Looking at the pharmaceutical industry, it is currently undergoing major structural top-down challenges, such as pricing pressures, regulatory reforms, new demands from patients in emerging markets, an altering population, as well as bottom-up challenges, how to adapt these challenges internally (i.e. patent cliffs or adaption of compliance systems). Many literatures are already published on different macro and micro-economic factors creating a paradigm shift of the pharmaceutical industry. However, no literature has been published so far how different sized pharmaceutical companies are responding to these opportunities and threats.
To fill this research gap, this doctoral research study, entitled “A paradigm shift of the pharmaceutical industry: Altering macro and micro-economic factors and its consequences on the business model, innovation and public health” was conducted. It consists of three research topics with three research papers having been published in English language in the international journal Expert Review of Pharmaeconomics & Outcomes Research (impact factor 1.8).
The aim of the first part consists of analysing all existing macro factors changing the pharmaceutical industry. To analyse the full picture, we used a meta-synthesis of 100 existing literature with 53 being relevant for our study including scientific literature, research engines focusing on health, international newspapers, consultancy studies, and healthcare applications. Literature was selected if one of the following keywords was applicable in the headline or abstract: pharmaceutical industry, pharmaceutical companies, healthcare, macro-economic factors, business models, technology, digitalization, regulations, pricing of drugs, drug developments, risk factors, emerging markets, changing demographics or aging population. Through the secondary literature review, five main macro factors were identified and analysed contributing to the paradigm shift of the pharmaceutical industry: (1) Technology advancements and digitalization; (2) Regulatory changes; (3) Increasing drug development costs; (4) Decentralization of Research & Development (R&D) and (5) New phenotypes with needs and demands from emerging markets and an ageing population.
The second part consists in analysing how different sized pharmaceutical companies understand the altering macro-economic factors through a qualitative research. To conduct this study, a total of 25 key executives from which 10 executives from small (<1bn EUR market capitalisation (cap)), 8 from mid (1-15bn EUR market capitalisation) and 5 from large-sized (>15bn EUR market capitalisation) pharmaceutical companies, as well as 2 healthcare associations and foundations were interviewed through 45 open-ended questions within 45 minutes to 1 hour. The purpose of this research was to identify the similarities and differences between the different sized companies and how they are dealing with the challenges to remain competitive. To do so, seven research fields were discussed during the interview: (1) Macro/micro factors changing the industry; (2) New arising business models; (3) Pricing of drugs (generics and branded drugs); (4) Focus on patients; (5) New regulations; (6) New trends and (7) Future of pharma industry. The interviews were evaluated through attributing points to each question (maximum three points per question: 1 point negative, 2 points neutral, 3 points positive), followed by colour coding with predefined attributes (1 point = red, 2 points = orange 3 points = green). After the analysis, the results were interpreted. In total 129 points could have been achieved per interviewee, with a total individual average of 89 (69%), varying between 76 (59%) and 103 points (80%). Small companies and associations & foundations (A&F) have achieved the lowest individual total average with 86 points (67%), followed by mid-sized companies with a total individual average of 91 points (71%) and then large companies with 94 points (73%). These scores are translating into a critical optimism due to the altering macro and micro- economic factors and its consequences on the business model, innovation and public health. It shows that small companies and A&F are more frightened, the first one due to the costs involved in the adaption to the macro and micro-economic changes and the incapability to survive alone, and the second one fearing the threats that due to Merger & Acquisitions (M&A) innovation, public health and consequently the patient would be harmed. Mid-sized companies are slightly more optimistic. However they understand their threats due to their too small size to adapt all required changes and their too large size to focus solely on few niche innovations. Large companies have the most optimistic mind-set due to in-house and external capabilities.
We have identified that the industry is moving from a volume mass-industry towards a value target-industry, shifting from blockbusters and me-too products towards patient-oriented individualised therapies and drugs. In order to achieve this, enhance the outcomes, create synergies and mitigate risks, the value chain needs to be restructured and several cross- collaborations, M&A deals and joint ventures will be structured.
In the third part, we discuss the question how M&A affects innovation and public health as several criticisms are outside the industry without sustainable research made. We conducted a meta-synthesis by identifying 89 literatures, with 41 being relevant including international journals, scientific research and consultancy studies. Literature was selected if one of the following keywords was applicable in the headline or abstract: pharmaceutical industry, merger and acquisition, valuation, inorganic growth, medical innovation, non-core assets, drug pipeline and tax inversions. Secondary research was rounded by research through financial search engines (i.e. Bloomberg Professional) allowing to confront M&A and R&D data through financial calculations. We analysed first a short history of M&A in the pharmaceutical industry to understand the relevancy of M&A in the pharma industry, second we highlighted valuation and key multiples how M&A deals are calculated and selected, third two M&A offers in 2016 above 1bn EUR (Pfizer/Medivation and Mylan/Meda) were analysed to explain the share price movements pre-and post- merger, fourth the three main motives behind M&A were analysed ((1)restructuring and selling non-core assets; (2) enhancing the portfolio through acquisition of new drugs; (3) tax inversion), finalised through the correlation analysis of M&A and R&D. Comparing approvals from the U.S. Food and Drug Administration (FDA) with realised M&A deals, we have identified a positive correlation between both variables. In mega-merger years 2014/15, filings with the FDA were at their record years since 1996, while in 2016 where M&A decreased, filings also decreased. This said we were able to argue that M&A and innovations have similar volatilities with a positive correlation, rather than M&A activity harming, in contrast to different advocates, innovations.
Through these three parts we were able to conduct a recommended business model for the future including the public health outcomes. The traditional business model will disappear from the industry, and new modern business models with small pharmaceutical companies being the engine for the research, and large companies the driver for development and distribution will become relevant counter players for new innovations. This new form of asymmetric oligopoly will be the future driver of the industry. The new modern business model will be fuelled by cross-collaborations with different partners from inside and outside the industry.