Pharma's Visit to the Plastic Surgeon

Nov 01, 2011

Consider this: In 2011, IMS projects US Rx market growth to be 2.7 percent. The top 10 pharma companies account for 50 percent of the entire market's revenue, but will deliver only 10 percent of the growth. In fact, the growth rate of the top 10 is estimated at 0.9 percent.

And it's even worse than that: Take out the non-organic growth, i.e., the 'growth' padded on purely by gobbling up acquisitions, and growth among the top 10 companies is, in fact, negative.

Bill Drummy
So Pfizer, Merck, GSK ... the largest companies keep getting fatter. And slower. And more dysfunctional. And people inside these companies know this. But very few are willing to say it out loud.

As I've been saying in this Speed of Change series, the consequences of slowness were once (perhaps?) tolerable. But in the ever-morphing technosystem in which we all now swim, lack of speed kills.

I write this just after Abbott's announcement that it has seen the wisdom of rapidly getting smaller. Expect similar disgorgements to follow, as more shareholders of the biggest of the big (and Abbott wasn't really that big, at around $40 billion) realize the returns they're not realizing. Two really big examples: Since 2000, the share price of Pfizer and Merck, two of what I call the 'super-pharmas,' has dropped 60 percent, while the Dow Jones Industrial Average rose 19 percent.

Abbott expressed, in press release non-speak, that it is "strengthening [its] outlook for strong and sustainable growth and shareholder returns." But maybe this is the reason for cutting itself in half: the recognition that innovation has been crushed under the company's own weight; that it has simply failed to find its next Humira.

If you have worked inside or nearby any of the super-pharma companies, you've seen this too: as oft-merged entities are squashed together, decision-making slows, strategic focus blurs, and people get more and more risk-averse.

At a certain super-pharma company that shall remain nameless, we are seeing shockingly silly decisions being made even as the people involved in (or victims of) the decisions know they are wrong. (Without getting too specific, it is in the realm of spending tens of millions on programs that have been proven to be failures.) It is as though the brain is now too far removed from the outer extremities—the signals just don't get through.

All metaphorical playfulness aside, this is serious. If the industry is going to prosper, to reach its full potential in the 'Pharma 3.0' era (as Ernst & Young seems to have christened it), C-suiters need to do two things: liposuction down their companies to their essential, vital cores; and change the reward system to truly—finally!—value innovation inside and beyond the labs.

Let's hook up the blubber-sucking tubes and go.

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