Is the “big pharma” business model broken beyond repair?

Traditionally, the large pharmaceutical companies (“big pharma”) have focused their drug development efforts almost exclusively on the major diseases of the developed world with the aim of marketing blockbuster drugs, many of which turn out to be “me-too” products that are “improved” versions of competitor’s products. There are lots of signs that this business model no longer works.

The industry is coming under increasing downward pressure on drug prices from healthcare providers as Europe and North America struggle to balance their healthcare budgets against the ever increasing medical needs of ageing populations.

Declining R&D productivity is another significant factor. The February 27th 2009 issue of Scrip World Pharmaceutical News (http://www.scripnews.com/scripnews/home/) reports that 31 novel medicines were introduced for the first time somewhere in the world in 2008; in the 1990’s the annual average was 40 new active substances whereas the annual average for the last seven years has declined to only 29.

Many leading products will go “off patent” in the next few years leading to massive sales reductions as the generics companies take advantage of the situation – at a recent conference I was told by a senior executive from one of the big pharma companies that his company was expecting to lose 35% of its revenues within three years due to patent expiries.

Patents have long been regarded by big pharma as fundamental to their business success and they have reacted vigorously with legal actions against anyone who has sought to challenge their intellectual property. At the risk of creating considerably bad PR for themselves, they have often refused to licence their patents to low cost drug manufacturers in developing countries; we have seen repeated criticism of drug companies for failing to drop their prices for HIV drugs while millions died in Africa and Asia.

All of this may be about to change. In an interview published in The Guardian newspaper on February 13th 2009 (http://www.guardian.co.uk/business/2009/feb/13/glaxo-smith-kline-cheap-medicine), Andrew Witty, the CEO of GlaxoSmithKline (GSK), announced that GSK is to radically shift its attitude to providing cheap drugs to millions of people in the developing world. He said that GSK will:

• Cut its prices for all drugs in the 50 least developed countries to no more than 25% of the levels in the UK and US – and less if possible – and make drugs more affordable in middle-­income countries such as Brazil and India.
• Put any chemicals or processes over which it has intellectual property rights that are relevant to finding drugs for neglected diseases into a "patent pool", so they can be explored by other researchers.
• Reinvest 20% of any profits it makes in the least developed countries in hospitals, clinics and staff.
• Invite scientists from other companies, NGOs or governments to join the hunt for tropical disease treatments at its dedicated institute at Tres Cantos, Spain.
  

This interview followed on from earlier announcements that GSK planned to reduce its reliance on selling blockbuster products in the developed world and to expand its activities in emerging and less developed countries. Witty has challenged the other pharmaceutical giants to follow his lead. We wait to see if they will rise to the challenge of this bold initiative by GSK.

In many ways, the statement about putting GSK patents into a patent pool seems to me to be the most radical proposal. This could represent a complete change in industry attitudes to patents and may have a significant impact on the process of innovation, a topic that I plan to address in a forthcoming blog.