1.Which of the project portfolio options currently facing Vertex do you favor? Why? Specifically, what two projects would you pursue? What should they do with the other two? (25%)

2.What criteria would you use to make the decision? What other information do you think that Bogner needs to make his decision? (25%)

3.How do you determine the financial implications of this decision? (25%)

4.Should any of these products be licensed? When and why should a drug be licensed? (25%)

For the excluswe use of Y. ZHANGZO15.

maximum HARVARDIBUSINESSiSCHOOL

9-703-489

REV: APRIL 2, 2004

STEPHEN P, BRADLEY

JAMES WEBER

The Pharmaceutlcal Industry: Challenges 1n the

New Century

The golden age of medicine was traditionally looked at as the 194os, 195os, the development of antibiotics.

Based on what we now know about the human genome, more careful targeting of discovery efi‘orts, you haven’t

seen anything yet. The golden age of medicine clearly lies ahead of us.

-Henry McKinnell, Chairman and CEO, Pfizer1

Early in the 21“ century, the pharmaceutical industry, and especially its largest competitors, faced

uncertain times. Many of the most pressing issues-patent expirations, price pressures, drug

development challenges, regulatory issues, and political pressures-had existed for a decade or

longer, but their growing intensity threatened to force industry players to discover new approaches

to address them. Perhaps the most significant challenges were rapid scientific advances and the

introduction of fundamentally new technologies that combined were changing the way drugs were

discovered, developed, and tested. These advances had allowed smaller, specialized competitors to

enter the industry and compete in new ways, and these competitors were making a significant and

growing number of the new drug discoveries coming out of industry laboratories. The scientific and

technical advances, along with the new competition, were forcing the large competitors that had

dominated the industry for a century to rethink how they discovered, developed, manufactured,

tested, marketed, and distributed their products, and also how they sought regulatory approvals and

partnered with outside organizations. In 2004, it was clear that the industry must change. What was

uncertain was change to what, and how quickly.

Industry Overview

Traditionally, the global pharmaceutical industry was characterized by rapid growth, high profits,

and structural stability, even while showing dramatic innovation. Global sales reached $466 billion in

2003, up from $317 billion in 2000, while North American sales reached $230 billion, up from $153

billion over the same period.2 The U.S market had been the fastest growing market and was expected

to remain the fastest growing market “for the foreseeable future.”3 (See Exhibit 1 for sales by region

and Exhibit 2 for sales by leading countries.) In the 19905, the industry had been one of the most

profitable in the world. For both 2000 and 2001, pretax margins at the top 10 global pharmaceutical

companies ranged from 16% to 35% and averaged just over 26%.4

Professor Stephen 1’. Bradley and James Weber, Senior Researcher, Global Research Group, prepared this case. This case was developed from

published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of

primary data, or illustrations of effective or ineffective management. Material for this case was drawn partly from Perry L. Fagan and Robert H.

Hayes, “The Pharma Giants: Ready for the 21? Century?” HBS No. 698-070 (Boston: Harvard Business School Publishing, 1998).

Copyright © 2003 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,

write Harvard Business School Publishing, Boston, MA 02163, or go to http:/ /www.hbsp.harvard.edu. No part of this publication may be

reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means-electronic, mechanical,

photocopying, recording, or otherwise-without the permission of Harvard Business School.

This document is authorized for use only by YUYANG ZHANG in Global Strategy – BMIBZ – Hanover at Hult International Business School2015.