New Pharma vs Big Pharma: Q&A with Michael Abrams

Michael Abrams
Managing partner
Numeroff & Associates

The last few years have been a rollercoaster ride for the pharma industry. Michael Abrams, managing partner at Numeroff & Associates, spoke with Pharmaceutical Executive about the current state of the industry and what factors are driving M&A and layoffs at the moment.

Pharmaceutical Executive: What is driving layoffs in the Pharma sector?
Michael Abrams: Despite hopes that the wave of layoffs in 2023 would mark the peak industry pain point, they have continued well into 2024. For big pharma companies, the language used in press releases varies, but the underlying causes are similar: growing pressure on price from government and private sector payers, combined with patent expirations that threaten to cut into revenue. While these are the main real issues, there is, after the surprise passage of the IRA, the still uncertain impact of that legislation and the threat of even more regulatory changes that would further erode margins.

In the face of these mounting risks (IRA, further regulation, pricing pressure from government and commercial payers), cutting overhead is a logical thing to do. Along with that has come pipeline pruning, which has meant the elimination of some drugs in development whose eventual success was deemed riskier than tolerable. For example, BMSannounced that it will trim its pipeline of experimental medicines as part of its plan to generate 1.5M in savings. The company has discontinued 12 programs, including a successor version of its immunotherapy Yervoy, and will continue to review its pipeline through the rest of the year. Two-thirds of the savings are expected to come out of Bristol Myers’ spending on research and development. Add the multiple patent cliffs that promise dramatic reductions in revenue and the still uncertain impacts of the IRA, and that is a recipe for many executive bad dreams.

PE: What role will M&A play in the future of Big Pharma?
Abrams: Recently, much has been made of the relative success of some “new pharma” companies like Regeneron, Genmaband Vertex compared to the fortunes of some big pharmas like Pfizer, Novartis, andRoche over the past 5 years. While some of these newcomers appear to be flourishing, the idea that new and big pharma are competitors in the same race is, generally speaking, not true. Rather than being competitive, the relationship between such companies has typically been synergistic. After all, smaller pharma companies have had an outsized impact on drug development, accounting for 63% of all new prescription drug approvals over the past five years. Smaller, more nimble companies bring and shape the seminal concept and conduct early-stage R&D, but most often lack the resources to take their products further in the drug development/ regulatory process. Typically, these companies partner with big pharma companies that benefit from de-risked technologies, and that have the deep pockets and global presence to effectively market the end product.

These tech-driven pharma upstarts are typically started by scientists, often academics, who are willing to invest in bringing their ideas to life. That culture is all about thescience and the scientific advance it represents. But they are typically naïve when it comes to the requirements for commercial success. Most often, the solution is to partner with one or more big pharma companies that have the experience and reach to navigate the challenges of development and commercialization.

Clearly, some of the smaller players have found ways to master the commercialization challenge in its many aspects. Indeed, entrepreneurship is a key part of the new pharma culture. Might some of these players grow to challenge big pharma? Perhaps – no one believes that the pharma space should be static.I think we are most likely to see a continuation of the synergy we’ve seen in the past. Big pharma will continue to partner with, acquire, or license promising molecules and leverage their commercial infrastructure to take those products to market.

PE: When does Big Pharma expect the workforce to stabilize?
Abrams: Most organizations will have finished their reductions in force and reorganization by the end of Q3-24, though the process of re-integration and its attendant inefficiencies will linger for some time. Beyond those traumatic events, the dramatic increase in the threat level of the business environment has prompted some large organizations to reassess their critical commercial infrastructure processes.Key activities like RWE development, market segmentation, and major client management are in many cases operating like they always have,but in a business environment that has dramatically changed. The shock of the IRA may ultimately serve to catalyze some of these organizations to realign these processes to deliver what’s needed in a rapidly changing industry.