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Big Drugmakers Could Lose $1 Trillion In Sales And Still Be Most Profitable Industry

NEWS

A new analysis of publicly reported financial data has found that large, brand-name drug manufacturers would still be the most profitable industry sector in the United States even with $1 trillion in lower sales.

COMMENT

The findings of this analysis provide us with a graphic reminder that the pharmaceutical industry has one of the highest profit margins and returns of any industry. Nevertheless, we may already be on the cusp of change. Revealing blog posts written in November 2017 and May 2018 by Dr. Kelvin Stott, Director of Portfolio Management at the Novartis drug company in Basel, Switzerland, suggest that the beginning of the end for the pharmaceutical ‘business with disease’ may soon be in sight.

Asserting that the entire pharmaceutical industry is “on the brink of terminal decline,” Stott describes in his posts how research and development (R&D) returns in drug development now stand at just 3.2 percent and could potentially reach zero by the year 2020. To put it simply, this means that each dollar spent on R&D by drug companies would merely result in an income of a dollar. In other words, the pharma industry would no longer be a profitable concern.

Stott predicts that falls in the average return on investment will result in the entire pharma industry beginning to contract within the next two or three years. By the year 2040 the annual value of the industry’s total global sales may have fallen back to what it was in 1990. This would represent a catastrophic reduction in revenue of around 90 percent.

Tellingly, Stott describes the pharma business model as “broken,” adding that it is “entering a vicious cycle of negative growth and terminal decline as its fundamental business model has run out of steam.” He concludes that the pharma industry “will not be around forever” and that it must “adapt or die.” According to business website Forbes, Stott’s data “correlates with the observation of virtually every serious researcher who has looked at the industry.”

To learn more about Stott’s thought-provoking analysis of pharma’s future, read this article on our website.

Read article at medicalxpress.com
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