Ending the Arms Race: Ten Priorities for Fixing the Commercial Model
The drug industry has seen a massive shift in who influences prescription, payment, and consumption decisions. But corporate capabilities and tactics haven’t kept pace with these new market realities.
• By Holly Fogle, Alexander Petersen, and Christopher Simon
Faced with growing budgets and declining effectiveness of commercial spending, most large companies have embarked on the next wave of significant commercial changes. But most of these efforts don't go far enough to address the rapid and fundamental changes in the stakeholder landscape which have knocked pharma dramatically out of alignment with its stakeholder base. The article describes ten priorities for drug companies to align their organizations with these new realities - including requirements for companies to partner with payors and providers in new ways, and make resource decisions much more selectively to focus on the stakeholders who really matter. Nonetheless, these changes won't have their full effect without a more fundamental rethinking of the industry's value proposition, taking into account not only product value, but the services and the customer experience offered to all stakeholders.
The pharmaceutical industry has reached a critical juncture in its history. After 15 years of outperformance and growth in total return to shareholders, the industry has lost much of the shareholder value created; even before the current financial crisis, the big drug companies lost $429 billion of value between 2002 and 2007. If the trend continues, all the shareholder value created in the last ten years will be wiped out within the next two years.
These trends in shareholder value reflect the earnings compression unraveling the remarkable industry economics of the 1980s and 1990s:
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