DEGREE- Ph. D.

(Management Studies)

SVKM’s NMIMS University, Mumbai

THESIS TITLE

“LONGITUDINAL STUDY OF THE STRATEGIC RESPONSIVENESS F THE

SURVIVORS OF BIG PHARMA IN 1995 AND 2004, UNDER CONDITIONS

OF CONSOLIDATION IN THE GLOBAL PHARMACEUTICAL INDUSTRY”.

THESIS GUIDE- DR N.M. KONDAP

RESEARCH SCHOLAR- AMIT RANGNEKAR

i
 TABLE OF CONTENTS

Subject Page
CHAPTER I INTRODUCTION 1
1.1 Management Dilemma 1
1.2 Research Objectives 5
CHAPTER II CONCEPTUAL BACKGROUND OF THE 6
GLOBAL PHARMACEUTICAL MARKET
2.1 The Global Pharmaceutical Market: Evolution & 6
Progress
2.1.1 Evolution 6
2.1.2 Progress 9
2.1.3 GPM Post-1995 12
2.1.3.1 Key Dynamics affecting Industry Performance & 13
Growth
2.1.3.1.1 The Drug Discovery Process 13
2.1.3.1.2 Blockbusters 15
2.1.3.1.3 Patents & Generics 15
2.1.3.1.4 Product Lifecycle 17
2.2 Big Pharma 20
2.2.1 Comparison of Big Pharma v/s GPM growth 24
2.2.2 The evolution of Big Pharma 25
2.2.3 Big Pharma Dominance 27
2.3 Global Pharmaceutical Consolidation 28
2.4 Categories within the GPM 31
2.4.1 The Survivors and the Stayers 32
2.4.2 The Fossils 36
2.4.3 Strategies of the Survivors & the Stayers- 1995 to 38
2004
2.4.3.1 M&A 38
2.4.3.1.1 Aborted M&A deals 40
2.4.3.2 Divestments of the Survivors & the Stayers 40
2.4.4 The Fringers & the Followers 41

ii
 Subject Page
CHAPTER III LITERATURE REVIEW 45
3.1 Strategic Management 45
3.1.1 Strategic Management Frameworks 46
3.1.2 Strategic Responsiveness 48
3.1.3 Ansoff’s Strategic Responsiveness (ASR) Framework 50
3.1.4 Longitudinal Perspective 51
3.2 The Global Economy 51
3.2.1 Key drivers of Global Growth in the current context 53
3.2.1.1 Foreign Direct Investment (FDI) 53
3.2.1.2 Technology & Innovation 53
3.2.1.3 Emerging Economies 54
3.2.1.4 Outsourcing 54
3.2.1.5 Demographics 55
3.2.2 Consolidation 57
3.2.2.1 Global Consolidation 59
3.2.2.2 Consolidation in the US Automobile Industry 63
3.2.2.3 Consolidation in the Banking Industry 64
3.2.2.4 Consolidation among Law Firms 65
3.2.2.5 Consolidation in the Global Steel Industry 65
3.2.2.6 Comparison of Gross Domestic Product (GDP) and 66
the GPM
3.3 The GPM 67
3.3.1 Pharmaceutical Industry Dynamics 67
3.3.1.1 Geography 68
3.3.1.2 Emerging Markets 70
3.3.1.3 R&D 71
3.3.1.4 Drug Safety Concerns 73
3.3.1.5 Generics 74
3.3.1.6 Pricing Issues 76
3.3.1.7 Brands 77
3.3.1.8 Demographic Shifts 78
3.3.2 Consolidation 80

