Big Pharma: - In Need of Treatment?

Some sectors of the pharmaceutical industry are teetering on the edge of serious trouble. Like other ‘Big’ industries of tobacco or banking before them, the big pharmaceuticals are under pressure. Product withdrawals, bad press, lengthening pipelines to market, shrinking profit margins, pricing dilemmas and generics... and so it goes. INSEAD’s Reinhard Angelmar, Professor of Marketing and industry expert, takes a look at some of the major challenges looming large on the ‘Big Pharma’ horizon and how they are being addressed.

by Reinhard Angelmar

For many years, pharmaceuticals was the top-ranked industry in the annual Fortune 500 industry profitability rankings. Not any more: in 2004, pharmaceuticals were ranked only number 3 in return on sales, number 12 in return on assets, and number 13 in return on equity. And loyal shareholders are in pain: the average total annual return to shareholders between 1999 and 2004 was -1.4%!

The industry's business model, which used to produce superior profits and happy shareholders year after year, consisted of the following key components:

· High fixed sunk costs for discovering, developing, and launching new products

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