Pharmaceutical Industrys Value Curve

High

Technological and Marketing Complexity

Intermediate & Bulk Substan ces

Commodity generics

Conven tional dosage forms

Valueadded & branded generics

Over-the counter & new drug delivery systems

New chemical entities & drug discovery

Low 2 - 12% 12 20% 20 30% 30 40% 40 60% 60 100%

Gross Margin

All industries can be seen as a collection of product market segments. The value curve is a tool used to differentiate the various segments (Christopher A. Bartlett) The more profitable a segment the more sophisticated the capabilities needed to compete in it in R&D, distribution or marketing. According to Bartlett: The problem for most aspiring multinationals (from developing countries) is that they typically enter the global market place at the bottom of the value curve- and they stay there.

Stan Shihs Smiling Curve takes much the same view: Seeing that ACERs focus on assembling PCs was keeping the company in the least profitable segment of the market, Stan Shih decided to move up the value curve by developing capabilities in components and distribution. It required: Components : Strong technology and enough manufacturing skill for economies of scale. Distribution: need a solid brand, established channels and effective logistics Acer has built both. Terms explained Bulk drugs: active pharma ingredients that are raw material for manufacturing formulations or finished dosage forms of drugs

Dosage forms: completed pharmaceutical products in which prescribed doses of medication are included (tablets or capsules) Commodity generics: generics sold to consumer by their chemical names Brand Generics: generics with brand names given by the manufacturing company Drug delivery: method of administering a pharma compound for treatment.