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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

Thesis Guide- Dr NM Kondap,


Vice Chancellor- NMIMS University

Presented by- Amit Rangnekar


PhD Scholar- 2004-05 Batch
SVKMs NMIMS University
Amit Rangnekar NMIMS-PhD-
2004
Presentation Flow

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

Amit Rangnekar NMIMS-PhD-


2004
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

Amit Rangnekar NMIMS-PhD-


2004
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

Amit Rangnekar NMIMS-PhD-


2004
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

Amit Rangnekar NMIMS-PhD-


2004
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

Amit Rangnekar NMIMS-PhD-


2004
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

%
Amit Rangnekar NMIMS-PhD-
2004
Strategic Shifts- Global Pharma Market

1995 2004
• Fragmentation • Consolidation
• Organic growth • Inorganic growth
• Ownership • Partnership/Outsourci
ng
• Domestic dominance
• Global reach
• Healthcare/Chemicals
focus • Pharma focus
• Big Pharma emergence • Big Pharma
dominance

Amit Rangnekar NMIMS-PhD-


2004
Concept Map
Linkage
Global Strategic
Economy s
Management

GPM
Global
Industry
Consolidation GPM Consolidation

Big Pharma 1995-2004 ASR Framework

Stayers
Fringers Survivors Strategic
Responsiveness
Followers

Amit Rangnekar NMIMS-PhD-


2004
Literature Review

Theorie Global GPM Big


s Industr Phar
y ma
Global Economy
Dynamics
Consolidation
Strategic
Management
Strategic
Framework
Strategic
Many Studies
Response Few Scarce
Studies Studies
Amit Rangnekar NMIMS-PhD-
Categories
2004
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
earch respond
is focused to environmental
on strategic happenings,
outcomes than on at
the be
that moment
Amit Rangnekar
•The typology describes NMIMS-PhD-& processes of
tendencies
2004
GPM Categories

ypology looks at outcomes of strategic responsiveness


a consolidating industry, hence classified in that fashi

Survivors Stayers Fringers Followers

Firms
Firms Firms
Firms in
in The
The Top
Top 100
100 Firms
Firms
common
common to to Big
Big Pharma
Pharma pharma
pharma firms
firms outside
outside
Big Pharma for
Big Pharma for atleast
atleast 11 of
of 2004,
2004, the
the
1995
1995 && year
year between
between besides
besides the
the Top
Top 100
100
2004
2004 1995
1995 & & 2004
2004 survivors
survivors pharma
pharma
and
and still
still &
& the
the firms
firms
existing
existing stayers
stayers of
of 2004
2004
Amit Rangnekar NMIMS-PhD-
2004
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
ff’s Strategic Responsiveness framework (1971) looke
strategic response of the firms, lacking
ntal changes and the firm’s strategic response to thes

Amit Rangnekar NMIMS-PhD-


2004
Product Changes in
Obsolescence Product
Compositio
Changes n
in
Changes in
Product
Market
Emergence Composition
Technolog
of
y
Internation
Acquisition
al
of
Markets
Opportunitie
other firms
s to enter
new lines of
Divestment
business
from
Changes in parts of
legal and Amit Rangnekar NMIMS-PhD- existing
social 2004 business
Pharmaceutical Strategic Responsiveness (PSR)
Framework Strategic
Dynamic
s
Responsiven
Product Therapeut ess
Obsolesce ic Brands Changes in
nce Categorie Therapies Product
s Promotion Compositio
Changes NPD Drug n
in Biotechnol Development
Product ogy
Globalisation Changes in
Technolog Geographi Emerging
Emergence Market
y es Markets
of Composition
Internation Demograp Outsourcing
al hics Regulations
Markets Clusters
Opportunitie M&A
s to enter Niche Acquisition
Strategic
new lines of s of
Acquisitions
business other firms
Strategic
Generics Alliances
Changes in Divestme Divestmen
legal and Pricing nts
Divestments t
social Drug from parts
constraints Safety Amit Rangnekar NMIMS-PhD- of
Lobbyin 2004 existing
Research Map
Primary data Secondary data

ocus Group Discussion Interviews


(7 respondents) (7 respondents)

Ansoff’s SR Framework

ructured QuestionnaireIn-depth Interviews


(32 respondents) (12 respondents)

