Beyond the blockbusterFinding the next profit zone in Pharmaceuticalsthrough Business Design thinkingExecutive briefing: P...
n	 The rapid growth of pharma companies in the 1990s was driven bya ‘blockbuster’ modeln	 This model is under pressure: Sl...
Not only was this growth rapid,but it was also spread widelyacross many companies in theindustry. The enterprise value oft...
1. New scientific innovationis taking longer thanexpected to bear fruit(Exhibit 1)Many of the blockbusterslaunched in the ...
3. The prescriber hasbecome a tougher customer(Exhibit 3)The blockbuster model also facespressure at the customer endof th...
The speculative value placedby the capital markets onunlaunched drugs in companies’long term ‘distant’ pipelinesurprises u...
We believe that developing highlevel strategies is a tough task forleaders in this industry. Unlikesome other sectors, the...
Sales/marketingLarge drug focusNiche drug focusTherapeutic area/specialty focusDevelopmentDiscovery---In licensingOut lice...
After studying a variety of bigpharmaceutical companies andnew entrants, like biotechs, webelieve there are at least 13 ma...
1. Catalogue and describeexisting Business DesignsWhich Business Designs operatewithin the business today andhow much are ...
Here’s why. Let us assume thatthe integrated pharmaceuticalcompany with a ‘Large DrugFocus’ begins to bolster itspipeline ...
1010Research carried out by OliverWyman suggests that thereare very real differences inhow companies do this, fromintegrat...
1111The ‘RD DrivenBlockbuster’The heart of this strategy reflectsa fastidious focus on the in-house discovery of large dru...
1212The ‘Niche Drug Player’This strategy is centred aroundthe ‘Niche Drug Focus’ BusinessDesign – targeting small‘niches’ ...
1313Other ApproachesMany smaller players appearto be attempting more radicaldepartures from the types ofstrategies followe...
141.	 What Business Designs do Ihave today and how much arethey worth?2.	 How much will they be worthin the future if the ...
1515ContributorsDavid Campbell Torontodavid.campbell@oliverwyman.com n +1 416 868 2101David works extensively with pharma ...
16As one of the world’s premier corporate strategy and operationsfirms, Oliver Wyman helps leading Life Sciences and other...
AtlantaBarcelonaBeijingBostonCalgaryChicagoClevelandColumbusDallasDetroitDubaiDüsseldorfFrankfurtHamburgHong KongHoustonIs...
Copyright 2007Oliver WymanAll rights reserved.For further information, pleasecontact your local Oliver Wymanoffice or visi...
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20071012 ow _beyond_blockbuster

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20071012 ow _beyond_blockbuster

  1. 1. Beyond the blockbusterFinding the next profit zone in Pharmaceuticalsthrough Business Design thinkingExecutive briefing: Pharma trends
  2. 2. n The rapid growth of pharma companies in the 1990s was driven bya ‘blockbuster’ modeln This model is under pressure: Slowing scientific innovation andrising development costs combine with prescribers, payors andpatients becoming tougher customersn But investor expectations remain high as much of the value ofcompanies is still derived from products yet to be launchedn Finding a way through this situation calls for some deep thinkingaround new business models and different ‘customer’ relationshipsn Oliver Wyman’s approach is to identify new or adapted BusinessDesigns that make money in distinctive ways that enable seniorleaders to frame the questions they need to ask to find the profitzones1 of the futuren This approach shows that some company strategies are beginningto move away from the traditional blockbuster model and are, infact, becoming very differentExecutivesummary1 The Profit Zone, by Adrian J. Slywotzky and David J. Morrison was named by Business Week as one of the tenbest business books in the year it was written. Currently in its fifth printing, The Profit Zone has appeared onseveral top 10 bestseller rankings, including The New York Times business hardcover bestseller list, and the Amazon.com non-fiction hardcover bestseller list. Adrian is a prolific book writer, his most recent – co-authored with RichardWise – is entitled How To Grow When Markets Dont and was published in April 2003.
