phd thesis presentation 9oct07 final

Amit Rangnekar NMIMS-PhD-2004

PhD Thesis Presentation

Longitudinal Study of the Strategic Responsiveness of the Survivors of Big Pharma in 1995 and 2004, under conditions of consolidation

in the Global Pharmaceutical Market

Presented by- Amit RangnekarPhD Scholar- 2004-05 Batch

SVKMs NMIMS University

Thesis Guide- Dr NM Kondap, Vice Chancellor- NMIMS University


Presentation Flow

• Research Objectives• Contribution• Scope of the study• Literature Review• Research Methodology• Research Findings• Conclusions• Further Research


Research Objectives

• To study the emergence of Big Pharma• To study the survivors of Big Pharma 1995, who

retained their positions in Big Pharma 2004, under conditions of consolidation in the Global Pharma Market

• To develop a framework to compare the strategic responsiveness within the survivors and across other categories in the Global Pharma Market, and identify linkages


Contribution to Pharmaceutical Strategic Management

• Developed and applied the Pharmaceutical Strategic Responsiveness framework to compare strategic responsiveness across categories in the Global Pharma Market, under conditions of consolidation


Contribution to Strategic Management

• Modified and applied the Ansoff’s Strategic Responsiveness framework, a seminal work, but with few applications, to arrive at the outcomes of industry specific strategic responsiveness


Scope of the study

• Global Pharmaceutical Market Consolidation from 1995-2004

• Emergence and dominance of Big Pharma• Compare the strategic responsiveness among

Global Pharma Market categories and identify linkages


Definition of Big Pharma

• The Top 10 companies by pharmaceutical business sales in a particular year between 1995 and 2004

• Big Pharma dominates the Global Pharma Market, functionally and operationally

%


Strategic Shifts- Global Pharma Market

1995

• Fragmentation

• Organic growth

• Ownership

• Domestic dominance

• Healthcare/Chemicals focus

• Big Pharma emergence

2004

• Consolidation

• Inorganic growth

• Partnership/Outsourcing

• Global reach

• Pharma focus

• Big Pharma dominance


Concept Map

Global Economy

Global Industry

Consolidation

GPM

GPM Consolidation

Strategic Management

Big Pharma 1995-2004 ASR Framework

Strategic Responsiveness

Survivors

Stayers

Fringers

Followers

Linkages


Literature Review

Theories

Global Industr

y

GPM Big Pharma

Global Economy

Dynamics

Consolidation

Strategic Management

Strategic Framework

Strategic Response

Categories

Survivors

Many Studies Few Studies

Scarce Studies


Strategy Typology

•Miles & Snow’s Strategy Typology 1978 outlines the strategic organisation types emerging from similar company strategies

•Prospectors innovate, take risks, seek out new opportunities, grow

•Defenders desire stability &quality, develop internal efficiencies

•Analyzers try to maintain stability but innovate at the margins

•Reactors respond to environmental happenings, at that moment

•The typology describes tendencies & processes of firm’s strategic behaviour, does not help identify those that survive / persish / stay

This research is focused on strategic outcomes than on the behaviour


GPM Categories

The Top 100 pharma firms

of 2004, besides the survivors

& the stayers

The Top 100 pharma firms

of 2004, besides the survivors

& the stayers

Fringers

Firms outside

the Top 100 pharma

firms of 2004

Firms outside

the Top 100 pharma

firms of 2004

Followers

Firmscommon to Big Pharma

1995 & 2004

Firmscommon to Big Pharma

1995 & 2004

Survivors

Firms in Big Pharma for atleast 1

year between 1995 & 2004

and still existing

Firms in Big Pharma for atleast 1

year between 1995 & 2004

and still existing

Stayers

Typology looks at outcomes of strategic responsiveness in a consolidating industry, hence classified in that fashion


Strategic Management Frameworks

• Bain’s ‘structure-conduct-performance’ model (1956)- Industry structure determined firm conduct, which determined economic performance

• Porter’s 5 forces model (1980)- Attributes of industry structure & their influence on intensity of competition

• The Delta model (Hax and Wilde, 2002)- Integrated strategy formulation and execution, to adapt to a dynamic environment

• A framework to include changing dynamics and strategic response of the firms, lacking

