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49 Strategy Consultants (Danner et al., 2010). The innovation path im-50 plies minimum changes to the current high-risk, high-margin51 business model; the integration path along the healthcare value52 chain will eventually turn pharmaceutical companies into provid-

53ers of health outcomes; while the de-risk path implies the move54into less regulated markets like animal and consumer health.55

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73(Pzer, 2011a; Merck, 2011). Crucell and Novo Nordisk are two74European based pharmaceutical companies focused on few thera-75peutic areas, with total reported revenues for 2010 of 365 and768,147 million, respectively. Crucell is a Dutch biotech company77with its strength laying in ve core proprietary technology plat-78forms that make it the largest independent vaccine maker in79the world. Novo Nordisk is a Danish company, specialized and80world-leading in diabetes care (Crucell, 2011; Novo Nordisk,812011a).

Corresponding author. Tel.: +40 740 503 875.E-mail address: alex.rusu@sar.org.ro (A. Rusu).

1 Present address: Novartis Pharma AG, Discovery Pathology Group,

European Journal of Pharmaceutical Sciences xxx (2011) xxxxxx

Contents lists availab

European Journal of Pha

w.e

PHASCI 2284 No. of Pages 4, Model 5G

20 July 2011Klybeckstr. 141, 4057 Basel, Switzerland.The transition of the pharmaceutical industry from its tradi-tional business model is ongoing. This business model aimed atowning the next blockbuster could be described as the R&D inten-sive identication of promising new molecular entities, testing inlarge clinical trials followed by extensive marketing. Various sce-narios on the direction that this transition could take have beenput forward. For instance, Kearneys analysts (Anscombe et al.,2009) believe that the industry is faced with three inter-relatedtipping points referring to what the industry sells (service modelsvs. therapies), to whom (mass markets vs. niche), and how itshould organize itself (making connections vs. integration). Threepaths of evolution for the industry are identied by Roland Berger

owned by one parent company which expands from its core busi-ness into the provision of related products and services, thusreducing reliance on blockbusters by spreading the risk acrossbusiness units.

The companies we analyze reect different typologies whichinuences the way they approach this transition. Merck and Pz-er are two of the largest pharmaceutical companies and the onlyones to be currently included in the Dow Jones Industrial Aver-age, with reported revenues for 2010 of 34,720 million and51,195 million, respectively. They are active in a multitude oftherapy areas and have a successful blockbuster history, such asLipitor and Viagra for Pzer, and Prilosec and Singulair for Merck1. Introduction

This commentary aims to presentceutical industry based on the analycase study approach we show howMerck, Sharp & Dohme or MSD), Novswered different challenges and extwhole industry.0928-0987/$ - see front matter 2011 Published bydoi:10.1016/j.ejps.2011.07.008

Please cite this article in press as: Rusu, A., etdoi:10.1016/j.ejps.2011.07.008l trends in the pharma-four companies. In thisMerck (also known asisk and Crucell have an-e these ndings to the

PricewaterhouseCoopers (2009a) distinguishes between two newbusiness models that are due to emerge by 2020. In the federatedbusiness model a company creates a collaborative network of sep-arate entities, based on shared goals and infrastructure, whichdraws on in-house and/or external assets and combines size withexibility. The fully diversied model is a network of entitiesGeneric competitionCorporate social responsibilityCommentary

Current trends in the pharmaceutical ind

Alexandru Rusu a,, Katja Kuokkanen b, Annabelle Hea Societatea Academica din Romania, 61 Mihai Eminescu, RO-020071 Bucharest, RomanbOrion Corporation, Orion Pharma, Nonclinical R&D, P.O. Box 425, FI-20101 Turku, FinlcAstraZeneca Pharmaceuticals, Pathology Department, Safety Assessment, Mereside, Ald

a r t i c l e i n f o

Article history:Received 20 June 2011Accepted 8 July 2011Available online xxxx

Keywords:DiversicationPipeline managementOpen innovation

a b s t r a c t

This commentary offers anexamples taken from the aanalysis looks at diversiccorporate social responsib

journal homepage: wwElsevier B.V.

al. Current trends in the phartry A case study approachc,1

Park, Maccleseld, Cheshire SK10 4TG, UK

erview of some current trends of the pharmaceutical industry drawing onsis of four companies (Pzer, Merck, Novo Nordisk, Crucell). The very briefn paths, pipeline management strategies, generic competition as well aspolicies.

