Internationalize and be innovative.

• Position: Views of Robert E. Cawthorn, Chairman and CEO of Rhone-Poulenc Rorer Inc. - Special Section: Being a Global Leader

Internationalize And Be Innovative

It is generally considered that the pharmaceutical industry is a good industry to be in because it is making money; it is in a fast-growing market, one that will continue to grow; and it is a noncyclical industry, as opposed to such industries as chemicals or automobiles.

In 1990, the worldwide pharmaceutical market was about a $180 billion market, growing about 10% a year. North America remains the sales leader in the market, ahead of Europe and Japan.

There are several major trends that will influence the pharmaceutical industry for the decade, and century, to come: * People are getting older: The graying of the population means an increased need for medical services and, therefore, a higher consumption of drugs. * People in developing countries are becoming wealthier and, therefore, are able to spend more money on healthcare. They are viewing health more and more as a right. * We can see demand increasing because of greater healthcare coverage under national health systems, including in the U.S.

On the other hand, the industry has constraints that must be dealt with: * Increased pressure on prices as governments struggle to stop healthcare costs rising as a percentage of GNP. * Dramatic escalation in the cost of discovering and developing new medicines and the challenge to get a return on the investment. * An increase in over-the-counter sales as governments, to reduce their own budgets, encourage the switch from prescription drugs to self-medication.

Health expenditures as a percentage of GNP are rising everywhere. The current level is over 10% of GNP in the U.S. This growth cannot continue indefinitely, and governments must, and will, find ways to stop it. The first and easiest place for them to turn is the pharmaceutical industry, even though drugs accounted for only 10% of total worldwide healthcare expenditures, down from 12% in the 1970s. (Drugs represent only 8% in the U.S.) Drugs are generally the most cost-effective way to treat disease. This is not the place governments should look. They should encourage and reward innovation in finding medicines that improve human health in a value-added or cost-effective way.

Let us suppose that we have enlightened governments that do encourage and reward value-added new medicines. What does it take to develop them? Costs of developing a single new drug have increased from an average of $54 million in 1976 to an estimate of over $230 million last year. Who...