Data Analysis
Hypothesis Testing

Development of PSR Framework

Amit Rangnekar NMIMS-PhD-


onclusions & Recommendations
2004
The Respondents

Survivors Stayers Fringers Followers

Pfizer SanofiAventis Boehringer Ing. Aurobindo

GSK J&J Merck (Ger) Dr Reddys

Merck (US) AstraZeneca NovoNordisk Taro

Roche Wyeth Lundbeck Natco

Novartis Eli Lilly Ranbaxy ViPharm

BMS Schering Plough Cipla Blue Cross

Bayer UCB Beijing DC


Amit Rangnekar NMIMS-PhD-
2004 AkzoNobel Pliva
Summary of Categories (Average)

Catego Age Employ Scale Scope


ries (Yrs) (000s)
Survivo 68 77 $25b ($15b to $46b) Global
Major R&D Major therapies
rs
Global sales
force Rx-Speciality focus
Stayers 82 66 $16b ($5b to $31b) Global
Major R&D Multiple therapies
Global sales force Rx-Speciality focus

Fringer 131 18 $3b ($0.5b to $9b) MNC


Partnered R&D Few therapies
s Multinational sales Rx-Gx-
force Speciality

Follow 31 3 $0.3b (0.03b to $1b) MNC


ers Partnered Few therapies
Amit R&D Regional
Rangnekar NMIMS-PhD- Rx-Gx-
2004sales force Speciality
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 _________.

Amit Rangnekar NMIMS-PhD-


2004
t-test values for the preferred strategies
Survivors strategies
Preferred Strategy of the Survivors v/s
Fringers Followers

S1 Presence in key segments & novel 0.569 0.129


drugs
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 0.566 0.808
growth
S8 Divestment to fuel funds for new 0.251 0.082
projects
Similarity
S9 R&Dinthrough
strategic responsiveness
External RangnekarofNMIMS-PhD-
Amitpartner Fringers & Followers,
0.136 to -0.227
Survivors
S1 2004 needs
Focus on unmet medical 0.836 0.304
Strategic Responsiveness across Categories
Preferred Strategy of the Survivors Strategies v/s
Survivors Stayers Fringers Followe
rs
S1 Presence in key segments & Similar Different Similar
novel drugs
S2 Bolstering US market share Different Similar Similar
S3 Focus on China as emerging Similar Similar Different
market
S4 Licensing-in new products Similar Different Different
S5 Launch extensions / isomers Similar Similar Similar
S6 Growth strategies driving Different Different Similar
performance
S7 Launching new products to drive Similar Different Different
growth
S8 Divestment to fuel funds for new Similar Different Similar
projects
Strategic similarity between survivors and stayers
S9 R&D through External partner Different Similar Different
No single preferred strategy exclusive
Amit Rangnekar NMIMS-PhD- to the survivors
S1 Focus on
aunching unmet medical
extensions needs
/ isomers
2004 Similar
common toDifferent Different
all the categorie
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

Amit Rangnekar NMIMS-PhD-


2004
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

riven by volumes than value, more opportunistic than

Amit Rangnekar NMIMS-PhD-


2004
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
ers sometimes co-operate but mostly compete with su

Amit Rangnekar NMIMS-PhD-


2004
Respondents Scale v/s Strategy

Strateg Followe Fringers Stayer Surviv


y rs s ors
M&A+S

Ranbaxy Pfize
Organi

Roche GSK r
A+

DrReddys
c

UCB Novartis SanofiAventis


Pliva BMS AstraZeneca
B Ingelheim J&J
ScheringPlough
Cipla
Organi

NovoNordisk
SA+

Beijing DCLundbeck Baye EliLilly


Natc
c

Merck(US)
o
ViPharmAurobindo r
Merck(Ger) Wyeth
Taro AkzoNobel
Organi
c

BlueCross

<$1Amit
Bn Rangnekar
<$5 Bn
NMIMS-PhD- <$20 >$20
Bn Bn
Map not to scale, indicative 2004 Scale SA= Strategic Alliances & Acquisitions
Strategy Mix

M&A

Organic Strategic
Growth Alliances

Strategic
Divestmen Acquisition
ts s
Amit Rangnekar NMIMS-PhD-
2004
Intra-Survivors Strategy Mix
Survivors Pfizer GSK Merck Roche Novartis BMS

