GSK Cuts Neuroscience & Outlines Strategy For Growth

In an earnings call today, GSK Chief Executive Andrew Witty set out his vision of the future for the drugs giant.

He didn't confirm the number, but it is thought that 4,000 staff will lose their jobs, including scientific researchers as well as sales reps.  Many of these cuts will be in GSK's major neuroscience research locations, as Witty announced that GSK will cut many CNS research programmes including those in depression, pain and anxiety.  Staff are being told today.

GSK also announced that their commercial strategy will shift away from Western markets and towards developing markets, as widely reported previously (and blogged by me earlier this week). Last year, for the first time, they had more sales reps outside USA and Europe than inside those regions.

"HaTS" - Healthcare as Total Service (c)

"The blockbuster is dead" according to the current industry mantra. Big pharma is gearing up for the new reality by laying off many of the expensive sales reps they formerly used to saturate primary care markets with their now-ageing cash cow drugs.

GSK and others have stated that they are now going for growth in developing countries and pulling back from their traditional, high-priced-but-stagnant, Western markets.  This may bring higher growth opportunities but will also expose them to dangers.  These include commercial threats from local competition and corporate liability from the brand knock-off products which are rife in developing markets.  Furthermore, developing countries cannot support US prices, so the industry acknowedges that business models will shift from reliance on lucrative but limited markets in developed countries to a global, lower-priced model.  The price trend, at least for drugs which treat conditions where several brands are available, will (in my view) inevitably lead towards commoditisation.

It occurs to me that the pharmaceutical industry could pre-empt this process and take price reduction one step further.  Why not supply the drugs themselves for a nominal fee, and realign the pharma industry to a service model.  Health management, including prevention, diagnosis, and treatment, could be provided and charged on a life assurance business model, with the state assisting those who can't pay. The current imbalanced medical industry, which encourages cure over prevention by prioritising the development and prescription of drugs, could be altered to a more sensible model where health is managed, disease is avoided where possible, diagnosed early, and treated when needed. 

The idea is admittedly a bit simplistic but it doesn't have to be an unattainable vision of Utopia.  The drug industry becomes the healthcare services industry and still makes money and profits for shareholders - it just doesn't put all its eggs in the drug sales basket. Some companies are inching towards this scenario by developing diagnostics businesses, but I think there is a much more disruptive business model in there for anyone brave enough to go for it.  Maybe the current woes will push the industry to innovate commercially as well as scientifically.

The HaTS acronym is available for licence. My first idea, Pharmaceutical Research as Total Service, PRaTS, didn't work so well.

Drugs Companies Face Deeper Cuts in Research

More bad news for "big pharma" staff.
Drugs companies face deeper cuts in research - Times Online

I have to declare an interest here - I am an ex-GSK employee from the SmithKline Beecham part of the many-headed hydra. The dash for growth that has added headcount to big pharma in recent years is reversing and big layoffs are all around us. Most of the big companies are cutting thousands. It is a difficult time for those affected and will have ripples across the whole industry.

However, one of the long term trends mentioned by the article is that GSK is planning a move to branded remedies for curable disease in developing markets, and away from new drugs for tricky diseases that are only affordable in developed countries. This is laudable at one level, although only a profit-driven pragmatic necessity. It will, however, have the effect of exposing GSK to the full brand-eroding effects of counterfeiters and their knock-offs - which are rife in most developing markets. GSK will need to be on its toes to avoid revenue leakage and potential liability issues from other people using its brand equity but not its quality standards.