[Reporter’s View] Why Big Pharmas 'select and focus'

In the famous TV show ‘Backstreet,’ CEO Baek Jong-won’s main advice and solution for small eateries suffering from slow business was to ‘reduce menus.’ Paik tells the restaurant owners to concentrate on their main menus instead of trying everything.

 

Due to his consistent act of reducing menus in every restaurant he consults, he was fondly dubbed ‘BBunos,’ a combination of his nickname ‘BBu the homemaker’ and the ‘Avengers’ villain ‘Thanos’ who eradicated half of all life in the universe.

 

Global big pharmas are also busy ‘reducing their menus.’ The companies are letting go of their main sources of income, in particular, products in their Consumer Health care units that are mainly consumer goods.

 

In this sense, Johnson & Johnson’s announcement of its plan to spin off its consumer division had received much attention.

 

The spin-off will not only transfer the baby powder product that imprinted the J&J brand on the public, but also many familiar brands including Aveeno, Neutrogena, Listerine, etc.

 

The company had also said that the planned separation was a “momentous event” and the “biggest change in direction in J&J's 135-year history.” GSK is also spinning off its consumer healthcare unit.

 

The spin-off, newly named ‘Haleon’ does not contain the GSK name.

 

GSK Consumer Healthcare had been in charge of OTC drugs and consumer goods including popular products such as Sensodyne, Otrivin, and Theraflu.

 

GSK Consumer Healthcare, which had been formed as a joint venture with Novartis, increased its size by adding Pfizer’s Consumer Healthcare business in 2018.

 

However, the company seems to have intended to separate from the business.

 

The company announced its plans to sell the business last year and is known to be considering its acquisition offers.

 

The same trend is evident in other big pharmas as well.

 

Sanofi had transferred all of its OTC drugs to its newly established spin-off of its Healthcare ‘Opella Healthcare.’ Going further, MSD had even transferred its off-patent chronic disease business to its spin-off, Organon.

 

The global pharmaceutical companies are making such decisions to 'select and focus' on their specialty drugs, especially those in the field of oncology, immunology, and rare diseases.

 

Of course, J&J’s decision is being suspected as a sort of ‘sham’ to pass on its responsibility for compensation for its baby powder product, which caused controversy due to the detection of carcinogens.

 

However, the global perception in the industry is that they may survive only by focusing on severe and rare diseases.

 

Also, it has been evaluated the industry reached a limit in growing using OTC drugs and consumer goods.

 

On the other hand, once commercialized, innovative new drugs for severe and rare diseases bring big profit to companies.

 

This is because these drugs may be sold at a high price due to little or no competition and the use of next-generation technology.

 

Such restructuring of businesses through reorganizations of their business units has recently begun in earnest.

 

J&J promised to strengthen its pharmaceutical division at the JP Morgan Health Care Conference in January and aims to achieve sales of ₩70 trillion in its pharmaceutical division by 2025 with next-generation new drugs such as anticancer drugs and CAR-T therapies.

 

GSK also plans to focus on developing innovative new drugs and vaccines.

 

Sanofi also stopped investing in chronic diseases and is broadening its autoimmune diseases and vaccines portfolio.

 

For this, the company bought several early-stage research biotechs rather than those that can generate immediate sales.

 

Last year alone, the company carried out 6 M&As with biotechs.

 

The domestic pharmaceutical industry should eye this trend and movement of global pharmaceutical companies.

 

Although it is impossible to directly compare companies due to the different size and focus areas, domestic pharmaceutical companies are still mainly pursuing the business strategy of providing 'many generics' rather than a single ‘wise drug'.

 

Cash cows are necessary to develop new drugs as this costs an astronomical amount of resources, but everyone knows that it cannot be a long-term survival strategy.

 

It's time for Korean companies to devise their own differentiation strategy on what and which areas to ‘select and focus.'