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BioPharm Executive: Pure, Small Pharma

3/29/2011 10:08:24 AM

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Pure, Small Pharma

Hoping to see a merged Lilly, an acquired Roche, a tax-optimized GlaxoSmithKline, or an increasingly diversified Pfizer? Not if their chief executives get their way. These are among the companies talking in the past month about the hottest new trend in pharma: Getting...or staying...small.

In the cases of Roche and Lilly, it's a defense of the status quo. Lilly CEO John Lechleiter continues to make his case for staying independent every chance he gets--which is some measure of how much pressure he is feeling to do exactly the opposite. And Roche, long above such concerns because of tight family control of the organization, suddenly had to start making similar declarations this month.

That's because of the departure of Maja Oeri from the voting pool that has linked the descendants of founder Fritz Hoffmann-La Roche since 1948. With her decision to exercise shareholder rights independently, the family bloc now represents only 45% control, down from just over 50%. That's still a pretty big slice of solidarity--and Oeri has stated her desire for the company to remain independent. But the change has already opened speculation that Roche could eventually become a takeover target . Certainly Novartis, which owns 33% of Roche, has expressed some past interest, so we may soon be hearing more talk about the virtues of staying small from the company that decided to swallow Genentech.

Similar arguments are, of course, coming from GlaxoSmithKline. Glaxo chief exec Andrew Witty took this month to the op-ed pages of The Economist to champion his smaller-is-better philosophy, which is behind GSK's reorganization into biotech-like independent research units. (That philosophy was also nicely illustrated in a Forbes interview published at the end of December.) And in a somewhat related public outreach, Witty used an interview with The Guardian this month to tout the allegiance of companies to the societies they serve--which means, among other things, not floating headquarters from place to place in search of the lowest tax rates.

But perhaps the most radical new adherent to the faith is Pfizer, still digesting its mega-merger with Wyeth. The world's largest pharma company stunned analysts this month by suggesting a plan that could lead to the company deliberately slashing its revenue base almost in half. The plan could involve Pfizer splitting apart not only its non-pharma divisions, but even separating its off-patent drugs into an independent "Established Products" unit. This is coming straight from the mouth of new CEO Ian Read, so it's apparently quite serious, although the details are yet to be ironed out. It will mean, of course, that the remaining core of Pfizer will have to use its new nimbleness to actually create innovative new products, something it has had poor luck with recently.

Not everyone has given up on the idea the major pharma companies should have diversified revenue bases including consumer and nutritional products. But the interest in pursuing pure pharma--a strategy already followed to some success by Bristol-Myers Squibb. and AstraZeneca.--is clearly on the rise. It would be hard to find a clearer signal of the shifting Zeitgeist than the conversion of Pfizer to the "small is beautiful" camp.

-Karl Thiel

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