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