  3. 3. Not only was this growth rapid,but it was also spread widelyacross many companies in theindustry. The enterprise value ofthe top ten players grew fivefoldfrom $200bn in 1990 to $1,000bntoday. The underlying Blockbusterbusiness model that drove thisstunning performance was inessence very simple: discoverefficacious compounds thataddress large areas of unmetmedical need, and develop themfast and market aggressively via(mostly) large primary care salesforces.‘Finding the compound’ wasperceived as the key to thestrategy and, on the whole, mostbig pharma companies wereable to achieve this consistently,profiting from a wave of scientificinnovation that started in the1970s and bore fruit in the 1990s.Even those that were slow to ‘findthe compound’ could prosper bybeing good secondary movers,producing compounds thatclosely copied the method ofaction of competitors’ drugs. Suchwas the level of unmet medicalneed that these were often moresuccessful than the first entrantswhich had to carry the market-building burden of pioneering anew category.The consistent growth of the pharmaceuticals industry inthe 1990s was built around the ability to consistently bringefficacious new therapies to market to satisfy large unmetmedical needs.Prologue:The triumph of theblockbuster
  4. 4. 1. New scientific innovationis taking longer thanexpected to bear fruit(Exhibit 1)Many of the blockbusterslaunched in the mid to late 1990swere the product of discoveryactivities started in the 1970sand 1980s. These efforts focusedon commercialising a wave ofscientific knowledge that hadbeen maturing for some time.More recent scientific advancessuch as high throughputscreening and genomics haveincreased productivity but theirimpact has yet to feed throughto the bottom line. For the timebeing, at least, many pipelinespromise only single figure growthafter the impact of patentexpiries.2. Development costscontinue to rise (Exhibit 2)At the same time that researchis becoming less productive,development costs continue torise, driven by falling successrates, greater clinical costs perpatient and the need to performlarger trials to satisfy ever morestringent regulatory hurdles. Intheir recently published survey,DiMasi et al estimate that theoverall costs for a successfulcompound rose over 2.5 timesthroughout the 1990s, amountingto over $800m today inclusiveof capital (opportunity) costs.We believe that these numbersare conservative, especially forhighly competitive blockbustercategories.The blockbuster model under threatRecently, the blockbuster model has come under pressurefrom a number of factors that will limit its ability togenerate substantial profits for all players.0$100m$200m$300m$400m$500m$600m$700m$800m$900m1970sapprovals1980sapprovals1990sapprovals2xCAGR =11.8%CAGR =3.7%138 -156318 - 459802Clinical(Phase I toApproval)Discovery/pre-clinicalExhibit 2Development costs per drug, including costof failures and opportunity costs02468101214161896 97 98 99 00 01 02 03 04 05TrendlineExhibit 1Number of blockbuster products launchedper year is declining (number of productswith peak sales $800m)Sources:1970s: Hansen 1979; Wiggins 19871980s: DiMasi et al 1991; OTA 1993; Myers and Howe 19971990s: DiMasi et al 2003Source: Lehman Brothers
  5. 5. 3. The prescriber hasbecome a tougher customer(Exhibit 3)The blockbuster model also facespressure at the customer endof the value chain. Throughoutthe 1990s, pharmaceuticalcompanies relied heavily onbuilding ever larger primary caresalesforces to drive revenue andgain competitive advantage overcompetitors while still achievinggood marginal returns for everynew sales representative hired.This strategy is running out ofsteam. Doctors are saturatedwith sales calls as ever more repschase ever fewer doctors who arewilling to accept a visit. Moreover,many of the products that salesreps are promoting are ‘mature’blockbusters that have alreadybeen promoted on many previousoccasions.4. The payors and patientshave become toughercustomers (Exhibit 4)In the early 1990s, nearly 60% ofdrugs were paid for by privateindividuals. Today over 70% ofdrugs are paid for by insurancecompanies/HMOs who areleveraging their scale to exertdownward pressures on prices.Payors are also demanding thatnew drugs have health economicbenefits as well as enhancedefficacy. Organisations such asthe ‘National Institute of ClinicalExcellence’ (NICE) in the UK havebeen set up to do just that. Therise of the internet and dramaticincrease in direct-to-consumer(DTC) advertising, where allowed,has meant that patients arebecoming ever more informedabout their treatment choices.As a result pharmaceuticalcompanies are increasinglyhaving to re-think theirtraditional marketing strategies.0%10%20%30%40%50%60%70%80%90%100%91 93 95 97 995950383018121514101230 35486070 Insurance/HMOMedicaidPrivateindividualsExhibit 4Sources of payment for ethical drugs94 95 96 97 98 99 00 01Sales repsDetails010203040506001020304050Salesreps(US)(000s)Details(m)Exhibit 3Sales reps have grown in number, butdetailing activity is stagnatingSample of Top 10 detailing companies in the US:Pfizer, BMS, Pharmacia, GSK, Wyeth, ScheringPlough, JJ, Eli Lilly, Astra Zeneca, MerckSource: Scott LevinSource: S+P Industry Profile June 2001
