Another interesting article in the McKinsey Quarterly “A wake-up call for Big Pharma” describes how big pharmaceutical companies are becoming less innovative. We had discussed the same trend in the past (Big Pharma’s Stalled R&D Machine). This chart from the article has great data about declining contribution of new products to the bottom line:

Some more evidence of this lack of innovation is in the Booze’s Global Innovation 1,000 list which does not rank pharma companies as very innovative.  The article further suggests that some fundamental changes are necessary:

The good old days of the pharmaceutical industry are gone forever. Even an improved global economic climate is unlikely to halt efforts by the developed world’s governments to contain spending on drugs. Emerging markets will follow their lead and pursue further spending control measures. Regulatory requirements—particularly the linkage among the benefits, risks, and cost of products—will increase, while the industry pipeline shows little sign of delivering sufficient innovation to compensate for such pressures.

The article suggests that the pharmaceutical industry might evolve away from vertically integrated model like the automotive industry.

A look at the evolution of the automotive industry may offer some lessons. For many years, it was vertically integrated and dominated by large, primarily Western corporations. But the value chain has been disaggregated into companies specializing in narrow parts of the process. Today, component manufacturers, design houses, and basic-materials companies share much of the industry’s revenues: the automakers are responsible primarily for the design of major components (such as engines), assembly, sales, and marketing.

This whole article is a very interesting read. I suggest you consider reading it.