AZ, GSK Ask Carmakers for Directions Amid Pharma Breakdown

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As the pharmaceutical companies roll into the commercial equivalent of the breakdown lane, drugmakers are seeking advice from members of the auto industry that have tuned up their strategies multiple times to stay on the road to profitability. Reuters reports that AstraZeneca (NYS: AZN) and most recently GlaxoSmithKline (NYS: GSK) have tapped their counterparts in the auto industry for fixes to the companies' operations in the face of generic competition, R&D challenges and the lower profit margins.

McLaren's Formula One engineers have been working with GSK staff since September to help streamline the London-based drugmaker's approach to manufacturing, according to the Reuters article, and two years ago AZ joined forces with Jaguar Land Rover to borrow lessons from the automaker for its own drug-production operations. Now Porsche reportedly wants to get in on the act of sharing insights with its counterparts in the pharma industry. (General Motors was not among the carmakers listed as doling out advice to drugmakers. Phew.)

Drug companies, like it or not, have been forced to remodel their operations to stay competitive -- not unlike some of the changes that automakers adopted years ago to survive. As the Reuters article points out, auto companies have ditched their reliance on internal resources for many of the parts and components that go into their cars. In a similar way, Big Pharma companies are looking outside their organizations for new products to license and service providers to take on the heavily lifted on clinical development. The name of the game for both industries has been to focus intensely on specific areas of expertise and outsource other functions to trim costs.

"The auto industry has been through a huge number of structural changes yet is still a hugely innovative sector, and is a growth industry in many countries and for many players," Vivian Hunt, European pharma lead at McKinsey, told Reuters, noting that other industries could glean knowledge from carmakers' experiences.

To be clear, car company-style makeovers might not appeal to some drugmakers, and there are some distinct differences between the two industries that could make analogies troublesome. For instance, the high failure rate and unpredictability of drug development makes the activity involved in bringing a novel medicine to market a bit more like calculated gambling than commercializing a new automobile. At U.S. drug giant Merck (NYS: MRK) , for example, CEO Kenneth Frazier has stood his ground on keeping the company's big $8 billion R&D budget intact because he sees the spending as necessary to advance new medicines. Pfizer (NYS: PFE) , on the other hand, has scaled up outsourcing development work while trimming down R&D spending.

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