  6. 6. The speculative value placedby the capital markets onunlaunched drugs in companies’long term ‘distant’ pipelinesurprises us. Research carried outby Oliver Wyman suggests thatthe value of existing products andother non-ethical pharmaceuticalbusinesses constitutes onaverage less than half of themarket capitalisation of themajor players. We believe thata significant proportion of theremaining ‘gap’ may be accountedfor by high expectations forlonger term unlaunched drugprospects. To maintain thesesteep valuations, pharmaceuticalcompanies will have to maintainexisting margins and grow salesby over 10% per year, even inthe face of patent expiries. Thistranslates into the need to launchthree blockbusters a year, adifficult challenge when viewedin the light of the industry’s pastperformance. Few of the leadingplayers managed to launchconsistently more than one majorblockbuster per year in the 1990s.Pfizer GSK Novartis AstraZeneca BMS AventisImplied value of new (unlaunched) drugsValue of other non-ethical businesses(OTC, consumer etc.)Value of existing ethical drugsMarketvalue$bn050100150200250Investor expectationsremain highDespite these pressures, investor expectations remain high.Although valuations have declined significantly from theirpeak in 2000, average revenue multiples of the 10 leadingplayers remain in the 4-6 range.Exhibit 5Investor expectations remain high: most ofthe value of pharmaceutical companies isderived from products yet to be launchedSource: Oliver Wyman analysis
  7. 7. We believe that developing highlevel strategies is a tough task forleaders in this industry. Unlikesome other sectors, the timetaken for strategy decisions tohit the bottom line is very longindeed. An initiative to, say, focuson a particular therapeutic areain drug discovery can take upto 15 years to bear fruit. Even asupposedly shorter term initiativeto in-license a given compound inlate stage development can takeup to three years, assuming theapprovals process runs smoothly.Leading players have to beoutstanding at anticipating trendsearly and positioning themselvesto take advantage quickly.Another difficulty is serendipity.Even the most deliberate,well planned and executedstrategies are hostage to events(fortunate or otherwise) in drugdevelopment that are impossibleto anticipate. Who couldhave foreseen Pfizer’s erectiledysfunction success with Viagra,a compound originally developedas a cardiovascular drug. Or B-MS’s success in type II diabeteswith Glucophage, a ‘forgottencompound’ originally discoveredand used successfully in Europesince the 1950s.Leaders in this industry are alsounder continuous short terminvestor pressure to focus onrunning better the businessesthey have today, rather thanfinding answers to the longerterm issues needed to buildthe businesses they need in thefuture. There is always a criticaldevelopment decision to bemade about a particular drug,the efficiency of the salesforceregularly requires improvement,and biotechs always want faceto face discussions about an in-licensing deal.The challengeof strategyThinking about Business Designsas the right units of strategy‘raises the vantage point’ forsenior leaders, enabling them tomake real strategic choices. OurBusiness Design analysis showsthat despite the ‘interference’of serendipity or long time lags,company strategies have begun tomove away from the traditionalblockbuster model and are in factbecoming quite different, whetherstrategically or serendipitously.This emerging evolution can beinstructive.Given these negative trends in the industry, how shouldpharmaceutical companies think about new strategies thataddress the pressures on the blockbuster model and meetshareholder expectations?Exhibit 6The challenge of strategy: getting thebusiness model right over the long termLeadershipabilitytoimpactHighLowNow 1-3 yearsExisting productsLong term pipelineNear term pipeline3-15 yearsInvestors tend tofocus on theshort term pipelineBut the short term pipelineis driven by the longer termbusiness modelBusiness model
  8. 8. Sales/marketingLarge drug focusNiche drug focusTherapeutic area/specialty focusDevelopmentDiscovery---In licensingOut licensingLarge geogrpahy focusLocal tailoringGlobalstandardisationLarge primarycare salesforceCo promotionDTC pullPost-patentlifetime extensionSpecialist sales forceA ‘Business Design’ is how youmake money; what you do forwhom that earns a profit, andhow you protect the cash streams.A Business Design is morethan just a value proposition,a particular profit model or asource of competitive advantage.It is the customers you choose,the problems you solve for themwith the drugs or services youoffer them, how you accessthese, how you get paid, whythis is defensible and the sort oforganisation that is required tomake it all happen.Sales/marketingLarge drug focusNiche drug focusTherapeutic area/specialty focusDevelopmentDiscovery---In licensingOut licensingLarge geogrpahy focusLocal tailoringGlobalstandardisationLarge primarycare salesforceCo promotionDTC pullPost-patentlifetime extensionSpecialist sales forceOur starting pointOur view of the industry revolves around looking at thedifferent ‘Business Designs’ that pharmaceutical companiesmight or might not operate.Exhibit 7‘Business Designs’ - the common buildingblocks of every big pharma company (not atall exhaustive)Business Designs:
