Reinventing Pharmaceutical Industry

Drug prices have gone up significantly in the last several decades. According to an analysis conducted for Bloomberg, since October 2007 the price of brand-name medications has jumped, with prices doubling for dozens of recognized drugs that aim everything from multiple sclerosis to cancer, blood pressure, and even erectile dysfunction while the consumer price index rose just 12 percent throughout the interval. Per the article, the pharmaceutical sector made spectacular margins well before banks, autos, oil & gas and media businesses. The society expects the industry to save lives and relieve suffering rather than profiteering from the old and weak. But this profit trend may not last long. There are fundamental challenges faced by the industry that could be why it’s hoping to shore up its short-term profitability.

What are these changes?

The business model for pharmaceutical firms relies on developing and launching new drug products every few years.  In the interim years, they prolong the life of the existing patented products through extensions.  This method of product development is no more sustainable.  Look at some of the pharmaceutical and biotech company’s product pipelines; you’d find that the revenue and profit potential is considerably lower than what was 10 to 15 decades back. Why is this happening?

  • Expensive to develop drugs for peripheral diseases: Medications for the majority of the common conditions have been discovered. R&D investments are focused on uncommon   Take for example Ebola, it is a terrifying disease but just infected a small population.  Drug development and testing for such small disease incidence are costly as a result of the difficulty in getting adequate patients for clinical trials. Also, these medications have reduced earning potential as just a small population will require it.  A recent study found that new drugs are twice as expensive to develop and are likely to generate half the revenue of earlier blockbusters.
  • Pushback from regulatory authorities on product extensions: A large number of drug patents have active components (primary ingredient) which are out of patent. Pharmaceutical companies attempt to extend the patent protection by changing delivery device or adding some ingredients to make it faster acting.  Though regulatory bodies have been happy to provide patent extensions on those previously, there is now increased pushback from the customer groups and regulatory authorities on such practices.
  • Declining demand for pricey / patented drugs: Though pharmaceutical firms seem to increase their prices at will, governments, insurance providers and patients are moving away from expensive medications.
  • Move towards generics: Generics are becoming popular as more and more drugs are coming out of patent. With competition from generics, the revenue of drugs drop by 90% and following the patent expiry. There’s a concern about generic producers increasing their prices as the sector consolidates. This is most likely a short-term issue. Since the product know-how can be obtained, nothing is stopping other generic firms from entering the market if they find the pricing attractive.
  • Dip in government reimbursements internationally: Government reimbursements are a vital source of revenue for pharmaceutical companies. It not only determines how far Governments are willing to pay for different drugs but also sets benchmarks for insurance companies.
  • Difficulties in penetrating developing markets: With most countries signing WTO agreements, pharmaceutical companies were anticipating increased revenue from emerging Developing countries are concerned about the impact of patented products on their budgets and the ability of their citizens to afford such costly drugs.  To deal with these issues, many nations have created restricted drug list that keeps the patented drugs outside.  Pharmaceutical companies have managed to become part of the personal insurance market, but these are not having a significant effect on their revenue and bottom line results.

How is the industry reacting?

The industry is attempting to tackle these issues through traditional ways. There is a general focus on cost-cutting. Headcount reduction is usually the first and has been happening for some time. Additionally, there is a good appetite in the market for merger and acquisitions. Pharmaceutical companies are buying start-ups to strengthen their product pipeline. Though these steps can help in bolstering short-term profitability, they’re not sufficient to cover the core challenges facing the business.

How to bring back glory days for the pharmaceutical industry?

There’s a need for pharmaceutical companies to think out of the box, by listening to their customers and stakeholders.  Increasing short-term pricing and lowering structural expenditure through consolidation or transfer to low-cost countries is not likely to give the desired competitive advantage against generics.  It is going to alienate the goodwill they will need in the market.  Perhaps they could think through their business design and come up with a fresh means of doing business.  Key areas to concentrate are:

  • Innovation: The market isn’t asking for drugs for newer ailments. The days of thousands of people dying from the plague, cholera, or other epidemics are long gone.  People live longer, and they are more health conscious than before.  What’s required now is an overall focus on affordability.  Pharmaceutical companies gain by focusing on how best to decrease the total cost of the drug (total treatment cost instead of only the drug price).  It might require them to partner with medical care providers to identify means of reducing the cost to patients and authorities.
  • Sales & Marketing: Traditional heavy focus on sales and branding are not working. Some of the tactics have reduced the credibility of the sector bringing in constraints from the regulatory bodies.  There’s a need to rethink the value of the money spent on marketing.
  • Manufacturing and Distribution: Drugs are produced through big batch processes. The focus is on control and ability to explain it to regulatory bodies. There’s a reluctance to introduce the newest practices in manufacturing and supply chain.  The hesitation comes from the anxiety that change will present new variables that can cause poor regulatory reviews if something goes wrong.  In turn, it has created an industry culture that can’t react to market changes quickly thereby producing colossal waste (expired medication and raw materials).  The industry would benefit by introducing smaller / distributed manufacturing and demand-driven planning (instead of mostly relying on forecasts).
  • Sourcing: Pharmaceutical companies spend a lot of money on services. These include wholesale arrangements, contract manufacturing, and marketing services, . Due to the sensitivity of those relationships, sourcing teams are typically not involved.  Pharmaceutical companies will benefit by using latest sourcing techniques than employing conventional negotiation strategies.

