Business transformation is the development and implementation of fundamental changes in how businesses interact internally and externally to cope with evolving markets. Although business transformations are common across all industries and sectors, the pharmaceutical industry is undergoing a significant period of change. Capgemini Consulting believes that there are 6 distinct types of transformation – all of which the pharmaceutical industry is currently facing. Below are examples of the different types of transformations and recent pharma news developments illustrating their presence in the industry.

1. Growth
A growth-based business transformation may include entering a new market or a product line extension. Earlier this spring, Merck announced it would seek to purchase Idenix Pharmaceuticals for $3.8 billion to further round out its Hepatitis C offering. This acquisition is a move to help Merck capture more of the 3.2 million patient Hep C market and diversify its existing product portfolio. It will also allow Merck to compete directly with Gilead’s first-to market product Sovaldi [1].

2. Reduction
A reduction is an effort to downsize activities or stop the promotion of a certain product. In mid-2013, Bristol-Myers Squibb (BMS) decided to scratch its diabetes franchise. The decision shocked the industry – diabetes is one of the fastest growing patient populations and has seemingly endless market opportunities for pharma. Additionally, BMS had previously spent 15 years developing products and partnerships in the therapeutic area. However, the diabetes market is saturated with competition and requires a significant field investment, returning slim margins. Instead, BMS decided to focus on its strength – specialty pharmaceuticals with high margins. The market responded favorably to the announcement, sending shares to a 5-year high [2].

3. Combination
Combination, or mergers and acquisitions, is the joining of companies or divisions. 2014 has been a massive year for combination-based business transformations. This quarter alone, the pharma industry has seen $139 billion in M&A deals including the three-way Novartis, GlaxoSmithKline (GSK), and Eli Lilly deal [3]. The deal outlines a number of transactions including the sale of GSK’s oncology unit to Novartis (for $16 billion), a joint consumer health venture (worth nearly $11 billion), and the sale of Novartis’ vaccines unit to GSK (for nearly $7 billion). Eli Lilly joined the M&A party with the purchase of Novartis’ animal health unit for over $5 billion [4]. Each company involved in the M&A deal is minimizing or eliminating areas outside of their expertise and combining outside resources with internal resources in order to focus strategically on their strengths.
4. Separation
A separation, or divestiture, is the spin-off of a company, product or division. Separations result in the mutually exclusive entities (companies, products, etc.) while reductions, profiled above, result in a decreased presence of a company, franchise, or offering.  Although M&As have been a large trend in 2014, divestitures and the amicable (or sometimes not-so-amicable) ending of partnerships can also result in large scale business transformations. In 2013, just 2 years after a M&A deal with Nycomed, Takeda ended their partnership with Immunomedics – a biotech which Nycomed had purchased up-front for $40 million when their shared drug development failed [5].

5. Transformation
Transformation refers to the development and implementation of a new corporate vision, technology, system, or process that dramatically changes internal or external operations. Pfizer understands that 80% of physicians utilize the internet for research or consultation about disease states and harnessed that opportunity to develop a two-way dialogue with their customers. Pfizer underwent a significant transformation with their “think digital first” initiative resulting in the development of a digital hub to house content and open communication channels. Increased communication with customers is helping Pfizer better identify unmet needs in patient populations and ultimately develop better products, services, and resources for patients and physicians [6].
6. Optimization
Optimization is the enhancement or simplification of a business process or the implementation of a new technology system to help a business improve daily operations or gain strategic advantages over competitors. In 2013, Roche transitioned 90,000 employees across 140 countries to Google from Microsoft Exchange. The decision came after the purchase of Genentech – already using Google as its primary interface. The Google Apps suite, a cloud-based system, allows Roche / Genentech colleagues to collaborate easily through gMail, gDocs, Google Hangouts, and more [7].

While the “solution” to an initial business object may take many forms, all business transformations can be distilled into the six basic types above. Each type of business transformation requires specialized skills and tools to develop and execute. Look for our upcoming article discussing “Why Business Transformations Fail” or contact Kelly Wagner, Catherine Pappas, or Ben Resnick for more information on Capgemini Consulting’s business transformation offerings and case studies.

[4] Wall Street Journal

Capgemini Consulting Life Sciences Blog Editors: Joe Medel and Jeremy Golan