Ansoff’s Strategic Responsiveness framework (1971) looked at environmental changes and the firm’s strategic response to these changes


Product Obsolescence

Changes in Product TechnologyEmergence of International MarketsOpportunities to enter new lines of businessChanges in legal and social constraints

Changes in Product

Composition

Changes in Market

Composition

Acquisition of other firms

Divestment from

parts of existing business


Pharmaceutical Strategic Responsiveness (PSR) Framework Strategic

Responsiven

essChanges in

Product Compositio

n

Changes in Market

Composition

Acquisition of other firms

Divestment

from parts of

existing

business

Brands Therapies

Promotion Drug

Development

Globalisation Emerging

Markets Outsourcing Regulations

M&A Strategic

Acquisitions Strategic Alliances Divestments Divestments

Dynamics

Product Obsolescence

Changes in Product TechnologyEmergence of International MarketsOpportunitie

s to enter new lines of business

Changes in legal and social constraints

Therapeutic CategoriesNPD Biotechnology

Niches

Geographies Demographics Clusters

Generics Pricing Drug Safety Lobbying


Research Map

Focus Group Discussion(7 respondents)

Interviews(7 respondents)

Primary data

Ansoff’s SR Framework

Structured Questionnaire(32 respondents)

In-depth Interviews(12 respondents)

Secondary data

Development of PSR Framework

Data Analysis

Conclusions & Recommendations

Hypothesis Testing


The Respondents

Blue Cross

ViPharm

Natco

Taro

Pliva

Beijing DC

Dr Reddys

Aurobindo

Followers

Schering Plough

Eli Lilly

Wyeth

AstraZeneca

Bayer

J&J

SanofiAventis

Stayers

Cipla

Ranbaxy

Lundbeck

NovoNordisk

AkzoNobel

UCB

Merck (Ger)

Boehringer Ing.

Fringers

BMS

Novartis

Roche

Merck (US)

GSK

Pfizer

Survivors


Summary of Categories (Average)

ScopeScaleEmploy (000s)

Age (Yrs)

Categories

Global Major therapies Rx-Speciality focus

$25b ($15b to $46b) Major R&D Global sales force

7768Survivors

Global Multiple therapies Rx-Speciality focus

$16b ($5b to $31b) Major R&D Global sales force

6682Stayers

MNC Few therapies Rx-Gx-Speciality

$3b ($0.5b to $9b) Partnered R&D Multinational sales force

18131Fringers

MNC Few therapies Rx-Gx-Speciality

$0.3b (0.03b to $1b) Partnered R&D Regional sales force

331Followers


Hypothesis

• Ho: There is no significant difference in percentage response to the preferred strategy of the _________, from the preferred strategy of the survivors, in response to _________.

• H1: There is a significant difference in percentage response to the preferred strategy of the _________, from the preferred strategy of the survivors, in response to _________.


t-test values for the preferred strategies

Preferred Strategy of the SurvivorsSurvivors strategies

v/s

Fringers Followers

S1 Presence in key segments & novel drugs

0.569 0.129

S2 Bolstering US market share -0.472 -0.194

S3 Focus on China as emerging market 0.475 0.551

S4 Licensing-in new products 0.952 1.056

S5 Launch extensions / isomers 5.645 0.511

S6 Growth strategies driving performance 0.133 -0.122

S7 Launching new products to drive growth

0.566 0.808

S8 Divestment to fuel funds for new projects

0.251 0.082

S9 R&D through External partner 0.136 -0.227

S10

Focus on unmet medical needs 0.836 0.304

Preferred strategies similar to Survivors

90% 100%

Similarity in strategic responsiveness of Fringers & Followers, to Survivors


Strategic Responsiveness across CategoriesPreferred Strategy of the

SurvivorsSurvivors Strategies v/s

Stayers Fringers Followers


Similar Different Similar

S2 Bolstering US market share Different Similar Similar

S3 Focus on China as emerging market

Similar Similar Different

S4 Licensing-in new products Similar Different Different

S5 Launch extensions / isomers Similar Similar Similar

S6 Growth strategies driving performance

Different Different Similar


Similar Different Different


Similar Different Similar

S9 R&D through External partner Different Similar Different

S10

Focus on unmet medical needs Similar Different Different

Strategies similar to Survivors

7/10 4/10 5/10

Strategic similarity between survivors and stayersNo single preferred strategy exclusive to the survivors