2011 Published by Elsevier B.V.

le at ScienceDirect

rmaceutical Sciences

lsev ier .com/ locate/e jpsmaceutical industry A case study approach. Eur. J. Pharm. Sci. (2011),

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PHASCI 2284 No. of Pages 4, Model 5G

20 July 20112. Current trends

2.1. Diversication

Diversication has presented itself as a solution for many com-panies that have started to look for alternatives to the blockbusterphilosophy. The analyzed companies make use of scientic, busi-ness and geographical diversication to various degrees.

Both Pzer and Merck pursue a scientic diversication by beingactive on several therapeutic areas as well as by looking for alter-native modalities besides small molecules and vaccines. Their sup-port for the launch of new biopharmaceuticals is illustrated by thecreation of new specialized divisions such as BioTherapeutics R&Dby Pzer and BioVentures by Merck. For instance, Merck (2011) hassought to strengthen its position through acquisitions such as thatof Schering-Plough and Avecia Biologics and has expressed com-mitment to expand its portfolio to include monoclonal antibodies,peptides and iRNA. Novo Nordisk is already marketing biologictherapies, while Crucell has always been a biotech company. Theindustry interest in biologics is explained through the higher costas compared to conventional small molecules which justies pre-mium prices, the use in treatment of chronic diseases or in diseasesunsuccessfully treated by a small molecule approach, as well as thevery complex manufacturing process that currently prevents ap-proval of generic versions through an abbreviated pathway.

Pzer and Merck follow diversication into new business areasbeing world leaders in consumer healthcare and animal health.Their position has been consolidated through the 2009 acquisitionsof Wyeth and Schering-Plough, respectively. Pzers ConsumerHealthcare is currently the fth largest over-the-counter (OTC)company in the world, sells two of the ten top selling OTC brandsworld-wide, and accounted for revenues of 2,093 million after theacquisition of Wyeth (Pzer, 2011b). The acquisition has also al-lowed Pzer to gain a foothold into the nutraceutical market,whose infant nutritionals have brought revenues of 1,410 millionfor 2010. Pzer Nutrition is expected to grow due to the less strictregulated market and face competition from other diversiers aswell as the established food industry. Additionally, both companiesoffer a broad range of medicines and vaccines for livestock andcompanion animals. A clear trend here is the move into deliveringnot just treatments, but outcomes. For example, Mercks goal forthe future is to be the best healthcare, not only pharmaceutical,company in the world. Intervet, Mercks animal health unit, offersmore than just medication or vaccines. For instance, ResPig (2011)includes a farm production audit, diagnostics and economic mod-eling for the most appropriate vaccination for pigs. Another exam-ple of outcome management is the Changing Diabetes programs ofNovo Nordisk (2011b) via which it provides support such as spe-cialized training for healthcare professionals, support for diabetespatient organizations, free blood sugar screening services andequipment for diabetes clinics.

Geographical diversication is pursued through an increasedpresence in the high-growth emerging markets. The internationalconsultancy IMS Health (2011) calls them the pharmerging mar-kets and classies these countries into three categories based onexpected yearly growth of the pharmaceutical market. This canrange from about 30 billion in China, to 411 billion in Braziland India and 14 billion in countries such as Argentina, Turkeyand Romania. Despite high variations in their characteristics andstability, business in these areas offers important opportunitiesfor growth over time. For example, looking just at China, Pzerhas signed in the last two years several initiatives to boost funda-mental research in this country. This step implies relocating expen-

2 A. Rusu et al. / European Journal of Phasive R&D activities into a lower-cost country and securing a frontposition in the largest emerging market through local partnerships

Please cite this article in press as: Rusu, A., et al. Current trends in the phardoi:10.1016/j.ejps.2011.07.008(World Pharma News, 2009). The movement is accompanied by awithdrawal from traditional markets, like the recent closure of re-search units in the US and UK. Any future acquisitions will makefurther site closures and reorganization necessary. Facility reloca-tion to emerging markets will continue to proliferate as low corpo-rate tax rates and generous tax incentives become more critical insustaining protability (PricewaterhouseCoopers, 2009b). In thissense, Merck (2010) reports on its lobby activities directed towardsgovernments on the line of increased health investment and mar-ket deregulation.

2.2. Pipeline management

Maintaining a constant pipeline of new compounds and timingtheir introduction to compensate for losses as medicines becomeopen to generic competition is a fundamental aspect of a com-panys commercial strategy. This pipeline management can takevarious forms. Large companies active on several therapeutic areas,like Pzer and Merck, appear to operate by the principle to achievethe highest possible output from the pipeline in terms of com-pounds making it to the market, by having a high number of pro-grams and lling the early pipeline to a maximum. By contrast,specialized companies, like Novo Nordisk and Crucell, concentrateefforts on both fewer therapeutic elds and programs which mightleave more room to focus on quality and to an early selection of awinner.

