Nabila Marci argues that pharmaceutical M&As, which hit $221 billion in 2015, can't fix the industry's core problems. Branded drugs lose $78 billion annually to patent expiration. Real growth requires inventing new business models, not just cutting costs and buying pipelines.
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Hi, I'm Nabila Marci from Strategizer, and today I'm going to tell you a business model story. When I was reading the news recently, I got very intrigued about the surge of mergers and acquisitions in the pharmaceutical industry. Only this year, in 2015, the industry has seen roughly $221 billion worth of mergers and acquisitions. And that's compared to $162 billion last year, which was already a lot. As I am recording this video, Pfizer and Elegant, the makers of Viagra and Botox, are in talks for a possible merger, which would be the biggest takeover in the year for the pharmaceutical industry. So I wondered, what is driving all these mergers and acquisitions? There are three different mottos behind mas. The first one is to make inversion deals. So this allows the combined companies to domicile in a country with lower tax rates, like Ireland, for example. Another motive to combine two companies is to take advantage of the synergies and the scale of the combined companies to cut down the cost. But what most pharmaceutical companies are seeking is to improve their drug pipeline, meaning that by acquiring new patents, they are able to be the exclusive seller of blockbuster drugs that bring juicy margins to the company. So mergers and acquisitions really help the pharmaceutical companies improve their business model by doing two things. They're reducing costs and their extending growth. But is improving the business model enough to address the challenges in this industry? I'm not sure. Pharmaceutical companies have, without a doubt, many challenges to face, starting with the different stakeholders involved. Payers like care management groups and employers worry about the exploding healthcare cost, and they're putting a lot of pressure to reduce drug prices. Shareholders are dissatisfied over earnings, and they demand higher profits and dividends. Regulators on their end block the commercialization of drugs that don't abide their strict rules on safety and drug effectiveness. And obviously, new competitors come in with their generics drugs to steal market share. As you can see, the environment of pharmaceutical companies has a lot of complexities to address. Internally, R and D creates impressive medical advances, but it very rarely produces new blockbuster drugs. This makes pharmaceutical companies anxious, especially as they forecast the losses that they will have to face when their patents expire. To give you an idea, between 2010 and 2014, branded drugs whose patents expired lost $78 billion in annual sales. So blockbuster drugs have a limited life and pharmaceutical companies struggle to renew their pipeline. MAs are only improvements to the current business model, but they fail to address the bigger issues that this industry faces. The landscape of pharmaceutical companies has changed so much that it's only possible to really achieve long term growth with new value propos and new business models. Now imagine what if pharmaceutical companies were taking a small portion of their R and D to invent future growth engines that fit with their environment? What if they could use their rigorous approach to drug discovery and apply it to create better value propositions and better business models for pharmaceutical companies of tomorrow, long term growth is only possible by improving the current business model while inventing new ones. The good news is that opportunities to redefine healthcare are endless to those that are willing to explore them. Thank you so much for listening and if you like this video, share it around, talk about it to your peers and write your comments below. Bye.
