Article preview from IN VIVO January 20, 2009
Faced with growing budgets and declining effectiveness of commercial spending, most large companies have embarked on the next wave of significant commercial changes. But most of these efforts don't go far enough to address the rapid and fundamental changes in the stakeholder landscape which have knocked pharma dramatically out of alignment with its stakeholder base. Read more now...
Article preview from IN VIVO January 20, 2009
by Holly Fogle, Alexander Petersen and Chris Simon
Faced with growing budgets and declining effectiveness of commercial spending, most large companies have embarked on the next wave of significant commercial changes.
Most of these well-intentioned and necessary efforts don't go far enough to address the rapid and fundamental changes in the stakeholder landscape which have knocked pharma dramatically out of alignment with its stakeholder base.
The requisite new commercial model will require companies to partner with payors and providers in new ways, and make resource decisions much more selectively to focus on the stakeholders who really matter.
We describe ten priorities for drug companies to align their organizations with these new realities.
These changes will not have their full effect without a more fundamental rethinking of the industry's value proposition, taking into account not only product value, but the services and the customer experience offered to all stakeholders.
The pharmaceutical industry has reached a critical juncture in its history. After 15 years of outperformance and growth in total return to shareholders, the industry has lost much of the shareholder value created; even before the current financial crisis, the big drug companies lost $429 billion of value between 2002 and 2007. If the trend continues, all the shareholder value created in the last ten years will be wiped out within the next two years.
These trends in shareholder value reflect the earnings compression unraveling the remarkable industry economics of the 1980s and 1990s:
Stagnating top line growth: of 91 recent drug launches (2007-2008), 71 missed their initial analyst sales forecast and were revised downwards. In 2011, total industry revenue is expected to experience its first year-on-year absolute decrease in four decades;
Eroding gross-to-net sales: this crude measure of rebates and discounts has widened by 5 percentage points in 5 years;
Increasing SG&A and diminishing sales productivity: year-on-year price increases have hidden the continued increase in SG&A spend per prescription. In 2007, the top 14 pharmaceutical companies spent almost $2 billion more on promotion than in 2002, although the same companies generated 100 million fewer prescriptions.
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