  9. 9. After studying a variety of bigpharmaceutical companies andnew entrants, like biotechs, webelieve there are at least 13 majorBusiness Designs in the industrytoday, as shown in Exhibit 7. Thisexhibit provides a brief, high levelbut not exhaustive descriptionof the Business Designs. Theseboil down to the different wayscompanies can access, developand market drugs. Some of thesecan exist at multiple pointsfrom discovery through to salesand marketing. For example, anintegrated pharma company canchoose to focus on large drugsall the way across the valuechain. But a biotech could dothis just at the discovery stage,a contract research organisation(CRO) during development and acontract sales organisation CSO)during marketing. We observe thatall companies are unique mixes ofthese Business Designs, employingdifferent ones at particular pointsof the value chain that add up aunique ‘tone of voice’.Description What’s the bet?� Rigorous focus on markets and compounds that have the potential for$1bn/year sales (irrespective of therapeutic area)� Focus on lower potential areas/conditions largely ignored by othercompanies e.g. orphan markets (irrespective of therapeutic area)� The risk/return profile of one large drug is better than many smallones� New compounds for small, ‘un-addressed’ markets are easier todevelop and require less marketing push (no competition)� Purchase promising early stage compounds at a price below their fullpotential and develop them successfully� Capture value through selling partially developed compounds� Tailor drugs only to major global markets to increase developmentspeed and reduce regulatory risk� Tailoring compounds closely to local needs at the expense ofdevelopment speed, consistency and regulatory risk� Sales and development strategies focused towards swift rollout toone standard� Create strong sales ‘push’ through large sales force scale withresulting efficiencies� Create sales ‘pull’ through DTC brand building� Promote another company’s products for share of revenue, risk� Extend the value of a drug beyond its patent expiry via line extension,brand building etc.� The post patent value increase justifies the investment� Build strong relationships with specialist physicians via a dedicatedand focused salesforce� Specialist physicians are more responsive to highly focusedsalesforces� Can identify value in licenses that the current holder cannot see orcannot create� Focus and build scale in a particular therapeutic area (broadly ornarrowly defined)� The scale and customer synergies within a therapeutic area aresubstantial� More value will be created by selling the compound thandeveloping it further internally� Lower risk/faster launch in a few major markets outweighs therevenue opportunity loss from other markets� Revenues from smaller markets outweigh regulatory risks / launchdelays in major markets� Speed and consistency is worth more than local tailoring� Sales forces have large scale efficiencies� The returns on DTC spending are high� Increased sales/marketing scale creates a win-win for bothpartnersOrganisationalSystemsHow do I structure tasks, people,culture and organisation toaccomplish what Iset out to do?Strategic Control ScopeValue Capture/Profit ModelHow will I “build in”sustainability bybusiness design?What scope ofactivities and assetsare required?What profit modelwill I harness tocapture value fromthis customer?Customer Selectionand Value PropositionWhat high value customeropportunity am Itargeting with whatunique customerproposition?The components of a Business Design
  10. 10. 1. Catalogue and describeexisting Business DesignsWhich Business Designs operatewithin the business today andhow much are they worth?How does this compare tocompetitors? Finding answers tothese questions requires there-casting of internalmanagement accounts or publiclyavailable data into discreteBusiness Designs. While this isnot conceptually straightforward,it is possible with the applicationof the right analytical tools.Taking, for example, an integratedcompany with a ‘Large DrugFocus’ we would isolate the costsand revenues associated with allthe large drugs in the portfolioand carry out a DCF valuation.We would then break this valueout by each step of the valuechain. If this process is repeatedfor each potential BusinessDesign a detailed picture of thesize and structure of the portfoliobegins to emerge.2. Understand howBusiness Designs can bemixed and matched toeither create or destroyvalue (Exhibit 8)Most pharmaceutical companies,except perhaps for some veryfocused specialists, operate morethan one Business Design. Butif you mapped out the discretevalue created by each one itwould be only half the picture.Business Designs in practiceHow can a Business Designs approach be used in practiceto evaluate current strategies and build the winning onesneeded in the future?