HIV deal shows need for new pharmaceutical models

By Lewis Krauskopf and Ben Hirschler - Analysis

NEW YORK/LONDON (Reuters) - The pharmaceutical industry is going back to the lab for its business models as it faces historic challenges.

Large drugmakers are experimenting with various collaborations as their major products face revenue declines, research productivity stalls, and governments and health insurers crack down on drug prices and healthcare costs.

The new ventures -- from deals on products to mega mergers -- seek to meet these challenges by cutting costs and mitigating the risks of research into new treatments.

Look no further than Thursday's deal between GlaxoSmithKline Plc (GSK.L) and Pfizer Inc (PFE.N). The world's two biggest drug companies announced plans to merge their HIV operations into a new company.

"Pharma is feeling its way," said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. "They know that the present business model isn't going to work in the future ... What they're not sure of is what will work."

Glaxo and Pfizer said the new HIV business would be more sustainable and broader in scope than either individually, with the potential for cost savings by melding the commercial operations.

"What you are seeing is an industry facing the realities of the challenges that exist and also, to some degree, a new generation of management being prepared to come forward with different solutions," Glaxo Chief Executive Andrew Witty told reporters.

Indeed, in the past, such collaborations would be unlikely because rivals would be reluctant to share information about product development or sales strategies, said Morningstar analyst Damien Conover.