Mapping the Healthcare Landscape Bringing pharmaceuticals into focus

ABOUT DATAMONITOR HEALTHCARE 2
About the Healthcare Strategic Analysis Team 2
1. Executive Summary 3
Strategic scoping and focus 3
Related reports 3
Upcoming related reports 3
Key findings 3
Big Pharma set for dramatic decline in revenue growth through 2014 3
A conceptual framework for profitability 5
Diversification as a tool to counter Big Pharma’s forecast slowdown 5
Big Pharma has a track-record of moving beyond the pharmaceutical sector 5
The Big Pharma peer-set shows considerable variation in prescription focus 7
Prescription focus correlates with operating margin 8
Destinations for diversification within the healthcare landscape 9
Assessing the relative attractiveness of each sector within the healthcare landscape 11
Total healthcare market size of $3.7 trillion in 2008 12
The highest operating margins are associated with branded pharma 13
The branded pharma sector cannot be bested 14
Recommendations to maximize operating profit growth 15
Diversified companies should become more pharma-focused... 15
...or diversify strategically 15
Pharma-focused companies should remain pharma-focused and engage in consolidation 15
Strategy must be tailored to the company 17
Table of Contents 18
2. Historical trends in diversification 19
Key findings 19
Overview of Big Pharma’s business model 20
Historical M&A and divestment analysis, 2000-Q2 2009 20
Analysis of mergers, acquisitions, and divestments over time 20
Analysis of mergers, acquisitions, and divestments by type 22
A history of non-pharmaceutical M&A 23
Big Pharma divestment profile is more varied 24
Big Pharma’s current business model 25
Historical prescription pharmaceutical revenue growth rate justifies Big Pharma’s focus to date 25
Big Pharma’s pharmaceutical focus varies considerably at the company level 26
Correlation between operating profit and pharma focus 27
Company case studies 29
Prescription-focused companies 30
Pfizer has bolstered its pharma focus by acquisition 30
Eli Lilly beginning to make defensive moves 31
Bristol-Myers Squibb - becoming smaller and less diversified 32
Diversified companies 34
Johnson & Johnson is a successful diversifier 34
Novartis - strategic diversification 36
Bayer looking to increase its pharma focus 37
Exiting companies 39
Procter & Gamble diversifies away from pharmaceuticals completely 39
3. Defining the healthcare landscape 40
Key findings 40
The 10 sectors under analysis 41
A focus on diversification within the life sciences sector 42
Healthcare products and provision represents the primary division in human healthcare 42
Payers, hospitals, and drug supply chain intermediaries represent the key healthcare providers 43
Overlap between prescription benefits management organizations and mail order pharmacies 44
Overlap between retail pharmacy chains and drug distribution 44
Healthcare products classified as either pharmaceutical or non-pharmaceutical 45
Pharmaceutical products subdivided into prescription and over-the-counter 46
Non-pharmaceutical products divided into consumer health, medical devices and diagnostics, and alternative health 48
The consumer health/over-the-counter spectrum 50
The primary divider in animal health is ’companion’ versus livestock 51
The provision of healthcare services in animal health is identical for companion animals and livestock 52
Consumer health is the key product differentiator between companion animals and livestock 53
Grouping of animal health pharmaceutical and over-the-counter products 54
Consumer health, pest control, and medical devices and diagnostics constitute the non-pharmaceutical division in animal health 55
4. Sizing the healthcare landscape 56
Key findings 56
Healthcare landscape overview 58
Prescription branded pharmaceutical market 60
Market size 60
Operating margin 61
Indicative Profit Potential 62
Strategic outlook 62
Over-the-counter/consumer health market 63
Market size 63
Operating margin 64
Indicative Profit Potential 65
Strategic outlook 65
Health insurance market 66
Market size 66
Operating margin 67
Indicative Profit Potential 68
Strategic outlook 68
Medical devices and diagnostics market 70
