To date, research and development (R&D) within the pharmaceutical industry has been dominated by a developed-market perspective. But as emerging markets change Pharma's worldview, it's time for drugmakers to fundamentally rethink how R&D is done.
Over US$150 billion worth of products will lose patent protection over the next decade. And late stage failures and safety withdrawals have wiped out tens of billions more in forecasted sales revenue. Even though Pharma handily outperformed the Standard and Poor’s (S&P) 500 during the high-flying 1990s, the story has been the opposite for most of this decade. In 2005, the S&P 500 Pharma lost 3.4 percent of its value, while the overall S&P 500 gained nearly 5 percent.
This steep financial challenge is forcing multinational pharmaceutical companies to consider a range of alternatives, including outsourcing and offshore opportunities. Like other industries, big Pharma has grown comfortable with certain offshore capabilities, such as manufacturing. But because they consider R&D such a defining capability, pharma companies have generally been hesitant to move R&D activities outside the firm – much less offshore.
Squeezed by shareholder and payer demands, these companies are now reevaluating that position and considering the possibility of performing selected R&D activities offshore. From our review of the pharmaceutical sector, however, it appears that offshore R&D remains a relatively untapped opportunity – one that big Pharma may not be prepared to exploit fully.
For the most part, Pharma’s R&D business models are still skewed toward a developed markets perspective – witness how often research priorities are focused on the needs of developed nations and in-licensing opportunities from developed markets take precedence. To capture the full potential associated with emerging markets, our research suggests that pharmaceutical companies need to rethink some fundamental tenets of their R&D approach.