Case 3.

1: Vertical disintegration in the pharmaceutical industry

Case 3.6: Floating Power Plants

Case 3.1: Vertical disintegration in the pharmaceutical industry

Traditionally vertically integrated firms Concerned with entire value chain Fully integrated pharmaceutical corporations (FIPCO)

Generation of drugs

Drug production

Marketing

Paradigm Shift : Unbundling the corporation(Hagel III et al.)

Customer Relationship Management

Find customer and build relationships Marketing and selling drugs

Province of Pharmaceutical firms

Product Innovation

Create new product and services and bring them to market

Biotechnology specialist firms- speed the drug discovery process

Infrastructure

Build and manage facilities for high volume, repetitive tasks

Contract Research Organizations (CROs) Clinical testing

Why this happened?

Product Innovation by biotech firms Specialization => adopt changing business environment Technological advances

separate product innovation business became feasible Also increased the complexity of drug discovery Smaller firms became more adept in understanding and adapting to changes

Drug testing outsourced to CROs Gain economies of scope and scale

R&D => Capital intensive & specialized business High opportunity cost ( for capital invested on drug testing)

Reduces the cost of discovery

Millennium Pharmaceuticals seeks to reverse vertical disintegration-Why?

Ambitions to become FIPCO One valuable product you can sell: the pill or serum The discrete stages ultimately dont carry enough of the product value=> low margin
Even if a molecule hits the target, its not valuable unless hundreds of others are offered as well. The vast majority of promising moleculescalled as leadsnever make it through testing.

Case 3.6:

Floating Power Plants

Power plants:
High

degree of site specificity Highly specialized assets

Purchasing govt. may default

Few

options to recover the investment by the

firm

Fear of default scare the investors

Lack

of investment => power shortage => economy slowdown

Solution to the problem

Power plants in floating barges- One or more

Plugged into land based transformers => electricity sent to consumers. In case the purchaser defaults, the manufacturer can tow the barges away and sell the plant to another consumer. Can be assembled off-site and then towed to the site

Cost saved in skilled labor relocation

Govt. policies favors (financing)

Vessels constructed in US, documented under the laws of another nation. Small number of barges => large capacity generators

Recent innovations => reduced size of gas turbines

Historical evidences of Floating power plant concept

Since 1930s, US Navy battleships have used their turboelectric motors => emergency power
Consolidated Edison operates a gas turbine generator housed on a barge in Gowanus canal, Brooklyn