Market size 70
Operating margin 71
Indicative Profit Potential 72
Strategic outlook 72
Retail pharmacy market 74
Market size 74
Operating margin 75
Indicative Profit Potential 76
Strategic Outlook 76
Hospital market 77
Market size 77
Operating margin 78
Indicative Profit Potential 79
Strategic outlook 79
Generics market 81
Market size 81
Operating margin 82
Indicative Profit Potential 83
Strategic outlook 83
Prescription benefits management market 85
Market size 85
Operating margin 86
Indicative Profit Potential 87
Strategic outlook 87
Pharmaceutical wholesaler market 89
Market size 89
Operating margin 90
Indicative Profit Potential 91
Strategic outlook 91
Animal health market 92
Market size 92
Operating margin 93
Indicative Profit Potential 94
Strategic outlook 94
5. Assessing the healthcare landscape 96
Key findings 96
Healthcare landscape overview 97
Healthcare products present a more lucrative alternative to healthcare provision 98
The product-provision division should not be breached 99
The branded pharmaceuticals sector cannot be bested 99
Pharma-focused companies should seek growth within the pharmaceuticals sector 99
Diversified companies should increase their prescription drug focus 100
Strategic diversification - small, incremental moves within the product landscape 101
Pharmaceutical - medical device and diagnostics tie-ups 101
Pharmaceutical - consumer health/over-the-counter tie-ups 102
Strategic diversification - small, incremental moves within the provision landscape 103
Retail pharmacy - prescription benefits management company tie-ups 103
Retail pharmacy - wholesaler tie -up 103
Strategic diversification - parallel moves can provide synergies with minimal costs 104
6. Bibliography 105
Publications and online articles 105
Datamonitor reports 111
APPENDIX 113
Exchange rates 113
About Datamonitor 113
About Datamonitor Healthcare 113
Datamonitor consulting 114
Disclaimer 116
List of Tables
Table 1: Market size, operating margin and indicative profit potential for the healthcare landscape 11
Table 2: Big Pharma’s mergers, acquisitions, and divestments by sector type, 2000-Q2 2009 22
Table 3: Notable divestures of non-core pharma assets by Bristol-Myers Squibb, 2005-09 33
Table 4: Financial performance of Johnson & Johnson’s key divisions, 2005-08 35
Table 5: Notable divestments by Bayer, 2004-09 38
Table 6: The relative importance of mail order pharmacy services to the top three prescription benefits management companies in the US, 2008 44
Table 7: Retail pharmacy chains associated with wholesaler operations in the UK, 2006 44
Table 8: Prescription and over-the-counter product classification 47
Table 9: Consumer health and diagnostics/medical device classification 49
Table 10: Prescription and over-the-counter product classification 54
Table 11: Non-pharmaceutical animal health services 55
Table 12: Global prescription branded pharmaceutical market, 2008 60
Table 13: Operating margin for the leading prescription branded pharmaceutical companies, 2005-08 61
Table 14: Indicative Profit Potential for the prescription branded pharmaceutical market, 2008 62
Table 15: Global over-the-counter/consumer health, 2008 63
Table 16: Operating margin for the leading over-the-counter/consumer health companies, 2005-08 64
Table 17: Indicative Profit Potential for the over-the-counter/consumer health market, 2008 65
Table 18: US health insurance market, 2008 66
Table 19: Operating margin for the leading US health insurers, 2005-08 67
Table 20: Indicative Profit Potential for the health insurance market 68
Table 21: Global medical device and diagnostics market, 2008 70
Table 22: Operating margin for the leading medical devices and diagnostics companies, 2005-08 71
Table 23: Indicative Profit Potential for the medical devices and diagnostics market, 2008 72
Table 24: Global retail pharmacy market, 2008 74
Table 25: Operating margin for the leading US retail pharmacies, 2005-08 75
Table 26: Indicative Profit Potential for the retail pharmacy market, 2008 76
Table 27: US hospital market, 2008 77
Table 28: Operating margin for the leading US hospitals, 2005-08 78
Table 29: Indicative Profit Potential for the US hospital market, 2008 79
