It's getting hotter
Mar/04/2008 05:52 Filed in: Pharma
Business
I can
see some parallels of what is happening in the auto
and pharma industries. In the auto industry GM, Ford
and Chevrolet were all addicted to SUV's because they
provided a huge profit margin. In the pharma industry
big pharma is addicted to blockbuster drugs because
the profit margins were also huge. The dollars in
both industries came rolling in and then the reality
of a changing market hit both and hit them hard. In
the auto industry the rising price of gas is driving
more and more consumers to cars that better mileage.
In the pharma industry blockbusters coming off patent
meant that cash cows would soon be gone. Now the
question that immediately comes to mind is "where the
hell were the CEO's who were supposed to position
their company to weather the oncoming storms"?
The signs were all there for pharma to see: an aging population that is putting a strain on the healthcare system, an angry media that has pharma in the crosshairs, a new political climate where it's easy to demonize big companies, and a bunch of blockbusters that are going to come of patent in the near future. In the auto industry one has to wonder how the hell Detroit could rely so much on big SUV's full well knowing that in all likelihood gas prices were going to skyrocket up.
So the auto industry is laying off people in droves and it's almost impossible to pick up an industry trade paper without reading of another round of layoffs for the salesforce in pharma. CEO's continue to get big paychecks and retire with platinum parachutes leaving the rank and file to wonder "what the hell is going on here?"
There is a fundamental question here: can pharma serve two masters, investors and customers ? Wall Street is only interested in short term balance sheets and could care less if a company is positioning to better compete 4-6 years from now. Just look at Apple stock which is taking a beating because last year was their best year ever.
Investors want to make a money, no, wait, they want to make a whole lot of money quickly. This has led pharma to develop new and improved replacements for aging blockbusters that are soon to come off patent or form alliances with generic manufacturers so that they can continue to rake in the dollars. There seems to be a dry spell for new and innovative products and the FDA is requiring a lot more clinical study information before issuing approval letters. Remember not to long ago the buzz around Gleevec ? The buzz was so great that the FDA approved it at warp speed.
Now CEO's would tell you that to develop these drugs they need money and money comes from sales of current drugs and with sales declining they can't put the money into R&D anymore but that is a cop out. What has happened in pharma is that it has become too dependent on blockbusters and Wall Street analyst recommendations. The CEO is supposed to prepare the company for changing environments but it seems that most CEO's bailed out within the last couple of years with nice packages.
Innovation is the key but in order to innovate there has to be an atmosphere of innovation within the organization. How is a company supposed to innovate with back to back all day meetings and matrix organizations that require 3 days of meeting to do anything? How are marketers supposed to respond when management keeps asking about ROI instead of "what's good for our customers"?
The truth is that what is good for customers is good for patients and the bottom line. Wall Street of course would laugh at this but why should they care ? Their managers are largely responsible for the housing collapse and our recession yet the people responsible still walk away with nice severance packages while people lose their homes.
The pharma industry is going through a major transition. Business models are changing in weeks not years and pharma has to either adapt and overcome or they will suffer the consequences. It's going to be rough decade for pharma but the good thing about bad times is that it shows clearly who can lead and who is the follower.
The signs were all there for pharma to see: an aging population that is putting a strain on the healthcare system, an angry media that has pharma in the crosshairs, a new political climate where it's easy to demonize big companies, and a bunch of blockbusters that are going to come of patent in the near future. In the auto industry one has to wonder how the hell Detroit could rely so much on big SUV's full well knowing that in all likelihood gas prices were going to skyrocket up.
So the auto industry is laying off people in droves and it's almost impossible to pick up an industry trade paper without reading of another round of layoffs for the salesforce in pharma. CEO's continue to get big paychecks and retire with platinum parachutes leaving the rank and file to wonder "what the hell is going on here?"
There is a fundamental question here: can pharma serve two masters, investors and customers ? Wall Street is only interested in short term balance sheets and could care less if a company is positioning to better compete 4-6 years from now. Just look at Apple stock which is taking a beating because last year was their best year ever.
Investors want to make a money, no, wait, they want to make a whole lot of money quickly. This has led pharma to develop new and improved replacements for aging blockbusters that are soon to come off patent or form alliances with generic manufacturers so that they can continue to rake in the dollars. There seems to be a dry spell for new and innovative products and the FDA is requiring a lot more clinical study information before issuing approval letters. Remember not to long ago the buzz around Gleevec ? The buzz was so great that the FDA approved it at warp speed.
Now CEO's would tell you that to develop these drugs they need money and money comes from sales of current drugs and with sales declining they can't put the money into R&D anymore but that is a cop out. What has happened in pharma is that it has become too dependent on blockbusters and Wall Street analyst recommendations. The CEO is supposed to prepare the company for changing environments but it seems that most CEO's bailed out within the last couple of years with nice packages.
Innovation is the key but in order to innovate there has to be an atmosphere of innovation within the organization. How is a company supposed to innovate with back to back all day meetings and matrix organizations that require 3 days of meeting to do anything? How are marketers supposed to respond when management keeps asking about ROI instead of "what's good for our customers"?
The truth is that what is good for customers is good for patients and the bottom line. Wall Street of course would laugh at this but why should they care ? Their managers are largely responsible for the housing collapse and our recession yet the people responsible still walk away with nice severance packages while people lose their homes.
The pharma industry is going through a major transition. Business models are changing in weeks not years and pharma has to either adapt and overcome or they will suffer the consequences. It's going to be rough decade for pharma but the good thing about bad times is that it shows clearly who can lead and who is the follower.
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