About Author:

Bob Johansen
Distinguished Fellow / Institute for the Future

There’s no use building a bridge if your customers don’t want to go there. This book shows you new ways to prioritize your customers. How can you use engage with changing customer needs—not just push old products at new needs? How can you win by helping your customers win?

Milind Yedkar
General Manager, Asia Pacific & Japan, Cloud Client Computing / Dell

Suman Sarkar’s ‘Customer Driven Disruption’ is not just another book preaching customer focus to business executives. Rather than restrict himself to homilies, Suman lays down five strategies that can help bring the ‘C’ into business planning. He illustrates each strategy with a rationale backed by numbers and specific steps to bring it to life with examples from across industries. The book ends with a set of guiding questions that can be used by thoughtful executives either by themselves or in a team setting to develop an action plan for their organizations.

Praveen Madan

This book disrupts disruption! It redefines what causes disruption and what you can do about it. It accomplishes this with an elegant paradigm shift that’s profound and yet simple. Suman’s conclusions are based on powerful insights from research, case studies of leading companies, and decades of business experience. You will never think of disruption in the same way again.

Crystal Kadakia
Founder & Principal Consultant / Invati Consulting

Suman Sarkar redirects the focus back to what made your business a business: it's customers. With many case studies and concise takeaways, this book is a handy guide to shaking up your innovation strategy.

Jeanne Bliss
President / CustomerBliss

Suman Sarkar is a strategist after my heart—like me, he believes that real change and innovation come from customers’ actual needs and wants, not from researchers in lab coats. Customers WILL tell you how to make your business thrive and win the future--if you learn how to listen. This book explains how to open your ears.

John A. Goodman

Sarkar puts forth new, actionable definitions of customer focus, personalization, and quality along with a roadmap that your team can use think creatively and be more willing to take intelligent risks.

Renee Evenson
Author of nine books

This is an excellent, thought-provoking book that offers clear strategies enabling you to understand buying patterns and generational expectations. Customer-Driven Disruption will inspire you to effectively plan for and stay ahead of your competition by focusing on your customers and what they want.

Steve Curtin
Author of Delight Your Customers / Steve Curtin, LLC

In Customer Driven Disruption, Sarkar shows that technology isn’t the real driver of disruption, and he unveils many more surprises that will challenge your assumptions and prepare you and your organization to stay ahead.

Henrik Thorén
Vice President, Group Sourcing North East Asia / Ericsson

The book is very inspirational for anyone working with Sourcing and Supply Chain. Sourcing and Supply Chain is not always a top priority in many companies, but this book shows some really good examples of how this can make or break a company. There are also some very good concrete examples of what and how to do which inspires you to challenge your own thinking.

Henrik Thorén
Vice President, Group Sourcing North East Asia / Ericsson

The book is very inspirational for anyone working with Sourcing and Supply Chain.

Dr. Christopher Burke
Dept of Information, Risk, and Operations Management / McCombs School of Business, The University of Texas at Austin

Excellent book. Well developed and hitting some excellent new and futile SC topics.

Suman Sarkar

Suman’s mission is to help clients achieve a competitive edge in the marketplace. With more than 20 years of international consulting experience, Suman has a proven track record delivering an innovative and strategic approach with outstanding results.

Martin Christopher
Emeritus Professor of Marketing & Logistics / Cranfield School of Management, UK

Successful companies in every industrial sector have long recognized that competitive advantage comes not just from the products or services that they offer but from the supply chains that support them.  In this easy-to-read and insightful book, the author explores the opportunities that exist for improving profitability through supply chain excellence and provides practical guidance on how to achieve the goal.

P. Venkatram
Vice President, APAC Planning and Logistics Head / LEGO

This book is indeed thought-provoking for supply chain practitioners as well as for business leaders. Suman Sarkar’s guided multi-step approach focuses on simplification without ignoring business complexity. It will help companies reform their supply chains to enable a healthier business.

David Dreyfus
Assistant Professor, Department of Supply Chain Management / Rutgers Business School

As someone who teaches supply chain management, I was very interested in this book. Overall, I enjoyed the book. It was a good, quick read that offers advice, wisdom, examples that you can import into your own business or job. Suman describes in detail some of the great projects he has gotten to be a part of during his career. The book offers a lot of great advice, which could help you and/or your organization avoids some mistakes. The book leans towards the marketing side of the business a bit. I like that there are actionable ideas presented.

