Yes, that’s right – drugs are on my mind, and have become a part of both my personal and professional life. Alright, now before you jump to any conclusions, I should mention the former has to do with my recent obsession with AMC’s Breaking Bad, an amazingly well-done TV drama about crystal meth, and the latter related to some work I’ve been doing on behalf of the pharmaceutical team at my job. As much as I’d like to turn this post into a forum for discussing Walter White’s future as a crystal meth producer, I probably should stick to the pharma stuff and give this blog at least some semblance of focus (although illicit drug use is a major public health and policy issue that I should write about at some point. Noted.)
So I’ll start with the bottom line, because it actually has to do with the top line; that is, revenues for the largest pharmaceutical companies aren’t going to enjoy the sustainability they’ve had in years past. Strategy & Business recently published a wonderful article by Alex Kandybin and Vessela Genova detailing “Big Pharma’s Uncertain Future,” that is, a future where the idea of the “blockbuster drug” will no longer exist.
In 2010, the 25 top-selling pharmaceutical drugs in the U.S. accounted for a total of over $300bn in sales. Among the top 10, five will be coming off patent by 2012 (Lipitor, Plavix, Seroquel, Singulair, and Actos). The average operating margin for pharmaceutical products is a staggering 29%, compared to generics at just 12%. Is this the end of a very profitable era? According to Kandybin and Genova, it may be. “To be sure, there is still plenty of room for improvement in the medications people take, and no shortage of human suffering to alleviate. But it is doubtful…pharmaceutical companies will be able to pursue these goals within the old model of developing exclusive new pills that they can sell under patent protection. For one thing, pharma companies in the past were able to develop drugs for health problems that had never before been addressed. Today…few such unaddressed categories remain.”
So what to do? A few important trends have emerged in my research:
1) Big Pharma may shift their focus from products that treat disease to diagnostics, nutrition, wellness, and generic drugs (yes, brand-name pharma companies develop their own generic arms to compete with generics once their drugs are off-patent, e.g. Novartis AG).
2) The customer-focus is no longer limited to those who prescribe medications, but will be expanded to the patient. Healthcare is entering a new era in which the patient is more informed and empowered to make decisions with regards to their treatment, and pharmaceutical companies will need to address this. “The hypothesis might be that disease management will gradually have less to do with prescription drugs and physician oversight, instead becoming more the responsibility of the patient.”
3) Big Pharma will have to focus on “beyond the pill” aspects of their products. Characteristics such as packaging, dosing, route of administration, and product design will become increasingly important in the future as the blockbuster drug industry reaches saturation.
The need for change seems inevitable. Kandybin and Genova leave these words to opine on for their readers; “The question, however, is more fundamental than what pharma companies will do for an encore in the post-blockbuster era: The question is whether they can survive at all in their present form.”
