NEW YORK, November 15, 2012 – Despite dire predictions about the pharmaceutical industry’s future, some pharma companies will reinvent themselves, and according to Pharma 2020: From vision to decision, a new report issued today by PwC, the industry is on the cusp of a golden era of renewed productivity and prosperity. However, its success is not guaranteed.
Health reform is accelerating the need for wholesale changes in the pharmaceutical industry and its response to rising demand for medicines, major scientific and technological advances, economic pressures and socio-demographic shifts - in both developed and growth markets around the world. In its report, PwC portrays a beleaguered pharma industry that has reached a critical juncture: the prospect exists for unprecedented global growth in the future, but the industry’s prevailing business model and management culture are ill-suited to capitalize on the market opportunity over the next decade and beyond.
Pharmaceutical companies that survive a difficult transitional period in the coming years can prosper in 2020 if they are willing to prune their pipelines and make tough decisions to address rising customer expectations, poor scientific productivity and cultural barriers, the report says.
“A healthy, vibrant and responsive pharma industry is vital to society for the development of new medicines,” said Steve Arlington, global pharmaceutical and life sciences advisory leader, PwC and a principal author of the report. “More needs to be done to support and encourage long-term investment in the discovery and development of medicines to treat serious disease. We need to all work together to improve the wellbeing of populations.”
Rising Customer Expectations
One of the major hurdles the pharma industry faces is the rising healthcare bill. The demand for medicines is rising and global pharmaceutical sales could increase by nearly 40 percent to roughly $1.6 trillion by 2020. Yet the expenditure as a percentage of gross domestic product (GDP) is climbing in countries in every income bracket and most steeply in mature markets where the industry has historically made most of its money. At a time when all economies are feeling the tougher times, the industry has to position itself as part of the solution, says PwC.
The pharmaceutical industry’s customers – physicians, patients and payers – are demanding evidence of better outcomes with hard, real-world data as a precondition for payment and pricing for new medicines. PwC’s research suggests that pharmaceutical companies have a choice: either offer more value without charging more or prove that it can remove costs from another part of the healthcare system to justify premium pricing.
In mature markets, there is an enormous opportunity for the pharmaceutical industry to help payers save money and for providers to deliver better quality care for less money, according to PwC’s report. Approximately 85 percent of global health spending currently goes to healthcare services delivered by physicians, hospitals and other providers, and less than 15 percent goes to medicines. By demonstrating that medicine can reduce spending on costly medical services and procedures, PwC estimates that pharma’s share of healthcare expenditure could rise to 20 percent by 2020.
In growth markets, the demand for medicines is expected to more than double by 2020. PwC's analysis, however, found that the opportunity in these markets is fragmented and comes with challenges. The report suggests that with the right strategy, pharmaceutical companies can be profitable in these markets but they need an approach that targets the right population with the right medicine, and delivers value tailored to the market.
“The pharmaceutical industry is living the tale of two markets,” said Michael Swanick, global pharmaceutical and life sciences industry leader, PwC. “In established markets, pharma companies have to deliver ‘real’ value in solutions and cures to prove their worth and rebuild trust in the sector. In growth markets, companies must respond responsibly to a growing population’s needs, recognizing demographic and cultural diversity. The industry has historically found change difficult to deal with but time is running short and decisions must now be taken. Those that do, face an optimistic future, while failure to respond now could lead to many regrets.”
Improved Productivity by Pruning the Pipeline
PwC's report stresses the industry's need to rebalance expenditures and invest more in the early part of the R&D process to improve productivity that will deliver returns on R&D investment. PwC’s analysis found that most of the products that will be launched in the coming years are already in the pipeline, but are not aligned with medical needs and demand or rising expectations from healthcare payers, providers and patients. Record levels of late-stage failures are one indication of the crucial need for pharmaceutical companies to marry the pipeline with the market.
Breaking Down Cultural Barriers – From Secrecy to Collaboration
Despite significant external changes in the market, the culture within the pharmaceutical industry has changed little over the past few decades, and may be more deeply entrenched in reaction to emerging threats, PwC’s research found. New entrants to the market and new technology are beginning to disrupt the status quo, and pharmaceutical companies can expect an even more demanding commercial environment going forward.
PwC’s report says that new pharma will be less secretive, more collaborative and that the industry’s top figures are likely to be mavericks that have vision and courage to break the mold.
Pharma 2020: From vision to decision is the latest in the Pharma 2020 series of reports from PwC’s Global Pharmaceutical and Life Sciences Industry Group. It is the culmination of a year-long research initiative that included meetings and interviews with 50 pharmaceutical industry executives and the input and perspective of more than 70 reviewers, including PwC professionals, industry executives and regulators around the world.
The first report in the series, Pharma 2020: The Vision, was published in 2007 and outlined an ambitious perspective on the future of pharmaceutical industry. In five subsequent reports, PwC provided detailed analyses of the challenges and opportunities pharmaceutical companies face and their implications for research and development, sales and marketing, supply chain and finance. The current report revisits the vision in light of new challenges that have emerged and focuses on important decisions senior management must make now to get to 2020. Since the series began, nearly 100,000 copies of Pharma 2020 reports have been downloaded or shared with industry.
A full copy of the PwC report is available for download at www.pwc.com/pharma2020.
About PwC’s Pharmaceutical, Medical Device and Life Sciences Industry Group
PwC’s Pharmaceutical, Medical Device and Life Sciences industry group (www.pwc.com/us/pharma and www.pwc.com/us/medtech) is dedicated to delivering effective solutions to the complex strategic, operational and financial challenges facing pharmaceutical, biotechnology and medical device companies. We provide industry-focused assurance, tax and advisory services to build public trust and enhance value for our clients and their stakeholders. Follow PwC Health Industries online @PwCHealth.
About PwC’s Health Industries Group
PwC’s Health Industries Group (www.pwc.com/us/healthindustries) is a leading advisor to public and private organizations across the health industries, including healthcare providers, pharmaceuticals, health and life sciences, payers, employers, academic institutions and non-health organizations with significant presence in the health market. Follow PwC Health Industries online @PwCHealth.
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