Pfizer‘s closure of the R&D plant located in Sandwich, England, is a harbinger of more plant closings-to-come. With scenario planning hat cocked firmly on one’s head, what does this mean for the lovely region of Sandwich, and other towns where the pharmaceutical industry’s reduction in R&D spending is falling hard on similar plants located in developed Europe and the U.S.?
I’m inspired by a story in today’s Financial Times, Supply Running Low, about the implications of the closure of the Pfizer R&D factory in Sandwich, England which, “pleases investors but calls into the question the flow of new blockbusters” according to the article’s author, Andrew Jack.
Blame it on my roots growing up in Detroit, the Motor City, but I’ve got an itch to scratch out a scenario that begs to be called out: Sandwich, et. al., are The New Rust Belts.
Why could this be the case? Listen to the words of GlaxoSmithKline’s CEO Andrew Witty, whose company shut down a similar facility in Essex UK, as quoted in the FT: “We’ve got no interest in physical facilities. We’ve been reducing our own. The last thing we need is a big pile of bricks with air conditioning.”
Detroit, Michigan; Gary, Indiana; and, Toledo, Ohio, are littered with similar now-derelict buildings that housed the value-chain components of the once-mighty American auto industry.
The roots of Rust Belt V2.0 may appear quite different from the Car Story. GM et. al. stopped listening to consumer demand, the industry didn’t innovate new-new technology adapting for changing environments (most specifically, high-priced petrol), and the firms weren’t evolving designs to move buyers into the 21st century.
This isn’t so different from pharma: these companies lived off of old ‘designs’ (i.e., patents) without innovating new-new formulations to prescription drugs; they didn’t translate consumer understandings into new products and approaches (in fact, most didn’t even listen to their ultimate consumer-patients); and, they were largely blind, or in denial, about globalization and digital technologies’ role for both operations and in consumers’ lives.
Health Populi’s Hot Points: While later-components of the pharma value chain have already been hit — such as sales force reductions and layoffs of marketing layers in their organizations — research and development, the traditional lifeblood of pharma innovation, is now being cut. Andrew Baum, pharma analyst from Morgan Stanley, is quoted in the article, warning readers to expect more cuts in R&D.
This doesn’t mean there isn’t R&D going on outside of these Rust Belts. Look to China, India and other emerging beneficiaries of brain drain. But these nations are also investing mightily in home-grown human capital — that is, scientists and information technology innovators — who are moving on to the next wave of medical innovations. Globalization is also moving the center of gravity of pharma innovation away from mature markets toward emerging markets. As recently as five years ago when I forecasted China and India as future sites of such innovation, a board member of a pharmaceutical company smirked at me — “maybe for generic copies, but never for novel formulations.” I stood firm, but did not persuade him at the time.
For his and other maturing pharma companies, they’ll look to in-sourcing innovation from other companies to fill the research gap. These much-smaller organizations have no need for the “piles of bricks with air conditioning” that Andrew Witty doesn’t want, either.
RIP to the plant that built Viagra.