Welcome to The Management Consultants Network

Break into McKinsey, BCG, Bain, Oliver Wyman, Accenture, and other top management consulting firms with resources provided by top consultants and ex-consultants from around the world. The Management Consultants Network provides you everything you need to succeed in the consulting recruitment process - from start to finish. Best of all? It's completely free. Register for the site and check it out. 

What's happening to the pharmaceutical industry?

Posted by Khaled Kteily on in Industry Knowledge
  • Font size: Larger Smaller
  • Report this post

Healthcare (especially in the US) is a rapid area of growth in consulting, and as this blog post will tell you, healthcare is one of the most common industries to appear in consulting interviews. Inspired by some of my recent project work, as well as Oliver Wyman's intellectual capital, I've written about some factors affecting the state of the pharmaceutical industry.

This post was inspired by a great article co-authored by a partner out of OW's Toronto office, titled 'Beyond a Shadow of a Drought'.

A few key facts about the pharma industry and the largest pharmaceutical companies:

  1. The largest pharma companies include Pfizer, Novartis, Sanofi-Aventis, and GlaxoSmithKline - Pfizer alone represents almost $70B of revenue in 2011
  2. On average, the net income of a large pharma company sits at around 20-30% of revenue
  3. The industry has sustained 6% annual growth over the past 5 years (despite the recession)

Clearly, the industry has fared quite well. However, the continued success of any pharmaceutical company is contingent on its ability to research, develop, and launch drugs into the market. Here are a few facts about the industry's R&D performance:

  1. Between 1996 and 2004, the FDA approved an average of 36 New Molecular Entities (NMEs) per year, of which 12 were blockbuster drugs .
  2. Between 2005 and 2010, the FDA approved an average of 22 NMEs, of which 6 were blockbuster drugs.
  3. New drugs are generating less value; comparing fifth-year revenues (the revenue that a drug and its extensions make in the fifth year after launch), drugs are bringing in 15% less value.
  4. R&D spending has doubled (1994-2005 vs. 2005-2010) but pharma companies are making substantially less on drugs that have launched

In other words - R&D spending has gone up, but approvals have gone down, and each new drug is bringing in less value. So why is this? Here are a few thoughts:

  1. Diseases with no drugs are simply more complicated. High-priority targets such as Alzheimer's or brain cancer are more complex diseases, and thus require more R&D investment
  2. Payers have pushed back on costs, leading to lower revenues per drug
  3. Cheap generic options are available; for diseases with existing treatments, companies must demonstrate a significant benefit over generic alternatives

While you don't need to know all these details, having a basic understanding of the pharmaceutical industry (revenues driven by blockbuster drugs, high R&D spend, declining FDA approvals, etc.) will prove to be a great asset in your case interviews.

Click here to read the article that inspired this post (and it's a great read)


  • No comments made yet. Be the first to submit a comment

Leave your comment

Guest Aug 22, 2019