Editors Note: This article, Part 1 of a two-part series, is excerpted from The Continuing Evolution of the Pharmaceutical Industry: Career Challenges and Opportunities, published in December 2007 by Michael Steiner and colleagues at RegentAtlantic Capital, LLC. Part 2 will appear in Februarys issue. To access the full original version of this report, click here.
Everyone working in the pharmaceutical industry knows that it is undergoing a vigorous evolution. Much has been written about how pharmaceutical companies will need to change the way they do business in order to remain profitable in a new and unfamiliar competitive landscape. However, there has been little published on what this evolution will mean for the careers and lives of industry participants. Similarly, there is a paucity of information on what people can do to prepare for the new environment in which they will soon find themselves.
This studys goal is to fill this gap. We hope to provide a 30,000-foot view of trends and a roadmap for industry professionals to better understand what the coming macro changes to the business will mean for their careers and where the best pharmaceutical job opportunities will be.
More importantly, it is intended to identify the career planning steps that can be taken today that will allow them to capitalize on the many changes coming in the future.
The Ideal Career
For a new college graduate in the early 1980s, there were few better opportunities than working for a pharmaceutical company. During this time, pharmaceutical companies and their employees had a paternalistic relationship. Pay was good and employees retirements were secure, with robust pensions. Jobs were stable and benefits unbeatable.
Many of these companies also shared their great successes with their employees. These organizations showered down large numbers of stock options as an integral component of each persons compensation. They also allowed their employees to acquire company stock at a substantial discount through their company stock purchase programs. And as these companies stock prices soared, many long-term pharmaceutical company employees became millionaires.
Forces of Change
A series of forces have made pharmaceutical companies current business models obsolete. These forces can be grouped into three categories:
1. Revenues are under pressure
- Patents on numerous high-revenue drugs are expiring.
- Pipeline for new drugs looks uncertain.
- More powerful payers. A series of mergers has created a handful of very powerful payers. Currently, only 10 firms control nearly 56% of the managed care market. In the past, physicians were the key decision-makers as to which drugs were used by patients.
- Lower cost medications.
2. The costs and risks of developing new drugs are increasing
At the same time that the pharmaceutical industrys revenues are under pressure, the costs and risks associated with the development of new drugs are increasing for a number of reasons. First, many of the drugs currently under development are aimed at treating conditions that have more complex and difficult targets.
Second, unlike in the past when the R&D process was frequently driven by obvious commercial applications, todays R&D is often driven by new scientific discovery, a process that is far less predictable. Third, the regulatory approval process has become significantly more complex and costly. The regulatory agencies are more sophisticated, capable, cautious and conservative in evaluating drugs than in the past. Fourth, the current plaintiff-favorable litigation environment continues to be a drag on pharmaceutical company profitability.
Since 2000, 65,000 product liability lawsuits have been filed against prescription drug makers more than in any other industry. Finally, payers are slowly shifting to an outcomes-based analysis of treatment alternatives. Consequently, predicting the potential revenue from a new treatment has become more difficult.
The most powerful force sweeping through the industry, however, is the globalization of this industry. What had historically been a U.S.- and E.U.- focused business is now shifting to developing countries both for the development of new treatments and as potential markets for products.
Big Changes for the Pharmaceutical Industry
The confluence of these factors is compelling pharmaceutical companies to reengineer their business models, identify their core competencies and focus on what they do best. Consequently, the following trends in the pharmaceutical industry will continue, and even accelerate, in the future:
1. Corporate Restructuring
- Job Reductions. From 2003 to 2006, the industry witnessed about 86,000 layoffs. No one can precisely predict how many additional people will be displaced. However, two CEOs interviewed believe that an entire generation of upper-middle and senior-level executives (as many as 50,000 individuals) will be displaced.
- Further consolidation within the industry.
- Refocusing on fewer business lines.
2. Adoption of Risk Reduction Strategies
- Acquisitions rather than development of compounds.
- Use of joint ventures and research consortiums.
3. Evolution of Drug Marketing
- Increased focus on U.S. payers.
- Drugs marketed globally.
What Does It All Mean?
As the pharmaceutical industry adapts to the forces changing its business model, it will not only survive, but thrive. However, the adaptation process over the next five to 10 years will be very disruptive for many and will create far-reaching consequences for any individual working in this field. These changes will make working at a pharmaceutical company less predictable, and individuals will increasingly need to think in terms of a career in the industry and not at just one company. And the skills in the highest demand by employers in the future will differ from those in the past. The reshaping of the industry will also unlock unforeseen opportunities for those individuals who are able to anticipate the changes, prepare for and take advantage of them.