Business model innovation in the New Zealand pharmaceutical industry

Abstract

The concept of the Business Model represents a strategy of a business or a product; it is a structure that shows how key stakeholders are part of the strategy to sell its product to a desired market. In the New Zealand pharmaceutical industry key stakeholders that influence the business model for originator medicines include community pharmacies, PHARMAC, competitors offering generic medicines, and the patients who consume the products. The originator/branded medicine is an active pharmaceutical ingredient (API) that has successfully undergone tests and evaluations that are involved in developing a drug product. And a generic medicine is therapeutically equivalent and is expected to have the same clinical effect and safety profile as an originator medicine when administered under the conditions specified in its labelling. The pharmaceutical industry in New Zealand faces severe challenges from the funding system, which has resulted in a lack of choice to the patient in the market. The originator medicines are facing a threat of generic substitution due to a sole tender policy and resulting, which results in further loss of choice of customers for these medicines. PHARMAC, New Zealand’s drug buying agency practices financial diligence by funding medicines through a sole tender policy. This results in negative impact for the patients with limited choice of funded medicine and generic switch also holds a non-adherence risk for certain patients which preferred originator medicine. The pharmacist’s preference to stock funded generic medicines and avoid risk of wastage of originator medicine with a short shelf life has negative impact on the business of the pharmaceutical company. Loss of tender to a generic manufacturer affects the market share of the originator medicine and results in significant loss of revenue making it unviable to bring originator medicines into New Zealand. It is observed that following patent expiration PHARMAC awards sole tender to a generic medicine to reduce its financial spending, however patients willing to pay premium price for an originator medicine find themselves out of choice as majority pharmacies do not stock these originator medicines. Overcoming these challenges – customer loss of choice and competition surrounding off-patent originator drugs that have lost funding - requires innovation of the business model. Central to innovating the business model is marketing off-patent originator medicines directly to the pharmacists. This requires new value propositions, including financial incentives, as pharmacists are increasingly important influencers in patients’ decisions about drug choices. This thesis presents the analysis of the viability of such a model.