Description
This paper examines the Pharmaceutical (Pharma) industry and the changes that have occurred particularly over the last 10 years as a result of the overall economic downturn, the rising cost of healthcare and the costs associated with the development and sales of pharmaceuticals.
University of Pennsylvania
ScholarlyCommons
Master of Science in Organizational Dynamics
Teses
Organizational Dynamics Programs
5-4-2010
Problems Facing the Pharmaceutical Industry and
Approaches to Ensure Long Term Viability
Donald A. Baines
University of Pennsylvania, [email protected]
Submited to the Program of Organizational Dynamics in the Graduate division of the School of Arts and Sciences in Partial Fulfllment of the
Requirements for the Degree of Master of Science in the Organizational Dynamics at the University of Pennsylvania Advisor: Richard Bayney
Tis paper is posted at ScholarlyCommons. htp://repository.upenn.edu/od_theses_msod/33
For more information, please contact [email protected].
Problems Facing the Pharmaceutical Industry and Approaches to Ensure
Long Term Viability
Abstract
Tis paper examines the Pharmaceutical (Pharma) industry and the changes that have occurred particularly
over the last 10 years as a result of the overall economic downturn, the rising cost of healthcare and the costs
associated with the development and sales of pharmaceuticals. One response of big Pharma to this has been
the recent spate of partnerships, mergers and acquisitions, consolidation, diversifcation, licensing agreements
and downsizing in both human and capital resources. Four major challenges facing the complex Pharma
industry are highlighted and discussed. Tese include the decline in the discovery, approval and marketing of
new chemical entities (NCE) with fewer and fewer blockbuster drugs making it to the market, competition
from generics drugs, regulatory pressures and the weak growth in the US market (the largest market) and
therefore the need to explore other markets to name a few. In addition to the research driven aspect of the
paper, a summary of the interviews conducted with executives and other industry practitioners (to get their
personal views) is presented. Finally referencing some of the strategies adapted by some companies, this thesis
identifes Organizational Dynamics areas of concentration and the role they can play within companies in
their plans to ensure long term viability. Te analysis focuses on the commercial aspects of the industry and
ofers some steps that will be useful in changing the current business model and seting the stage for future
success.
Disciplines
Organizational Behavior and Teory
Comments
Submited to the Program of Organizational Dynamics in the Graduate division of the School of Arts and
Sciences in Partial Fulfllment of the Requirements for the Degree of Master of Science in the Organizational
Dynamics at the University of Pennsylvania Advisor: Richard Bayney
Tis thesis or dissertation is available at ScholarlyCommons: htp://repository.upenn.edu/od_theses_msod/33
PROBLEMS FACING THE PHARMACEUTICAL INDUSTRY AND APPROACHES
TO ENSURE LONG TERM VIABILITY
By
Donald A. Baines
Submitted to the Program of Organizational Dynamics
in the Graduate division of the School of Arts and Sciences
in Partial Fulfillment of the Requirements for the Degree of
Master of Science in the Organizational Dynamics at the
University of Pennsylvania
Philadelphia, Pennsylvania
2010
PROBLEMS FACING THE PHARMACEUTICAL INDUSTRY AND APPROACHES
TO ENSURE LONG TERM VIABILITY
Approved by:
___________________________________________________
Richard Bayney, Ph.D., Advisor
___________________________________________________
Keith Hornbacher, MBA, Reader
____________________________________________________
Martin, Stankard, Ph.D., Reader
ABSTRACT
This paper examines the Pharmaceutical (Pharma) industry and the changes that
have occurred particularly over the last 10 years as a result of the overall economic
downturn, the rising cost of healthcare and the costs associated with the development and
sales of pharmaceuticals. One response of big Pharma to this has been the recent spate of
partnerships, mergers and acquisitions, consolidation, diversification, licensing
agreements and downsizing in both human and capital resources.
Four major challenges facing the complex Pharma industry are highlighted and
discussed. These include the decline in the discovery, approval and marketing of new
chemical entities (NCE) with fewer and fewer blockbuster drugs making it to the market,
competition from generics drugs, regulatory pressures and the weak growth in the US
market (the largest market) and therefore the need to explore other markets to name a few.
In addition to the research driven aspect of the paper, a summary of the interviews
conducted with executives and other industry practitioners (to get their personal views) is
presented.
