The future of pharmaceuticals
Times are getting tougher for pharmaceutical companies. New registration procedures and the restructuring of health care systems around the globe are causing fierce price competition. Many companies are being forced to radically rethink their business models.
Experts from Roland Berger Strategy Consultants sat down with executives from companies representing more than half of the world's drugs sales, and 20 out of the 30 largest pharmaceutical groups. Their findings are presented in the new study entitled "Pharma at the crossroads – Choosing directions in a transforming health care world." It highlights the trends and key issues for international pharmaceutical companies that focus on patented prescription drugs.
Those surveyed for the study see strategic opportunities primarily in two areas: first, pharmaceutical companies should develop into integrated health care service providers, and not just sell products. Second, they should further increase innovation and efficiency through more intensive cooperation with external providers. Major shifts in national health care systems are the main drivers of change for the pharmaceutical industry.
Different markets, different challenges
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 health care system, business in North America bears the highest risk factor. Roughly half of the respondents said their US profits would likely decline in the medium to long term. Roughly a third of participants said that the bureaucratic drug registration process has an impact on competitiveness. In the EU, the combination of lengthy reimbursement procedures and pricing both are problematic for 28% of the companies surveyed. In Japan and the BRIC countries, about one-fourth of the participants say pricing is a problem. Business leaders cite the UK as a best practice example in terms of market access and reimbursement, not least because it is home to the National Institute for Health and Clinical Excellence (NICE).
Experts from Roland Berger Strategy Consultants sat down with executives from companies representing more than half of the world's drugs sales, and 20 out of the 30 largest pharmaceutical groups. Their findings are presented in the new study entitled "Pharma at the crossroads – Choosing directions in a transforming health care world." It highlights the trends and key issues for international pharmaceutical companies that focus on patented prescription drugs.
Those surveyed for the study see strategic opportunities primarily in two areas: first, pharmaceutical companies should develop into integrated health care service providers, and not just sell products. Second, they should further increase innovation and efficiency through more intensive cooperation with external providers. Major shifts in national health care systems are the main drivers of change for the pharmaceutical industry.
Different markets, different challenges
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 health care system, business in North America bears the highest risk factor. Roughly half of the respondents said their US profits would likely decline in the medium to long term. Roughly a third of participants said that the bureaucratic drug registration process has an impact on competitiveness. In the EU, the combination of lengthy reimbursement procedures and pricing both are problematic for 28% of the companies surveyed. In Japan and the BRIC countries, about one-fourth of the participants say pricing is a problem. Business leaders cite the UK as a best practice example in terms of market access and reimbursement, not least because it is home to the National Institute for Health and Clinical Excellence (NICE).
Rethinking business models
Many pharmaceutical companies have started to rethink their marketing and sales business models to tackle new challenges. Changing customer needs and decision-making structures with respect to patient care in addition to intensifying cost pressure are forcing the industry to give up their traditional physician-focused business model. Innovation and clinical product differentiation has become the main focal point of many business strategies. In addition, Companies are pursuing more flexible structures and outsourcing to increasing profitability over the short to medium term. Almost half (45%) of the respondents expect to fundamentally revise their marketing and sales models again in the next year or two.
Outsourcing innovation
Expiring patents and the lack of new developments are a threat to many drug companies' product portfolios. This is especially true for the industry's giants. They fear becoming overly dependent on individual 'blockbuster drugs,' with many patents are expiring in the near future. In order to enhance innovation and timely regeneration of the overall product portfolio 41% of respondents are now looking outside the company. They prefer to outsource innovation, buying into individual licenses or striking partnership deals. 39% believe that acquisitions are the best method to buy in expertise, especially in the biotech area. Only 20% of those queried think in-house R&D is the most efficient source of future innovation.
Cutting costs remains top issue
Pharmaceutical companies have focussed on enhancing efficiency by 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 believe that the potential for additional savings in this area is above 10%. "Many managers still think that they can cut costs fast and effectively by taking single-step, isolated actions. That might 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. In this process, companies should always examine their core competencies first, the experts argue. In most cases, R&D and marketing and sales will remain key focal points. Increasingly, companies are beginning to develop different outsourcing strategies along the entire value chain. This, analysts highlight, could be an early indicator of a major shift in the pharmaceuticals market, given that its comparatively high vertical integration.
Outlook
The pharmaceutical industry will be face massive changes over the next few years. A shift away from the US toward the BRIC countries might be ahead. 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 saw the answers to these questions fully integrated business models. With changing realities, drug companies are being forced to think again. "The pharmaceutical industry does not have a clear vision for the future. The answers to these fundamental questions will make or break the players in the industry," says author and pharmaceuticals expert Stephan Danner.
If you have questions or comments regarding this, or any other story, please do not hesitate to contact us:
Many pharmaceutical companies have started to rethink their marketing and sales business models to tackle new challenges. Changing customer needs and decision-making structures with respect to patient care in addition to intensifying cost pressure are forcing the industry to give up their traditional physician-focused business model. Innovation and clinical product differentiation has become the main focal point of many business strategies. In addition, Companies are pursuing more flexible structures and outsourcing to increasing profitability over the short to medium term. Almost half (45%) of the respondents expect to fundamentally revise their marketing and sales models again in the next year or two.
Outsourcing innovation
Expiring patents and the lack of new developments are a threat to many drug companies' product portfolios. This is especially true for the industry's giants. They fear becoming overly dependent on individual 'blockbuster drugs,' with many patents are expiring in the near future. In order to enhance innovation and timely regeneration of the overall product portfolio 41% of respondents are now looking outside the company. They prefer to outsource innovation, buying into individual licenses or striking partnership deals. 39% believe that acquisitions are the best method to buy in expertise, especially in the biotech area. Only 20% of those queried think in-house R&D is the most efficient source of future innovation.
Cutting costs remains top issue
Pharmaceutical companies have focussed on enhancing efficiency by 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 believe that the potential for additional savings in this area is above 10%. "Many managers still think that they can cut costs fast and effectively by taking single-step, isolated actions. That might 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. In this process, companies should always examine their core competencies first, the experts argue. In most cases, R&D and marketing and sales will remain key focal points. Increasingly, companies are beginning to develop different outsourcing strategies along the entire value chain. This, analysts highlight, could be an early indicator of a major shift in the pharmaceuticals market, given that its comparatively high vertical integration.
Outlook
The pharmaceutical industry will be face massive changes over the next few years. A shift away from the US toward the BRIC countries might be ahead. 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 saw the answers to these questions fully integrated business models. With changing realities, drug companies are being forced to think again. "The pharmaceutical industry does not have a clear vision for the future. The answers to these fundamental questions will make or break the players in the industry," says author and pharmaceuticals expert Stephan Danner.
If you have questions or comments regarding this, or any other story, please do not hesitate to contact us:
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