Mergers are one strategy to rell the pipeline. In this way com-panies can increase the number of compounds registered and thusreduce the risk that the pipeline will contain no blockbusters. As anillustration, both Pzer and Merck boast that their recent mergershave increased their pipelines, including a signicant growth in thenumber of product candidates in Phase III development. However,too many mergers and acquisitions could overstretch a companyscapacities of integration. In this respect, Pzers numerous acquisi-tions in the last years make it appear less stable than Novo Nordisk,which saw its last important reorganization when created in 1989.In the same time, while pharmaceutical majors like Pzer mighttake over additional companies, the nancial situation permitting,Novo Nordisk is more likely to be a takeover candidate and shouldlook into maintaining high share prices. Crucell is an example inthis sense. As a future part of Johnson & Johnson (2011), Crucellwill enjoy all the benets of a large pharmaceutical company,including nance for drug discovery and development projectsand a strong marketing organization worldwide, but will also befaced with competition and prioritization between different pro-jects within the company.

An additional strategy to keep a healthy pipeline is to prioritizeR&D activities. Having too many drugs under development can beas risky as having too few of them and pharmaceutical companiesneed to balance investments between disease areas of unmet med-ical needs as well as scientic and commercial opportunity. Prior-itization also implies exiting certain disease areas and abandoningprojects. For example, in the case of Pzer (2011c), 31 projectswere discontinued between January and September 2010. Thesetypes of decisions may be particularly difcult to take, consideringcases like that of Lipitor, the bestselling drug of all times, whosedevelopment was nearly terminated by WarnerLambert prior totheir acquisition by Pzer (Wislow, 2000).

Knowing that their own R&D activities might not produce safe,effective or commercially viable medicines, companies also rely tovarious extents on an open innovation model. This approach impliesboth purchasing patents from other companies as well as sellingthe valuable research and know-how that a company does not

ceutical Sciences xxx (2011) xxxxxxwant to develop as its own end-product. Merck has reported 51licensing and alliance agreements for 2009, while Pzers revenue

maceutical industry A case study approach. Eur. J. Pharm. Sci. (2011)206

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20 July 2011from alliances rose to about 2 billion for 2009 (Pzer, 2010;Merck, 2010). In 2007, Merck was given access to Crucells AdVacand PER.C6 vaccine technologies and in return Crucell acquiredrights to certain cell line technologies that Merck had developedfor use in development of recombinant proteins. Some of Crucellsvaccines have been co-developed with other companies, like in thecase of Quinvaxem where 4 of the 5 components are provided byNovartis, while the vaccine is produced by Crucell. The companyhas also out-licensed several of its proprietary technology to otherresearch organizations or pharmaceutical companies for indica-tions out of its own interest, as for example the use of its PER.C6technology for the development and commercialization of veteri-nary vaccines for foot-and-mouth disease by Merial (Crucell,2010, 2004). Partnering is also important in funding for new dis-covery programs targeting therapeutic innovations. ViiV Health-care (2011) illustrates how this approach can allow competingcompanies working on the same disease to combine their re-sources. This independent rm, set up in 2009, pools the HIVR&D resources of both Pzer with GlaxoSmithKline, has 10 prod-ucts on the market and 17 in the pipeline, and boasts revenuesof 1.75 billion.

2.3. Generic competition

All innovative pharmaceutical companies try to protect theirmarket exclusivity from generics by using a combination of patentsand litigation. For example, by life-cycle management, a productspatent can be extended by applying for additional patents to covercomposition, formulation, route of administration and/or indica-tion. These patents are challenged from time to time by genericcompanies prior to patent expiration. In US alone, Merck mentionseight of its medicines as being involved in patent litigation, whilePzer reports patent challenges involving 10 of their most impor-tant products (Pzer, 2011a; Merck, 2011). Companies also launchgeneric versions of their own products before patent expiration inorder to maintain market share. For instance, Pzers US Green-stone subsidiary sells generic versions of Pzers as well as certainof their competitors pharmaceutical products upon loss of exclu-sivity (Pzer, 2011a). After selling its generic unit in 2007, whichwas ranked fourth in the world in terms of sales, Merck currentlyintends to return to this market and exploit the opportunity pre-sented by biological medicine patent expiries by delivering highquality follow-on biologic products (Merck, 2011). In the case ofNovo Nordisk, the majority of its products are large molecules,which are usually harder to copy. However, once outstanding NovoNordisk products in diabetes care come to the end of their patents,it is likely that health care providers are not prepared to pay forthese more expensive branded products. Therefore, Novo Nordiskwill have to constantly improve their own products in order notto become a victim of their own success.