•••••++%0Share of company revenueShareofcompanyvalue+++%+0%Therapeutic area focus+Specialist salesforce+Large PC salesforceNiche drug focus+In-licensing+Global standardisationLarge drug focus+Co-promotion+Large PC salesforceLarge drug focus+In-licensing+Specialist salesforceNiche drug focus+Large PC salesforceExhibit 8Valuation of different mixes of BusinessDesigns operating within a company
  11. 11. Here’s why. Let us assume thatthe integrated pharmaceuticalcompany with a ‘Large DrugFocus’ begins to bolster itspipeline by in-licensing drugsfrom biotechs. The value of thisactivity is superficially simple:The sales revenues of thein-licensed products lessthe purchase price, royalties,marketing costs and so on. But ifthe company has a large primarycare salesforce that it used topersuade the biotech that it wasthe best partner for the deal,the picture becomes less clear.How much value was created bycombining in-licensing with a bigsalesforce – certainly more thandoing either on its own.These sorts of questions can beanswered by thinking deeplythrough the logic of combiningdifferent Business Designs andapplying a range of sophisticatedanalytical approaches. But itis not straightforward. Nor dowe think it is only of academicinterest to senior leaders. Pfizerbecame the industry leader it istoday because it understood earlythe economic value of linkingin-licensing with a large primarycare salesforce and made somelarge bets. The race is on to mixand match the right BusinessDesigns that will create value inthe future.3. Understand theorganisational constraintson different mixesWe define organisation here inits broadest sense: the types ofpeople, culture, processes andstructures required to ensure abusiness operates effectively. Justas mixing Business Designs haseconomic implications, it alsohas organisational implications.Obviously no organisation canaccommodate an infinite amountof Business Designs. But at amore practical level, the moreBusiness Designs you begin toadd, the greater the compromisesthat have to be made within theorganisation to accommodatethem. A good example of thisis the commonly advancedargument that biotechs havebetter RD productivity thanlarge integrated pharmaceuticalcompanies because they aremore focused on basic researchactivities. What this really meansis that the single Business Designthat they operate is notorganisationally compromised bythe need to co-exist with a rangeof other Business Designs withinthe same company. But equallyas important as the number ofBusiness Designs is their type.Simply put, some mixes ofBusiness Designs work bettertogether within an organisationthan others.
  12. 12. 1010Research carried out by OliverWyman suggests that thereare very real differences inhow companies do this, fromintegrated ‘big pharma’ rightdown to smaller players who arefocused on particular areas of thevalue chain. What is most strikingis not just the way companieshave made choices about whichBusiness Designs to operate, buthow they are linked together tocreate value.In big pharmaceutical companies,it is clear that all players haveemployed all of the BusinessDesigns to a greater or lesserextent, but if we filter out someof this ‘noise’ and focus on thosethat form a significant part oftheir business an interestingpicture begins to emerge. Wethink that there are a range ofdistinct models that are uniquecollections of Business Designs,each with their own internal logicand unique ‘tone of voice’.Viewingpharma companies... What can we learn from looking at pharmaceuticalcompanies from a Business Design perspective? How do theymix and match the Business Designs to gain competitiveadvantage?There are a range of distinctmodels that are uniquecollections of BusinessDesigns
  13. 13. 1111The ‘RD DrivenBlockbuster’The heart of this strategy reflectsa fastidious focus on the in-house discovery of large drugs forhigh prevalence, mostly primarycare prescribed disease areas.In some traditionally successfulcompetitors, we see over 80% ofsales are derived from in-houseoriginated compounds and over90% of revenues come fromproducts with yearly sales ofover $850m. This is a high risk,high return model predicated onthe ability to consistently do theoutstanding science necessaryto find the next large drug, inwhatever therapeutic area.The larger the average drugsize becomes, the more itpays to increase the speed ofdevelopment and minimiserisks throughout. As a result,this type of company employstwo other Business Designs.First, a ‘Large Geography Focus’in development and marketingmeans that the speed of productcommercialisation is not affectedby distractive efforts to get theproduct exactly