The document discusses business model innovation (BMI) in the pharmaceutical industry, focusing on the challenges managers face in adapting value propositions, market segments, and value chains. Key drivers for BMI include regulatory changes, the loss of patent protections, and increased competition from new entrants, necessitating a shift towards patient-centric and outsourced approaches. The document highlights the organizational, human resources, and leadership challenges associated with implementing BMI, emphasizing the need for structural adjustments and new performance metrics.

1. BUSINESS MODEL INNOVATION
IN THE PHARMA INDUSTRY:
MANAGERIAL CHALLENGES
Nicolai J Foss
SMG – CBS

2. The basic value
propositon
(”What?”).
The market-segment
(”Who?”).
The structure of the
value chain that
realizes the relevant
value proposition
(”How?”).
Value
appropriation
mechanisms (”How
much”?).

3. A business model innovation is a change of
[value propositions, market segments, value
chain elements, value appropriation
mechanisms] that is new to the industry.
Modular (the Kindle businesss model) vs
systemic (Lego’s turnaround).
Radical (Kindle) vs incremental (Lego).

4. BMIs are prompted by drivers that are internal
and external to the industry.
BMIs are embedded in organizational /
administrative structures … that may have to
change.

5. BMI DRIVERS IN THE PHARMA INDUSTRY
The ”payment challenge”, i.e., increased
demands that companies demonstrate
therapeutic/cost advantages of their
products.
Slide 5
More stringent regulatory environment
(approval success rates have been going
down since the early 1990s).

6. BMI DRIVERS – CONT’D
 The ”patent cliff”, i.e., the loss of
patent protection on many
blockbusters.
 Many of the ”new” technologies
(high-throughput screening,
combinatorial chemistry,
pharmacogenomics, proteomics,
metabolomics .. ) may not (yet)
have lived up to promises.
Slide 6

7. BMI DRIVERS – CONT’D
 New potential/actual entrants
with strong downstream asset
bases, e.g., Nestlé, Google,
Apple, Walmart …
 End users increasingly active
and critical.
Slide 7

8. BUSINESS MODEL INNOVATION / CHANGE
 Blurring boundaries:
 Increased use of contract research
organizations and other service providers.
 Former ”core areas” increasingly
outsourced
 Discovery chemistry, manufacturing, data
management .
 Or, pooled with other pharma players in JVs
(e.g., Johnson & Johnson, Lilly, Merck, Novartis,
and Pfizer setting up Enlight Biosciences).
 Patient-centricity / ”servitization”.
Slide 8

9. MANAGERIAL CHALLENGES OF BMI
The soft underbelly of the BM/BMI literature.
BMI: a major organizational change process.
So far, questions rather than answers.
Major HECTOR research theme.
Slide 9

10. HUMAN RESOURCES CHALLENGES
 Some human capital will be relatively
less important.
 Hiring and training new human capital,
e.g.
 employees specialized in market-access;
increased need for hybrid profiles, i.e.,
both a science and business background.
 Power and legitimacy issues.
 Need for new KPIs, metrics, and rewards (e.g., patient satisfaction,
Slide 10
# of patients enrolled in service programs, benchmarking of
external partners, etc.).

11. FIRM BOUNDARIES
Challenges from handling new
partners, e.g., service providers
and producers of ”devices” (e.g.,
Leo and Klox Techn.).
 Small-numbers situations.
 IPR issues.
 Do the right competencies exist
for managing longer-term
partnerships?
Slide 11

12. INTERNAL ORGANIZATION
 How should organizational
structure adjust to accomodate
new business models?
 E.g., self-managing teams with their
own budgets and missions that are
outside the existing structures vs
coordination within existing
structures.
 UCB: Cross-functional teams with
specific patient missions.
 Or, self-sufficient units as with
Chorus and Eli Lilly.
Slide 12

13. LEADERSHIP CHALLENGES
 Culture and identity changes?
 ”Research-driven” → ”patient centrity-driven.”
 Requires very different TMT communication
 BMIs come in different forms.
 Some involve massive changes in several
interlocking parts of the business model, others
involve changing a single component.
 Leadership role depends on the nature of change.
Slide 13