In this environment, companies need a new competitive model to outperform rivals and thrive in these challenging conditions.
Here are five examples of such models that demonstrate winning approaches:
Technology model. Beginning with its majority ownership of biotechnology pioneer Genentech in 1990, Roche has leveraged its leadership in biotechnology—specifically
monoclonal antibodies—to become the world's largest oncology company, with its $20 billion in pharmaceutical sales representing
one-third of the industry's total in this category. The company is the global leader in tissue-based cancer diagnostics and
cancer therapeutics, including blockbusters Herceptin (breast cancer), Avastin (colon and lung), and Rituxan (blood cancers).
According to market research firm Evaluate Pharma, Roche is expected to dominate oncology, the industry's biggest therapeutic
area, for at least the next five years.
Diversification model. Beginning in the mid-1990s, Novartis adopted a "focused diversification portfolio" strategy by incorporating pharmaceuticals,
vaccines, generics, and consumer health. Novartis invested in new areas of healthcare, such as generics and eye-care, highlighted
by its $52 billion acquisition of US eye-care company Alcon. According to CEO Joseph Jimenez, "A broad, diversified portfolio
is going to become increasingly important as more and more payers look for low-cost generics and preventive vaccines as complements
to innovative pharmaceuticals." By leveraging this unique competitive model, Novartis will generate sales exceeding $60 billion
and become the world's largest pharmaceutical company by 2017, according to First Word.
Specialization model. Gilead Sciences (viral infections), Novo Nordisk (diabetes), and a number of other pharmaceutical companies have built dominating
disease specialty companies. Gilead, the current leader in anti-HIV product sales, is expected to command an over 40 percent
share of the anti-viral market by 2018 by adding new Hepatitis C anti-viral agents. Similarly, Novo's insulin and non-insulin
(Victoza) franchises will represent nearly 30 percent of the entire global diabetes market over the next five years. Such
focused disease models offer numerous competitive advantages, including product portfolio co-positioning and segmentation;
potential portfolio product combinations; enhanced corporate reputation and recognition; potential pricing and contracting
leverage; substantive, longer-term relationships with key stakeholders, including regulators, thought leaders, and prescribers;
and better business development and licensing opportunities. A 2011 Oliver Wyman study revealed that leading disease specialty
companies complete 2.2 times more business development deals, achieve 70 percent higher development success rates, and generate
5.5 times more revenue than non-specialty companies.
Execution model. Teva Pharmaceuticals has become the world's largest generic company by relentlessly focusing on better execution to outperform
its rivals. Over the past 15 years, the company has been the global leader in acquiring and integrating numerous generic manufacturers,
including Taiya; Barr Pharmaceuticals; IVAX; Scios; Novopharma; Copley; and Ratiopharm, a pivotal European player for which
Teva beat out Pfizer, the world's largest pharma company. In the United States, Teva routinely beats its generic rivals to
market by filing abbreviated new drug applications (ANDAs) for its generic products much earlier and with fewer revisions
than competitors. Teva has been an implementation innovator in supply chain management, information technology, and research
and development. For example, Teva effectively developed its branded multiple sclerosis blockbuster Copaxone for one-fifth
of the average cost of innovative products. The company is increasingly leveraging its efficiency model for developing and
commercializing other innovative products as demonstrated by its recent investments in Cephalon and CureTech. Execution excellence
has catapulted Teva this year into the top 10 of global pharma companies, according to Evaluate Pharma.
Virtual outsourcing model. Several biopharma companies have adopted a competitive model characterized by a small number of full-time employees directing
a virtual network of support vendors responsible for core corporate functions. In 2006, NPS Pharmaceuticals was a floundering,
nearly bankrupt biopharma company with over 400 employees, a failed lead development product, and four research and operational
facilities. New CEO Francois Nader dramatically transformed NPS into a virtual pharma company by outsourcing most of its non-core
functions to third-parties. NPS closed all but one of its facilities, including its research laboratories and original headquarters
in Salt Lake City, effectively eliminating the firm's discovery, manufacturing, and commercial operations. Nader slashed the
workforce to 40 people and focused on the development of two key orphan drugs. Today, NPS is a thriving competitor which recently
gained FDA and European approval of Gattex, a treatment for short bowel syndrome, and is submitting a biologic license application
(BLA) to the FDA in the second half of 2013 for Natpara, a novel treatment of adult hypoparathyroidism. The company recently
regained the worldwide rights to these two products from Takeda, making the company a global player in the orphan diseases
space. Similarly, Ferrokin Biosciences was a virtual pharma company comprised of seven home-based employees who for several
years directed an outsourced group of 60 vendors and contractors developing a novel, once-daily, oral iron chelator for treating
transfusional iron overload. In March, 2013, Shire Pharmaceuticals bought the highly successful virtual biotech company in
a deal valued potentially at over $300 million.
Stan Bernard, MD, MBA, is President of Bernard Associates, LLC, a global pharmaceutical industry competition consulting firm. He can be
reached at SBernardMD@BernardAssociatesLLC.com