Ananth Consulting Group

Diet Pfizer

2011-03-18T07:04:00.000-07:00

I am sure people would have read the news about Pfizer trying to get slimmer (read ‘diet Pfizer’) and here are some of my thoughts, but let me recap the news for the benefit of everyone.

Bernstein’s pharmaceutical analyst, Tim Anderson published a note which suggested that Pfizer could potentially get rid off its non pharmaceutical business which might include its “established Products” division which sells generics. The total amount that would go out of current Pfizer is approximately $32 billion (Pfizer’s 2010 sales were $67 Billion). By this math, we might see a new Pfizer at $35 billion; which will be approximately the same size as Merck Inc. (Merck’s Pharma segment sales for 2010 was $ 39.81 billion). The intent behind this restructuring is to become a company which purely sells innovative drugs. You can read news items at
http://blogs.forbes.com/matthewherper/2011/03/14/pfizer-could-divest-40-of-company-analyst-says/
http://www.mmm-online.com/which-pfizer-brands-could-stay-go-in-a-sell-off/article/198422/
Now, let’s analyze what this restructuring could potentially bring to Pfizer:
I feel, that there are some very obvious advantages and some great challenges. Let’s look at some advantages first.
Cosmetic facelift: In the new Pfizer, every incremental number will be compared to a much smaller base, so in percentage terms numbers will look better for e.g. a revenue addition of $1bn will be much more impressive over a base of $32 billion as against $62 billion. Similarly all other ratios will look better. However these are only cosmetic changes and doesn’t address the real problem which Pfizer is facing i.e. research productivity and that is the biggest challenge for the new Pfizer.
Ability to manage: I don’t want to use a clichéd term which has been used in these cases, however can’t refrain myself. The term is focus. The new Pfizer will have strong focus on only one aspect of pharma business and hence will be better prepared.
Challenges:
For the new Pfizer to be successful, it has to invent new molecules and generate revenues from it. Research has traditionally been a pain area for Pfizer and it will be interesting to see how it manages the growth of the new company.
Two big challenges which Pfizer faces today are:
1. Weak Pipeline
2. Patent expiry of its key products. The big daddy of all the molecules, Lipitor, expires this year (late 2011) and it will be a tall order for Pfizer to cope up with it's revenue loss

Drug discovery at Pfizer has seen many ups and downs in the last couple of years and Pfizer has done lot of changes in the way it manages drug discovery. They have had the leadership changes, they prioritized few TAs for drug discovery etc; however all this has not yet yielded great results. For the new company to succeed, Pfizer has to revamp its internal R&D efforts and make it more agile.

In conclusion, my take on this news is that it is really a bold initiative by Pfizer’s new CEO and if he can deliver, then he will be known as the guy who reinvented Pfizer.

Thoughts on "Government" as a Customer Segment for Pharmaceutical Companies

2011-02-08T21:48:00.000-08:00

World over, one of the big spending which governments do, is on providing healthcare facilities. In India, most of the healthcare facilities are paid by the patients and there are very few government facilities which provide services to the general public. However, Indian government pays for healthcare for all its employees i.e. people employed either with state or central government or any other government undertaking organization. For these employees government runs its own facilities and provide all healthcare services.

Recently, lot of pharmaceutical companies have shown interest in government business i.e. they want to sell drugs to government run insurance programs. This sets us thinking: is government evolving as a big customer segment for pharmaceutical companies and if yes, then what are the ways by which one can be a leader in this space.

Let’s look at the segments where government pays for healthcare:
1. All the central government employees are eligible for CGHS
2. Railways
3. Defense (Three forces i.e. Air Force, Navy and Army)
4. ESI (Employee State Insurance)
5. State Governments

If we look at all the above segments as one, then it becomes a very sizable chunk and justifies the investment which pharmaceutical companies are doing.

It’s not a new thing that government has these insurance schemes, then why is that suddenly lot of companies have developed interest in this space. One plausible reason could be crowding in the private market and second could be increasing government spend on healthcare and thus drugs. One more reason is that the government is now open to lot of new medications and has made the process of getting healthcare services easy.

Considering the fact that all government employees are covered by these insurance, this is a market which one can’t ignore.