M&A Pharmac SKB Coranje Ciba- DuPont


iaWL BW Sandoz

Strategic Banyu Genentec 30% in Imclone


h Chugai Roche,
Stake Chiron
BI, Eisai, Bayer Astra Glaxo Enablex, Sanofi
Strategic
Searle, Roche SGP Igen Idenix, Otsuka
Alliances Vicuron, Affym Rosseta Affymetri BASF Gx, Lipha
& Bioren, ax Aton x Hexal, Eon, Onco-
Acquisitio Idun Lunbeck Antisoma Hazal, Lek, Thera
Sanofi Regeneron
ns Trimeris

Divestme Adam, Derm Medco, OTC AgroChem Mead–


Women’ at- OTC, Vitamins Nutrition Johnson
nts s Health ology Crop- Essences Sante Generics
protectio Clairol
n Zimmer
Amit Rangnekar NMIMS-PhD-
2004
Strategic Responsiveness within the Survivors
Preferred strategy within the survivors Agreement on the
preferred strategy
within the survivors
S5 Launch extensions / isomers 100% Unanimous
S7 Launching new products to drive growth 100% Unanimous
S1 Presence in key segments & novel 87.50% Near Unanimous
drugs
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
S8 Divestment to fuel funds for new 75% Significant
projects
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
Strategic similarity 76.25%
(Average)
But reliance Amiton a growth
Rangnekar strategy mix
NMIMS-PhD-
High level of2004strategic 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

Amit Rangnekar NMIMS-PhD-


2004
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

Amit Rangnekar NMIMS-PhD-


2004
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

Amit Rangnekar NMIMS-PhD-


2004
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

Amit Rangnekar NMIMS-PhD-


2004
Amit Rangnekar NMIMS-PhD-
2004
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

Amit Rangnekar NMIMS-PhD-


2004
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

Amit Rangnekar NMIMS-PhD-


2004
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”

Amit Rangnekar NMIMS-PhD-


2004
Pharma Strategy Research- Post 2004

• 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”

Amit Rangnekar NMIMS-PhD-


2004
Pharma Strategy Research- Post 2004
• 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

Amit Rangnekar NMIMS-PhD-


2004
Pharma Strategy Research- Post 2004

• 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”

Amit Rangnekar NMIMS-PhD-


2004
Pharma Strategy Research- Post 2004

• 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”
Amit Rangnekar NMIMS-PhD-
2004
Pharma Strategy Research- Post 2004

• 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”

Amit Rangnekar NMIMS-PhD-


2004
Pharma Strategy Research- Post 2004

• 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”
Amit Rangnekar NMIMS-PhD-
2004
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.

Amit Rangnekar NMIMS-PhD-


2004
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”

Amit Rangnekar NMIMS-PhD-


2004
Consolidation- Dynamics & Strategies
Dynamics Strategies
Old but •Patent expiries •Launch extensions /isomers
important •Barren pipelines •Focus on alliances

Old but not •Domestic policies •Focus on organic growth


important •Domestic dominance •Own R&D

New and •Decreased •Partnerships across value


important productivity chain
•Drug withdrawals •Focus on biotech, drug delivery
•Patent expiry erosions •Environmental management
•Regulatory monitoring •Increased marketing spend
•Generic incursions •Tap emerging markets
•Cost containment •Focus on niches, versatile
drugs
•Short Product lifecycle
•Pharma business focus
•Competitive intensity
Amit Rangnekar NMIMS-PhD-
•Strategy mix
2004
Post 2004 Strategic Responsiveness
Key dynamics 1995-2004 (Own research) 2004+ (Secondary data)

Patent expiry Launch isomers Authorised Generics


New drug launches Co-marketing, blockbusters Multi partner,nichebusters

Growth Organic, M&A, Alliances Organic, Alliances


Drug discovery Own & partnered R&D Acquired /licensed R&D
Innovation drive Biotech, primary care Biotech, specialty, vaccines

M&A drivers Big Pharma Fringers


Drug withdrawals Reactive Proactive
Patents in EMs No NPL in EMs NPL costly drugs in EMs
Demographics Geriatrics, adults Young adults, women
Technology Biotech Biotech, Genomics, Nano

Promotion Doctor centric Doctor and patient centric

Sales force Expand Smart size


Amit Rangnekar NMIMS-PhD-
Corporate focus R&D2004
& Marketing Legal & Regulatory
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
Amit Rangnekar NMIMS-PhD-
2004
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

Amit Rangnekar NMIMS-PhD-


2004
Amit Rangnekar NMIMS-PhD-
2004
Amit Rangnekar NMIMS-PhD-
2004