Monday, March 2, 2009

The Impact of the Obama Health Plan on Pharmaceuticals-The Final Nail in the Coffin or a New Beginning-Our Thoughts

It seems as if the economic world is in collapse and the Pharmaceutical/Biotechnology Industry is not being spared. In fact the headlines suggest the industry is in for very rough sliding - witness the collapse of share prices for major Pharmaceutical and Biotechnology companies this week after President Obama unveiled his new health care initiatives. The President has proposed greater rebates to Medicare from Pharma which will significantly impact profitability (and by extension the incentives for R&D and new drugs). The administration is pushing for bio-equivalent biotechnology compounds to lower the costs to the consumer for these generally targeted, expensive compounds (and once again making the biotechnology companies far less attractive). Add to this the administration's proposal to make reimportation of drugs far easier (again to supposedly benefit the consumer) and layer on top of that the already existing problems of low pipeline productivity, the demise of the blockbuster model, decreased effectiveness of the sales force, excess manufacturing capacity, bloated administrative expenses and it is easy to conclude that the industry could be headed for disaster.

BUT WAIT, is it possible that despite these significant challenges, management may indeed have the opportunity for a classical transformation resulting in a leaner, more adaptive and focused business. While we don't want to be presumptuous and suggest this would be an easy move, several combination's of existing models and processes can be deployed to make the transition. Concepts such as the virtual company, focused R&D based on pharmaco-economics, better use of information management, highly targeted marketing and sales, rational out tasking, staff leasing, and/or global outsourcing and myriad more can be deployed for competitive advantage and profitability. The dilemma may very well be a management that is either too risk adverse, complacent or (hopefully not) incompetent.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Larry Rothman

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