The pharmaceutical and life sciences industry has witnessed significant shifts in market dynamics, scientific advancements, and the impact of the COVID-19 pandemic. Consequently, the discussion around fixed versus variable commercial launch models has become increasingly pertinent. This blog explores the distinctions between these two models and highlights the advantages of a variable cost approach, particularly for smaller biopharma and rare disease manufacturers.
Understanding Fixed and Variable Costs
Fixed Costs are expenses that remain constant regardless of the level of production or sales. In the pharma industry, these typically include salaries for permanent staff, costs associated with maintaining sales forces, long-term leases for office space, and ongoing marketing campaigns. Fixed costs can be substantial and require significant upfront capital.
Variable Costs, on the other hand, fluctuate based on production levels and sales activities. These costs can include contract sales forces, outsourced marketing services, and pay-per-use platforms. Variable costs allow companies to scale their expenses in line with actual demand, providing a more flexible and often more cost-effective approach to managing commercial operations.
Fixed Commercial Launch Model
The fixed commercial launch model is characterized by a traditional, standardized approach to launching new pharmaceutical products. This model relies heavily on pre-determined sales and marketing strategies, often with substantial initial investments in salesforce deployment and large-scale promotional activities.
However, recent studies have shown that this model may no longer be sufficient due to evolving market conditions and increased competition. Many launches in the past few years have underperformed, highlighting the need for a more flexible approach to commercialization. For example, the top 10 pharmaceutical companies in the U.S. spent over $98 billion on marketing in 2022. This demonstrates the significant emphasis on promotional activities to maintain competitive advantage and market share.
| Advantages of the Fixed Cost Model | Disadvantages of the Fixed Cost Model |
|---|---|
| Consistent and robust commercial presence | High upfront investments create financial risk, particularly if a product fails to achieve expected sales targets. |
| Potential to leverage economies of scale | Fixed costs can limit a company's ability to respond quickly to market changes or new opportunities. |
Variable Commercial Launch Model
The variable commercial launch model offers a more adaptive strategy, allowing companies to tailor their launch plans based on real-time market feedback and emerging trends. This model emphasizes the use of data analytics, targeted marketing, and a phased approach to resource allocation. By leveraging advanced analytics and omnichannel marketing strategies, companies can better align their efforts with the specific needs of healthcare providers (HCPs) and patients, leading to improved engagement and market penetration.
Benefits of the Variable Model:
Flexibility and Responsiveness: Companies can adjust their strategies based on market performance and feedback, ensuring that resources are deployed where they are most effective.
Cost Efficiency: A phased approach allows for better allocation of marketing and sales budgets, reducing the risk of overspending on ineffective strategies.
Enhanced Targeting: Utilizing data-driven insights to prioritize HCPs and patient segments can lead to more personalized and impactful marketing efforts.
Challenges and Considerations:
Implementing a variable model requires a significant investment in data infrastructure and analytics capabilities. Additionally, companies must be prepared to navigate organizational changes and ensure cross-functional collaboration to effectively execute adaptive strategies. The shift from traditional methods to a more flexible model also demands a cultural change within organizations, emphasizing the importance of agility and innovation.
The Variable Cost Model for Emerging Biopharma
Smaller and growing biopharma companies and those focused on rare diseases often lack the capital to sustain large-scale fixed cost operations. Instead, they are increasingly turning to variable cost models to manage their commercial activities. This approach aligns expenses with actual needs and offers several compelling benefits:
Pay-Per-Use: Companies can access a comprehensive commercial operations platform and expertise without committing to long-term ownership costs. This model provides flexibility and reduces financial risk by allowing companies to pay only for the services they need when they need them.
Scalable Costs: The ability to scale services based on demand makes the variable cost model particularly attractive for projects with fluctuating needs. Companies can ramp up their commercial efforts during product launches and scale back during quieter periods, optimizing their expenditures accordingly.
No Overhead Costs: By outsourcing commercial operations, companies can avoid the overhead costs associated with hiring, training, and maintaining an in-house team. This can result in significant cost savings and allows companies to focus their resources on core activities such as research and development.
Faster Time to Market: Leveraging the expertise and industry experience of external partners can accelerate the time to market for new products. This is particularly important in the competitive and fast-paced pharmaceutical industry, where speed can be a critical factor in a product’s success.
Think360's One-Stop Commercial Box Solution
Recognizing the benefits of the variable cost model, Think360 has developed a one-stop commercial box solution designed to support the growth of small to mid-cap life sciences companies. This platform offers a comprehensive suite of post-launch services that can be accessed with just a few clicks, providing a scalable and efficient solution for managing commercial operations.
Key Features and Real-World Impact of Think360.Rx Commercial Ops in a Box model:
Expert Access: Companies can tap into a pool of experts with deep knowledge and advanced analytical skills, ensuring that they have the support they need to navigate the complexities of the pharmaceutical market.
Comprehensive Support: The platform offers end-to-end support for all post-launch requirements, from sales and marketing to regulatory compliance and patient engagement.
Flexible Pricing: With a pay-per-use model, companies can manage their costs effectively and avoid the financial burden of long-term commitments.
Reduced Financial Risk: Smaller biopharma companies can enter the market without the need for substantial upfront investments, reducing the financial risk associated with product launches.
Enhanced Flexibility: The ability to scale services up or down based on demand provides companies with the flexibility to adapt to changing market conditions.
Accelerated Time to Market: Leveraging external expertise and resources can speed up the time to market, giving companies a competitive edge.
Wrap-up
While the fixed cost model has been the traditional approach for big pharma, the variable cost model offers a compelling alternative for smaller biopharma companies and those focused on rare diseases. By optimizing operational expenditures and leveraging external expertise, these companies can manage their commercial activities more effectively, reduce financial risk, and achieve greater commercial success. Think360’s one-stop commercial box solution exemplifies the benefits of this approach, providing a scalable and efficient platform for managing commercial operations in the pharmaceutical industry.
