Last year was a tough one for the pharmaceutical sector. Top line sales for sanofi-aventis, GlaxoSmithKline and Johnson & Johnson actually declined by 4.1%, 2.8% and 0.5% respectively. Meanwhile the revenues for Amgen, AstraZeneca, Bayer, Bristol-Myers Squibb, Eli Lilly and Roche grew, but in the 1-6% range.
In the U.S., pharma's largest, single national market, sales increased only by 3.4% over 2009. A look at net operating income causes even more concern. The net profit of the world's 15 largest pharma companies declined by a surprising 20.1% last year. At the same time the cost of production for these 15 companies increased by 16.6%, while their selling, marketing and administrative cost rose 12.3% and R&D expenditure went up 15.5%.
These financial results provide a context for all the publicity pharma is generating this week from results presented at the Clinical Oncology meeting in Chicago. While various cheerleaders in broadcast and online media claim that favorable results for drugs to treat cancers of the skin, lung and other body areas indicate the industry has finally discovered the long-sought gold mine of personalized medicine, more seasoned observers from industry publications such as In Vivo looked behind the publicity. In doing so they concluded that despite claims of pharma having "turned a corner," the new compounds receiving all the attention confer only marginal improvements. Even more disappointing, the data to support these compounds appears suspect, while the most substantial change created by these new drugs consists of their exorbitant prices.
Clearly pharma has its challenges. One veteran journalist, Fran Hawthorne, concludes that the array of challenges to pharma in the changed health care environment means the industry can no longer conduct business in the same manner. Specifically, she believes that the key elements of pharma's business model must all change. This means research will no longer be a defining competency of the pharmaceutical industry. The problems representing the frontiers of knowledge are so large that any significant future research must be "open-source," meaning that pharmas, universities, biotechs and other participants must collaborate and share proprietary information instead of maintaining their traditional secrecy. At the same time pharma must learn to outsource substantial parts of its of sales, marketing, and manufacturing.