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In 1961, Ed Thorp, a PhD in physics, figured out a mathematical system to crack the game of Blackjack and systematically beat the dealer in casinos across the United States. Using this same mathematical principle he created

a quantitative system able to price future stock options - a strategy he would later use to take on the fat cats on Wall Street. This showing of formidable mathematical skills earned Thorp an annualized 20% return averaged over 28.5 years.

Strategic thinking, like that of Ed Thorp’s, is a fresh approach to business success. It is a process that extracts the best innovative thinking regarding what is happening in a business and what direction the company should be heading in. Strategic thinking identifies the key factors that dictate the future of an organization and enables management to put the corporation in a position of longevity and prosperity within a changing environment. We would all like to claim that we have strong strategic vision, however, we consistently find that many companies, while effective operationally, do not always have a clear plan.

Let’s face it, the research and development investment model of Western Big Pharma companies is falling apart. A reduction of productivity in new chemical entities and a diverging global market account for this decline. With an aging population we will witness health care expenditure continue to outpace gross domestic product with increasing pricing pressures. The global generic pharmaceuticals market is likely to experience strong growth in the next few years, estimated up to US$231 billion in 2017. This prediction is based on impending patent expiration of key blockbuster drugs worth US$150 billion, as well as government efforts to reduce the drug bill.

While in highly regulated territories generics shift towards International Nonproprietary Names, there remains opportunity for growth in territories with underdeveloped healthcare systems, like in Latin America, North Africa, the Middle East and Asia. Within this context, competition is high and big companies are using different strategies: some big companies have a diversified portfolio strategy, some have a niche portfolio strategy, some have an outsourcing strategy, and some employ all three.

Creating competitive advantage through technology and difficult-to-make products will be crucial for every company wanting to be at the forefront of the global pharmaceutical supply chain. Moreover, we will see further activity in key therapeutic areas such as central

nervous systems, oncology and endocrine systems. Generic companies are shifting toward strategic alliances focused on in-licensing to supplement product portfolio, and out-licensing to leverage resources and capabilities. Additionally, opportunities exist to drive growth in the off-patent hospital sector where there are half the competitors per molecule.

The new face of the industry is also reflected in the 70% of top products that are expected to be biologics by 2016. According to IMS Health Incorporated, worldwide biologic sales will reach US$166 billion by 2015 from which US$64 billion will be off-patent. This change towards biologics creates the need for more affordable off-patent options and consequently the biosimilar market will represent a more commercially attractive sector globally. With 4 key biological platforms (MABs, TNFα, Interferon & Insulin), the pharmaceutical scene will certainly look very interesting.

We cannot ignore that 82% of the world’s population has access to only 12% of the world’s pharmaceuticals. This presents a unique business opportunity for those willing to seize the moment. However, we must devise how to forge the best possible strategic relationships in these emerging markets. It is about creating a lasting partnership and presence in a country, and depends on a combination of local knowledge and global insight. Emerging markets are the final frontier, both politically and commercially; therefore, we must also balance commercial interests with locally-rooted political and national convictions.

Miguel Coronado is an advisor to pharmaceutical companies and private equity firms on their global strategies based on his extensive experience in licensing, procurement, supply chain and

regulatory affairs.

STRATEGIC THINKINGA Smarter Approach to the Global Pharmaceutical Market

Creating competitive advantage through

technology and difficult-to-make

products will be crucial for every

company wanting to be at the forefront of the global pharmaceutical

supply chain

MULTI-INDUSTRY

July 2012

by Miguel Coronado