Business Policy

THE GLOBAL PHARMACEUTICAL INDUSTRY

In late 2003, Britain’s Guardian newspaper commented that, on the face of it, the global pharmaceutical industry ‘looks like the epitome of a modern, mature industry that has found a comfortable way to make profits by the billion: it’s global, hi-tech, and has the ultimate customer, the healthcare budgets of the world’s richest countries.’ Pharmaceutical manufacturers certainly did not appear to be faced a looming crisis, yet, declared the newspaper, that was the alarming conclusion of a research report by analysts at investment bank Dresdner Kleinwort Wasserstein. The analysts argued that the world’s largest drugs companies were operating a business model that was unsustainable and ‘rapidly running out of steam’. The treatment they prescribed was further industry consolidation. This case explores some of the trends affecting the ‘ethical’ (research-based) sector of the industry and invites readers to prepare their own analysis and prescription. Industry evolution As described in Box 1, the pharmaceutical industry is characterised by a highly risky and lengthy research and development (R&D) process, intense competition for intellectual property, stringent government regulation and powerful purchaser pressures. How has this unusual picture come about? BOX-1. THE DRUG DEVELOPMENT PROCESS
The pharmaceutical industry has long new product lead times, with the period from discovery to marketing authorisation typically taking almost 12 years (Exhibit 1). New product development can be divided into distinct research and development phases. The research phase produces a new chemical entity (NCE) with the desired characteristics to be an effective drug for a targeted disease process. Development encompasses all of the formulation, toxicology and clinical trial work necessary to meet stringent regulatory requirements for marketing approval. During all of these phases ‘attrition’ occurs, as promising agents fail particular hurdles, so... [continues]

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