Newsindustrie pharmaceutique

The pharmaceutical industry has been in the limelight since the start of the Covid-19 health crisis and is the subject of much debate. Some criticise the way it operates, accusing it of being interested in human life only when it yields profit, whereas others swear by it to save mankind from this pandemic. From the demand for nationalisation to the call for more flexible regulation of the industry, all opinions revolve around a single objective: how to defeat the virus.

For many years now, this industry has been undergoing a profound change in its research and development (R&D) activities, marked by a gradual withdrawal of the major pharmaceutical companies from their own research capacities, in favour of the emergence of innovative start-ups, commonly known as “biotech” or “health tech”.

Cosmetic inconsistencies

In France, at the end of November 2019, Merck Sharp & Dohme (MSD), the world’s 4th largest pharmaceutical group, announced a restructuring of its Riom site in the Puy-de-Dôme: half of the jobs were affected, and the research centre was forced to close down permanently. However, over the same year, the group had invested more than 4 billion dollars in the acquisition of innovative laboratories, covering diverse research areas.

More recently, Johnson & Johnson, the world’s leading pharmaceutical group, followed the same pattern. After acquiring the Franco-Swiss company Actelion for 30 billion dollars a few years ago, it announced in early 2020 the closure of its research laboratory in Val-de-Reuil in Normandy. This laboratory has produced world-renowned and award-winning medical innovations, particularly in the treatment of HIV patients.

These examples illustrate a practice that is becoming widespread in the pharmaceutical industry. For several years now, the main laboratories have been seeing their workforce continually reduced, and social plans have been implemented. Leem (Les Entreprises du Médicament), a federation that represents the industry in France through its 260 members, lists an average of fifteen social plans each year, often involving the largest field in the sector. Nevertheless, the overall workforce in the sector remains stable, and R&D positions are even slightly increasing.

Number of employees in the pharmaceutical industry in France
2010 2011 2012 2013 2014 2015
129 300 129 600 128 400 128 300 127 860 128 256

Source : Leem, bilan économique 2019

We are indeed witnessing a profound change in the sector: the destruction of jobs among the main historical players are more than compensated for by the creation of jobs among the new ones. These “small” laboratories are working on only one or two drugs at a time, and their proliferation is accelerating. Since the early 2000s, the number of laboratories developing new molecules has tripled throughout the world, and they now account for more than half of all pharmaceutical companies. This phenomenon is very visible in France, now one of the world’s leading biotech countries, with more than 700 start-ups with a total turnover of 67 billion euros1.

While the pharmaceutical industry used to massively invest in its in-house research to develop new products, it is now keeping a close eye on today’s biotech companies in order to be in a privileged position to buy out tomorrow’s revolutionary findings. They may sometimes do so by spending astronomical sums, but they no longer bear the risk of not finding anything.

1 Business France, « Les biotechs en France », 2019

Partnerships, M&A and CROs

This strategy is worth every penny: according to the American trade association Biotechnology Innovation Organization (BIO), in 2018, 71% of drugs in clinical development were derived from biotech companies. In France, the biotech sector has 2.4 times more products in development than the four leading French pharmaceutical companies combined (Sanofi, Pierre Fabre, Servier, Ipsen)2.

The pharmaceutical industry can benefit from the fruit of this remote research through several economic schemes:

Partnerships and licensing agreements, which guarantee revenues and minimise risks. This solution reduces the potential for alliances in the market by blocking its main competitors.

Main strategic alliances involving a French biotech company in 2018

Main strategic alliances involving a French biotech company in 2018

* Total potential value: the amount includes the upfront payment, milestone payments and royalties if applicable.
** License: development and marketing license
Source : France Biotech, « Panorama France healthtech 2019 », 2019

Mergers & Acquisitions (M&As), which increase the R&D capabilities of the acquiring laboratory in addition to complementing its portfolio. The number of M&As has been constantly growing since the 1980s, and they are now reaching unrivalled price levels. In France, the last major buy-out was by Sanofi, which acquired Bioverativ for $11.6 billion in early 2018.

Number of mergers and acquisitions in the pharmaceutical sector worldwide

Source : Statista, Number of merger and acquisition deals in biotechnology and pharmaceuticals sector worldwide from 1985 to 2018

Contract Research Organisations (CROs), which act as subcontractors and allow the industry to outsource its research. The sector is growing rapidly, with 300+ companies today accounting for more than a billion euros in turnover in France alone. They are represented by the French Association of CROs (AFCROs) and the French Association of Service and Innovation Companies (Afssi), who estimate that nearly two-thirds of clinical research in France is outsourced.

These solutions are now at the heart of the pharmaceutical industry’s R&D strategy, which is slowing the pace of mega-mergers and moving towards targeted acquisitions aimed at specialising and gaining new leadership in targeted therapeutic areas.

2 France biotech et Boston Consulting Group, « La French Health tech : faire de la France un leader mondial de la santé », 2017

Rethinking the pharmaceutical industry’s research model

The health crisis we are experiencing is leading everyone to think about how best to optimize research policies. The public authorities have moved quickly: French president Emmanuel Macron has already announced an increase in the public research budget of 5 billion euros over 10 years; the Minister of Higher Education, Research and Innovation Frédérique Vidal announced the creation of an emergency fund of 50 million euros for Covid-19 research; and the Ministry of the Armed Forces and the National Research Agency (ANR) issued several tenders for projects worth millions of euros.

Faced with these new needs, the pharmaceutical industry’s new R&D model has obvious advantages: it encourages innovation that until now has been decreasingly profitable and efficient within large laboratories and enables them to adapt to constantly changing regulations. However, it raises the question of the real capacity of the pharmaceutical industry to cope and rapidly generate a response to a pandemic such as that of Covid-19. This should go beyond the mere question of the price and reimbursement of drugs, borne by society, which can no longer be directly correlated to research funding when the major laboratories withdraw from risk-taking.

The French draft bill on a multi-year research programme, initially planned for this year and currently on hold, could provide an opportunity for laboratories to make proposals to the government. Because only a coordination of significant financial means and qualified researchers will be able to respond quickly and effectively to such a threat.

The growing gap between finance and manpower in pharmaceutical research is becoming a matter of concern. May the pharmaceutical industry have forgotten how to research by being too focused on the goal of scouting new products?

Contact

Gaëtan GAUTIER

Gaëtan GAUTIER

Senior Consultant

ggautier@arcturus-group.comLinkedin