Pharma and its Love of Deal Making. All Good This Time.

File under: Global Pharma Marketing, Patient Engagement, Relationship Marketing

3-wayThe recent 3-way deal between GSK, Novartis and Lilly represented a major transaction for all three companies. The deal has been scrutinized by the Street like a master chessboard swap of assets, in this case, molecules. Obviously, it took a fair bit of corporate development work to make these deals happen, so it’s actually pretty impressive from that perspective. But what’s more interesting to me is the strategy that these moves belie. It’s another clue to how pharma is changing.

For the past thirty years, pharma companies rose or fell based on their ability to develop or acquire a drug with blockbuster potential. Sometimes blockbusters just showed up, as did the disappointing blood pressure medication with unusual side effects called Viagra. Or the also-ran cholesterol-lowering drug that was almost cancelled because it would be the fifth drug in its class and that went on to become the largest drug in history.

These paths to blockbuster status could hardly be called strategies. They were more the result of throwing darts at a wall, and lo and behold, some of them hit.

Luck over-weighted.

Another approach to growth was the “me, too” strategy of tagging along in categories that were experiencing growth. The idea behind this strategy was, “Well, we don’t really need a new ace inhibitor out there… but the six in the marketplace are doing fine, so we’ll put out a seventh.” This strategy sometimes rewarded companies that were “fast followers” of successful drugs, categories and markets, but it didn’t do much to encourage innovation or fresh thinking.

Now that the opportunities for billion dollar drugs are waning, there is renewed interest in a third approach, something that might be considered a true strategy. It focuses on building a specialized portfolio of products and capabilities that could justifiably be called a franchise. A product franchise invests in a basket of products addressing a single disease or syndrome.

Some pharma companies have already established drug franchises. Novo Nordisk has successfully built a franchise in the category of diabetes, and Genentech and Roche have carved out a leadership niche in oncology. Pharma as an industry is coming to the realization that the path to growth now is building focused expertise in specific markets.

It makes sense. Once you build internal R&D and commercialization capabilities around a particular category, then you have the luxury of understanding the category, the physician and the patient need at a very deep level.

This deep customer knowledge will lead to better products and a better understanding of how to efficiently market and promote the franchise set of products.

When a company builds a product franchise, it can also take advantage of more cost-effective sales and marketing approaches across its product line. Companies may offer first-line, second-line and third-line therapies. A portfolio can cross-sell adjacent products and be prepared to migrate patients to newer and more effective products as they come to market. For the marketer, it becomes a portfolio strategy with products at different stages in their patent lifecycle.

This also means that pharma marketers can justify investing in building long-term relationships with healthcare professionals. With a broader mix of options for different patient types or disease progression, the marketing team can use relationship marketing to provide the right message and product support at the point of need.

The recent portfolio transactions between Novartis, GSK and Lilly reflect their decisions to divest of products and categories that aren’t aligned with their commitments to franchise strategy. When the dust settled, GSK became the world leader in vaccines, Novartis strengthened its leadership in oncology, and Lilly became the second largest player in animal health.

I see these moves as a very good sign for the future of pharma, particularly in contrast to the more opportunistically-focused and engineered transactions of the past.

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