The Pharmaceutical Innovation Crisis

I used to read a lot of management books.  Or rather, buy a lot of them, then take a quick look — and promise myself to get around to reading them someday.  When (and if) I finally did, I’d often find the information dated and the advice stale.

Not so with most of Peter Drucker’s work.  In Drucker I find things that sound timely — sometime prophetic — even today.

The productivity of knowledge

Drucker spoke of the productivity of knowledge, and how firms, industries, and even countries who managed to excel at it would over time come to dominate their respective sectors.

When I first heard him use that term, it sounded abstract — and not immediately relevant to my work in business strategy. That changed recently when I conducted a study of the innovation crisis in the US pharmaceutical industry (which represents 80%  of the industry’s R&D worldwide.)  This is widely known in the press as the patent cliff that affects most major pharma manufacturers to some extent.

How pharma creates value

pillsIn a nutshell, a significant portion of the industry’s revenues and profits depends on branded drugs — the more successful of which you see advertised on TV.  Most of these are discovered by rapidly scanning lots of molecules, or computer models of the molecules, for potentially beneficial properties.  The most promising of these are first matched with diseases for which they might be useful, then registered under patents.  Then they are developed by being rigorously tested, first on animals, then on humans in a range of clinical trials.

The data from all these tests are presented to the Food and Drug Administration (FDA) for approval.  Drugs that are approved, and that are added to the ‘formularies’ of insurance companies and government payers who will reimburse patients for their use, can becomes wildly successful.  Lipitor, the statin used to control cholesterol in the blood, is the most successful drug to date, with total sales over $125 billion.

These blockbuster drugs (generally defined as those with annual sales over $1 billion) command prices in the marketplace much higher than their cost to manufacture.  Their gross margins can be as high as 75-80 percent.

Read the rest of this entry »

  • Latest Posts

  • Topics

  • Archive

    • collapse2017 (2)
    • expand2016 (8)
    • expand2015 (7)
    • expand2014 (10)
    • expand2013 (12)
    • expand2012 (9)
    • expand2011 (5)
    • expand2010 (9)
    • expand2009 (9)
    • expand2008 (11)
    • expand2007 (13)
  • About this site

    COMPETING IN THE KNOWLEDGE ECONOMY is written by Timothy Powell, an independent researcher and consultant in knowledge strategy. Tim is president of The Knowledge Agency® (TKA) and serves on the faculty of Columbia University's Information and Knowledge Strategy (IKNS) graduate program.

    ===================

    "During my more than three decades in business, I have served more than 100 organizations, ranging from Fortune 500s to government agencies to start-ups. I document my observations here with the intention that they may help you achieve your goals, both professional and personal.

    "These are my opinions, offered for your information only. They are not intended to substitute for professional advice."

    ===================

    We typically publish monthly on or about the 15th of each month, subject to our client workload. Use the RSS feed links below to subscribe to posts and/or comments. Better yet, follow us on Twitter @twpowell to be notified of new posts and related developments.

    Thanks for reading! Please mention us to others and add your non-spam comments and suggestions -- we value your input.

    ===================

    COMPETING IN THE KNOWLEDGE ECONOMY is sponsored by the Knowledge Value Chain® (KVC), a methodology that increases the value and ROI of Data, Information, Knowledge, and Intelligence.

    The contents herein are original, except where otherwise noted. All original contents are Copyright © TW Powell Co. All rights reserved.

    All KVC trademarks, trade names, designs, processes, manuals, and related materials are owned and deployed worldwide exclusively by The Knowledge Agency®. Reg. U.S. Pat. & TM Off.

    ===================

    E SCIENTIA COPIA. Knowledge is the Engine of Value.