iii
 Subject Page
3.3.2.1 Consolidation in Allied Markets 81
3.3.1.1.1 Consolidation in Generics 81
3.3.2.1.2 Consolidation in the Biotechnology (Biotech) market 81
3.3.2.1.3 Consolidation in key markets where Big Pharma is 82
not dominant
3.3.3 Strategic Responsiveness 83
3.3.3.1 Mergers & Acquisitions (M&A) 86
3.3.3.1.1 Major M&A between 1995 & 2004 88
3.3.3.1.2 M&A Cost Savings 96
3.3.3.2 Convergence 98
3.3.3.3 Other Strategic Responses 100
3.3.3.3.1 Drug Discovery 100
3.3.3.3.2 Therapeutic Categories 101
3.3.3.3.3 Regulatory 103
3.3.3.3.4 Big Pharma 103
3.3.3.3.5 Divestments 104
3.4 Gaps in the Literature Review 106
3.5 Concept Map 110
CHAPTER IV RESEARCH METHODOLOGY 111
4.1 Constitutive Definitions 111
4.1.1 Survival in Big Pharma 111
4.1.2 Strategic Responsiveness 111
4.1.3 The Firm’s Strategic Responsiveness 112
4.1.3.1 Changes in Composition of Products 112
4.1.3.2 Changes in Composition of Markets 112
4.1.3.3 Acquisition of other firms 113
4.1.3.4 Divestment from parts of existing operations 113
4.1.4 Longitudinal Study 112
4.2 Operational Definitions 113
4.2.1 Survival in Big Pharma 113
4.2.2 Strategic Responsiveness 114
4.3 Methodology 118

iv
 Subject Page
4.3.1 Focus Group Discussion (FGD) 118
4.3.1.1 FGD Objectives 119
4.3.1.2 FGD Procedure 119
4.3.2 Interviews 121
4.3.3 Pharmaceutical Strategic Responsiveness (PSR) 123
Framework
4.3.4 Structured Questionnaire 124
4.3.4.1 Questionnaire Structure 125
4.3.4.2 Scaling 127
4.3.4.3 Validity 127
4.3.4.4 Reliability 128
4.3.4.5 Sampling 129
4.3.4.6 Data Collection 132
4.3.4.7 Questionnaire Response 132
4.3.5 In-Depth Interviews 134
4.3.6 Level of Acceptance 136
4.3.7 Design Map 137
4.4 Hypothesis 138
4.4.1 Delimitations 140
4.4.2 Limitations 140
CHAPTER V RESEARCH FINDINGS 141
5.1 Secondary Data Analysis 141
5.1.1 Brief Profile of Respondents within the Categories 143
5.1.1.1 The Survivors 143
5.1.1.1.1 Pfizer 143
5.1.1.1.2 GlaxoSmithkline (GSK) 144
5.1.1.1.3 Merck 144
5.1.1.1.4 Roche 145
5.1.1.1.5 Novartis 146
5.1.1.1.6 Bristol-Myers Squibb (BMS) 147
5.1.1.2 The Stayers 148
5.1.1.2.1 SanofiAventis 148

v
 Subject Page
5.1.1.2.2 Johnson & Johnson (J&J) 149
5.1.1.2.3 AstraZeneca 150
5.1.1.2.4 Wyeth 150
5.1.1.2.5 Eli Lilly 151
5.1.1.2.6 Schering-Plough 152
5.1.1.2.7 Bayer 152
5.1.1.3 The Fringers 154
5.1.1.3.1 AkzoNobel 154
5.1.1.3.2 Boehringer-Ingelheim 154
5.1.1.3.3 Cipla 154
5.1.1.3.4 Lundbeck 155
5.1.1.3.5 Merck KGaA 155
5.1.1.3.6 NovoNordisk 155
5.1.1.3.7 Ranbaxy 155
5.1.1.3.8 UCB 156
5.1.1.4 The Followers 156
5.1.1.4.1 Aurobindo 156
5.1.1.4.2 Beijing Double-Crane 156
5.1.1.4.3 Blue Cross 156
5.1.1.4.4 Dr Reddy’s 157
5.1.1.4.5 Natco 157
5.1.1.4.6 Pliva 157
5.1.1.4.7 Taro 158
5.1.1.4.8 ViPharm 158
5.1.1.5 Summary of the Categories 158
5.2 Secondary Data Analysis of the Survivors and the 167
Stayers
5.2.1 Sales 167
5.2.2 Market share 168
5.2.3 Growth 169
5.2.4 Ranking 170
5.2.5 Pharmaceutical Business Focus 171