right for smallermarkets. This approach alsoreduces risks since clinical trialsdo not have to be complicatedby the need to test a broaderrange of indications within thecontext of very different localdisease treatment ‘philosophies’.Second, a ‘Large Primary CareSalesforce’ ensures that eachdrug is supported by a high levelof promotional activity, ensuringrapid market penetration.All of these Business Designs arewrapped in a highly centralisedorganisation that keeps allactivities tightly aligned.The ‘Customer DrivenBlockbuster’Superficially, this approachappears very similar to the RDDriven Blockbuster. Its productportfolio is centred on large,blockbuster drugs targeted athigh prevalence disease areas,in large geographic markets andprimary care.However, we believe that thisapproach is an ‘enhanced’ RDBlockbuster model and thatit operates three additionalBusiness Designs with a centreof gravity closer to the customer,rather than in the science ofRD. The key to this approachis a leading primary care salesforce, large enough relative tocompetitors to have advantage inphysician access.The approach can leverage itsscale in this area to carry out‘In-licensing’ and ‘Co-promotion’,signing attractive deals becauseof its ability to offer a biggerpromotional effort at lower costthan its peers. Typically, over twothirds of all revenue comes fromproducts that have been sourcedin this way, as other companiessee this Customer Blockbusteras the partner of choice for newproduct launches.... through a Business Design lensThis is a high risk, highreturn model
  14. 14. 1212The ‘Niche Drug Player’This strategy is centred aroundthe ‘Niche Drug Focus’ BusinessDesign – targeting small‘niches’ that have not beenfully addressed by competitors.Although the drug sizes mightbe smaller, the argument hereis that the development andmarketing costs are lower too,because of limited competitionand regulators’ unwillingnessto discourage novel therapiesthat address rarer diseases. Inessence, the opposite of the highrisk blockbuster strategy. Thereare many different approachesto what constitutes an attractiveniche, in terms of economic sizeand structure. A low prevalence,high value per treatmentniche is very different from ahigh prevalence low value pertreatment niche, even if theiroverall sizes are the same.The basic model is oftenenhanced with the ‘LocalTailoring’ of drugs closely to therequirements of a broad range ofgeographies, the bet being thatgetting the niche right everywhereis worth the resulting slowerdevelopment times. Companiesalso appear to have some successat extending the life of theirdrugs beyond patent expiry –niches tend to be more defensiblefrom generics manufacturers.Typically companies tend to havedecentralised organisationalstructures, with local operationshaving the freedom to pursuetheir own approaches to targetingniches.The ‘Therapeutic AreaFocus’The underlying principle of thisstrategy is a focus on just a fewtargeted therapeutic areas. Inpractice this means providinga broad range of drugs (bothlarge and small) and potentiallyancillary services to offer anoverall ‘therapeutic solution’to customers. The underlyingpremise here is that thereare synergies within certaintherapeutic areas from early drugdiscovery, through developmentand right up to forming customerrelationships. This strategy hasbeen pursued by some smalland mid-sized companies as away of negating their overallscale disadvantage versus largercompetitors.We see a broad range ofvariations around this strategywith companies mixing inmany additional BusinessDesigns, often driven by theparticular characteristics of theirchosen therapeutic areas. Mostcompanies tend to structurethemselves around therapeuticarea units to realise the fullbenefits of focus. Overall, it isunclear today whether this typeof model is sustainable overthe long term or whether thecurrent positions are a result ofserendipity and will evaporatewith the loss of a key compound.Although the drug sizesmight be smaller, thedevelopment and marketingcosts are lower tooWe see a broad range ofvariations around thisstrategy with companiesmixing many BusinessDesigns
  15. 15. 1313Other ApproachesMany smaller players appearto be attempting more radicaldepartures from the types ofstrategies followed by largerpharmaceutical companies. A keytheme is the unbundling of thevalue chain as players stake outtheir own chosen areas of focus.The first wave of this was theproliferation of drug discoveryfocused biotechs throughoutthe 1990s. The large amounts ofcapital that have been sunk intothese players (nearly as much asthe combined RD spends of thetop 10 big pharma companiesover the last three years) meansthat a bigger and more liquidmarket for new compounds isbeginning to develop. As a result,downstream players have greaterscope to develop more innovativegames. Some companieshave positioned themselvesas ‘compound traders’,making money by in-licensingundervalued compounds andout-licensing them later at ahigher price, without necessarilyhaving carried out