The New Era of The Long Tail of the Pharmaceutical Industry?

I came across a good article on the New York Times this morning, The Dangers of Swinging for the Fences by Joe Nocera. Reading this article, I could not help but think whether the pharmaceutical industry had entered a new era where addressing the long tail of drugs production would be the next evolution for that industry.

Joe Nocera makes the point in his article that the pharmaceutical business is changing. This is particularly well illustrated by the tough times at Pfizer. The modern Pfizer was built on Blockbusters, which is what the industry calls medicines that generate $1 billion or more in annual revenue.

At Pfizer for instance, the top 4 drugs account for 35% of revenue. Lipitor alone with $12.9 billion in annual revenue accounts for 27% of Pfizer's revenue. And with Lipitor coming off patent in 2010, Pfizer needs to worry on how to make up for that blockbuster's revenue.

The blockbuster business model is falling apart - and not only in the pharmaceutical industry by the way. First, big bets like the Lipitor one, require a significant time period to recover the investments to produce such blockbuster and drug patents expire after 17 years. Second, expensive go to market strategies with direct advertising to consumer and doctors are experiencing a backlash.

New business models in the pharmaceutical industry are starting to favor the long tail of drugs where new discoveries tend to be very much targeted and according to Harvard economist David Cutler:

Drugs are eventually going to be customized for individuals.

Jeffrey Kindler, CEO of Pfizer is betting on it and wants Pfizer to become as good at developing $500 million drugs as in coming up with new blockbusters. Well, that's a big bet for Pfizer and let's hope with Pfizer can pull it off.

It will make for a much healthier industry and could be the start of a new area of the long tail of the pharmaceutical industry. It will be interesting to watch closely how successful Pfizer is at revolutionizing its industry.

Who Likes Peanut Butter Anyway?

I never liked peanut butter, so that may be the reason why Brad Garlinghouse's memo resonnated with me. His Peanut Butter Manifesto gives us a lesson in leadership. It is the responsibility of senior management to lead the march for change and to clearly articulate why it is happening. I found Brad's manifesto effective at doing so. Ironically enough, it would probably resonnate true with quite a few organizations were you to replace the product names. Organizations often tend to spread peanut butter when they are reluctant to refocus their business and align it with clearly articulated strategic direction. To be successuful, every organization should have:

• A focused, cohesive vision
• Clarity of ownership and accountability
• Decisiveness

The drama of working out internal company issues in public is unusual but quite entertaining. I am not sure what are the benefits for a Yahoo! executive to do so. But, his call for change should be applauded. Too many executives often do so too late. Knowing when is the right time to call for change is hard, looks like that time has come at Yahoo!. Now, let's see how successfully, Yahoo! can refocus its business. Will Brad lead the charge?

Why Kodak’s Strategy Will Work…

The November 27th issue of Business week had a very interesting article about Kodak and some of the tough choices and strategy shifts it had to undertake over the past 10 years. Over the past ten years, Kodak had to re-invent itself from a film company to a print company to a digital technology provider illustrated by its recent deal with Motorola. So what's behind Kodak's transformation? First, despite the resistance to change that any strategy shift entails, is the recognition of a true identity and business purpose. Kodak is an image company and as such, it is able to adjust, though painfully, through the value chain of the image business.

In a sense, this is a classical illustration of Clayton Christensen's "Law of Conservation of Attractive Profits". The law of conservation of attractive profits states that in the value chain there is a requisite juxtaposition of modular and interdependent commoditization, that exists in order to optimize the performance of what is not good enough. When modularity and commoditization cause attractive profits to disappear at one stage in the value chain, the opportunity to earn attractive profits with proprietary products will usually emerge at an adjacent stage (quote from The Innovator's Solution). This happened to the computer industry (see Intel) and is happening to the image industry. Kodak's bet that the growth of digital photography will happen in mobile phone and that profits margins for sensor chips will be twice those of the digital camera business aligns with the above law. Kodak is identifying new revenue opportunity in the image value chain and aggressively pursuing the shift in the value chain. That's true leadership and it will pay off. Good luck Mr Perez.