Launching extensions / isomers common to all the categories


Stayers 7/10

• 3 preferred strategies of stayers, differed from the survivors• Stayers prefer to increase pharma business focus (bolster US

market share), rely on strategic alliances and acquisitions (organic growth), and rely on own R&D (external partner)

• Fully integrated but smaller in scale wrt the survivors • Similar strategy mix to that of survivors• Adept at brand building and partnerships but lag behind the

survivors in new drugs, pipelines and sales force reach

Stayers focus on scale, while survivors focus on growth


Fringers 4/10

• Increasing differences in preferred strategies with survivors

• Focus on volumes & acute therapies• Rely on own R&D, combinations• Partner the survivors in R&D but compete for new drugs

and generics • Use M&A for geographical/regional dominance or

therapeutic reach, while survivors use M&A for economies/ therapeutic synergies/ bolstering pipelines

Fringers driven by volumes than value, more opportunistic than strategic


Followers 5/10

• Increasing differences in preferred strategies with survivors

• Threats for survivors are opportunities for the followers• World class capacities /capabilities, low operating costs• Strategically positioned to deliver value to survivors in

generics, NDDS, CRAM and API• Over reliance on a segment/product/speciality, hence

regulatory issues can threaten existence• Shifting from high growth emerging to regulated markets

for value addition, even as survivors shift from mature regulated markets to emerging markets for growth

Followers sometimes co-operate but mostly compete with survivors


Respondents Scale v/s Strategy

Map not to scale, indicative SA= Strategic Alliances & Acquisitions

Pliva

Aurobindo

DrReddys

Taro

NatcoViPharm

Beijing DC

BlueCross

Followers

SanofiAventis

Bayer

J&J

AstraZeneca

Wyeth

EliLilly

Stayers

ScheringPloughNovoNordisk

B Ingelheim

Merck(Ger)

Lundbeck

Ranbaxy

Cipla

UCB

AkzoNobel

Fringers

Org

an

ic

SA

+

Org

an

ic

M&

A+

SA

+

Org

an

ic

<$5 Bn <$20 Bn

>$20 Bn

Strategy

Scale $Bn

<$1 Bn

Pfizer

BMS

Novartis

Roche

Merck(US)

GSK

Survivors


Strategy Mix

M&AM&A

Organic Growth

Organic Growth

Divestments

Divestments

Strategic Acquisition

s

Strategic Acquisition

s

Strategic Alliances

Strategic Alliances


Mead–Johnson Generics Clairol Zimmer

AgroChem Nutrition Sante

OTC Vitamins Essences

Medco, OTC, Crop- protection

Dermat-ology

Adam, Women’s Health

Sanofi Otsuka Lipha Onco-Thera

Enablex, Idenix, BASF Gx, Hexal, Eon, Hazal, Lek, Regeneron

Glaxo Igen Affymetrix Antisoma Trimeris

Astra SGP Rosseta Aton Lunbeck Sanofi

Bayer Roche Affymax

BI, Eisai, Searle, Vicuron, Bioren, Idun

Imclone30% in Roche, Chiron

Genentech Chugai

Banyu

DuPontCiba-Sandoz

CoranjeSKB BW

PharmaciaWL

BMSNovartisRocheMerckGSKPfizerSurvivors

Divestments

Strategic Alliances & Acquisitions

Strategic Stake

M&A

Intra-Survivors Strategy Mix


Strategic Responsiveness within the Survivors

Preferred strategy within the survivors Agreement on the preferred strategy

within the survivors

S5 Launch extensions / isomers 100% Unanimous


100% Unanimous


87.50% Near Unanimous

S4 Licensing-in new products 87.50% Near Unanimous

S10 Focus on unmet medical needs 87.50% Near Unanimous

S3 Focus on China as emerging market 75% Significant


75% Significant

S9 R&D through external partner 62.50% Near Significant

S2 Bolstering US market share 50% Divided

S6 Growth strategies driving performance 37.50% Widely Divided

Similarity in strategic responsiveness (Average)

