Strategic redirection in the pharmaceutical industry
Revenues and profits of a business line of a global medical devices and pharmaceutical company were declining in Germany. About 50 million Euro in revenues were exposed to price pressure and threatened by substitution. This was mainly owing to the current set up with customers, sales partners and the statutory health insurances. A further drop in revenues and profits was looming that would result from the imminent loss of the prescription status of one of the main products. The business unit was looking for a new strategic set up to turn around this negative development.
The case was especially challenging because the company did not possess direct relationships with patients or prescribers, but was working with sales partners. These sales partners would enter into frame contracts with statutory health insurances, whereby the selling argument was reduced to pricing. The objective was to overcome this dependency and to be profitable without mandatory prescription.
The solution was a new business model that instead of selling products negotiated long-term contracts for integrated services with the health care providers directly. Involving decision makers and patients it was possible again to sell by product quality and medical know how. The new business model also extended the value chain of the company with sophisticated managed care services.
Bringing about 40 % revenue growth in the first year the new business model was very effective. Although the prescription status was lost, targeted margins were achieved.