Finally referencing some of the strategies adapted by some companies, this thesis
identifies Organizational Dynamics areas of concentration and the role they can play
within companies in their plans to ensure long term viability. The analysis focuses on the
commercial aspects of the industry and offers some steps that will be useful in changing
the current business model and setting the stage for future success.
iii
ACKNOWLEDGEMENTS
My appreciation is extended to Dr. Richard Bayney my capstone advisor as well
as my two capstone readers, Keith Hornbacher MBA and Dr. Martin Stankard for their
advice and input during the writing of this paper. I would also like to thank my fellow
classmate Tara Lukievics who partnered with me in the interview section for the capstone
as well as my cohorts who shared this learning experience with me. A special thanks to
my family, J unette, Tariq and Zoei for their patience and encouragement as I spent long
hours away at class or at home working on class assignments and projects.
iv
LIST OF TABLES
TABLE Page
1 Actions Taken by Pharmaceutical Companies in Recent Years 16
2 Results of Interviews on the Pharmaceutical Industry 22
3 Grouping of Big Pharma Companies by M&A Growth Strategy 24
4 M&A Overview (1999 –2014) 25
5 Key Steps to Address Limited Approval of New Products 30
6 Key Steps to Address Increased Generic Competition 32
7 Key Steps to Address Regulatory Changes and the Associated 35
Political Impact
8 Key Steps to Address the Opportunities in the Emerging Markets 38
9 Process Steps to Address the Issues Faced by the Pharma Industry 42
10 Example of One Representation of the Pharmaceutical Value 43
Stream
v
LIST OF FIGURES
FIGURE Page
1 Expected Global NCE Launches for 2009 5
2 Product Delays and Non-Approvals 6
3 High Level Breakdown of R&D Costs 7
4 Estimates of R&D Costs 8
5 Generic Sales Projection Through 2012 9
6 Healthcare Spending Trends 11
7 E7 Health Demographics 13
8 E7 Therapy Classes 14
9 Portfolio Management Objectives 29
10 Examples of SIPOC 45
vi
TABLE OF CONTENTS
Page
ABSTRACT iii
ACKNOWLEDGEMENTS iv
LIST OF TABLES v
LIST OF FIGURES vi
CHAPTER
1 Introduction 1
2 Pharmaceutical Industry Response 16
3 Interview Summary 21
4 Overview – Past Mergers and Acquisitions 24
5 Limited Approval of NCEs 28
6 Increased Generic Competition 31
7 Regulatory Changes and the Associated Political Impact 33
8 The Emerging Markets 36
9 Long and Short Term Solutions 39
10 Concluding Thoughts 48
REFERENCES 54
GLOSSARY 55
APPENDIX A 57
APPENDIX B 58
vii
1
CHAPTER 1
INTRODUCTION
Background
The Pharmaceutical industry and big Pharma (
This paper examines the Pharmaceutical (Pharma) industry and the changes that have occurred particularly over the last 10 years as a result of the overall economic downturn, the rising cost of healthcare and the costs associated with the development and sales of pharmaceuticals.
University of Pennsylvania
ScholarlyCommons
Master of Science in Organizational Dynamics
Teses
Organizational Dynamics Programs
5-4-2010
Problems Facing the Pharmaceutical Industry and
Approaches to Ensure Long Term Viability
Donald A. Baines
University of Pennsylvania, [email protected]
Submited to the Program of Organizational Dynamics in the Graduate division of the School of Arts and Sciences in Partial Fulfllment of the
Requirements for the Degree of Master of Science in the Organizational Dynamics at the University of Pennsylvania Advisor: Richard Bayney
Tis paper is posted at ScholarlyCommons. htp://repository.upenn.edu/od_theses_msod/33
For more information, please contact [email protected].
Problems Facing the Pharmaceutical Industry and Approaches to Ensure
Long Term Viability
Abstract
Tis paper examines the Pharmaceutical (Pharma) industry and the changes that have occurred particularly
over the last 10 years as a result of the overall economic downturn, the rising cost of healthcare and the costs
associated with the development and sales of pharmaceuticals. One response of big Pharma to this has been
the recent spate of partnerships, mergers and acquisitions, consolidation, diversifcation, licensing agreements
and downsizing in both human and capital resources. Four major challenges facing the complex Pharma
industry are highlighted and discussed. Tese include the decline in the discovery, approval and marketing of
new chemical entities (NCE) with fewer and fewer blockbuster drugs making it to the market, competition
from generics drugs, regulatory pressures and the weak growth in the US market (the largest market) and
therefore the need to explore other markets to name a few. In addition to the research driven aspect of the
paper, a summary of the interviews conducted with executives and other industry practitioners (to get their
personal views) is presented. Finally referencing some of the strategies adapted by some companies, this thesis
identifes Organizational Dynamics areas of concentration and the role they can play within companies in
their plans to ensure long term viability. Te analysis focuses on the commercial aspects of the industry and
ofers some steps that will be useful in changing the current business model and seting the stage for future
success.