76.25% Strategic similarity

But reliance on a growth strategy mix High level of strategic adaptability evident


Survivors- The Differential

• Use strategy mix- ally, acquire, divest & integrate better• Adept at partnerships; shepherding & marketing

discoveries of others• Focus on dominant US and fast growing emerging markets• High marketing spend, higher marketing effectiveness • Physician proximity aids new drug approvals, superior

reach helps establish new drugs faster across geographies • Operate & dominate in major segments with blockbusters • Innovative patent extension and generic defense strategies• Lobbying helps shape favourable policy


Survivors- Golden Egg Strategy

• Survivors do not put all their eggs in one basket, use a balanced combination of strategies, and manage to build a golden egg every time

• As the environment changes, these strategic responsiveness competencies are used, to create another golden egg

• This helps spread risks and ensures survival • The successful strategies are then used

by other categories, to retain their positions


Further Research

• Similarities in strategic responsiveness among GPM categories-New competencies & strategies that firms need to create to survive

• Despite 150 years of GPM existence, leader has less than 9% share- Is further consolidation and more fossilisation expected

• GPM consolidation has led to consolidation across allied industries- Which categories are driving this change

• Some strategic responsiveness traits are common to US & EU firms- Link between strategic responsiveness and geographical origin


Further Research

• Industry specific Pharmaceutical Strategic Responsiveness framework to compare the strategic responsiveness of Global Pharma Market categories, under conditions of consolidation

• Opens up the possibilities of creating industry specific strategic responsiveness frameworks for tracking the outcomes of strategic behaviour of firms in industries under consolidation


Related Work-1

• Henderson R, HBR, January-February, 1994‘Managing Innovation in the Information Age’

• Pharma companies despite their age, size and success have retained their flexibility and responsiveness, which enabled them to solve competitive challenges in the research arena that companies in other industries are grappling with

• Pre-consolidation, does not consider newer dynamics and strategies, R&D focus than strategy


Related Work-2

• Agarwal et al, Mckinsey Quarterly, 2001, Issue 2 Unlocking the value in Big Pharma

• Split the top companies by size into 3 groups-super heavy, heavy and middle weights and analysed the challenges and the strategic responses.

• Concluded that size can deliver benefits across the entire pharma business, but innovative approaches to organization, decision making, and accountability- can manage the complexity that size brings

• Peri- consolidation, does not consider newer dynamics and strategies, more future focussed


Pharma Strategy Research- Post 2004

• Financial Times, Europe, Oct’06• “Family owned middle pharma selling out,

acquired by fringers to consolidate geographically or therapeutically, or get into allied areas like biotech, generics”



• BCG, The New Global Challengers, May’06- • “Highly competitive challengers from the RDE will

emerge on the world scene with strategic decision making capabilities and world class capacities. Only the incumbents, who can identify the challengers and assess the opportunities and threats they present, will survive”



• IMS Intelligence 360, May’07- • Observations• Low income countries driving 27% of global pharma growth• Increasing regulations for risk and safety monitoring• Innovation skewed towards biotech and specialist driven

therapies• Rising academia licensing deals, increasing technology

acquisitions• Recommendations• Delivering demonstrable innovation is critical• Optimise sales force, increase launch effectiveness• Beef up the legal arm• Target specific products to specific markets



• Wood Mackenzie, Mar’07• “The step-wise decline in market share post M&A

conveys restructuring inefficiencies , conflict of culture/decision making styles, integration issues, and that M&A were undertaken to solve a growth problem”



• Datamonitor, Jul’06, Blockbusters to Nichebusters

• “Blockbusters attract significant generic competition and may also stifle R&D innovation. Small-scale M&A deals harness innovation and provide access to niche markets with a high unmet need”

• “Early-stage licensing and collaborations help companies successfully capture R&D innovation"

• “Central to the nichebuster model development is the raised importance of personalized therapies, driven by the increased use of diagnostics. Critical to a successful nichebuster model, is targeting specialists to drive clinical trial progression, approval and successful uptake”



• Goldman Sachs, Mar’06- • “Key industry pressures are- US patent expiries,

drug safety scrutiny & litigation, pricing concerns, R&D productivity, generic exposure cycle, and “Giganticism” challenge

