Pharmaceutical Company Business Strategies

One of the constants of pharmaceutical company strategy over the past decade has been increasing scale. Only by growing larger are companies able to afford the considerable costs of drug development and distribution. This is well summarised in the PricewaterhouseCoopers report Analysis and Opinions on M&A Activity (1999).
Within this broad approach at least two business models are discernable:
(i) Blockbuster model involving the search for, and distribution of a small
number of drugs that achieve substantial global sales (say in excess of $1
billion p.a.). The success of this model depends on achieving large returns
from a small number of drugs in order to pay for the high cost of the drug
discovery and development process for a large number of candidates. Total
revenues are highly dependant on sales from a small number of drugs.
(ii) Diversification model in which a larger number of drugs are marketed to
smaller niche markets. The advantage of this model is that its success is not
dependant on sales of a small number of drugs. However without a
blockbuster to help pay for the high development costs, the model only works
for small markets where distribution costs are low.
(iii) Intermediate model which borrows some of each.
To date the blockbuster model has been recognised by industry analysts as the dominant model (see for instance Mercer Management Consulting 2001). However interest in alternative models is growing as consideration is being given to the marketing of biotech drugs with smaller markets and higher treatment costs and the expectation of more personalised medicine.