Archive for January, 2008
Cna yuo raed tihs?
fi yuo cna raed tihs, yuo hvae a geart mnid too. I cdnuolt blveiee, taht I cluod aulaclty uesdnatnrd waht I was rdanieg. The phaonmneal pweor of the hmuan mnid, aoccdrnig to a rereasch sudty at Cmabrigde Uinervtisy, it dseno’t mtaetr in waht oerdr the ltteres in a wrod are, the olny iproamtnt tihng is taht the frsit and lsat ltteer be in the rghit pclae. The rset can be a taotl mses and you can sitll raed it whotuit a pboerlm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the wrod as a wlohe. Azanmig huh? yaeh and I awlyas tghuhot slpeling was ipmorantt! So, pelase firogve ym slpenlig erors!
Entrepreneurial Success – The Three Foundations
Inventing businesses seem to be part of the evolution of mankind. As long as there are humans on this planet, there is the opportunity for someone to invent, create and sell a product. We don’t necessarily have to think in high tech terms. During my college years, I went to Italy for summer breaks. I loved the people, the weather and among many other things their coffee. In Italy I learned what it meant to drink a good cappuccino. A few years later, in the early nineties, I came to this country for the first time. I was impressed by the wealth of this country, by its size and its different faces. But the coffee was (at least in those places I went) bad. Sometimes really bad. So, I thought: Wouldn’t it be a great idea to bring a coffee culture to this country. Wouldn’t it be nice to drink good coffee, if not a cappuccino, wherever you go. Well, I had this thought and there were probably thousands of others with me in search of a good java. In the early nineties there was one person who turned that thought into a business idea and created one of the most fascinating business stories. His name is Howard Schultz, the father of Starbucks. He took this idea that was probably obvious to a lot of people, created a business model that was unique and was able to make it work defeating all laws of business gravity. We are fascinated by these people. We are fascinated by the Michael Dell’s, the Steve Jobs’ and many many others. People who make it big by beating the odds. The question we are grappling with is: What is the basis of their success? How do people make it happen?
Entrepreneurship comes in many different shapes and forms. For me on the most general level it represents the ability to create and build from a vision (practically not more than energy flowing through someone’s neural system) a product and an enterprise. Fundamentally, it is a creative act. Potentially, it is more of an art than a science. Creativity is needed to be successful in either area. However, this doesn’t mean, that there aren’t other certain characteristics increasing the likelihood to succeed. In my view it is worth talking about three major foundations of entrepreneurial success:
1. The personality of an entrepreneur: What are the characteristics of an successful entrepreneur? What are the traits that increase likelihood of success and why?
2. The new thing they sell: What are characteristics of the “new mouse trap”? Why are certain ideas taking off, while others don’t see the light of the day?
3. The organization they build: For most entrepreneurial ventures businesses and organization have to be formed to go to market. What are the characteristics of successful enterprises?
I will write about these three foundations separately and of course I am interested in your opinions.
Status of the Pharmaceutical Industry
We cannot sit in front of a TV for more than 5 minutes without someone trying to sell us a pill against headaches, sleeping disorders or to help support human reproduction efforts. If you look at these commercials one would think, that the pharmaceutical industry is the holy grail of business. I mean, who doesn’t need a pill at least once in a while. Now, you would think that this industry is on steroids, literally. You would think, that in light of the aging baby boomer generation (which I belong to), there is no better growth area. You would expect, that the pharmaceutical industry should be in every investors portfolio. Well, the picture isn’t so rosy. I’d like to talk about the challenges of this market and what companies currently do to overcome those.
By analyzing the research on pharmaceutical companies and going to conferences there are three distinct areas that make it tough to be the CEO of a top 20 pharmaceutical company.
Download: Pharma – The burning platform
1. Rising costs and decreasing productivity: In the past one hit, e.g. Asperin, was enough to carry a company through for years if not decades. Today, this is much harder to do. Many argue that the basic drugs have been invented. Experts call this the “demise of the block buster”. While companies are still looking for those, their products are becoming more “nichy”. That means from a business model perspective: more products need to be developed, tested and marketed. Their revenue basis is smaller, however, in the meantime it becomes more expensive to develop a drug, primarily because of the regulatory requirements here in the US but also in all other international markets. The second slide in the powerpoint presentation demonstrates what the reality of managing a drug portfolio. Out of ten drugs, one is what we call a block busters. These are getting increasingly rare. Only three out of ten products are “in the money”. These three have to pay for everything else. The diagram indicates also the dynamic that this industry has to battle. Just visualize the so called “squeeze”. The revenue bars become smaller and the cost bar to develop a drug becomes higher. Currently, it is estimated to be at about $1.5B. By the way: you loose all of it, if one clinical trial (it could be the last one) proves that your drug is not safe or effective or both. Poof. Hundreds of millions of dollars if not more along with years of work fly out of the window.
2. Generics Industry: There is an aggressive generics industry out there, that jumps on the band wagon as soon as a patent expires. There is no break. One has to assume that if a patent expires at 12 mid night, then there are truck loads of that drugs (generic replicas) waiting to be shipped into the country, the first second past mid night.
3. Legal battles: In particular here in the US the SEC filings of a pharmaceutical company reads like a court report. The first pages list all the law suits any of these companies are involved in: class action law suits of consumers, patent infringement law suits, unsatisfied business partners. This costs time and money. This holds true not only for a small number of “litigation magnets”. This is symptomatic for the entire industry.
Now to answer the question: Where is big Pharma going? From an investor perspective it will be very interesting to see, which companies in this space will come out on top. Nobody knows for sure. We do know what the key characteristics of the surviving company will be:
- Excellent portfolio of candidate molecules
- Operational excellence (including best in class project management)
- Big stash of cash to buy other companies. Expert’s assume that we have a similar consolidation to expect as it happened in the auto industry.
In summary the Pharma market is in a challenging position. Who would have thought. Basically, the top 20 pharma companies feel the pressure to turn around their business in order to survive the next 5 – 10 years. Here are some key focus areas:
1. Strive for operational excellence
2. Virtualize the organization to gain flexibility and manage business risks
3. Consolidation
Over time, I will look at any of these issues in more detail. So, stay tuned.
