“Healthy competition” is a term many corporations would consider an oxymoron. Competition is time consuming, resource intensive and just plain challenging. It’s much easier to dominate a market segment. For years, large U.S. pharmaceutical manufacturers (Big Pharma) were the dominators. They were the largest and the most profitable drug companies in the world; and, to a certain extent, they still retain that position. The big pharma landscape, however, is changing.
Increasing government regulations, along with greater demand for well-documented drug benefits, risks and costs, suggest that pharma profit margins and market domination may decline, while smaller, more nimble companies and companies in other countries gain market share.
To retain its competitive edge, Big Pharma must acknowledge its competition and meet it head on with middle- and long-term innovative strategies and tactics. It can no longer only rely on getting bigger through mergers and acquisitions or re-engineering its cost basis as an approach to a changing healthcare environment and increased competition.
Pharma’s competition is both direct (small manufacturers, especially those in less restrictive countries with substantial government support) and directed (regulations and policies aimed at controlling healthcare costs).
As long as healthcare spending continues to rise, governments will use their most powerful tool to control those costs. They will regulate. Demanding more data to support the value/cost equation slows the pathway to market for new drugs and constrains price increases on existing drugs. Bringing drugs to market has become a bit of a balancing act for Big Pharma. On one hand, access to market is what keeps pharma’s revenue stream flowing. On the other hand, funding the resources that are required to address massive regulatory requirements cuts into profits.
Launching new marketing and sales activities and raising prices can no longer be the primary compensation tactics to overcome the increased costs associated with regulatory approvals. Spending a higher percentage on promoting products and outsourcing some activities, such as research and manufacturing, may have helped pharma grow significantly in the past, but new strategies are needed in today’s environment.
- Financial planning
- Capital allocation
- External resource management
- Market access
Pharma executives can no longer overlook R&D activities that are underperforming or continue to dedicate significant resources to mature markets that no longer require large sales forces. They must evaluate the competitive landscape, think globally and long-term, and respond accordingly.
U.S. companies account for 18 of the top 50 pharmaceutical companies in the world, with European companies (18) and Japan (8) being the other key players in drug manufacturing. However, companies in South Korea, China and Brazil, are beginning to make waves in the pharma marketplace.
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