The document discusses emerging business and operational models in the pharmaceutical industry driven by factors like increased regulations, price pressures, and patent expirations. It summarizes that the industry is moving away from traditional blockbuster models towards strategies like cost management, emerging market expansion, and customer value management. Project management is playing a key role in balancing risks, simplifying structures, leveraging technology, and managing adaptive flexibility across the pharmaceutical value chain.

1. Emerging Business and Operational Models In the Pharmaceutical Industry:
The role of Project Management
P. Krishnan, Operations Research Program, University of Delaware, Newark, DE, 19716
Surya P. Chitra, AstraZeneca LP, 1800 Concord Pike, Wilmington, DE,19850
Transition to New Global Economy
INTRODUCTION Drivers & Business Model Changes Traditional Business Models Pharmaceutical Operations
q The pharmaceutical industry is beginning to q Blockbuster Model (Sales > $1B)
unravel business and operational models across DRIVERS/ INFLUENCERS
mDiscovery to Distribution REGULATIONS
the value chain to create a new industry picture Cost Inefficiencies Cost of Capital Competitive Products
Price Pressures Long Development Cycles Low entry Barriers
q Factors influencing the pharmaceutical industry
mHigh Cost & Long Time
include: Oil/ Petrochemicals Electronics
Personal Care
mLarge Profits from Few Drugs
m Risk Mitigation of Increased Regulations Operational/ Business Model Drug Clinical Formulation Marketing Distribution
Chemical/ Pharmaceuticals
Automotive
m Management of the Price Pressures
Specialties Discovery Development & Manufacture & Sales
q Diversification Model
m Reduction of Drug Development Costs and 1970 1980 1990 2000 2010
mSmaller Markets – Many Drugs
Time
mRelatively High Development Cost
m Management of Patent Expirations BUSINESS MODEL CHANGES/ STRATEGIES
§ Alternatives to Blockbuster Model
Cost Management Emerging Market Strategy Geographic Leveraging
SUPPLIERS
q Other Combination Models
Differentiation Model All to Segmented Targets Customer/Value Management
§ Competition from Generics
m Leveraging Technology & Global Markets
Transformation INNOVATION
Drivers/ Influencers for Change Project Management: Risks/Decisions
Evolving Operational Models
qReduced Cost and Speed of Development NOT INCREMENTAL INNOVATION
PRODUCERS
qGeographic Placement of Supply Chain “Marginal Benefit to Patients but
CUSTOMERS - Innovation
- Value Balance Risks - Efficiency
TRADITIONAL
m Discovery & Manufacturing to India Boost Short-term Corporate Profit ”
RADICAL
- Speed - Low Cost
Transparency - Long Life
Reach
m Development to China, India, Eastern EU or q Brand Extensions
- Product 1. True Innovation
- Product Technology PHARMACEUTICAL RADICAL
- Price q Formulation Changes
Russia INDUSTRY ’S 2. Risk & Uncertainty
- Geographic & q Geographic Expansion
- Value SUSTAINED INNOVATION
Management
qLeveraging the Technology - Easily Information
q Mergers & Acquisitions
- Services GROWTH 3. Simpler Structure/
- Supply Chain “Optimum Medical and Economic Value
- Supply
m Electronic Data Capture q Vertical Integration Effective Decisions
q Re-engineering Costs to Patients”
4. Value Chain Leverage
m Electronic Research Organization INCREMENTAL
q Out Sourcing 5. Adaptive Flexibility
INNOVATION - Extensions
qOut sourcing the Manufacturing - Novel Individualized Medicine Disease Management
- Formulation
- Quality Weighted - Delivery
qDirect Distribution Channels - Lasting Decisions Biologics Biomarkers/ Diagnostics
m Direct to Consumer (DTC)
RADICAL DECISIONS THROUGH CALCULATED RISKS
VALUE CHAIN RESTRUCTURE
STRUCTURE REDESIGN
RISK: CALCULATING UNCERTAINTY RISK: PRODUCT DEVELOPMENT RISK: PHARMACEUTICAL VALUE CHAIN
Project Management of Resources
Early
Revenue Potential
More
Stage R&D PRODUCTION PRODUCT LAUNCH
R&D PRODUCTIO PRODUCT LAUNCH M & A Created Complex Organizations
N
25%
Target
Drug Clinical Formulation Marketing Distribution
55%
Building Blocks for Change Drug Clinical Formulation Marketing Distribution
Fewer
85%
Discovery Development & Manufacture & Sales
Discovery Developme & Manufacture & Sales
24% 76%
nt •Rules •Simple 2005 Expenditures
23Aug05 25Aug05 PROGRAM RISK PRODUCT RISK
Target
Early Late
•Processes •Flexible
Decisions Structure
Product Launch
Project Risk Launch Risk
Revenue Potential
Late
Which parts of Each
•Speed
More
Execution Risk Competitive Risk
Stage Information Motivation •Adaptation Function is Crucial to
Regulatory Risk Regulatory Risk
Target
•Technology Company Value Chain?
’s
Fewer
55%
1
•Knowledge Share
85%
Decisions Based on More Past Decisions Based on
Experience Than Risk Models Statistical Risk
Early Target Late
1
27Aug05 29Aug05 Models
Product Launch
MANAGING ADAPTIVE FLEXIBILITY
SUMMARY CONCLUSIONS
• ADAPTATION
• External Dynamics
Change is Inevitable in The Industry
q Incremental & Radical Innovation
• Technology
• Globalization
m Balancing the Decisions
• Uncertainty
q Managing Risk & Uncertainty Project Management Needs to be Dynamic
m Risk Models and Forecast
q Simpler/ Effective Organizations
• FLEXIBITY Need to Blend Experience with Calculated Risks
m Speedy & Adaptive Decisions
• Operations
• Strategies
q Value Chain Management It’s Not the Management of Science,
• Structure
It’s What Science Forces one to
• Innovation m Prioritized Decisions Manage
DIA PM SIAC & PMI Pharmaceutical SIG Conference
quot;The Changing Pharma and Biotech Industry: Re-negotiating the Role of Project Management“
Sep 25 2006 - Sep 27 2006; Philadelphia, PA