No doubt, things are tough—and getting tougher—for the pharmaceutical industry today, especially for the smaller companies. They now have to buckle down and find ways to operate far more efficiently than in easier times. Every drop of value has to be squeezed out of every dollar invested in R&D, production, distribution, marketing, and sales. And this is where pharmaceutical consultants can help.
The pressure is on—from increasing production costs, weightier regulatory compliance burdens, and generics. So let’s take a look at a few illustrative scenarios, which just might indicate areas where pharmaceutical consulting can move companies toward improved profitability.
Production costs are up, and so people in the industry are increasing prices. In 2007, wholesale prices for the top 50 branded drugs increased by 7.82%—almost double the annual US inflation rate. And this follows on the heels of price increases of 6.73% in 2006 and 6.22% in 2005. Over a three-year period, some drugs saw price increases in the double digits. For example, from 2005 to 2007 Sanofi-Aventis raised the price of Ambien 70.1%, Glaxo increased the price of its Welbutrin antidepressant 44.5%, and the price of Shire’s Adderall XR was boosted by 33.5%.
Pharmaceutical companies are raising prices in anticipation of patent expirations and as a proactive countermeasure against unpredictably changing government regulations. Experienced pharmaceutical consultants, however, worry that these price-boosting tactics may ultimately be more than a little counterproductive. In a desperate bid to stay afloat and remain profitable, some companies may be boosting prices beyond what the market can bear and simply pricing themselves further into the red.
In 2008 the Health Care Cost and Quality bill passed the Massachusetts House and Senate. This bill calls for drug companies to reveal payments of $50 or higher made to healthcare providers. Another part of the bill requires the state’s Dept. of Public Health to establish limiting statutes with respect to marketing and attached is a $5,000 penalty for each violation. This is an alarming harbinger of more numerous and more widespread legislation of the same cost-increasing kind.
Looking at the generic drug picture, which had boasted double-digit growth until very recently, we see another alarming trend. In 2008 the rate of sales growth for generics had slowed to 3.6% from 11.4% year-over-year. While some of this decline in sales growth can be attributed to fewer patent expirations for blockbuster drugs, much of it is owing to sharply increasing competition that has driven down prices. If generics are doing poorly, that certainly doesn’t portend anything good for manufacturers of branded drugs.
So what can pharmaceutical consultants do to help? They can evaluate procedures and expenses, as well as marketing and sales tactics, and then devise and implement the strategies needed to restore business health. Pharmaceutical consulting firms can assist companies, especially smaller companies, in gaining the competitive edge that will allow them to improve profitability and grow—even in the current tough market.