Disciplines
Organizational Behavior and Teory
Comments
Submited to the Program of Organizational Dynamics in the Graduate division of the School of Arts and
Sciences in Partial Fulfllment of the Requirements for the Degree of Master of Science in the Organizational
Dynamics at the University of Pennsylvania Advisor: Richard Bayney
Tis thesis or dissertation is available at ScholarlyCommons: htp://repository.upenn.edu/od_theses_msod/33
PROBLEMS FACING THE PHARMACEUTICAL INDUSTRY AND APPROACHES
TO ENSURE LONG TERM VIABILITY
By
Donald A. Baines
Submitted to the Program of Organizational Dynamics
in the Graduate division of the School of Arts and Sciences
in Partial Fulfillment of the Requirements for the Degree of
Master of Science in the Organizational Dynamics at the
University of Pennsylvania
Philadelphia, Pennsylvania
2010
PROBLEMS FACING THE PHARMACEUTICAL INDUSTRY AND APPROACHES
TO ENSURE LONG TERM VIABILITY
Approved by:
___________________________________________________
Richard Bayney, Ph.D., Advisor
___________________________________________________
Keith Hornbacher, MBA, Reader
____________________________________________________
Martin, Stankard, Ph.D., Reader
ABSTRACT
This paper examines the Pharmaceutical (Pharma) industry and the changes that
have occurred particularly over the last 10 years as a result of the overall economic
downturn, the rising cost of healthcare and the costs associated with the development and
sales of pharmaceuticals. One response of big Pharma to this has been the recent spate of
partnerships, mergers and acquisitions, consolidation, diversification, licensing
agreements and downsizing in both human and capital resources.
Four major challenges facing the complex Pharma industry are highlighted and
discussed. These include the decline in the discovery, approval and marketing of new
chemical entities (NCE) with fewer and fewer blockbuster drugs making it to the market,
competition from generics drugs, regulatory pressures and the weak growth in the US
market (the largest market) and therefore the need to explore other markets to name a few.
In addition to the research driven aspect of the paper, a summary of the interviews
conducted with executives and other industry practitioners (to get their personal views) is
presented.
Finally referencing some of the strategies adapted by some companies, this thesis
identifies Organizational Dynamics areas of concentration and the role they can play
within companies in their plans to ensure long term viability. The analysis focuses on the
commercial aspects of the industry and offers some steps that will be useful in changing
the current business model and setting the stage for future success.
iii
ACKNOWLEDGEMENTS
My appreciation is extended to Dr. Richard Bayney my capstone advisor as well
as my two capstone readers, Keith Hornbacher MBA and Dr. Martin Stankard for their
advice and input during the writing of this paper. I would also like to thank my fellow
classmate Tara Lukievics who partnered with me in the interview section for the capstone
as well as my cohorts who shared this learning experience with me. A special thanks to
my family, J unette, Tariq and Zoei for their patience and encouragement as I spent long
hours away at class or at home working on class assignments and projects.
iv
LIST OF TABLES
TABLE Page
1 Actions Taken by Pharmaceutical Companies in Recent Years 16
2 Results of Interviews on the Pharmaceutical Industry 22
3 Grouping of Big Pharma Companies by M&A Growth Strategy 24
4 M&A Overview (1999 –2014) 25
5 Key Steps to Address Limited Approval of New Products 30
6 Key Steps to Address Increased Generic Competition 32
7 Key Steps to Address Regulatory Changes and the Associated 35
Political Impact
8 Key Steps to Address the Opportunities in the Emerging Markets 38
9 Process Steps to Address the Issues Faced by the Pharma Industry 42
10 Example of One Representation of the Pharmaceutical Value 43
Stream
v
LIST OF FIGURES
FIGURE Page
1 Expected Global NCE Launches for 2009 5
2 Product Delays and Non-Approvals 6
3 High Level Breakdown of R&D Costs 7
4 Estimates of R&D Costs 8
5 Generic Sales Projection Through 2012 9
6 Healthcare Spending Trends 11
7 E7 Health Demographics 13
8 E7 Therapy Classes 14
9 Portfolio Management Objectives 29
10 Examples of SIPOC 45
vi
TABLE OF CONTENTS
Page
ABSTRACT iii
ACKNOWLEDGEMENTS iv
LIST OF TABLES v
LIST OF FIGURES vi
CHAPTER
1 Introduction 1
2 Pharmaceutical Industry Response 16
3 Interview Summary 21
4 Overview – Past Mergers and Acquisitions 24
5 Limited Approval of NCEs 28
6 Increased Generic Competition 31
7 Regulatory Changes and the Associated Political Impact 33
8 The Emerging Markets 36
9 Long and Short Term Solutions 39
10 Concluding Thoughts 48
REFERENCES 54
GLOSSARY 55
APPENDIX A 57
APPENDIX B 58
vii
1
CHAPTER 1
INTRODUCTION
Background
The Pharmaceutical industry and big Pharma (