From Newton to Heisenberg--The New Physics of the Drug Industry
While the current wave of high profile drug industry deals recalls the heady days of 1980s consolidation, the motivations are quite different. Managed care is forcing companies to prize the efficient leveraging of assets, not critical mass. In today's drug industry, companies will manage for strategic diversity, juggling a number of different platforms at one time. Successful companies will by no means all have been successful using the same set of tools.
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The drug industry has reached the limits of its traditional business model, having collectively destroyed shareholder value since 2000. Companies' responses -- cost reductions, portfolio rationalization, productivity enhancements, bigger dealmaking -- are too little, too late. It's not enough to do business more efficiently; the industry needs to adopt new business models. Problem is: it's almost unprecedented to change models in the drug industry, though companies in other industries have done it under similarly challenging circumstances. Now it's time for Pharma to get moving. Since no company has yet taken a convincing stance on business model innovation, there's significant opportunity for one or more players to take the lead and create strategic advantage in doing so.
The battle between CVS and Express Scripts for ownership of Caremark has made little impact on drug-company executives. But there is an important implication for pricing in the Medicare Part D world: CVS wants to use Caremark to help it get higher payments for providing pharmacy services. But in the zero-sum game of reimbursement, any additional profits for chains will likely come from reduced prices on drugs.
As FDA decision on Alzheimer’s product approaches, new paper outlines Lilly’s arguments for unfettered Medicare coverage for donanemab once it is approved.