Boehringer Ingelheim is undergoing a comprehensive transformation to derive more growth and value through strategic realignment of its business
Big Pharma is witnessing a transition with significant changes in their operating models as the era of blockbuster drugs comes to an end and a patent cliff looms ahead. Leading pharma companies are amending their strategies, realigning their R&D focus, moving towards specialty drugs and biologics and betting on emerging economies to drive revenue, navigate the changing tides and flourish in this dynamic market.
Boehringer Ingelheim, a German pharma major with global footprint, is a case in point. In a recently held annual press conference at its global headquarters in Ingelheim, Germany, to present its financial results for the year 2016, the company declared its intent to become a leaner, focused company with footprint in key clusters. BI has shortlisted three major growth areas for 2017 – human pharma, animal health and biopharma contract manufacturing.
Giving an overview on this year’s priorities for the company, Hubertus Von Baumbach, Chairman of the Board of Managing Directors, BI announced, “We have reduced the number of our businesses. The business on human pharma now focusses on the prescription medicines portfolio. With regards to our animal health business, the acquisition of Merial was an important milestone in our comprehensive realignment. And finally, we decided to invest in the expansion of our biopharma production in order to meet future strong demand. All this has strengthened our competitiveness and our customer focus in the individual areas.”
Let’s examine the strategies adopted by the company.
Progressing with partnerships
Over the past few years, BI has been increasingly turning towards partnerships to sustain and spur momentum in its growth trajectory. For instance, in a bid to enhance its offerings in human pharma, which continues to be a major growth driver, BI is looking at developing significant innovations in the therapeutic areas of respiratory diseases, cardiometabolic diseases, oncolog, and diseases of the central nervous system as well as immunology. This, in turn, has necessitated the need to ensure better reach of these offerings in the major markets of the world, As a result it has entered into significant tie-ups with other renowned pharma companies. Here are a few instances:
- BI markets its diabetes medicine Jardiance, jointly with Eli Lilly and Company. The alliance combines the scientific expertise and business capabilities of the two pharma companies to leverage the growth potential arising out of the global diabetes epidemic.
- In March 2016, BI entered into a global collaboration with AbbVie for BI advanced development compounds in immunology. This collaboration helps to ensure effective reach of the promising compounds to needy patients worldwide and enables the companies to strengthen and expand their capabilities in this therapeutic area.
- In India, BI is partnering with Lupin, another pharma major to co-market Empagliflozin, a novel sodium glucose co-transporter-2 (SGLT-2) inhibitor in India. A press release informs that according to the agreement, Lupin markets and sells the product under a separate brand name Gibtulio while BI sells it under the brand name Jardiance.
In an exclusive interview with Express Pharma, Allan Hilgrove, Head, Human Pharma Business Unit, BI spoke on external collaborations and partnerships as a major strategy towards growth. He said, “The philosophy of working together with others and partnering for better health around the world is quite central to what we do.” He stated that these partnerships helps them create more impact in terms of performance as well as provide them with economic benefits.
This point is validated by Simone Menne, Head of Finance and Member of Board of Managing Directors, BI. Giving a detailed overview of BI’s financial performance in 2016, she highlighted, “We placed our innovative products successfully on the market and maintained a good market position for our established medicines. In
addition, we received an extraordinary payment to our net sales agreed within the scope of our cooperation with AbbVie in the field of immune diseases. We also see a sharp increase in operating income to around 2.9 billion euros. The aforementioned payment from AbbVie had a notable impact here too.”
Thus, strategic partnerships has helped the company reap substantial gains and spurred progress.
Merging and divesting for merit
Another major realignment has been the decision to merge BI’s animal health business with Merial, Sanofi’s animal health business. A transaction worth $25.5 billion, it has made BI the second-largest animal health company in the world. Von BaumBach revealed at the press conference that the company has identified animal health as a strategic long-term development priority for the company.
He said, “We have huge plans for animal health in the years ahead. He said, “Net sales in our animal health business will more than double year-on-year in 2017 thanks to the integration of Merial. We have undertaken to outgrow the market on a sustainable basis in the subsequent years with our solid core business and by taking advantage of new opportunities.”
The year gone by
In 2016, Boehringer Ingelheim generated net sales of around 15.9 billion euros, representing an increase of 7.3 per cent in currency-adjusted terms (+7.1 per cent in euro terms). Since operating income improved by 27 per cent to around 2.9 billion euros, the return on net sales came to 18.1 per cent. Boehringer Ingelheim in 2016 employed an average of almost 45,700 people around the world. The acquisition of Sanofi’s animal health business, Merial, on January 1, 2017 as part of a business swap increased the workforce to some 50,000.
