not only enable themselves to build a strong internal product pipeline but also to become more effective in picking the right acquisition or licensing targets (big biotechs are highly successful in this area). There is no doubt that biotechs’ success is mostly attributed to their specialisation on key therapeutic areas; Biogen dominates the multiple sclerosis market, Celgene generates 75% of its revenue through its haematology / oncology division and Gilead holds c.50% market share in the global anti-virals market.

Agility is a key factor for pharma and biotech companies to ensure their survival. R&D restructuring and specialisation are necessary for successful drug development. However, in order to become more effective at the earlier stages of drug discovery, combined strategic efforts with the adoption of emerging technologies (e.g. artificial intelligence) is necessary. If such strategies become fruitful it we may become witnesses of a transformed pharma space, which will also shape patient lives, most probably to the better.

In conclusion, it is highly likely that we will see more moves from other pharma companies following Novartis’s lead. Although such efforts is a good sign for the industry as a whole, these efforts are premature and there is a long way to go for a visible impact in healthcare overall.

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