The Big Squeeze - Pharmaceutical Executive


The Big Squeeze
The simple answer to pharma's pipeline crisis? Get more value out of the products you already have

Pharmaceutical Executive

Prilosec and its evolution into Nexium provides an interesting case of an OTC switch that was managed in parallel with the launch of a successor to the original prescription brand. Prilosec was AstraZeneca's proton pump inhibitor with the generic name omeprazole; it was approved by the FDA in 1989. The company developed a derivative, esomeprazole (the s-isomer of racemic omeprazole), which was approved by the FDA in 2001. Nexium was launched in 38 markets in 2001, and in 2003 it was the fastest-growing product in its class, with sales up 62 percent year-on-year to $38 billion. Meanwhile, the patent on Prilosec had expired in October 2001, and the company obtained FDA approval for an OTC version, which was launched under the Prilosec name in December 2002. This complementary strategy enabled AstraZeneca to sell the established brand of Prilosec over the counter, while also marketing a follow-on prescription product under the Nexium brand.

Know when to leave the field. Product lifecycle management is about profitability, and the process must include a means of holding a yardstick to the financial contribution of every product so that those that no longer deserve a place in the portfolio can be discontinued or sold. Obvious as this seems, some companies continue supporting products that have long ceased to be profitable.

One of Capgemini's clients in the pharmaceutical industry recently undertook a wide-ranging review of the profitability of each of its products, and uncovered some surprising facts in the process. Thirty-six percent of the company's product lines proved to be unprofitable, of which more than 95 percent were out of patent protection.

It also transpired that more than half the company's subsidiaries had five or more unprofitable products, and only one out of the company's 16 product families was supported by a product lifecycle strategy. As a result of this exercise, the company found that savings of 15 percent of the cost of supply operations could be achieved by dropping unprofitable product lines.

There is an understandable reluctance to slim down product lines in these days of pipeline drought, but the years ahead will not be kind to companies that persist in carrying dead weight. More robust metrics for understanding the real contribution of each product to the business will be essential if companies are to identify and properly support the top-performing products of the future.

A New Capability Lifecycle management will be the most important capability for pharmaceutical companies to develop. This will affect all their efforts across the value chain and will require not just an activity approach but one that builds an organizational capability in individuals, one that influences thinking, behaviors, governance, and performance metrics. This capability needs to be applied to the keys to success, which we prescribe to be:

  • Start early and plan ahead
  • Collaborate across all business functions
  • Introduce a broader business perspective
  • Focus on profitability throughout the lifecycle
  • Establish clear leadership.

This integrated, holistic approach will ensure that firms that embrace these ideas will maximize the economic impact of their product potential.


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