How to Avoid Becoming a Biotech Zombie, Part 3 - Focusing and Following Your Strategy - BioPharm International

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How to Avoid Becoming a Biotech Zombie, Part 3
Focusing and Following Your Strategy


BioPharm International
Volume 21, Issue 3

Maximizing Profitability

The customers through whom the integrated company's financial objectives are realized are pharmacy benefit managers, hospitals, physicians, and consumers. Those financial objectives will form and shape the decisions you make from a customer perspective. Knowledge of reimbursement opportunities for your portfolio of drug products is essential for profitability and can be a critical driver of strategy. The challenge is to service your customers in a way that most effectively achieves the financial objectives. If an overriding financial objective is profitability, you might choose to concentrate only on the most profitable customers. If financial objectives are to maximize share in an attractive and growing therapeutic area, then maximum margins may be sacrificed for the sake of greater share. The leading indicators should measure the actions necessary to win the particular customers you are targeting. Depending on this customer strategy, indicators might include:

  • Front-of-mind ranking versus competitor brands by physicians
  • Number of completed details per sales representative
  • Rate of detailing sessions done by MDs in your online site.

A falling off in any of these efforts could foretell a possible shortfall in financial goals, which timely management action could prevent.

Stepping Up Sales Efforts

The critical operational activity for the fully integrated company lies in sales—the mix, the effectiveness, and the magnitude. Leading indicators of sales effectiveness include: the number of blockbuster products; the percentage mix of sales from blockbusters, tier 1, and tier 2 products; and the percentage of sales from new customers. Underperformance along any of those dimensions should send a wake-up call to management to correct imbalances in the portfolio, step up sales efforts, or inlicense additional products.

Further, in tough markets, product availability plays an increasingly important role. An example would be the sales effectiveness of the first influenza vaccine manufacturer to release its product into the market each year versus the lagging competitors who have difficulty selling out their production. Reduced availability and delayed availability are equal problems. To increase the resilience of its manufacturing operation in the face of critical raw materials shortages, many fully integrated firms are scrubbing their raw material, spare parts, and service vendor lists to target sole-sourced items and long lead-time items for interventions. Disruptive threats to material availability such as SARS, avian flu, and rising transportation costs have accelerated this campaign to enhance continuity of production.

The magnitude of sales required to sustain a fully integrated company requires a major infrastructure investment in the sales force. Unlike the idea factory, which requires only a highly focused, small number of people devoted to securing outlicensing deals, the integrated company needs feet on the street to cover the enormous number of potential customers for the company's products. Problems that show up in sales operations may have their ultimate source in sales force problems. Leading indicators of the effectiveness of the actions that the sales force must undertake or that management must execute to help the sales force fulfill company strategy might include rate of retention of top salespeople, number of first calls with joint venture partners, and number of new joint venture deals identified.

As with the idea factory, the comprehensive scorecard translates a clear strategy into implementation for the integrated company. But as Table 1 shows, the particulars of the implementation of the two strategies couldn't look more different. And what this stark contrast further suggests is that even a slight blurring of the two strategies is likely to result in catastrophic mistakes that—if they don't kill your company outright—could certainly relegate it to the ranks of the industry zombies.

Joseph J. Villafranca, PhD, is senior vice president of operations and James E. Bonine is managing consultant, both at Tunnell Consulting, King of Prussia, PA, 610.337.0820,

REFERENCES

1. Kaplan RS, Norton DP. The balanced scorecard: measures that drive performance. Harvard Business Rev. 1992 Jan/Feb.


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