A typical Catenion strategy process starts out with the formulation of goals. A goal could be to become a leading player in terms of market share in a therapeutic area, it could be a sales or profit target, or even something more intangible. The strategy then describes how you can actually achieve that goal by selecting a position in the marketplace that is differentiated and creates a competitive advantage — “where to play and how to compete”. At some point the question becomes whether the goals are actually appropriate or achievable, so it is both a top-down and bottom-up process. We find the following dimensions helpful to structure the discussion:
- Focus areas — these can be therapy areas, technologies, business fields or regions
- Customer groups — primary care vs. specialists
- Geographic coverage — home market/region vs. global coverage
- Innovation mix — incremental lower risk approaches vs. aiming for high unmet need or difficult science with breakthrough potential
- Value chain scope — degree of outsourcing, partnering, etc. for each step in the value chain
While these elements are of a purely descriptive nature, the ultimate question is how to create competitive advantage. In the pharmaceutical industry there are numerous regulatory constraints resulting in a limited scope for true business model innovation compared to other industries. In pharmaceuticals, the key lever for success is to develop drugs that address high unmet need (= high price) better than (expected) competitors for as many patients as possible. Of course, the option space is vast in terms of choosing therapy areas/indications, drug targets and technologies, but the basic business model has not changed much over the last 20 years.
Some sceptics warn that spending time on developing strategy in the pharmaceutical field is a waste of time. To them, strategy is an emerging property of what is going on in a company’s labs. Because there is some truth to this view, we feel that a solid strategy process needs to encompass both top-down and bottom-up elements. The typical trap of the corporate strategist is to come up with options that are completely detached from the reality of the portfolio and the organisation. While the top-down process can deliver goals, objectives and an unbiased view of the external environment, the bottom-up process should deliver the strengths and weaknesses of the portfolio, operating model and core capabilities.
Portfolio risk profiles can be used at both levels to get a realistic overview of how much risk a company is willing to take. By calculating the likelihood of achieving goals based on the current portfolio, the option space for hedging some of that risk is opened up. This can be done by adding areas with different risk/return profiles, through partnering, financial hedging, etc. Our framework can help quantify this discussion, and most importantly it will lead to qualitative insights that go beyond the personal beliefs that often dominate the discussion around focus or diversification.