Approvals aren't enough; Big Pharma R&D restructuring will continue

Here's a perennial favorite among the top trends in the industry. About 6 years ago, most of the Big Pharma companies got serious about one of their biggest problems: they were really, really bad at drug development. Some of the biggest organizations like GlaxoSmithKline ($GSK), AstraZeneca ($AZN), Pfizer ($PFE), Sanofi ($SNY) and others started to look for different ways to organize R&D, and in many cases started to hatchet down storied research complexes. More researchers were put on a plane to Boston/Cambridge, which has become a global Mecca for drug research.

In many cases, the remedies have been at best only a partial success. Some have been flat failures.

GlaxoSmithKline's plan was to focus on research units' individual performance in an effort to gain more productivity. And in 2014, after GSK stopped boasting about a string of earlier approvals, weak sales numbers made it imperative to go back to the drawing board and chop away at R&D, particularly in North Carolina. Gaining a batch of new drug approvals is not enough to qualify as a success. These new meds have to make significant amounts to make up for the blockbusters losing patent protection, and in GSK's case the money has not been there. At least not yet, and investors grow restive easily.

Ian Read

Pfizer cut out the most in R&D, and has a thin pipeline to show for it. That's partly why CEO Ian Read went back to the discredited megamerger strategy and floated a tie-up with AstraZeneca, which is in the middle of its own research redo, only to get snubbed in a painfully public fashion.

Amgen ($AMGN) and Baxter ($BAX) are joining the migration of Big Pharma to the Cambridge hub, anxious to rub shoulders with some of the cutting edge investigators in the orbit of MIT and Harvard labs. Roche ($RHHBY)--which triggered one of the biggest reorgs with its exit from Nutley, NJ following the big Genentech buyout--seems to be largely satisfied with what the world's top-spending pharma is getting from gRED and pRED. And Novartis ($NVS) has limited itself to some minor tinkering as it pushes ahead with some major new pharma franchises.

Only Eli Lilly ($LLY) resisted the reorganization trend in R&D, and the shrinking company is being bounced from the top 10 now that an acquisitive Actavis ($ACT) is coming along to muscle the company into the second tier. It's also now quietly chopping $1 billion out of R&D to slim it down to fit a smaller company, which has to see if its new products can generate enough cash to arrest free falling revenue numbers.

R&D change at Big Pharma seems to be more the norm than the exception. There's no reason to think that won't continue even as biotechs like Gilead ($GILD), Biogen Idec ($BIIB) and Celgene ($CELG) go gangbusters with more carefully crafted pipelines. -- John Carroll

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