The top model in pharma
As Tyra selects the latest size 6 model to take the American fashion scene by storm, pharma executives are struggling to identify the commercial model that will keep their margins on the right side of shareholder expectations!
Listening to the pundits you would believe a major and unprecedented transformation is underway with huge changes in strategy and operations, the patent cliff, the end of the small molecule NCE, the biologics “white knight”, the market access hurdle, healthcare reform etc…
Of course the marketers in the industry should not be surprised by these changes.
What we are experiencing is a very simple phenomenon. Every industry since the first exchange of goods has followed a fairly standard lifecycle, in fact marketers throughout the world manage the lifecycle of their brand and yet it seems that only now the industry has really started to consider the lifecycle of the business.
What the pharma industry is experiencing is simply a “coming of age”. Following rapid growth and very healthy profits in the 70s, 80s and 90s the industry saw challenges looming in the 2000s but continued working as if these challenges could be postponed.
As a business matures the forces of industry competition become more obvious. A young industry tends to experience the honeymoon period, where the industry is able to set the agenda and the pace, but as the industry matures the competitive forces from new entrants, buyers, suppliers, generics and internal rivalry heat up1.
“What the pharma industry is experiencing is simply a ‘coming of age’.”
This has been very obvious in the pharma industry, buyers (or payors!) have begun flexing their muscles as they get more choices, generics have infiltrated all areas of the business, new entrants (especially in niche areas like biologics) are having a significant impact, suppliers are both being put under pressure to reduce CoGs and at the same time consolidating and putting pressure on the business (especially in the specialties area) and of course there is intense rivalry amongst the existing players to become the most profitable/the biggest/the most innovative/the market leader etc.
So what should the industry do?
In many respects the industry is making the right moves, the problem is that everyone is making the same moves, expansion into emerging markets, a move to speciality/niche segments, cutting costs, consolidation, in-licensing / partnerships etc.
This is OK if the aim is to maintain the status quo, the industry will “lurch” forward in a new direction with the existing leaders leading and the followers following! However, there is another way where, rather than moving into old age with the same school ground rules and relationships, it is possible to define new rules and for new players to take the lead.
The first thing every business should do is an honest and thorough analysis of its strengths (every coach will tell you to build on your strengths). Identify which geographic regions, product areas and internal competencies are your strengths and then identify how these can be exploited in a mature marketing environment, i.e. anticipating all the forces playing against you!
The second thing to do is to determine a strategy for growth, preferably linked to existing strengths or alternatively based on building new market leading strengths. (There are already some very good examples of this where companies have anticipated the need to evolve and made the move to build new capabilities e.g. Shire, Roche and even Pfizer with the Wyeth acquisition)
Determining the direction for a new strategy should be based on some very simple marketing principles.
Firstly, define a strategy – differentiation, cost leadership, niche. As pharma businesses diversify their strategy needs to develop to reflect this. In the 70s and 80s separate divisions were created to enable competing products to be launched in the same sector i.e. ICI and Stuart Pharmaceuticals. In the 2010s separate divisions should be created to allow a business to follow different strategies i.e. Novartis and Sandoz, Shire and Shire HGT.
“In many respects the industry is making the right moves, the problem is that everyone is making the same moves…”
The trend for “opportunistic strategies” is interesting, an opportunistic approach is not a strategy if you are waiting to see what happens! However a strategy where the company is shaped and flexible to take advantage of opportunities that arise could be a successful strategy, although even here a sense of direction is still a significant advantage. (Opportunistic strategies based on strengths should be preferable)
“It’s better to be first than it is to be better” (Ries and Trout 19932) should be a mantra for small/mid-sized pharma if they have aspirations to become “big pharma”. Finding niche areas where being first is still possible, first in a disease segment, first in a geographic region, first to move to OTC, first in an emerging specialty etc. will undoubtedly result in success (e.g. Shire are leading the way in enzyme replacement therapy with their HGT division)
Invest! While the world is looking to save money and pay off debt the winners in a recession will be the companies who continue with smart investments. Determining the requirements for success and making the commitment to invest is essential and should be part of the strategy. Even in a recession or a mature market the old adage, Shape the Market, Shape the Product, Shape the Company is even more relevant if you are going to be successful.
Finally tactical implementation in line with the strategy is as important now as it has ever been.
The “New Commercial Model” is therefore nothing more than the reality faced by many businesses in the past and a future many businesses will be looking forward to! Pharma is here now, sharing best practice within pharma may not be the right approach, looking at other businesses and learning from successful business life cycle management could be more fruitful.
For the pharma marketer, getting the basics right is essential. Define a strategy built on strengths, identify in which way you can take a lead, allocate the appropriate level of investment and then implement tactics in line with the strategy.
1. Porter M.E. (1980) Competitive Strategy, New York Free Press.
2. Ries A &, Trout J (1993) The 22 Immutable Laws of Marketing, HarperCollins Publishers
The follow up second article by Chris Rose can be found here.
About the author:
Chris Rose has worked in Sales and Marketing roles within the Pharmaceutical Industry for over 20 years leading the launches of primary care and specialty products. After recently leaving the position of Business Unit Director at Nycomed, Chris is currently working for SAM, a specialist recruitment company and is a Partner in Roses, a Marketing Consultancy company based in Sweden.
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