The New Commercial Model Myth

May 01, 2013

Stan Bernard
Arecent Cegedim Relationship Management survey revealed that the number one concern of nearly three-quarters of pharmaceutical executives is the "changing commercial business model." Desperately seeking new commercial models, many executives have experimented with a myriad of approaches, including corporate restructuring, sales force realignments, customer-centric account management, multi-channel marketing, and new emerging markets strategies. Unfortunately, these commercially-focused efforts were doomed to fail. Because the pharmaceutical industry has transitioned from the commercial to the competitive stage of its lifecycle, companies seeking new commercial models in the competitive stage are fighting today's battles with yesterday's battle plans and weapons (Figure 1). Pharma companies need new competitive—not new commercial—models.

Source: Bernard Associates, LLC; The four lifecycle stages of the pharmaceutical industry.
The industry's commercial or growth stage extended from the 1960s to the 1990s. During that period, there were significant unmet clinical needs, many new products and indications; expanding markets, pricing flexibility, and relatively little competition. Numerous companies, products, and brand teams experienced double-digit sales growth resulting in many pharma "winners." However, that changed in the 1990s when the European and the US markets transitioned from the commercial stage to the competitive stage of their lifecycle. This stage has been characterized by brutal competition among a countless number of brands, generics, and substitute products; significantly reduced R&D productivity resulting in fewer new products; more sophisticated payers focused on cost minimization; and increasing industry consolidation and contraction.

The transition to the competitive stage in the United States was marked by two key indicators: the peak number of new molecular entities (NMEs) in 1996 and the end of double digit sales growth in the late 1990s. IMS projects that the US and European markets will have low single-digit growth rates ranging from 3 to 6 percent and 1 to 4 percent, respectively, through 2014. While emerging markets remain in the growth or commercial stage, companies are recognizing the competitive challenges these markets represent for innovative brands, especially biologics and other higher-priced medicines.

Several industry CEO's have acknowledged this important lifecycle transition. In 2008 Andrew Witty, CEO of GlaxoSmithKline said, "The environment we find ourselves in as a pharmaceutical company is so different from seven or eight years ago that it is almost unrecognizable." In the same year, then-CEO of Merck Richard Clark stated in a corporate press release that, "Next year will continue to be a period of fundamental transformation that establishes Merck as a different competitor for the next decade....This new Merck will be built for the new era that our industry has entered."

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