Global Pharmaceutical Industry at a Crossroads
MUNICH, German, July 7, 2008 - Times are getting ever tougher for pharmaceutical companies. New registration procedures and the restructuring of healthcare systems are changing the industry and causing fiercer price competition. Many companies are being forced to radically rethink their business models. The Roland Berger study "Pharma at the crossroads – Choosing directions in a transforming healthcare world" analyzes the trends and key issues for international pharmaceutical companies that focus on patented prescription drugs. The participating companies represent more than 50% of global drugs sales, and 20 out of the 30 largest pharmaceutical groups.
The study "Pharma at the crossroads" is based on questionnaires, fifty face-to-face interviews with top decision makers from leading global drugs companies and data research. Most participating companies recognize that the traditional pharmaceutical business model is coming under massive pressure. Those surveyed see strategic opportunities primarily in two areas: first, pharmaceutical companies should develop into integrated healthcare service providers, and not just sell products. Second, they should further increase innovation and efficiency through more intensive cooperation with external providers. The changing healthcare systems in different regions of the world are a key driver of change in the industry.
Regional differences
With USD 315 billion, the US will continue to be the main market
for pharmaceutical companies. Yet in light of expected cost-cutting
in the US healthcare system, this market also has the highest risks
in the world. Roughly half the respondents said their US profits
will decline in the medium to long term. About one-third of them
say that getting drugs registered is a major problem at the moment.
In the EU, lengthy reimbursement procedures and pricing both cause
28% of the companies surveyed a headache. In Japan and the BRIC
countries, about one-fourth of the participants say pricing is a
problem. The UK is considered to be at the forefront in the areas
of market access and reimbursement, not least because it is home to
the National Institute for Health and Clinical Excellence (NICE).
More often than not, it shows drugs companies the future of market
access and reimbursement.
Opportunities for further growth and
profitability
The industry sees the key levers for further
growth and profitability in tapping the BRIC countries' growth
potential, driving the development of outdated marketing and sales
models, and further intensifying Innovative capacity through
research and development.
BRIC countries are the growth markets of the
future
22% of the respondents say the BRIC countries are
key growth engines for drugs companies. Almost all companies have
launched projects and structures designed to help shape their
emerging healthcare markets and secure a promising market position.
"These markets also offer the opportunity to get to know a
healthcare environment that is more narrowly tailored to consumer
needs. This kind of experience is becoming more and more important
in traditional markets," says Stephan Danner, the Partner
responsible for the pharmaceutical practice at Roland Berger
Strategy Consultants.
Marketing and sales business models under pressure
Many pharmaceutical companies have started to rethink their
marketing and sales business models to face the new challenges.
Changing customer and decision-making structures, as well as
intensifying cost pressure are forcing the industry to give up
their traditional business model focused narrowly on physicians.
They say it is more promising to focus more on payors as well as on
innovation and clinical product differentiation. In addition, more
flexible structures and outsourcing are considered the most
effective actions for increasing profitability. In conclusion, 45%
of the respondents expect to fundamentally revise their marketing
and sales models again in the next year or two.
Innovation from outside
Expiring patents and the lack of new developments are a threat to
many drugs companies' product portfolios. This is especially true
for the industry's giants. To them, depending heavily on individual
blockbusters is a real danger because many patents are expiring.
When it comes to ensuring innovation and, with it, timely product
portfolio regeneration, there is a clear trend: 41% of respondents
prefer outsourcing innovation (buying individual licenses or
entering into partnerships). 39% think buying whole companies is
the best approach, especially in the biotech area. Only 20% think
in-house R&D is the most efficient source of future
innovations.
Cost cutting is a top issue
Pharmaceutical companies have been cutting costs over the past two
years, especially in sales (69%), production (59%), distribution
and logistics (59%), marketing (57%) and chemical production (41%).
They say the largest potential for further cuts is in marketing and
sales. About 25% of the respondents say that this is even more than
10%. "Many managers still think that they can cut costs fast and
effectively by isolated actions. This may give them a short
breather, but in the long term, they must examine their entire
value chain," says Aleksandar Ruzicic, co-author and Principal at
Roland Berger.
More and more companies have realized that they need to fundamentally rethink their value creation structures. This effort should always be based on their own core competencies: Top executives think these will continue to be in marketing and sales as well as research and development. Companies are also starting to develop more outsourcing strategies along the entire value chain. This indicates how the industry could develop, given that its vertical integration is still exceptionally high compared with other industries.
Outlook
The pharmaceutical industry will be facing
massive change over the next few years. The US will continue to be
the main sales market, but the up-and-coming BRIC countries will
become much more important. At the same time, price and innovation
pressure will continue to intensify. To hold their own in a
fiercely competitive market, pharmaceutical executives must answer
the following questions: What are our core competencies that help
ensure innovation and growth? Where does outsourcing make sense?
How profitable is the service business for third-party customers???
In the past, top executives usually said the answers to these
questions are to found in a fully integrated business model. Drugs
companies have now started to think again. "The pharmaceutical
industry does not have a vision for the future. The answers to
these fundamental questions will make or break the players in the
industry," says pharma expert Danner.
Contact:
Roland Berger Strategy Consultants GmbH
HighLight Towers
Mies-van-der-Rohe-Str.6
80807 Munich
Germany
Phone +49 89 9230-0
Fax +49 89 9230-8202
Posted: July 2008