Reportedly, the company’s animal health sales grew by 8.5 per cent, amounting to $1.55 billion in 2016. The company also foresees that the overall market will touch $56.4 billion by 2030. Thus, this move is the company’s bid to become the global leader in this segment as it perceives great potential for growth fuelled by increasing demand in the pet market, a swelling demand for meat and mounting threat of infectious diseases. In times to come, the animal health business will comprise over 25 per cent of BI’s total revenue.
At the annual press conference, Joachim Hasenmaier, Head of BI’s Animal Health Business Unit and Member of Board of Managing Directors informed, “Acquiring Merial immediately positions us to be increasingly competitive in a high-growth sector that is in a consolidation phase. By combining two dynamic companies that share the same long-term strategic vision, we are delivering a larger and more innovative portfolio of products and services to prevent disease and improve the health and productivity of animals around the world. ”
Hasenmaier also revealed that the company will continue to invest over 10 per cent of its revenue into research and development in animal health, to expand its core businesses of vaccines, antiparasitics and pharma products.
While the company has chosen to expand and fortify its offerings in areas which is likely to see accelerated growth in the coming times, it has also reduced its number of business by combining its prescription business with it human pharma vertical and divesting its holdings in consumer healthcare to Sanofi.
Building capability and capacity
The company has also embarked on a venture to bolster its capabilities and enhance its capacity. For instance, BI is set to begin a new production facility in Vienna to drive growth in its third focus area — biopharma contract manufacturing.
Menne expects a ‘considerable boost’ to the contract business of the company on the back of the 700 million euros expansion of the biopharma production site in Vienna, with the new plant commencing operations in 2021. She also informed that the biopharma contract manufacturing business net sales grew by 6.4 per cent to 613 million euros in 2016 and contributed to almost four per cent of the total net sales of the company.
At the same time, the company is also looking at expanding its footprints and consolidating its presence in key emerging markets to step up its growth momentum. China is a major market for them, so is India and the Middle East. 2016 saw BI achieve currency – adjusted growth of 20 per cent in China.
Revving up R&D to drive innovation
“Our commitment to research and development is an important pillar of our strategy,” von Baumbach stated at the press conference. The company states that it has increased its research and development expenses by four per cent to some 3.1 billion euros. BI’s focus on R&D gets an upward push with the company looking at achieving significant progress in major therapeutic areas through innovative medicines. The key focus of their research work in 2016 were as follows:
- Immunology and respiratory disorders
- Cardiometabolic diseases
- Oncology and immuno-oncology
- Diseases of the central nervous system
A few interesting ongoing R&D projects at BI include studies to ascertain whether the diabetes medicine Jardiance can also be used to treat chronic heart failure with and without diabetes. In oncology, the company is also studying the effectiveness of nintedanib for treating mesothelioma, a cancer of caused by asbestos.
Giving an insight on how the company looks at training its focus when it comes to therapeutic areas for R&D, Hillgrove explained, “We choose a number of therapeutic areas to focus on. Every five years or so we look at what is called a disease map, we look at all the diseases that mankind is suffering from. We see which of these diseases have a large unmet need and look at how we can add value towards addressing the disease. We look at scientific options to address the disease and then look at the commercial feasibility as well.” He also affirms, “Innovation will continue to drive the pharma industry forward, and advancements in medicine will help the patients and also drive innovation in the industry. More than 20 per cent of our net sales goes into R&D. So, innovation is really at the heart of the company.”
Thus, in line with its mission statement, of value through innovation, BI, besides its own R&D activities, is building a global network comprising academic groups, public research institutions and biotech companies. They are also enhancing their product portfolio with partnership agreements and the systematic inlicensing of technologies and products.
Dr Michel Pairet, Head, Innovation Unit, BI, informs that an investment of one billion euros are done in the innovation unit each year. He also highlights that an investment of 11 billion euros has been made by the company in the innovation unit over five years.
It clearly informs that in-house research and development – supplemented by external cooperation and partnerships – will continue to be a top priority in the future.
Thus, the company has clearly identified its future avenues for progress and already embarked on its journey. It has begun a comprehensive transformation with a mix of big and small steps to create a more enhanced value chain. Von baumbach asserts, “Constant willingness to change has always been, and remains key success factor of Boehringer Ingelheim.” However, the ripples of this change is likely to be felt in all markets where BI has an established presence. It would be interesting to witness the effects of these changes in India and track them as they lay the foundations for further growth.