strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
 / Spring 2012 / Issue 66(originally published by Booz & Company)


Big Pharma’s Uncertain Future

Identifying the right strategic bets should be the highest strategic priority for the company, and the effort should be led by the CEO or a committee that includes the CEO, because in most cases these steps will lead to a different or substantially modified strategic direction for the company. We suggest a five-step process:

1. Embrace change as inevitable. The current “blockbuster” model, defined as relying on traditional capabilities, faces extinction. The issue here is changing the mentality of senior management. For companies where this attitude prevails and new capabilities are not developed, survival is a real question mark.

2. Develop a vision for several potential future scenarios. The stochastic environment and people’s inability to predict the future do not mean that every outcome is equally possible. A dynamic evaluation of potential future states (wargaming) can help companies develop views of, for example, how disease management will evolve.

3. Understand the inherent capabilities that the company possesses. Although turbulent times bring inevitable change, and doing what you have always done is unlikely to be effective, it is vital to have a clear sense of what is differentiating about your capabilities system. With this knowledge, a company can determine which new capabilities it should be adding.

4. Identify strategic bets that can position the company as a winner. No matter which future scenario materializes, companies need to determine the capability sets that are required to win for each of the strategic bets and, most important, that will support the new strategic direction.

5. Develop an organizational and business model that most effectively supports the new strategic direction and identified coherent capability set. Companies need a plan for evolving their corporate culture, creating a new business model and building new capabilities as future scenarios unfold and the external environment changes.

Survival Comes First

If anything, the challenges that pharmaceutical companies face seem to be mounting, especially in the U.S., the biggest market for prescription drugs. Generics now account for upward of three-quarters of all prescriptions in the U.S., versus 56 percent in 2005. Pharmaceutical companies have fewer resources, having shed 150,000 jobs, many of them in sales. In the U.S., the Food and Drug Administration has become much more zealous about safety. And some of the specialized drug treatments that are coming to market — priced at $30,000 a year and higher — face resistance from insurers who are questioning their value and refusing to pay.

Ticking off these challenges, Abbott CEO Miles White, who has run the company for the last 12 years, and who will head up the medical devices company once Abbott’s split is complete, says, “My sense is there are several models that will ultimately succeed.”

And therein lies the opportunity. As industries evolve, stochastic periods such as the one the pharmaceutical industry is entering don’t last forever; deterministic periods return, allowing companies to move away from multiple strategic bets and pursue a new strategy. For pharmaceutical companies, the challenge will be to make strategic bets both to survive today and to position themselves for the next period of deterministic growth. By the time that happens, they’ll be very different companies than they are today.

Scenarios for Success

The positioning needed for pharmaceutical firms to succeed will evolve in ways that are still unknown. Some possibilities:

Pharma + diagnostics. In this scenario, the success of a company’s patented pharmaceutical business depends on its diagnostics business. The idea stems from the likelihood that payors and customers will eventually reward proprietary and differentiated clinically effective diagnostic services rather than simply paying for readily available commodity services. In such a world, the ability to stratify patient populations via diagnostics — to match the right patient with the right treatment at the right dose — would create significant value and essentially enable a personalized approach to patient care. In this case, pharma businesses will derive significant advantages from offering both diagnostics and medicines. The diagnostics will also give drug companies better insights about what molecules to pursue. Human Genome Sciences Inc.’s lupus medication Benlysta has benefited from patient stratification; early trials suggest Benlysta works well with certain patient populations, but not with African-Americans, who have a high incidence of the disease.

Pharma + consumer. This scenario assumes that a more holistic approach to health — embracing such approaches as preventive medicine, wellness services, and nonprescription drugs to treat mild symptoms or side effects — is here to stay, and could both strengthen a company’s prescription drug business and leverage that business’s research breakthroughs. The shift toward consumer-centric healthcare is already reflected in some pharmaceutical companies’ moves, such as Sanofi’s effort to extend the life of Allegra, an antihistamine, by selling it over the counter, and Pfizer Inc.’s reported interest in doing the same with its cholesterol drug Lipitor.

A holistic consumer focus can take forms other than over-the-counter versions of prescription drugs. Consumer businesses bring a unique capability for understanding consumers and their behavior, and this understanding can significantly improve patient compliance. For instance, Novartis AG, in collaboration with several regional payors in Europe, is using new technologies to remotely monitor hypertension patients’ key health indicators. By improving compliance, Novartis says, it hopes to help improve patient outcomes and drive down costs.

Pure pharma + a focus on therapeutic areas. In this scenario, success is a matter of slowing the last few years’ decline in R&D productivity, and potentially reversing it. Companies looking to do this would concentrate their capital on therapeutic areas that offer the greatest chance for technical and commercial success. That is what Novartis has been doing in eye care; it purchased Alcon, an eye-care company, for US$51.6 billion in April 2011 and is now a global leader. As the world’s population ages, Novartis sees eye disease as an increasingly widespread problem and therefore a lucrative area of focus.

In general, Novartis has bucked the trend toward declining R&D productivity. That has enabled it to continue to invest heavily in new drug development. “We have a highly competitive and robust pipeline with 63 NMEs [new molecular entities], and higher success rates at every stage of development than our competitors,” says Chief Executive Joseph Jimenez. 

—A.K. and V.G.

Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store



  1. Ram Charan and Michael Sisk, “Strategic Bets,” s+b, Summer 2011: Another view of make-or-break shifts in direction when facing uncertainty.
  2. Matthew Herper, “Rallying Pharma’s Rebels,” Forbes, August 3, 2011: Former executive at Eli Lilly and Company offers a blueprint for fixing the broken system of pharmaceutical industry R&D.
  3. Peter Loftus, “Pfizer Looks at Lipitor over Counter,” Wall Street Journal, August 4, 2011: How the U.S. Food and Drug Administration has stood in the way of allowing statins to be sold over the counter.
  4. Eva Von Schaper, “Novartis’s Jimenez Has Blockbuster Plans for Diovan after Patent Expires,” Bloomberg Businessweek, August 5, 2011:A discussion with the CEO of Novartis on how the company is maneuvering to avoid having its best-selling drug be destroyed by the expiration of its patent.
  5. Duff Wilson, “Drug Firms Face Billions in Losses in ’11 as Patents End,” New York Times, March 6, 2011: Why the scramble is on for pharmaceutical companies to reinvent themselves and shed their dependence on blockbuster drugs.
  6. For more thought leadership on this topic, see the s+b website at:
Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.