The Strategy Pathfinder, 3rd Edition

6Business Model Advantage

Without a business model, you don’t have a business.

Eric Hutchinson, COO and Co-Founder Madison Color

The world pharmaceutical industry is in trouble. Scientists say that the molecules from which new drugs are developed are offering fewer and fewer opportunities for new medicines. Also, the costs of getting drugs approved, by the FDA in the US for instance, is rocketing. This means the difficulty, time and costs for creating new drugs in the industry are rising inexorably, while older patents for leading drugs are expiring. The basis upon which Big Pharma competes is being eroded.

In response, organisations in the industry have been engaged in mega-mergers and acquisitions (M&A). For example, Johnson and Johnson’s $30bn deal with Swiss drug maker Actelion in 2017 to boost growth in its drug-making unit in anticipation of an impending decline in revenues from its top selling arthritis medicine, Remicade. Other giant M&As include Glaxo Wellcome’s $76bn merger with SmithKline Beecham to create GSK, and Bayer and Monsanto’s $66bn merger help them to better afford greater expenditure on R&D and meet the costs of regulatory compliance. These behemoths are reputed to be spending in excess of $5bn per year on R&D and yet their success in identifying new drugs is in decline. The underlying problems of limitations to chemistry, rising approvals costs and proprietary drugs coming off patent are not going away and pharmaceutical company strategic initiatives ...