vi
 Subject Page
5.2.6 R&D Productivity 173
5.2.7 Therapeutic Focus 175
5.2.8 Marketing 178
5.2.9 Drug Licensing 182
5.2.10 Lobbying costs 185
5.2.11 Intra Survivor Secondary Data Analysis 187
5.2.11.1 Pfizer 188
5.2.11.2 GSK 189
5.2.11.3 Merck 189
5.2.11.4 Novartis 190
5.2.11.5 Roche 190
5.2.11.6 BMS 191
5.2.12 Summary of Secondary Data Analysis 192
5.3 Primary Data Analysis 193
5.3.1 Analysis of Dynamics 194
5.3.1.1 Therapeutic Category Coverage- Current and 194
Future
5.3.1.2 Drivers of M&A 195
5.3.1.3 Advantages of M&A 195
5.3.1.4 M&A issues affecting company 196
performance
5.3.1.5 Implications of industry consolidation on company 196
performance
5.3.1.6 Pricing issues affecting company performance 196
5.3.1.7 Dynamics affecting company performance 196
5.3.1.8 Industry trends not covered in the questionnaire 196
5.3.1.9 Summary of Dynamics 197
5.3.2 Analysis of Strategies 198
5.3.2.1 Empirical Analysis 198
5.3.2.2 Intra Survivor Strategic Responsiveness 206
Analysis
5.3.2.3 Summary of Strategies 207
5.4 In-Depth Interviews 208

vii
 Subject Page
CHAPTER VI CONCLUSIONS AND RECOMMENDATIONS 213
6.1 Conclusions 213
6.1.1 The Stayers 215
6.1.2 The Survivors 216
6.1.3 The Differential 218
6.2 Contribution 220
6.3 Significance of the Study 221
6.4 Recommendations 223
6.5 Challenges & Limitations 225

BIBLIOGRAPHY 227
REFERENCES 230
GLOSSARY 271

APPENDIX 280
APPENDIX I Key Drug Discoveries 280
APPENDIX II GPM- Major M&A, Divestments & Convergence 281
Deals 1887 to 2005
APPENDIX III CEO Questionnaire 287
APPENDIX IV Covering Letter with Questionnaire 293
APPENDIX V Letter of Authority from NMIMS 295
APPENDIX VI Letter for Research Scholarship from DIIS, Denmark 296

viii
 LIST OF TABLES

Table Title Page

2.1 Pharmaceutical Company Origins 7
2.2 ANDA Filing Criteria 16
2.3 GPM Growth Factors 19
2.4 Big Pharma 2004 – The impact of consolidation 22
2.5 Big Pharma Pedigree 26
2.6 Big Pharma 1995 33
2.7 Big Pharma 2004 34
2.8 Big Pharma Rankings 1995 to 2004 35
2.9 The Fossils 1995-2004 37
2.10 Pharma M&A 1995-2004 39
2.11 Generic Subsidiaries of the Stayers and the Survivors 40
3.1 Consolidation across industries 62
3.2 Merger Analysis 1887-2006 87
3.3 Summary of the Literature Review 109
4.1 Questionnaire Structure 126
4.2 Respondents 130
4.3 Questionnaire Response- Modes and Rates (%) 133
4.4 Questionnaire Respondents by Designation 134
5.1 Summary of Respondents by Category 159
5.2 Global Pharmaceutical Rankings 1995-2004- Musical Chairs 170
5.3 R&D Output 174
5.4 Changing Therapeutic Focus 175
5.5 Dominance in Key Therapeutic Categories 2004 177
5.6 Marketing v/s R&D spend 2004 178
5.7 Sales Force 2004 179
5.8 Blockbusters 181
5.9 The Top 10 Brands 182
5.10 Revenues from top licensed drugs 183
5.11 Pipelines 2004 184
5.12 Licensing Deals 2000-2004 185

