Ed Corbett, Novasecta principal and commercial practice lead, makes the case for mid-sized pharma in an exclusive Expert View piece.

Historically, focus on the pharmaceutical industry has been split between up-and-coming biotechs and big pharma behemoths.

Both have compelling narratives that are attractive to investors, healthcare professionals and patients. All too often however, the companies in between the two, the mid-sized pharmaceutical companies with revenues of 50 million euros ($61.5 million) to five billion euros ($6.2 billion), get overlooked. These companies have their own, distinct stories. When investigated, these stories have lessons for biotechs and big pharma alike.

While on the face of it, biotechs may not have a huge amount in common with big pharma, one area frequently unifies them – the need to maintain investor confidence. Biotechs need to provide confidence that their investors will see a return on a high-risk commitment – big pharma needs to maintain confidence that the dividend is maintained or even grows.

Relative freedom

While mid-sized companies may also need to address these issues, they have a high proportion that are either part or fully privately or foundation held. In fact, of the fully integrated European mid-sized pharma companies with in-house R&D capability that Novasecta follows, 70% are structured in this way. The principle outcome of such an ownership arrangement enables them to maintain long term focus and invest in ways that are simply not options for biotechs and big pharma.

The absence of external retail investors enables private or foundation held companies to deploy capital over a longer time horizon that would often be unacceptable in companies with stock market share prices to worry about. Without the need to provide quarterly or annual updates, companies can invest in areas which are potentially risky and continue to invest when set-backs occur – which of course are an ever-present part of the pharmaceutical industry.

In contrast, listed biotechs or big pharma face investor clamor to ‘do something differently’ when something doesn’t work out, which can in turn lead to poor, short-term decision-making. Additionally, having such a long-term investment horizon enables organizations to survive external shocks – many have endured two world wars, so relatively short-term issues like the financial crisis of 2008-2009 are easily absorbed.

Another area that sets apart mid-sized pharma companies from biotechs and big pharma is their appetite for partnering rather than pure M&A activity. Over the last 10 years, the number of deals in mid-sized pharma companies has steadily declined, primarily driven by soaring prices. The need to maintain a pipeline of products has not diminished however, and many European mid-sized companies are pursuing partnering to address this challenge. This can range from co-development through to co-commercialization, with the focus on capitalizing on strengths and minimizing redundancy between partners. An area that frequently sees mid-sized companies seek partners is geographical expansion, particularly into the USA and China.

Need for commercial excellence infrastructure and know-how

While there is much to be admired about the mid-sized pharma sector, it is not without its challenges. The long-term time horizons and conservative investment approach can morph into slow adoption of processes and practices that are standard elsewhere. Two areas in this regard stand out – commercial excellence and R&D externalization. Whether an organization has a new product or a suite of mature brands, a systematic approach to understanding the market, HCPs and patients and creating a robust commercial strategy and implementation plan that meets their needs is predictive of strong value creation.

All too often however, mid-sized companies lack the commercial excellence infrastructure and know-how to make this a reality, frequently ‘leaving money on the table’. By contrast, big pharma typically have well oiled machines into which almost any product can be introduced and value subsequently created.

When it comes to R&D externalization, mid-sized pharma companies have been relatively slow to adopt the open and external approaches that are a necessity to biotechs and second nature to big pharma, which often have the budget to inorganically bolster their R&D activity. By adopting an open innovation mindset and then combining this with an appropriate strategy, mid-sized pharma companies can maximize the benefits of external collaboration.

A model for the future?

For many biotechs, the goal is to be acquired and deliver a return for investors; for many big pharma companies, dividend maintenance through innovation is the primary goal. Both groups have much to be admired, from the agility of biotechs through to the strength of commercialization of big pharma. The European mid-sized pharma occupies a sweet spot between the two and frequently combine the best of both worlds. Those that are privately or foundation held have an additional advantage of access to capital that enables long-term investments. Their openness to partnerships in an age of expensive M&A is also instructive for other types of company.

For those mid-sized companies that are seeking sustained growth, improvements to commercialization will drive current revenue, and R&D externalization will provide the foundations for the future. It could be this group that becomes the future model for the industry.


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