Innovative Management Means Shooting Sacred Cows

Restructuring of health care markets has left the pharmaceutical industry reeling under cost-containment pressures from government, the insurance industry, managed health care delivery systems and the consumer, according to Gary Watts, a partner in KPMG Peat Marwick, speaking at the recent 17th Assembly of the International Federation of Pharmaceutical Manufacturers Association in Sweden (Marketletters passim).

Mr Watts predicted a sharp fall in company profits due to the reduced control over supply chains and suggested that a new product launched now will produce an overall return only half that of a product launched in the 1970s. This is a double blow to an industry currently facing the prospect of losing further profits, as a number of its drugs which have captured the major market franchises are coming off patent, he added.

Quoting a Lehman Bros study, Mr Watts said that to achieve a 15% return over 10 years on the aggregate $22.7 billion spent on R&D in 1993 requires a total market of $451 billion in 2003. To achieve this, he said, new products must generate sales of $353 billion in 2003 while current product sales of $132 million will have fallen to $98 billion as a result of price pressures. Such a figure would require a compound annual growth rate of 13%, he said, a figure far in excess of the current forecasts for the next 10 years.