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Waking the Giant: Business Model Innovation in the Drug Industry

Executive Summary

The drug industry has reached the limits of its traditional business model, having collectively destroyed shareholder value since 2000. Companies' responses -- cost reductions, portfolio rationalization, productivity enhancements, bigger dealmaking -- are too little, too late. It's not enough to do business more efficiently; the industry needs to adopt new business models. Problem is: it's almost unprecedented to change models in the drug industry, though companies in other industries have done it under similarly challenging circumstances. Now it's time for Pharma to get moving. Since no company has yet taken a convincing stance on business model innovation, there's significant opportunity for one or more players to take the lead and create strategic advantage in doing so.

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Rebuilding Big Pharma's Business Model

The blockbuster business model that underpinned Big Pharma's success is now irreparably broken: the costs of commercialization are too high and likely returns below the cost of capital. The industry needs a new approach, constructed from four inter-related building blocks--focused R&D; partnerships; customer solutions, not products; and a business unit, not functional, organizational model.

From Newton to Heisenberg--The New Physics of the Drug Industry

While the current wave of high profile drug industry deals recalls the heady days of 1980s consolidation, the motivations are quite different. Managed care is forcing companies to prize the efficient leveraging of assets, not critical mass. In today's drug industry, companies will manage for strategic diversity, juggling a number of different platforms at one time. Successful companies will by no means all have been successful using the same set of tools.

QUOTED. 8 August 2020. Ashley Wittorf.

AdvaMed Accell executive director Ashley Wittorf spoke in support of a proposed US House bill that would give financial help to small companies making products to address COVID-19.


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