Table 30: Global prescription generics market, 2008 81
Table 31: Operating margin for the leading generics companies, 2005-08 82
Table 32: Indicative Profit Potential for the generics market, 2008 83
Table 33: US prescription benefits management market, 2008 85
Table 34: Operating margin for the leading US prescription benefits management companies, 2005-08 86
Table 35: Indicative Profit Potential for the prescription benefits management market, 2008 87
Table 36: Global pharmaceutical wholesale market, 2008 89
Table 37: Operating margin for the leading US pharmaceutical wholesalers, 2005-08 90
Table 38: Indicative Profit Potential for the pharmaceutical wholesale market, 2008 91
Table 39: Global animal health market, 2008 92
Table 40: Operating margin for the leading animal health companies, 2005-08 93
Table 41: Indicative Profit Potential for the animal health market, 2008 94
Table 42: Examples of human to animal drug cross-over 104
Table 43: Currency exchange rates, 2008 113
List of Figures
Figure 1: Big Pharma’s projected sales growth decline through 2014 4
Figure 2: Profit at the company and sector level 5
Figure 3: Big Pharma mergers and acquisitions by sector type, 2000-Q2 2009 6
Figure 4: The spectrum of Big Pharma’s business diversification, 2008 7
Figure 5: The correlation between Big Pharma’s prescription focus and operating margin, 2005-08 8
Figure 6: The ten healthcare sectors, 2009 10
Figure 7: Market size across the healthcare landscape, 2008 12
Figure 8: Average operating margin across the healthcare landscape, 2005-08 13
Figure 9: Indicative profit potential across the healthcare landscape, 2008 14
Figure 10: Big Pharma’s potential responses to the patent cliff 16
Figure 11: Optimizing operating margin growth 17
Figure 12: Big Pharma mergers, acquisitions, and divestments, 2000- Q2 2009 21
Figure 13: Big Pharma mergers and acquisitions by sector type, 2000-Q2 2009 23
Figure 14: Big Pharma’s divestments by sector type, 2000-Q2 2009 24
Figure 15: Big Pharma’s focus on prescription drug sales, 2001-08 25
Figure 16: The spectrum of Big Pharma’s business diversification, 2008 26
Figure 17: The correlation between Big Pharma’s prescription focus and operating margin, 2005-08 27
Figure 18: The diversification profile for Pfizer, Novartis, Eli Lilly, Johnson & Johnson, Bayer, and Bristol-Myers Squibb, 2007 29
Figure 19: Pfizer’s prescription focus and operating margin, 2001-08 30
Figure 20: Eli-Lilly’s prescription focus and operating margin, 2001-08 31
Figure 21: Bristol-Myers Squibb’s prescription focus and operating margin, 2001-08 32
Figure 22: Johnson & Johnson’s prescription focus and operating margin, 2001-08 34
Figure 23: Novartis’s prescription focus and operating margin, 2001-08 36
Figure 24: Bayer’s prescription focus and operating margin, 2001-08 37
Figure 25: Pharmaceuticals sales for Procter & Gamble, 2004-08 39
Figure 26: The ten healthcare sectors, 2009 41
Figure 27: The human and animal healthcare divide within the life sciences sector 42
Figure 28: The product-provision division running through human healthcare 42
Figure 29: The organizations responsible for human healthcare provision 43
Figure 30: The pharmaceutical, non-pharmaceutical divide in human healthcare products 45
Figure 31: The subcategorization of pharmaceutical products 46
Figure 32: The subcategorization of non-pharmaceutical products 48
Figure 33: The over-the-counter-consumer health spectrum 50
Figure 34: The companion-livestock divide in animal health 51
Figure 35: Classification of service provision in animal healthcare 52
Figure 36: Animal healthcare products for companion animals and livestock 53
Figure 37: Market overview for the global healthcare landscape, 2009 58
Figure 38: Market size, operating margin and indicative profit potential for the ten healthcare sectors 59
Figure 39: The companion animal-livestock split in animal health, 2004 95
Figure 40: Indicative profit potential of the human and animal health care sector 97
Figure 41: A comparison of the size and profitability of individual sectors within the healthcare landscape, 2009 98
Figure 42: Drivers and resistors for prescription to over-the-counter switching 102