ix
Table Title Page
5.13 Lobbying Costs 1998-2004 ($mn) 186
5.14 Strategic impact on survivor performance 187
5.15 t-test values for the preferred strategies 201
5.16 Preferred strategy comparison 202
5.17 Intra Survivor Strategic Responsiveness Analysis 206

x
 LIST OF FIGURES

Figure Title Page

2.1 GPM 1995-2005, Size and Growth 12
2.2 The Drug Discovery Process 13
2.3 Drug Discovery - Increasing Input, Decreasing Output 14
2.4 New Drug Lifecycle 18
2.5 GPM v/s Big Pharma Growth 1995 to 2004 (%) 24
2.6 Contribution of Big Pharma to GPM 2001-2004 (%) 25
2.7 Big Pharma’s Growing Domination 27
2.8 Big Pharma’s Share (%) of Major Therapeutic Categories 28
2.9 Pharma Industry Transformation 28
2.10 Number of firms accounting for 50% global market share 32
2.11 Categories within the GPM 42
3.1 Ansoff’s Strategic Responsiveness (ASR) Framework 50
3.2 Consolidation in Industries- AT Kearney(2001) 58
3.3 Concept Map 110
4.1 Pharmaceutical Strategic Responsiveness (PSR) Framework 123
4.2 Respondents by Category and Operational Area 130
4.3 Design Map 137
5.1 Comparison of the Respondents (Average) across Categories 161
5.2 Scale v/s Strategy for Respondents within GPM Categories 162
5.3 Growth Strategy of the Survivors and the Stayers 164
5.4 Strategy Map of the Survivors and the Stayers (1995-2004) 165
5.5 Strategy Map of the Survivors 166
5.6 Sales 1995 and 2004 ($bn) 167
5.7 Market Share 1995 and 2004 (%) 168
5.8 Growth 1995 and 2004 (%) 169
5.9 Pharmaceutical Business Focus (%) 171
5.10 R&D Spend ($bn) 173
5.11 Acceptance-Rejection Region 201

xi
 LIST OF ABBREVIATIONS / SHORT NAMES / SYMBOLS

$ US Dollar
₤ British Pound
€ Euro
% Percent
& And
ABPI Association of British Pharmaceutical Industries
AHP American Home Products
API Active Pharmaceutical Ingredient
ASR Ansoff’s Strategic Responsiveness
AZ AstraZeneca
BMS Bristol-Myers Squibb
Bn / bn Billion
BW Burroughs Wellcome
CAGR Compounded Annual Growth Rate
CPHI Convention of Pharmaceutical Ingredients
CNS Central Nervous System
CRAM Contract Research And Manufacturing
CV Cardiovascular
DTC Direct to Consumer
EFPIA European Federation of Pharmaceutical Industries Association
EU European Union
Fra France
GDP Gross Domestic Product
Ger Germany
GI Gastrointestinal
Grw Growth
GSK GlaxoSmithkline
GW Glaxo-Wellcome
HMR HoechstMarrionRoussel
IDMA Indian Drug Manufacturers Association
IMS Intercontinental Marketing Services

xii
J&J Johnson & Johnson
LiF Lægemiddelindustriforeninge (Association of the Pharmaceutical
Industry, Denmark)
M&A Merger/s & Acquisition/s
Mn / mn Million
MS Market Share
NCE New Chemical Entity
No. Number
NDDS Novel Drug Delivery System
OECD Organisation for Economic Co-operation and Development
OPPI Organisation of Pharmaceutical Producers of India
PhRMA Pharmaceutical Research and Manufacturers Association of
America
PSR Pharmaceutical Strategic Responsiveness
R&D Research and Development
RPR RhonePoulencRorer
SKB SmithKline-Beecham
Swe Sweden
Swi Switzerland
UK United Kingdom
US / USA United States of America
USFDA United States Food and Drugs Administration

xiii