Atul Tripathi
Senior Director, Global Value Innovation / Pepsico

The Supply Chain Revolution is a brilliant, clear, and simple guide for corporate executives who want to transform their supply chain. I have never seen such a clear and actionable plan for taking supply chain management to the next level. Supply chains have become more complex in the last three decades as a result of globalization, the increasing pace of innovation, and competitive intensity. Suman Sarkar explains how best-in-class companies debottleneck their supply chains by drawing from his own experience transforming supply chains both from inside a company and from outside as a consultant.

Raj Kamalapur
Assistant Professor, Department of Management and Marketing / College of Business, Angelo State University

This book has done an excellent job in explaining many important areas of supply chain like customer segmentation, customer service, demand planning, alliance management, inventory management, streamlining supply chain, fixing bottlenecks in supply chain, managing store investment, enhancing marketing efficiency, facilities outsourcing, sourcing excellence, supplier selection, relationship management and many other areas. One area that could have received more attention in this book is in the area of logistics. Overall this is an excellent book to read and enhance your knowledge in the area of supply chain and sourcing.

Xianghui (Richard) Peng
Assistant Professor of Operations Management / Eastern Washington University

The Supply Chain Revolution identifies and explains many supply chain challenges that frustrate executives most. It delivers corresponding practice-proofed approaches to respond the challenges. The fruitful hands-on industry practices throughout the book provide significant value for organizations to transform their supply chain. This book is a great resource for executives and senior supply chain professionals to use for self-learning or training, and for MBA students with a concentration in supply chain management to complementarily use in class.

Satish Jain
Director, Supply Chain optimization / Scotts Miracle-Gro Company

Suman Sarkar does a great job in explaining the practical solutions to common supply chain problems. He delivers an engaging balance between strategic perspectives and operational issues that make for an interesting read.

Yogesh Gupta
Vice President Global Operations / Cargill Business Services

Suman Sarkar does an excellent job of demystifying supply chain concepts and presents a logical framework to unlock tremendous value across the organization value chain. The fact that Sarkar has been a “hands-on” practitioner himself allows him to showcase solutions that will resonate well with supply chain managers /leaders across the industry spectrum. Well done, Suman . . . . eagerly awaiting future insights.

Mary Anne Gale
Retired VP of Supply Chain / Procter & Gamble

A wonderful book for supply chain and business leaders. He has presented examples that tell the story of the fundamentals in a memorable way.  It demonstrates the value of supply chain in delivering bursts results.  I highly recommend him to anyone leading a supply chain.

Ramesh Krish
VP Supply Chain and Head of Procurement / Presbyterian Healthcare Services

The Supply Chain Revolution provides a lucid commentary of some of the most basic supply chain challenges frustrating senior management across different industries. Adopting a methodical approach to inventory tracking, product fulfillment, and channel distribution will help yield significant value in cash flow and reduce inventory obsolescence costs.

Ramesh Krish
VP Supply Chain and Head of Procurement / Presbyterian Healthcare Services

The Supply Chain Revolution provides a lucid commentary on some of the most basic supply chain challenges...

David Dreyfus
Assistant Professor, Department of Supply Chain Management / Rutgers Business School

The book was a good, quick read that offers advice, wisdom, examples that you can import into your own business or job. 

Yogesh Gupta
Vice President Global Operations / Cargill Business Services

Suman Sarkar does an excellent job of demystifying supply chain concepts...

Mary Anne Gale
Retired VP of Supply Chain / Procter & Gamble

A wonderful book for supply chain and business leaders

P. Venkatram
Vice President, APAC Planning and Logistics Head / LEGO

Thought-provoking book for supply chain practitioners as well as business leaders.

Richard Connelly
Former Budget leader, Energy Director / Defense Logistics Agency (Department of Defense, USA)

The Ideal Supply Chain Primer for the Time-Pressed CEO or Gov­ernment Executive

Atul Tripathi
Senior Director, Global Value Innovation / Pepsico

Brilliant, Clear and Simple Explanation of Supply Chain Transformation

Richard Connelly
Former Budget leader, Energy Director / Defense Logistics Agency (Department of Defense, USA)

The Ideal Supply Chain Primer for the Time-Pressed CEO or Gov­ernment Executive In clear, concise language Suman Sakar de-mystifies the complexities of supply chain management. The key to his process is simplification. In a world of business books full of buzz words and unnecessary complications, this is a refreshing approach. Sakar breaks supply chain management into its component pieces and succinctly lays out the relationships. If you are getting foggy, conflicting advice from staff and suppliers, as I frequently did in a career managing large organizations, you will find this short read welcome clarification.



4 thoughts on “Reinventing Pharmaceutical Industry

  1. I found it interesting that you state that mainstream pharmaceutical companies are plateauing because they are trying to make more medicine for diseases that are already being treated. My brother is starting school to be a pharmacist, so I have been looking into possible jobs for him to apply for. I will send him this information, so he can start looking into private label pharmaceutical product companies that will suit him.

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