Traditional Pharmaceutical Model Not the Only Route to Future Success for Biotechs, According to Accenture Research

Survey of Leading Pharmaceutical and Biotechnology Executives Finds that Biotechs Must Remain Nimble and Flexible or Risk Losing their Innovative Edge

LONDON; 15 Oct. 2002 Research from Accenture (NYSE: ACN) has identified a new business model that could help biotechnology companies deal with an emerging paradox: while their core capability is innovation and their ability to grow is critical to their future, innovation and increasing size do not always go hand in hand.

The research is based on the findings of a survey of senior-executive decision-makers at 49 leading pharmaceutical and biotechnology companies in Europe and the United States. Almost one-half (47 percent) of the executives surveyed said that biotechnology companies (“biotechs”) become less innovative as they grow.

In addition, more than half of respondents (53 percent) said they believe that the most attractive strategy for biotechs is to become product-driven companies, instead of dedicated technology developers. Yet almost three-quarters of respondents (74 percent) said they believe that the traditional operating model of the pharmaceutical industry is struggling to deliver the new products required to meet growth expectations. In fact, the majority of respondents (72 percent) said they believe that this traditional model may not be the best one for biotechs to emulate.

“Historically, biotech companies have licensed their products to big pharmaceutical companies, which have derived more value from them than the biotechs have,” said Ann Baker, a partner in Accenture’s Health and Life Sciences industry group. “Now the biotechs want to recapture that value, while maintaining their nimbleness, flexibility and innovation. Although biotechs are not positioned to take on all aspects of ‘big pharma,’ they likely could grow and maintain value under an operating model that doesn’t include the burdens of assets like development and commercialisation.”

The Accenture research identified a new operating model for biotechs that consists of two main elements: an innovation center and a capability network of third parties. The innovation center identifies new technologies outside of the parent company and applies them to increase the speed, effectiveness and efficiency of the entire discovery process. The platform technologies, as well as target identification and validation would be part of the innovation center. The capability network consists of third parties that provide services such as contract development, manufacturing and sales, all supported and managed by lean, in-house “coordinating” departments.

According to the research, the flexibility that the network capability model offers can help a growing biotech company bring its first product to market up to two years faster. This means potentially protecting US$1.7bn – two years of peak year sales for the average top 25 biotech products – from generic competition. Additionally, the model can allow a company to save up to US$25M on the cost of clinical development for each successful project. Costs for these projects have been estimated at approximately US$330M.

“Biotech companies compete in an investment-constrained environment and often have to complete one phase of a project successfully before building the capabilities required to move the project through the next phase,” commented Baker. “This operating model can help them avoid significant delays resulting from recruitment, training and building infrastructure.”

This model has significant support from industry executives: the majority of survey respondents (71 percent) reported that the model could be successful. Additionally, 72 percent of the executives surveyed said they believe that their companies would consider adopting it.

However, adopting this model is likely to have a significant impact on the relationship between biotechs and traditional pharmaceutical companies. More than two-thirds of respondents (68 percent) said they believe that the adoption of this model by biotechs would place them in a more dominant position.

“Biotechs adopting this model will need to focus on four core competencies to ensure they can deliver the benefits of innovation, speed and flexibility,” commented Baker. “These competencies are excellence in fostering and capturing innovation, excellence in portfolio management, excellence in alliance management and excellence in investor management.”

The research also found that:

“This new model would offer biotechs rapid access to the capabilities they need to bring products to market,” said Baker. “As a result, they would be better positioned to foster repeat innovation, generate value early and quickly, spread risk across multiple products and minimize operational inefficiencies. Ultimately, they would emerge as nimble competitors, unencumbered by traditional organizational structures and a high fixed-cost base.”

The survey, conducted in July 2002, queried senior executive decision makers at 49 of the largest pharmaceutical and biotechnology companies in the United States, United Kingdom and Continental Europe. Of these, 25 executives were from biotech companies and 24 were from pharmaceutical companies. The survey was conducted by telephone.

About Accenture
Accenture is the world’s leading management consulting and technology services organization. Through its network of businesses approach – in which the company enhances its consulting and outsourcing expertise through alliances, affiliated companies and other capabilities – Accenture delivers innovations that help clients across all industries quickly realize their visions. With more than 75,000 people in 47 countries, the company generated net revenues of $11.57 billion for the fiscal year ended August 31, 2002. Its home page is


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