Couple of things which one needs to do to get it right:
1. Helping the government in the process: If private players can help the government in improving the healthcare infrastructure (both in the rural and urban areas) then government might be willing to give some relaxation. Medical infrastructure is one area where government has not done lot of work and any help from private players will be much appreciated by the government. Setting up huge infrastructure might be cost prohibitive but setting up small health clinics or even maintaining them would be a good option which private players can propose.
2. Setting up a dedicated department to address needs of government and big institutions: Pharmaceutical companies needs to create a separate division whose role is to only look after government business. This can be a small team but creating a separate team would mean better focus. The focus of this team SHOULD NOT BE on filling tenders but should be on evaluating and proposing ways by which they can partner with government in improving healthcare services.
3. Designing innovative packaging solutions: Most of the patients covered by government insurance get medicines on a monthly basis (for chronic diseases) and if pharmaceutical companies can come up with 30 tablet strip or any such packaging innovation which makes the dispensing easy, then that might be a good way of differentiation
4. Donating medicines in lieu of preferred contract for some medicines: Government supplies various medicines for common ailments either free of cost or at subsidized rates. If Pharma companies can donate medicines to these programs, so that they get close with government and can get better deals on other medicines
5. Partnership up with NGOs to create disease awareness, focus on prevention, etc
6. Partnership in vaccination programs: Government has a big role to play in vaccination and if private players can help them in this initiative, then there might be some opportunities which private players can leverage.

Doing business with government is not very easy and is also not very straight forward. The reason for this is the INTENT, governments main aim is not profit while the main aim of private players is profit and hence the only way to win in this situation is to help and support the government in its larger cause of providing effective healthcare services. Having said this, there are some interesting opportunities and some innovative ways by which private players can make a significant business case from government business. Key word to remember while dealing with government business is “WIN-WIN”.

Winning in Emerging Markets-India Scenario

2011-01-20T22:59:00.000-08:00

With all big and small multinationals busy planning their emerging market strategies, I thought of reviewing options which India pharmaceutical companies have in front of them to consolidate their presence, not only globally but also in INDIA. These are some of the trends and things companies should look for :

1. Build portfolio of differentiated products/branded generics: One way to establish lead in the existing and future market is to introduce differentiated products. Differentiated products are products where there is a minor tweak in the original product primarily by changing the formulation characteristics. This formulation or chemistry change is made to make the product more safe, effective or convenient. This portfolio of differentiated products will also help companies establish presence in developed market as these products can be launched as branded generics.

2. Identify niche indications and offer products for them: companies should plan on launching products for niche indications as an overall portfolio strategy. Niche areas generally don’t see lot of competition and offers healthy margins; moreover niche products gives companies a good mind share with specialists and physicians which can be leveraged for promoting other products in the portfolio.

3. Look to create big brands in domestic market: Indian pharmaceutical companies should look to build big brands of drugs which are currently available for reverse engineering. This will enable them to have a good revenue stream and also will take them closer to physicians, an association which can then be leveraged for their other drugs. Companies should consciously choose the therapeutic areas where they do this kind brand building; they need to choose an area which has high growth potential, area which might not see a lot of competition for at least next 5-7 years, and which aligns with company’s overall strategy. If the TA is likely to witness some large scale changes and shifts in standard of care, then building big brands there might not give sufficient returns. Couple of areas where companies can build big brands are Diabetes, Hypertension, Dyslipidemia etc.

4. Strength in Biologics might decide the future: Biologics will become (or have) big in future especially for indications where there are no good oral options such as Rheumatoid Arhritis, Cancer, other inflammatory diseases etc. By nature, Biologics are difficult to make and need strong technical knowhow for both research and manufacturing. In addition, their distribution also needs special procedures such as cold storage etc.
Currently, biologics are expensive and hence their volume share is low (US value market share of Biologics for the treatment of RA is approximately 70-75 %, while in volume terms they are only ~15%), however with increasing competition and with few biologics going off patent, market is set to grow and will become an important revenue driver in future.

5. Train the representatives to talk more science: Pharma reps in India today talk less science and focus primarily of rx generation. This trend should change and pharmaceutical reps should engage with doctors more at a treatment level and should serve as a main source of information disseminator.

6. Shift in target audience: with average Indian becoming more aware of his health, pharma companies should design communication strategies aimed directly at patients. Directly educating patients will be good as they will be more aware in talking to doctors and deciding their treatment regimen. Targeting patients directly might be big regulatory challenge, but if companies are able to overcome this, then this might well be worth.
Another new channel which will become big in future in health insurance. Currently, in India, not a lot of people are covered under insurance especially private health insurance. As health insurance companies increase their footprint, they will start controlling drug utilizations by deciding preferred drugs, level of coverage etc. These measures will significantly influence drug sales. The overall market might evolve the way US market works currently.