Are you struggling to break your addiction to a bad business model, or are you living in denial? Either way, admitting that you have a problem is the first step toward solving the problem.
Otherwise, it's an extremely tough way to make a living.
Pharmaceutical companies such as Pfizer (PFE) invest eight years on average developing and gaining regulatory approval to sell a new drug. Since patent protection lasts only 17 years, the company gets only about nine years of exclusivity. Once the patent (not patient) expires, any other company is free to use the formerly proprietary formula. Inevitably the original patent holder's market share falls by 89 percent in the first 6 months. IMS Health, a Norwalk, Conn., firm that does research on the pharmaceutical and health-care industries, estimates that from 2010 to 2013, pharmaceutical companies (often referred to collectively as "Pharma") will lose a total of $137 billion to patent expiration and generic competition.
That was not a typo—$137 billion.
What brought this to mind is the fact that the Pfizer drug Lipitor, an $11 billion-a-year brand that lowers cholesterol, goes off patent early next year. That has to be a tough pill for Ian Read, chief executive officer of Pfizer, to swallow.
Unfortunately for Pharma, the bad news does not end there. As Will Suvari—Maddock Douglas's industry expert, who helped us think through all this—points out, if you dig a bit deeper, the problem for the industry is actually more challenging than just having limited patent protection.
Innovation is generally difficult in any industry, and creating new drugs shows just how hard it can be. Despite having spent a total of $64 billion in 2010, the industry received approval to market only 21 new drugs. It remains extremely difficult to make the research and development process move much faster. The parallel is this: Just because it takes one woman nine months to carry a baby to term doesn't mean you could reduce gestation to a single month if you were to involve nine women.
Big breakthroughs that were supposed to change things have not. The Human Genome Project, long predicted to bring about a new-product windfall for biopharmaceutical manufacturers, was completed in 2003. It has yet to produce a single commercially successful new drug.
If ever there was an industry ripe for innovation, this is it.
If the solution were applicable to the pharmaceutical industry only, we wouldn't have written the column. (The appeal would have been too limited.) What we are about to suggest could apply to your industry, too, once you conclude that the existing way of doing business doesn't work well.
In our experience, industry paradigm shifts come from shifting your focus. Or as we like to put it: "You can't read the label if you're sitting inside the pill bottle." For Pharma, the most obvious "outside the pill bottle" advice might be to change the historical focus from "finding druggable targets" (what you and I call people) to locating target insights big enough to build a business around.
Why? When companies create the discipline to focus on needs first, technology second, they move from inventing to innovating. Said differently, they deliver a consumer-focused product and service and a business model that goes far beyond the product itself.
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