2.4. Corporate social responsibility

A major challenge to pharmaceutical companies, with potentialimpacts on revenues, is what Crommelin et al. (2010) call the cur-rent societal mistrust of the way drugs are developed, marketedand used. The same trend is mentioned by PricewaterhouseCoop-ers (2009a) when it notes that numerous studies show the extentto which Pharmas reputation has declined over the past decade.Being aware of this challenge, companies try to improve their rep-utation by looking at their environmental and donor behavior.

Compliance with environmental laws can be costly to compa-nies with large manufacturing facilities like Merck and Pzer.

A. Rusu et al. / European Journal of PhThese costs relate to both capital investments as well as expendi-tures for environmental liabilities. Smaller companies like Crucellcan better control their emissions as well as their consumption

Please cite this article in press as: Rusu, A., et al. Current trends in the phardoi:10.1016/j.ejps.2011.07.008agement, mergers and open innovation. Diversication is pursuedby looking at novel scientic, business and geographical areas.Generic competition is dealt with through a combination of pat-ents and litigation as well as the manufacturing of branded gener-ics. In the same time, the industry tries to improve its reputationthrough various corporate social responsibility policies.

Acknowledgement

We would like to thank professor Ole J. Bjerrum, University ofCopenhagen, for his precious help and advice in preparing thiscommentary.

References

Access to Medicines Index, 2010. (accessed 11.06.11).

Anscombe, J., Wise, M., Cruickshank, C., Hanand, D., Thomas, M., Sawaya, O., 2009.Pharmaceuticals Out of Balance. Reaching the tipping point. A. T. Kearney.September. (accessed 11.06.11).

Crommelin, D., Stolk, P., Besancon, L., Shah, V., Midha, K., Leufkens, H., 2010.Pharmaceutical sciences in 2020. Nat. Rev. Drug. Discovery 9, 99100.

Danner, S., Hosseini, M., Rimpler, M., 2010. Fight or Fligh. Diversication vs. Rx focusin Big Pharmas quest for sustained growth. Roland Berger Strategy Consultants.October. (accessed 11.06.11).

IMS Health, Succeeding in Pharmerging Markets. (accessed 11.06.11).trends for the future. Therefore both companies and society wouldbenet from increasing license territory for pharmaceutical prod-ucts, increasing capacity advancement activities such as researchcollaborations with Index country as well as implementing a pric-ing approach that addresses affordability (Access to MedicinesIndex, 2010).

3. Conclusion

Drawing on our analysis of four pharmaceutical companies wecan extrapolate several trends to the whole industry. Most innova-tive pharmaceutical companies are undergoing a transition fromtheir traditional business model. The industry tries to control theicy of ensuring that donated medicines reach intended recipients(Merck) as well as for allowing the companys chemical library tobe screened in programs aimed at new treatments of neglected dis-eases and for the promotion of a not-for-prot pricing strategy anda non-exclusive voluntary licensing (Pzer). In the same time,and recycling. As an illustration, Crucell (2010) claims that theirFLEXFactory concept used in manufacturing is environmentalfriendly, in the sense that it is energy efcient and eliminates theneed for complicated cleaning and sterilization of products. TheFLEXfactory can be installed at the nal site for manufacturing ofcandidate product for Phase III studies eliminating the need ofbuilding expensive facilities to t a process and transportation ofend-products.

The Access to Medicine Foundation ranks 20 of the worlds larg-est pharmaceutical companies on their actions to increase accessto medicines for societies in need. Both Merck and Pzer are in-cluded in the 2010 edition of the index on the 2nd and 11th posi-tions, respectively. The companies are rewarded for best-practicessuch as single-drug donation programs, issuing of non-exclusive

ceutical Sciences xxx (2011) xxxxxx 3331PricewaterhouseCoopers, 2009a. Pharma 2020: Challenging business models. April.332 (accessed 11.06.11).

maceutical industry A case study approach. Eur. J. Pharm. Sci. (2011),

334 PricewaterhouseCoopers, 2009b. Pharma 2020: Taxing times ahead. December.335 . (accessed 11.06.11)337 Winslow, R., 2000, Birth of a Blockbuster: Lipitors Unlikely Route Out of the Lab,338 The Wall Street Journal, January 24, B1. Available from