Emerging Business Models in the Pharmaceutical Industries ...

The Revenue Model
The market dynamics followed by short and long term
strategies are impacting revenue models of the pharma
companies. Despite the fall of the block buster model,
the total market size for the Big Pharma Companies are
increasing. The new revenue model (see below)
highlights the factors impacting major pharma companies
revenues.
Factors Adding to Revenue
The loss of revenue due to patent expiry is being
compensated by multiple factors including generic buy
back, price hikes, new product lines, and brand
equalisation.
New Revenue Models
Strategies impacting new revenue models 2004 2005 2006 2007 2008
Generic buy back, replace with higher enhanced drugs with new formulation 2% 2% 2% 2% 2%
Added revenues from price hike on block busters (about to expire) 3% 3% 3% 3% 3%
Revenues added by NMEs (assuming 1 or 2 NMEs/year) 0% 0% 3% 6% 12%
Revenues added by brand equilisation 2% 2% 2% 2% 2%
Added revenues through market growth (all percentages in respect to 2003
revenues) 8% 16% 24% 32% 40%
Total Revenue Growth 15% 23% 34% 45% 59%
Added profits due to reduction in cost (as percentage of revenues)* 3.5% 5% 7.5% 10% 13.5%
Added revenues (converting the extra cost savings to the percentage
growth in revenues)** 9% 13% 19% 25% 34%
Reduced revenues from patent expiration 0% -10% -20% -30% -40%
Net total increase in Revenues*** 24% 26% 33% 40% 53%
Source: JSB Intelligence
These factors will account for 59% growth in revenues by 2008.
Companies are extending patent expiry by a few years to allow
them to compensate for revenue losses.
The market growth in pharma worldwide is also increasing the
total market size for pharma companies.
* Cost Cutting results in Revenue Increase
The other way to offset the loss of revenue or increase
profitability is to reduce the operating cost through the network
model. Pharma companies haven't yet explored cost cutting
measures such as an effective sales force and product life cycle
implementation.
Strategic Analysis of the Pharma Market, Future Revenue Models and Key Players 42