Baxalta: Building Trust with Patients
Baxalta is a leading biopharmaceutical company, delivering innovative products to patients around the world in difficult to treat therapeutic areas
The global biopharmaceutical company Baxalta is an example of a firm that has effectively integrated its business and operating models. With sales of $16.7B in 2014, Baxalta’s products aim to treat patients with a wide range of challenging health conditions.1,2 In particular, the company is considered a leader in hemophilia and best known for its top-selling product, Advate. Sales in this therapeutic area reached $3.7B in 2014.1,2
The Business Model: Meeting Patients’ Needs
At a basic level, Baxalta’s business model is to develop, manufacture, and market biopharmaceuticals for sale to patients around the world.1,2 The company’s R&D efforts focus on creating new treatment options in order to fulfill unmet needs in areas like hemophilia, immunology, and oncology. Due to the heavily regulated nature of the industry and the patients’ lives at stake, high-quality manufacturing is critical to the company’s business model and its reputation. Lastly, success depends on commercializing products in developed and emerging markets, which requires close relationships with various stakeholders including patients, providers, pharmacists, and payers.
The Operating Model: Delivering Innovative, Trusted Treatments
Baxalta’s operating model relies on the successful interaction of people, process, and technology. To that end, the company recently opened its Global Innovation Center in Cambridge, MA, enabling Baxalta to tap into industry-leading talent.3 The location fits in directly with the company’s R&D strategy, which in the future will rely greatly on biotech and academia for discovery.4,5 That said, Baxalta remains committed to advancing treatments through clinical trials in order to meet remaining patient unmet needs and defend against competitors. In hemophilia, for example, Baxter faces competition from old foes like Bayer and Pfizer, as well as new entrants like Biogen, SOBI, and Octapharma. To maintain a competitive portfolio of products across therapeutic areas, Baxalta has expressed a goal of launching 20 new products by 2020.4 To achieve this objective, R&D expenditures in 2014 totaled $1.4B, supporting internal efforts in the US, Europe, and Asia, as well as external partnerships and in-licensing opportunities in order to acquire innovation.1 As a result, the pipeline has been productive, with Baxalta submitting six drugs for approval in the US and EU and gaining approval for an improved hemophilia treatment, Adynovate, for example.5
Baxalta also must reliably manufacture high-quality products to meet the expectations of patients and physicians, as well as local regulators. Safety and quality are especially important in the case of plasma-derived and recombinant products for hemophilia, given the risk of transmitting disease and the complex manufacturing process behind biologics. The company strives for process improvement through management reviews, as well as internal, external, and vendor audits.1 These activities are conducted at the local and central levels.1
Baxalta’s operating model also calls for products to be available for delivery to patients around the world. The company leverages the expertise of independent distributors, wholesalers, and specialty pharmacies in order to ensure its treatments are readily available across geographies, even in rural America or distant emerging markets. Given the life-threatening nature of conditions like hemophilia, any supply disruptions could have grave consequences for patients. In hemophilia, Baxalta is well-known for its strong relationships with suppliers, ensuring availability and continuity of supply. The company also maintains several plasma collection facilities in the US and Europe in order to prevent shortages.1 Most recently, Baxalta gained regulatory approval for a new plant in Singapore, evidence that the company wishes to preserve its position as a global leader within the hemophilia community.6
Alignment of Models: Matching Business with Operations
Baxalta’s business and operating models support each other in two key ways. First, the company needs new, more advanced products in order to compete effectively. Baxalta’s new Global Innovation Center and its focus on development rather than discovery likely gives it a competitive cost advantage against its more research-intensive peers. Second, Baxalta’s robust supply chain results in reliable sourcing of raw materials and dependable distribution to patients. In therapeutic areas like hemophilia, where patients and physicians are highly aware of any supply disruptions and safety issues, maintaining a strong reputation for trust and quality is critical. In comparison, some competitors are considered unproven or even worse, unreliable.
The Performance: Successfully Serving Society
Evaluating Baxalta’s financial performance provides some insight into the company’s successful integration of its business and operating models. Sales have grown from $12.8B in 2010 to $16.7B in 2014.1,2 Over this same period, net income grew substantially from $1.4B to $2.5B.1,2 While these top- and bottom-line numbers are impressive, the real gains have been realized by patients around the world. In the future, Baxalta’s dedication to delivering quality treatments and its continuous pursuit of innovation will lead to better outcomes and better quality of living.
- Baxalta Annual Report, 2010
- Baxalta Annual Report, 2014
- Baxalta Announces Opening of Global Innovation Center Dedicated to Pioneering Breakthroughs for Patients with Unmet Needs
- Baxalta CEO Touts New R&D Model with a Focus on Development
- Baxalta’s Cambridge-based R&D Chief Describes New Model as ‘Small R, Big D’
- Baxalta Singapore Plant Gets FDA OK to Produce Advate Hemophilia Product
Student comments on Baxalta: Building Trust with Patients
This is very vague. It is not clear what is the uniqueness of the business model. Almost any biopharma company develops, manufactures, and distributes drugs. And each will say that it strives for quality because human lives are involved.
It would be great to learn more about the company’s Global Innovation Center and the cost advantage it offers. $1.4B R&D – or 8% is a very low R&D spend for a biopharma company. Often these types of companies have R&D in the range of high teens. Is Baxalta able to achieve 8% R&D cost due to its Global Innovation Center? And if so, how? What are the terms Baxalta has with academia? How does that work?
Also, you mention 20 product launches by 2020. This seems to be highly aggressive. Usually it takes 5-10 years to approve a drug. Is Baxalta positioned to achieve this goal and why?
It is unclear how reliable sourcing of raw materials links the business model and the operating model. Are there unusual contracts? What is unusual about them? Any operating leverage?
Also, how is Baxalta able to achieve bottom line growth twice as high as sales growth? Where these cost reductions are coming from? Is it in SG&A, COGS or even R&D??? It is unclear.
You raise some great questions worthy of additional research!
On the issue of pipeline products, Baxalta has chosen to focus on only three areas enabling it to gain deep expertise in clinical development and regulatory processes. Leading pharmaceutical companies are now seeing the value of investing in a handful of strategic therapeutic areas rather than taking a broader approach searching for any and all blockbusters. Still, other less focused companies have portfolios comprised of generics, medical devices, diagnostics, and animal health products, for example. As for 20 products by 2020, the company has advanced several products to late-stage development with many set to launch each year in various indications and geographies.