Drug companies generally rely on pumping up sales of their last big discovery to keep them afloat until they find the next one. But with many blockbusters due to go off patent and replacements in short supply, it may be time to rethink the model and try separating sales and distribution from scientific discovery.

Several Indian generics manufacturers who are looking to expand their original research activities are already trying this. Last week, Ranbaxy Laboratories became the third big Indian generics manufacturer to say it planned to spin off new drugs research and development into a separate company. Dr Reddy’s, another big generics maker, recently formed Perlecan Pharma, a joint venture with Citigroup and ICICI, India’s largest private bank, to finance some R&D.

Moving R&D off the main company’s books would be a quick way to look more profitable – last year, top drug firm Pfizer’s $7.6bn in research costs were equivalent to 40 per cent of profits. Ranbaxy’s move also comes at a time when it needs more cash. Medicines for Malaria recently backed out of a joint antimalarial project saying the research results were not promising.

Big pharma says marketing feedback improves R&D, but there could be benefits to splitting research and sales. An arms-length relationship would allow distributors to be dispassionate about a discovery. Marketing and distribution companies might also find consolidation more profitable because synergies are easier to realise in sales than research.

Bermuda-based Celtic Pharma is attacking the same issue from the opposite direction. Celtic picks promising drugs that are entering human testing, funds them through the late-stage trials needed to earn regulatory approval and then sells on the product for manufacturing and distribution. Celtic says it can be ruthless about dropping bad prospects because it has no marketing staff to support. So far none of the big pharma firms is desperate enough to try such a radical solution, but they should watch the experiments closely. (Source: Financial Times)