For the last decade or so, pharma companies have been reinventing their business models as the patents on some of their biggest block buster drugs drew close to expiration and it became clearer that existing pipelines would not be sufficient to fill the gap. As the industry moved from the blockbuster model to today, companies sought to replenish their pipelines, boost revenues and "variablize" fixed costs. They diversified away from blockbusters into portfolios of more-targeted drugs in strategic therapeutic areas, as well as into other segment such as over-the -counter (OTC) medicines, generics, animal health and consumer products. They brought increased focus and discipline to managing for the bottom line with aggressive cost-cutting measures, including standardization and outsourcing. And as emerging markets came into their own, pharma companies expanded their geographic foot prints to increase efficiencies and tap new sources of revenue. In short, today's pharma has been about moving to a cost-efficient, diversified product/market model.
Even as pharma companies have been grappling with these challenges, they are being propelled forward to the next iteration of significant change. In this blog, I would discuss the trends and strategic directions for life science companies.
1. Business model innovation. Innovation is no longer just about products, but increasingly about business models. This will require re balancing resources away from product innovation and toward commercial model innovation.
Companies will experiment with multiple business models through a “commercial trials” process and through radical collaboration with non-traditional entrants. It will become increasingly important to pay attention to how companies might fit into other industries’ evolving business models (See Figure 1).
Figure 1. Drivers and Opportunity in Evolving Business Model
2. Connecting information. Information the currency. As health care enters the world of “big data” and the “internet of things,” the ability to connect disparate information from diverse sources and extract insights becomes a core competency and driver of competitive advantage. Information technology is strategy, not overhead (Figure 2).
Figure 2. Opportunities in the Information Era
3. Co-creation and community engagement. Co-creation of value. with patients, payers, providers and partners will become a key value driver.In social media and other communities, pharma companies will need to engage meaningfully with stakeholders in open and transparent ways (Figure 3).
Figure 3. Embedded Incentives to Co-Created Value between Pharma and Community
Much of this thinking was summarized in a schematic which identifies three core competencies (connecting information for competitive advantage, radical collaboration and managing multiple business models) that needed to be built to complement companies’ structures and initiatives. It also lists several business processes — from business model development to community engagement and ecosystem risk management — that needed to be substantially enhanced or built a new (Figure 4).
Figure 4. Summary of Trends and Strategic Direction for Life Science Companies
Deloitte Life Science: http://www.deloitte.com/us/lifesciences
Cognizant Healthcare: http://www.cognizant.com/healthcare
Ernst & Young Progression: http://www.ey.com/GL/en/Industries/Life-Sciences/Progressions--building-Pharma-3-0