With pricing power waning, time for Big Pharma to become a lean, mean, well-oiled machine

Print 19 February 2016
Carly Helfand / FiercePharma

Waiting for the halcyon days when drugmakers could price drugs without pushback to return? Don't, GlaxoSmithKline ($GSK) U.S. pharma president Jack Bailey says. You'd be better off cutting costs instead.

GSK's Jack Bailey

As Bailey recently told Bloomberg, those pricing-power days are over--and that means companies better start focusing on how to "do everything faster, better, cheaper."

"If you're a pharmaceutical firm and you're not looking soup-to-nuts at your operations about how you do a better job of still getting great innovation, but getting it out there as efficiently as possible, you're going to get left behind," he said.

His comments come amid pricing pushback coming from all corners these days, with Congress, presidential candidates, payers, patients and doctors all taking aim at the pharma industry and asking it to justify its so-called price-gouging. Glaxo, in particular, has made moves to distance itself from the fray, homing in on low-margin businesses like vaccines and consumer health to avoid the sort of payer pressure that's dive-bombed sales of its respiratory behemoth, Advair.

But GSK is not alone in wanting to whittle down its operating costs and up its efficiency. Sanofi ($SNY), for one, in November announced a $1.6 billion cost-squeezing measure complete with job cuts and divestments. Two thirds of the savings will come from the "simplification of the organization," new CEO Olivier Brandicourt said at the time.

Novartis ($NVS), too, has been centralizing its business services and now plans to apply the same strategy to some functions in R&D and manufacturing. The latest drive aims to save $1 billion by 2020. That'll help keep prices down for the Swiss drugmaker, whose skipper Joe Jimenez has said that "we have to exist no matter what the pricing environment is going to look like."

Both Glaxo and Novartis have also turned to technology partnerships to keep the innovation coming while they tweak things internally. Within the past couple months, the pharma giants have inked "smart inhaler" deals they hope will give them a leg up on marketing in the crowded respiratory field.

Tech companies, with the digitization of healthcare, "are coming in from a different angle, and it's going to be an area where we have to watch leverage and pay real attention," Jimenez said in January.

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