Morgan Stanley to Drug Companies: "Exit Research"; Pfizer and GSK: "We Hear You!"

Yesterday, I wrote on about a new Morgan Stanley report which suggests that small-molecule drug manufacturers (and to a lesser degree biologics manufacturers) have very little financial incentive to perform their own research and development activities. The old arguments about keeping certain core competencies in-house and managing risks don't hold water anymore, the report says. Attrition rates for target therapies are just too high to justify the cost of doing them in-house, Morgan Stanley says. The new model: S&D, or Search and Development.

The report says the AstraZeneca and sanofi-aventis best exemply the S&D model. But as if on cue, Pfizer and GSK announced more major cuts in R&D spending. Given the trend towards greater outsourcing of manufacturing as well, it appears the days of virtual Big Pharma companies, who neither discover, develop, nor manufacture, are close at hand.

--Paul Thomas

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