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The

Pharmaceutical
Profitability
Outlook

is threatening the pharmaceutical industry’s profitability traditionally high profit margins. expert opinion • Long-term predictions and analysis . Increasing competition. How can drug manufacturers adapt their historically simple. combined Is pharmaceutical with healthcare reforms and the rising cost of R&D. ‘The Pharmaceutical Profitability “As the pharmaceutical industry finds Outlook’ provides all the vital itself at a crossroads. yet sustainable into the consistently successful research- based strategies to sustain their profitability into the next decade? 21st century? When benchmarked according to the most up-to-date data available. the strategic strategic insight you need to answer directions companies take will be pivotal these fundamental questions and many more. in determining whether they can continue to operate at such consistently Business Insights is a series of management reports providing you with: high margins” • Primary research • Independent. how do the recent profitability performances of the top 10 PoM companies compare? What are the essential components of the optimal strategy to eliminate over capacity and cost excesses? What are the key resistors to profitability now and into the 21st century? How far can the role of outsourcing in the pharmaceutical industry expand? Based upon our in-depth primary research with key opinion leaders.

becoming a vital component of all pharmaceutical companies’ make-up. The regulatory changes and their Pharmaceutical Profitability Outlook is based implications for your company’s pricing upon our exclusive interviews with over 70 key and revenue generating strategies decision-makers analysing their opinions on profitability and future strategies within the • Understand how outsourcing is global pharmaceutical market. and in which areas it offers most industry experts benefits Our authors are recognised experts on the topics we • Effectively leverage the impact of more cover. productivity • Streamline your company’s cost Our research for this report structure and eliminate excess capacity • 10 Business Development Managers • Benchmark the top 10 PoM companies’ detailed how they perceive the changing profitability performance marketplace will influence and impact upon their companies’ strategies • Understand the interplay of critical • 32 Finance Directors identified optimal mass. They technologies. They derive their experience from either powerful. or industry itself. R&D pipeline strength. and what companies expect in return .primary research analysis enabling you to: Business Insights’ reports consist of original research • Evaluate current and potential backed up by expert analysis and forecasts.How we collect our information 170 pages of insight and . How we conduct our analysis . better informed patients consulting firms such as Mercer Management • Evaluate the impact of new Consulting and Bain & Co. from drug delivery to apply their knowledge and expertise to particular situations to explain past events and make accurate healthcare informatics on R&D predictions of future developments. control current and future strategies for controlling over the value chain and global reach costs whilst maximising productivity within pharmaceutical profitability • 20 US and European Pharmaceutical • Comprehend how premium pricing can Marketing Executives analysed the changing be best obtained and exploited customer dynamics within their markets • 15 Healthcare Payers outlined what they • Explore new avenues for increasing require from pharmaceutical companies in the your profit margins into the millenium future.

middle and upper tier • How are the upper tier pharmaceutical companies as a percentage of sales companies able to more 100 % 90 % effectively manage the cost 80 % of goods sold? 70 % 60 % • What are the dynamics of the % of sales 50 % trade-off between production 40 % 30 % costs and SG&A costs? 20 % 10 % • How can cost savings in non- 0% Lower Middle Upper All value added areas best be COGS R &D S G&A Other Operating profit realised? Source: Business Insights . 1997 company’s strategy will have greatest influence on its 40% 35% GW profitability into the 21st Operating profit margin 30% BMS Merck century? 25% AHP Pfizer SB 20% Novartis • How have companies R oche 15% positioned themselves in the 10% HMR Lilly changing marketplace? 5% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% • Which companies have the PoM/Total sales greatest potential for future Source: Business Insights growth? What is the optimal cost structure for each tier of pharmaceutical company? Cost breakdown of lower.This report addresses key questions. such as: How does the profitability performance of leading drug companies compare? • What components of a Operating profitability versus PoM concentration for the top PoM companies.

CROs and 0 Custom Clinical drug Sales & manufacturing development promotion CSOs? Source: Business Insights Which non-traditional revenue generating tools will come to the fore in the next decade? • Can DTC advertising fulfil its Actual and forecast DTC spending in the US. 1997 a company’s operations to create a virtual 50 Outsourced pharmaceutical company? 45 In-house 40 • Do companies need to retain 35 Spend ($bn) 30 certain skills in-house? 25 20 • What is the optimal 15 10 relationship between drug 5 companies. 1990-2005 potential? • Is there a clear relationship 8.000 licensing dynamic be 2.000 • How can the product 3.000 Total US DTC spend product sales? 6.How far will virtual integration progress in the next century? • Is it viable to outsource all of Value of key pharmaceutical outsourcing markets.000 ($m) 4.000 betwen DTC spend and 7.000 1.000 5.000 optimally managed? 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year Source: Business Insights .

