Our look into the future begins with a familiar format: a meeting, taking place in the United States, which is still where the money is, and where for that reason strategic and operational issues are vetted for execution in a thoroughly global pharmaceutical organization. What is different is that the CEO is a female and her team is convening at the ungodly hour of 3 a.m. for that important monthly conversation with division heads from facilities and offices around the world. Since most of the R&D, production, packaging, clinical trials, medical communications, regulatory affairs, and pharmacovigilance activities take place in India or China, where it is mid-afternoon, the meetings are held at this time.
Before the meeting began, several of the officers were reminiscing about the days in the early 2000s when most of those functions were performed in the United States. Some lamented those middle management colleagues who had passed on the opportunity to learn Mandarin earlier in their careers and now faced more limited career prospects.
It's worth taking a closer look at the strategic forces underpinning today's discussion. Surprisingly, sales leadership in the industry has remained remarkably stable, with few new entrants to the top-10 players—Israeli-based Teva is the exception that proves the rule, having earned a place on the list by combining state-of-the-art efficiencies around low-end generics with a growing stake in biosimilars and innovative specialty drugs. As was the case with Japanese companies in the 1990s, promising mid-sized European and emerging country drug makers failed to achieve global scale by capitalizing on a profitable domestic base—the fiscal debt crisis earlier in the last decade froze prospects for forward sales momentum in place.There is no longer any drug production in Europe, Japan, or the United States. Since nearly all of the active pharmaceutical ingredients (API) in a drug now come from Asia, it makes sense to complete the final dosage forms in nearby factories where labor costs are a small fraction of those in the United States, Western Europe, or Japan. Moreover, leaders of governments in the emerging market countries have become aggressive in providing incentives for Big Pharma to construct facilities there as a way to generate more local employment. Since the API is synthesized in Asia and dosage form manufacturing is also performed there, it is only reasonable for manufacturers to take further advantage of reduced labor and transportation costs and to prepare the packaging in the same countries.
Perhaps the most important function within companies in 2020 is the group that negotiates the purchase of licenses for new product candidates. This division has subsumed the previous importance of the R&D department; much of the in-house discovery research function was either eliminated or outsourced between 2010 and 2015, a time which also coincided with the peak of the patent-expiration cliff. The lackluster performance in generating new molecules in-house convinced the management of most Big Pharma firms that this was no longer a cost-effective option. The capability which remains has been organized with operational efficiencies uppermost in mind: most companies place their bets on development work in only four or five areas where they have specialized expertise or good contacts in biotech or academia.
Today, in 2020, the company's vice president for licensing travels constantly, visiting smaller pharma laboratories in Slovenia, Croatia, Greece, Turkey, Israel, Korea, and California as well as in the Philadelphia and Boston areas. The department has two functions: licensing in new drug or biological candidates, as well as purchasing minority interests in some of the companies licensing their lead/promising products. Most of those agreements call for options for the large pharmaceutical manufacturers to purchase additional shares and even gain majority ownership according to milestone agreements based upon the likely success of the candidate products.
Let's now take a look at some other departments and functions in this new world of 2020.