• Key industry positives are- US Medicare Drug Benefit, Cost flexibility, Cash flow generation, M&A/ strategic options/“Scale P&L”/Legacy CEOs”



• Pharmaceutical Licensing Strategies, Business Insights, Nov’06

• “Alliances are based on Big Pharma’s reputation as a partner of choice, and companies increasingly seek long-term, multi-product, multi-indication collaborations than one-off deals”

• “Alliances succeed due to the ability to collaborate effectively”

• “Value of licensing deals has risen markedly in the last 5 years, but volume of deals among top companies has plateaued”

• “Large biotech companies now have the resources and capabilities to develop lead drugs to later stages of development and compete with Big Pharma for the best in-licensing deals”


Strategic Responsiveness- Post 2004 Research

• Strategic responsiveness and Bowman's risk–return paradox: Andersen, T., Denrell, J., and Bettis, R. Source: Strategic Management Journal; Apr2007, Vol. 28 Issue 4, p407-429,

• Formalizes a model of strategic conduct based on the concept of strategic fit and the heterogeneity of firm strategic capabilities. This model is shown mathematically to yield the negative association of the Bowman paradox. Furthermore, the model makes several other testable predictions. To examine these predictions, simulated data from the model are compared with a large empirical study of 45 industries during 1991& 2000. The predictions of the model are consistent with the empirical data. One of the most enduring puzzles in the strategy literature is the negative association between risk and return known as the Bowman paradox.


Strategic Responsiveness- Post 2004 Research

• A study of organizational learning culture, strategic responsiveness and mass customization capabilities of United States manufacturing enterprises by Hudspeth, Lonnie James, Ph.D., The University of Toledo, 2004, 135 pages; AAT 3126107

• “An organizational learning culture enables the strategic responsiveness and mass customization capabilities that are necessary for achieving value to customer performance”


Consolidation- Dynamics & Strategies

StrategiesDynamics

Old but not important

New and important

Old but important

•Focus on organic growth•Own R&D

•Domestic policies•Domestic dominance

•Partnerships across value chain•Focus on biotech, drug delivery•Environmental management•Increased marketing spend•Tap emerging markets•Focus on niches, versatile drugs•Pharma business focus•Strategy mix

•Decreased productivity•Drug withdrawals•Patent expiry erosions•Regulatory monitoring•Generic incursions•Cost containment•Short Product lifecycle•Competitive intensity

•Launch extensions /isomers•Focus on alliances

•Patent expiries•Barren pipelines


Post 2004 Strategic Responsiveness

Co-marketing, blockbusters

Organic, M&A, Alliances

1995-2004 (Own research)

R&D & Marketing

Expand

Biotech, primary care

Doctor centric

Biotech

Geriatrics, adults

No NPL in EMs

Reactive

Big Pharma

Own & partnered R&D

Launch isomersNew drug launches

Growth

Key dynamics

Corporate focus

Sales force

Innovation drive

Promotion

Technology

Demographics

Patents in EMs

Drug withdrawals

M&A drivers

Drug discovery

Patent expiryMulti partner,nichebusters

Organic, Alliances

2004+ (Secondary data)

Legal & Regulatory

Smart size

Biotech, specialty, vaccines

Doctor and patient centric

Biotech, Genomics, Nano

Young adults, women

NPL costly drugs in EMs

Proactive

Fringers

Acquired /licensed R&D

Authorised Generics


Biotech & Personal Medicine

Biotech • Cover diverse segments- psoriasis, vaccines,

cancer, metabolism and virology• Command a price premium, generics deterrent

due to their manufacturing complexities• Not shown as a separate category, because intra-

category comparison with non-biological molecules becomes difficult

Personalised medicine• Little evidence in 2004• Issues of feasibility, safety, ethics & price


PBM, HMO, Medical Insurance

• Outside the scope of this study• Relevant only in US, more a healthcare issue than

pharma• More relevant in US than Europe or globally• Medical insurance in emerging markets catching

up but low penetration • Health Maintenance Organisations (HMO) and

Pharmaceutical Benefit Management (PBM) companies alter the dynamics of the US generics market, largely through cost containment measures like generic prescribing, brand substitution, and reimbursement on the basis of cheapest brand

phd thesis presentation 9oct07 final

Documents