Marketing Contents abridged Manufacturing IT A fourth regulatory hurdle: Pharmaceuticals The role of the generics sector EXECUTIVE SUMMARY Rx-to-OTC switching Key Findings Innovation New technologies CHAPTER 1: BACKGROUND OF THE The shift away from research-based strategies PHARMACEUTICAL INDUSTRY The customer-focus Summary of key findings Disease management Introduction The evolution of the sales and marketing function: Historical Development Pre-marketing Growth strategies DTC The current competitive environment Sales force strategies Market drivers Product licensing Cost containment Regulatory reform CHAPTER 4: ANALYSIS OF Epidemiology CURRENT Industry structure: Leading companies PHARMACEUTICAL PROFITABILITY Corporate strategies LEVELS Developing companies Summary of key findings The changing customer base Introduction Cross-industry comparison CHAPTER 2: INTRODUCTION TO Ratios Key drivers PROFITABILITY Profitability across the pharmaceutical industry Summary of key findings Profitability of leading pharmaceutical companies Introduction Key strategies and portfolio analyses for the following Definition companies: Measures of profitability Merck The three channels of profitability: price. volume and cost Glaxo Wellcome Traditional strategies to boost profitability Pfizer Price-based strategies Novartis Case study Bristol-Myers Squibb Volume-based strategies Hoechst-Marion Roussel Case study SmithKline Beecham Cost control strategies Roche Case study Eli Lilly External pressures on profitability American Home Products/Monsanto CHAPTER 3: PHARMACEUTICAL CHAPTER 5: THE FUTURE OF PROFITABILITY IN THE 1990s Summary of key findings PHARMACEUTICAL PROFITABILITY Introduction Summary of key findings The search for critical mass Introduction Integration: Future industry structure Horizontal integration Consolidation Vertical integration Integration Diversification Drivers of growth Virtual integration Demographic shifts Globalisation Epidemiological trends Global products The role of biotechnology Emerging markets Pharmaceutical regulation in the 21st century Outsourcing Pricing CROs Drug approvals CSOs Innovation: The future of R&D .

1993-97 therapeutic areas. Generic share of the pharmaceutical market by value 1984-1997 Integration strategies adopted by the pharmaceutical industry Market penetration and expected growth of generics Billion dollar deals in the 1990s Brand versus generic price changes in the US. compared to PoM sales as a The changing role of R&D % of total sales. 1997 Will profitability be sustainable into the 21st century? Correlation between PoM sales and PoM R&D spend. 1970-2000 Influence of customer groups on price and prescription volume Government restrictions on the price of ethical pharmaceuticals in key markets Review times of selected drugs under the EMEA centralised Level of return on a pharmaceutical product approval procedure The constant sales curve Relative influence of different customer groups in key markets Generics' share of the US prescription drug market by volume. 1997 The cost of developing a new drug Changes in FDA requirements Number of patients in clinical trials per NDA US healthcare is funding. 1997 share The virtual pharmaceutical company Changes in research technology The role of genomics in drug discovery The impact of premarketing upon future sales Actual and forecast DTC spending in the US 1990-2005 Pharmaceutical companies with biotechnology interests. The pharmaceutical industry's three tier system 1997 Outcome of pharmaceutical R&D in top tier companies Trends in sales. 1997 spread. middle and upper Generic divisions of ethical manufacturers tier companies Innovative drug launches during the 1990s Number of patients in clinical trials per NDA US salesforce movements R&D as a percentage of sales 1980-97 Return on R&D investment for biotechnology companies Profitability of the top 10 PoM pharmaceutical companies. 1993-97 Western European healthcare expenditure. 1991-97 Breakdown of top 10 PoM companies' sales by key therapeutic areas. 1997 Influence of customer groups on price and prescription Medicaid drug expenditures.and post-merger The profitability triangle PBM acquisition details The effect of price. 1997 Top 10 companies' PoM R&D costs compared to the industry Profitability ratios of top 10 PoM companies'. 1997 Geographic markets Relative importance of best-selling drugs to the top 10 PoM Technological markets players. 1997 Sources of growth Correlation between therapeutic area focus and profitability New markets: Operating profitability versus PoM concentration for the Therapeutic markets top 10 PoM players. 1997 R&D as a percentage of sales. 1997 . 1996-97 Market shares of merged companies. 1997 Populations of selected emerging markets Number of employees by cost centre GDPs of selected emerging markets US R&D personnel trends 1990-1997 Inflation in selected emerging markets R&D as a percentage of total costs for lower. 1997 GLOSSARY LIST OF TABLES (abbreviated) Drug innovation through the 20th century LIST OF FIGURES (abbreviated) Top 10 ranked companies according to R&D expenditure. US Relative influence of different customer groups in the US US prescription sales. operating profit and profit as a percentage Breakdown of top 10 PoM companies' sales by key of sales for the top 10 PoM companies. cost and volume on profitability The competitive mass needed to provide adequate market Opportunities to increase profitability coverage Pressures on pharmaceutical profitability Revenues of leading CROs Cost breakdown of lower. middle and upper tier CRO specialisation pharmaceutical companies. 1980-1997 volume.Novel technologies Growth of total sales.1997 The drug development process US R&D costs. 1997 Correlation between average market penetration and market Vital statistics of the top 10 PoM companies. pre. 1996-97. 1997 Resistors of growth Value of key pharmaceutical outsourcing markets. 1980-1997 Profitability of the top 10 pharmaceutical companies by total US R&D expenditure since 1980 sales. 1997 Comparative analysis of top 10 PoM companies'.

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