September 1, 2007 (Vol. 27, No. 15)

Steve Arlington
Anthony Farino

Companies Must Start Preparing Now for Changes to Come in 2020

Although the pharmaceutical industry’s investment in R&D has doubled in the past decade, fewer than half as many new products actually make it to market. Consequently, the business model of creating a handful of blockbuster drugs and marketing them to providers is no longer sustainable. As the industry responds to this new imperative, it will see more changes by 2020 than it has in a generation.

Change is necessary because more of the same won’t work. Blockbuster drugs are coming off patent, fewer new products are in the pipeline because of a lack of fundamental innovation, sales and marketing expenses are increasing, regulatory costs are growing, and there has been a dramatic loss of trust in the industry. As a result, returns on pharmaceutical stocks have lagged behind those of other industries—during the past six years, the Dow Jones World Index rose 34.9% while the FTSE Global Pharmaceuticals Index rose just 1.3%. The pharmaceutical industry is relatively weak financially and cannot respond simply by throwing more money at the challenges it faces.

However, the industry’s future is brighter than it seems because estimates indicate that the worldwide pharmaceutical market will more than double by 2020 to $1.3 trillion in annual sales. Demand will come partly from an older, larger, and more sedentary population, especially from new markets in developing countries.

In addition, the incidence of some existing diseases are increasing, partly because of climate change, which is expanding the geographic range of tropical and semitropical infectious diseases. Chronic respiratory illnesses are increasing as well, as new factories and auto travel worsen air pollution in developing countries. Also, new diseases, many of them resistant to existing therapies, are emerging.

As the pharmaceutical industry seeks to address challenges and make the most of strategic opportunities, it will see 10 transformational challenges by 2020:


1. The industry’s reliance on the blockbuster model will decrease. Rather than relying primarily on a handful of blockbuster drugs, the industry will shift to developing a wider range of medicines. Sales and marketing also will change, as today’s enormous sales forces are replaced by smaller teams that will negotiate prices based on proven benefits and sell related services that may add more value than the medicines themselves.

2. The pharmaceutical industry will become increasingly bifurcated, with some companies becoming niche players, developing fewer, more targeted drugs; others will go the generic route, focusing on volume and sales for revenue. Companies can succeed on either path but will have to choose which way to go.

3. Real results will be crucial to product success. Products will have to produce value, and companies will profit from innovation, not by replicating existing therapies. As a result, greater focus will be placed on obtaining results supported by measurable data.

4. There will be a new focus on patient compliance. Patients often do not take their medications as prescribed or fail to take them entirely. Pharmaceutical companies will develop new, personalized compliance-monitoring technologies and techniques to ensure that patients take their medicine, improving results and safety while potentially generating more than $30 billion annually in new sales.

5. Prevention will become as important as treatment. “A penny of prevention is worth a pound of cure” takes on added meaning when billions of dollars are at stake. The pharmaceutical industry has long been focused on treatment of disease but it will be far more cost-effective to prevent disease than to cure it, and this will be a driver of innovation. With consumers increasingly focused on healthcare costs, pharmaceutical companies will also begin supporting wellness programs, compliance monitoring, and increased vaccination.

6. Technology will transform R&D. New molecular technologies will help realize the promise of genomic research, and the growing sophistication of medical devices, often in combination with drugs, will improve therapeutic effectiveness while cutting risk.

7. The clinical trials process will become more flexible. Today’s all-or-nothing regulatory approval process will shift to a more progressive system of in-life testing and “live licenses,” which will be based on a drug’s performance over time, with greater collaboration and data-sharing between pharmaceutical companies and regulators. This will also depend on the arrival of pervasive computing to the home and the ability to monitor patients remotely.

8. The regulatory process will go global. As international markets become more important, pharmaceutical companies will spur a drive for greater cooperation among national regulators to get lifesaving products to market faster and reduce regulatory compliance costs.

9. Supply chains will become revenue generators. Applying just-in-time manufacturing and delivery systems used in other industries, pharmaceutical companies will develop products on a made-to-order basis, creating new channels to market products.

10. Wholesalers will give way to direct-to-consumer distribution. As the over-the-counter product market grows and new technologies enable direct-to-consumer distribution, reliance on wholesalers will diminish with more prescriptions fulfilled automatically.

Success in the Future

Like other sectors of healthcare, the pharmaceutical industry will see enormous changes that will render many of today’s practices, standards, and operations unrecognizable by 2020. The long-term success of today’s industry leaders is by no means guaranteed but instead will be determined by their ability to adapt to new realities. The winners will be those companies that have the vision, flexibility, and courage to begin making changes now.

Pharmaceutical companies can prosper through adaptation—investing in research to produce products that yield results at realistic prices, collaborating with stakeholders here and abroad, and providing consumers with services that add value. The stakes and the risks are high but so are the potential rewards.

Steve Arlington ([email protected]) is the global pharmaceutical and life sciences advisory services leader, and Anthony Farino ([email protected]) is the U.S. pharmaceutical and life sciences advisory services leader for PricewaterhouseCoopers. The report Pharma 2020: The Vision—Which
Path Will You Take? is available at

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