Branded drugmakers continue to enjoy double-digit revenue growth rates and healthy profits, but manufacturing bottlenecks strangle their efforts. According to a new Report from Forrester Research, Inc. (Nasdaq: FORR) in order to succeed, drug firms must move toward flexible operating networks — technology-enabled operations that use configurable assets across departments and trading partners.

Skyrocketing drug development costs and diminishing market life cycles of new drugs are driving branded drug manufactures to ramp up their R&D and marketing efforts. Dwindling market exclusivity of products and Wall Street pressure to produce three to five blockbusters each year are forcing drugmakers to maintain a pipeline full of promising leads. But developing a new drug can cost up to $600 million and take eight or more years. As a result, drugmakers like Pfizer are spending 20% of revenues on R&D to keep their pipeline jam-packed.

Although the FDA confers a 17-year patent protection on new drugs, sales of a recently launched blockbuster drug can drop overnight if a competing product is introduced to the market. For example, Tagamet, an ulcer drug introduced in 1977, enjoyed a six-year market exclusivity before another drug in the same class, Zantac, was introduced. Pfizer’s CELEBREX was on the market in 1999 for only three months before the launch of a rival product — VIOXX.

“Pharma companies’ existing rigid operations won’t help them meet increased demand for custom medications, comply with stringent regulatory requirements, or cope with decreasing market exclusivity of drugs,” said Navi Radjou, analyst at Forrester Research. “Drugmakers must harness a broad range of technologies to transform into flexible operating networks.”

Without an agile production setting, pharma firms won’t be able to keep up with escalating demand volumes. To gain flexibility, they must invest in apps that create asset transparency, automate links between manufacturing and R&D, and set up online collaboration with trading partners. Flexible operating networks will lead to speedier time-to-market, production agility, and flexible supply chain distribution.

To eliminate costly product launch delays and to accelerate time-to-market, drugmakers must improve coordination between R&D and the manufacturing process. In particular, Net-enabled tools which link the development stage and the manufacturing processes can eradicate any manufacturing issues upfront. Because the entire manufacturing process must be documented for validation purposes, drugmakers should accelerate the documentation by shifting from manual to electronic recording — from cradle to grave.

Also, drugmakers try to make multiple products from a single product line, but their operations are too rigid to handle rapid switchovers. To enhance production agility, firms must wrap automated controls around plant processes, use integrated software to view global operations, and make production planning continuous.

With enhanced plant performance and improved internal collaboration between manufacturing and its touchpoints, pharma companies can expose their production processes to the external world. Without real-time visibility into demand patterns, drugmakers produce more than twice what the market demands. To fix this problem, they must capture point-of-sale and point-of-care data in real time and feed it to their production systems.

“Drugmakers will transform into flexible operating networks as product innovation and production flexibility pressures mount,” added Radjou. “During the next three years, firms will focus on improving their existing make-to-stock environment. But in 2005, they will start testing configure-to-order initiatives. And by 2008, today¿s legacy processes will be transformed as custom batches of one finally become a reality.”

For the Report “The Pharma Apps Prescription,” Forrester spoke with senior executives at 16 global makers of branded prescription drugs.