David's New Book

Saturday, December 3, 2011

Big Pharma's Uncertain Future Creates Antibiotic Opportunities



Alex Kandybin and Vessela Genova have written a fascinating piece (you have to register to see the article) for Booz & Company’s Strategy+Business. The piece is entitled Big Pharma’s Uncertain Future – and there is no doubt that big pharma must evolve away from the big blockbuster model.  The question is how?  Which strategy is the best?  Most companies are placing large bets on biologics for the future – both vaccines and, more importantly, biotech (antibody, protein or peptide) drugs. Abbot is splitting – dividing the pharma business from diagnostics and devices. Roche has made a huge bet on diagnostics. Novartis has moved in a big way into the generics and the ophthalmological businesses.

This situation poses both a threat and an opportunity for antibiotics.  In fact – I think there is more opportunity than threat here.  It is clear that big pharma in the future will be less big.  According to the Booz article, the pharmaceutical industry has already shed 150,000 jobs in recent years. Obviously, the threat comes from a continued focus on blockbusters in the new, smaller big pharma model where antibiotics would be excluded from consideration.  But I am guessing that in shrinking through both consolidation and divestiture, antibiotics may once again become a viable therapeutic area for the industry. 

As I noted in my previous blog, the medical need for new antibiotics active against resistant bacteria, especially against Gram-negative bacteria, continues to increase worldwide. This need includes those countries with the most rapid economic and pharmaceutical and antibiotic sales growth rates – the emerging economies of China, India, certain Latin American nations, Russia and a number of Asian and Eastern European countries. This growing medical need plus these growing markets will drive commercial opportunities for antibiotics. As big pharma becomes smaller, new antibiotics with NPVs around $1B will seem more attractive to the smaller entities. The most recent Tufts data suggest that antibiotics cost less to develop and still have higher success rates than products from other therapeutic areas.

I have been hammering this idea for years now. Some smaller “big” pharma will see that antibiotics provide sufficient return on ivestment for the smaller company. For  those giants that are still in the antibiotics game (really just Astra-Zeneca, Glaxo and Sanofi-Aventis as a recent re-entrant), if they ever consider getting out – a spin off of the antibiotics business should look attractive. Another option would be a sale of the antibiotics business. 

So – Pfizer (after their recent departure from antibiotics) still has a chance with its antibiotics remnants. It could elect to sell them to another company.  Sanofi-Aventis might be a good target. The smaller Abbot might also be a good idea.  Or they could spin their anti-infectives molecules out into a new independent entity. They continue to say they will develop them themselves – but seeing is believing. A search of clintrials.gov reveals their new anti-TB drug in phase I – but that’s it. I don’t think Pfizer is small enough yet to see the advantages of antibiotics as a therapeutic area – but as an opportunity for divestiture through either sale or spin off – why not?  Why don’t they see the logic of this?

For other companies that are shrinking – Abbot comes to mind – this might be a good time for an antibiotics company acquisition.  And for Sanofi-Aventis,  a large pharmaceutical company that has seen the error of its ways and is re-entering the antibiotics arena, the same opportunities exist. There are a number of biotechs out there looking to partner late stage antibiotic opportunities.

So – all you shrinking violets out there – lets get busy!