Skip to Main Content
Access your saved content
Accenture study identifies six pharmaceutical business models and reveals the two that are most likely to lead to sustainable and profitable growth in the future.
Accenture defines high-performance businesses as those that balance today’s needs with tomorrow’s opportunities and consistently outperform the competition in revenue growth and total return to shareholders. They sustain their superiority across time, business cycles, industry disruptions and changes in leadership. This is based on Accenture’s ongoing research with 6,000 companies, begun in 2003—which finds that high-performance business is definable, quantifiable and achievable.
The purpose of our study was to understand the evolution of the profit model—as reflected by the structure of the income statement—of various pharmaceutical business models over 11 years.
Our primary hypothesis was that changes in how drugs are being valued (that is, price driven by evidence-based outcomes) have resulted in a split between pure Innovative Medicines companies and Integrated Therapeutics. Our assumption was that there are two primary drivers of the profit model—the product that a company sells and the customers who pay for that product.
New Accenture analysis shows that the pharmaceutical industry has passed the turning point in how the market will quantify the value of drugs. Companies must redouble efforts to morph their business models to achieve high performance in this unfamiliar environment. Time is fast running out.
We are in the early stages of an environment where only products that generate superior health outcomes will enjoy the premium pricing that was enjoyed by me-too products a few years ago.
Furthermore, since more specific and targeted medicines have fragmented disease markets, these companies can no longer depend on blockbuster drugs in low-risk therapeutic areas to maintain their rate of growth and high margins.
Changing how products are valued effectively corrects market inefficiencies and will set in motion a fundamental change in the structure of the industry. The implications are enormous for how companies will compete and which will prevail to become high-performance businesses.
We’ve identified six pharmaceutical business models based on two key dimensions: Who is the customer? What is the basis of competitive differentiation?
The six models are:
Because the requirements to achieve high performance under these models are different, pharmaceutical companies must decide on which business model(s) they will focus.
Accenture compared the economic models of firms within each of the six categories and believes the models that would best lead to sustainable and profitable growth are Innovative Medicines and Integrated Therapeutics. Therefore, we believe pharmaceutical companies seeking to become high-performance businesses ought to retain one or both of these models as their core business.
Traditionally, pharmaceutical companies operated in the Innovative Medicines business model. They invested heavily in R&D and developed blockbuster products for which they were well rewarded.
The climate has changed however. The high cost of health care, consumerism, low cost generics, and lack of true innovation have all contributed to a demand for more accurate pricing—that is pricing the value of drugs as a function of health outcomes.
Although most pharmaceutical companies believe they are operating under the Innovative Medicines economic model, in actuality they are competing under an Integrated Therapeutics model. This new business model offers therapeutics for disease areas with moderate to low unmet needs and focuses on health outcomes.
Most pharmaceutical companies, though, have yet to shift their operations to support the Integrated Therapeutics economic model. If the diversified pharmaceutical companies continue as they are, without decisive strategic focus, they run the risk of being forced into the value pharmaceutical model and settling for low value and growth.
To achieve high performance, they have to decide what business model(s) will serve them best. Whatever they decide, they need to shift their focus, their resources and operations to support the economic model(s) they choose.
If it is Innovative Medicines, they must focus on research and discovery as their core and distinctive capabilities. If they select Integrated Therapeutics, they must shift their focus and resources from developing drugs to producing positive health outcomes.
Focusing on a selected business model(s) will enable pharmaceutical companies to gain distinctive capabilities and to deliver differentiated products, and they should be able to command premium prices for them. Their focus on the market will pay off too in that they will be better positioned and prepared to face the challenges and opportunities that confront them.
Unless pharmaceutical companies act now to adjust to the new climate, they will be pressured to sell their proprietary drugs at low profits because the market will no longer bear the premium price. To achieve high performance, pharmaceutical companies need to reexamine their business model, decide for which business they are best positioned and restructure their operations to support their chosen focus.
Pharmaceutical companies can start their journey toward high performance by reaffirming their business model in terms of customers, disease areas, products and services, route to market and value.
January 28, 2011
Skip Footer Links