The Reconfiguration of the Pharmaceutical Business Model

Abstract

Technological innovations are transforming business models across multiple industries, and are radically changing the way firms create and appropriate value. The pharmaceutical industry has been dominated by large companies with a structure aimed at producing blockbuster drugs. However, the industry is under growing pressure from both internal and external factors and the costs are increasing regardless of the value delivered. The returns obtained from the traditional model are diminishing which is forcing fundamental changes for many companies operating in the industry. The purpose of this thesis is to analyze how the pharmaceutical industry is responding to these pressures through a comparison of the old blockbuster business model and the current model. Based on Drucker’s (1954) five business model elements, the pharmaceutical business model is described and explored. For the purpose of gaining a deeper understanding of the theory of a business model, we followed the reasoning of Fjeldstad and Snow (2018) and added the concept of value configuration to the concept of business model. Following a descriptive and exploratory methodology allowed us to compare the characteristic similarities and differences of the five business model elements in the traditional and current model. We conducted in-depth interviews with employees of the management of a large pharmaceutical company, as well as stakeholders in the pharmaceutical industry in Oslo. We believe this thesis contributes with novel insight on how the pharmaceutical business model is evolving. Working through theories on different concepts of business models and analyzing the empirical material, we arrived at a conclusive discovery: Roche is shifting its focus from delivering a product to delivering health outcomes. This transformation of perspective is providing novel ways to create and appropriate value. We point out that the industry is restructuring to support and facilitate for this process of reconfiguration. Our thesis contributes to explore and detect that the pharmaceutical business model is moving away from the traditional blockbuster model. Thus, we observe a shift from a value chain configuration towards a value shop.