any furtherdevelopment work.Other companies appear tobe focused on in-licensing,developing and marketing largedrugs with limited discoverycapabilities, similar to the ill-fatedMarion Merrill Dow in the early1990s. It is as yet unclear whetherthe market for compounds islarge enough to provide enough‘feedstock’ to sustain this model– the success of some players sofar has been based primarily onjust one product.At the sales and marketingend of the value chain contractsales organisations such asQuintiles appear to be dabblingin backward integration, takingon more risk sharing dealswith customers for compounddevelopment. While all this isgoing on, biotechs such as Amgenare busy forward integrating intosales and marketing.A more liquid market forcompounds gives greaterscope for more innovativestrategies
  16. 16. 141. What Business Designs do Ihave today and how much arethey worth?2. How much will they be worthin the future if the trendsin scientific innovation,development costs andthe behaviour of patients,physicians and payorscontinue? Will they still beviable and will their currentmix create best value?3. What can I learn from theBusiness Designs operated bymy traditional competitors andnew emerging players? Whatnew Business Designs should Iconsider ‘importing’?4. How should I mix and matchexisting and new BusinessDesigns to create the businessI need in the future? How do Iget there and what ‘bets’ do Ineed to make a long the way?5. What does this mean in termsof organisational practicality,and what trade-offs should Imake?How can pharmaceutical companies use Business Designthinking to set their future direction? We believe seniorleaders should ask themselves a number of questions.Focuson a new horizon14
  17. 17. 1515ContributorsDavid Campbell Torontodavid.campbell@oliverwyman.com n +1 416 868 2101David works extensively with pharma and device companies, academicresearch agencies, hospitals, clinics, and providers to these. His activitiesrange from clinic management to negotiating research funding andacquisition due diligence. A frequent industry speaker and author, prior toOliver Wyman David was at Procter Gamble and a graduate of Queen’sUniversity, Kingston in Canada.Andrew Chadwick-Jones Londonandrew.chadwickjones@oliverwyman.com n +44 (0)20 7915 9233Andrew is a key contributor to Oliver Wyman’s Life Sciences intellectualcapital. Andrews work ranges from high level strategy issues todevelopment process improvement, product launch strategies, marketingoptimisation, compound due diligence and provider efficiency (hospital).Before Oliver Wyman, Andrew worked at HSBC and holds an MA inbiological sciences from Christ Church, Oxford.Andrew Pasternak Chicagoandrew.pasternak@oliverwyman.com n +1 312 902 7012Andrew works across a variety of clients including large pharma, biotech,private equity, NGOs and government agencies. He is a recognised thoughtleader in vaccines and biopharmaceuticals and holds an MBA from theUniversity of Chicago.Adam Sabow Chicagoadam.sabow@oliverwyman.com n +1 312 902 7915Adam works with life sciences clients on a range of topics, includingoperational economics, market entry, and growth strategy. He has par-ticular expertise in biologics, speaking and publishing on that sector, andholds an MBA from the Kellogg School of Management at NorthwesternUniversity.Mike Weissel Bostonmike.weissel@oliverwyman.com n +1 617 424 3752Mike is the leader of Oliver Wymans Health and Life Sciences team andhas extensive experience in the insurance, payor and health outcomesarea. His work on marketing effectiveness has been published in HBR andhe holds an MBA from the Fuqua School of Business at Duke University.Jim Hall Bostonjim.hall@oliverwyman.com n +1 617 424 3571Jim has over 20 years experience in the Health and Life Sciencesindustries and his work includes strategic planning, marketing planning,new business creation, RD optimization and product development.
  18. 18. 16As one of the world’s premier corporate strategy and operationsfirms, Oliver Wyman helps leading Life Sciences and other enterprisesdevelop, build, and operate strong businesses that deliver sustainedshareholder value growth.Oliver Wyman’s proprietary Business Design techniques ­– combinedwith its specialised industry knowledge and global reach – enable LifeSciences companies to anticipate changes in customer priorities andthe competitive environment, and then design their businesses andimprove operations to seize opportunities created by those changes.Oliver Wyman serves Life Sciences and other client organisations from21 offices in the Americas, Europe and Asia.Oliver Wyman is part of Marsh McLennan Companies, a globalprofessional services firm with annual revenues exceeding $11bn.About Oliver Wyman
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  20. 20. Copyright 2007Oliver WymanAll rights reserved.For further information, pleasecontact your local Oliver Wymanoffice or visit our web site at:www.oliverwyman.com

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