Dissertation Proposal

Title:
Does the Pharmaceutical Blockbuster Model Reach Its
Bottom-Line? - The Case of Vioxx

Student Name: Joe Bloggs

Student Id: 123456

Course: BA (Hons) Accounting

Supervisor: Professor of Puff

Word count: 2958 words

Dissertation Proposal 180215

Dissertation Proposal
Title:
Does the Pharmaceutical Blockbuster Model reach its bottom-line?
- The Case of VIOXX
Introduction
For the last decade Pharmaceutical Blockbuster product development has driven the
pharmaceutical industry. Big pharmaceutical companies have been concentrating on blockbuster
medicines production and sales revenue boosting in order to cover their enormous investment on
Research & Development. The Blockbuster Model did prove its success by generating
tremendous return and pushing the Pharmaceutical industry to a golden age. Until recent years,
some blockbuster drugs went busted and Blockbuster Model has revealed its weaknesses. Is the
Blockbuster Model still a successful structure to bring investors favourable return or is it running
to the end of its bottom-line?

Objectives
It was said that the world largest pharmaceutical companies are now struggling to compensate
drug revenue due to blockbuster drug patent expiry and later stage pipeline empty. The
experience of working with Eli Lilly Company gave me an opportunity to look into
pharmaceutical industry. As it said that top companies might no longer be able to continue
appreciating its blockbuster drugs long term benefits.
In 2004, Eli Lilly’s blockbuster drug Zyprexa was facing patent challenges. Responding to the
trial case Lilly’s stock Price was dropping 29 percent to $54.40 in 2004. Following that, Eli Lilly
started facing its critical time year 2011 to 2015, by then Zyperxa, Symbyax, Evista, Gemzar and
Humalog, these major marketed products’ patent will be expired. There would be an estimate
loss of 50 percent of 2010 revenue. Another blockbuster drug Prozac would also loss up to 20
percent of revenue.
However, Lilly never lose the faith of Blockbuster Model. It is still trying to maintain the scale
of drug researching and development to expand its pipeline. It also adjusted the strategy to
improve earning profile by launching more than five products in 2004 in order to prevent the gap
between new drug launching and blockbuster drug dying out and hoping that the new launched
drug will become another blockbuster success.
In December, a journal article published in McKinsey Quarterly (2004) described the
Pharmaceutical Blockbuster Model with the title ‘Riding the pharma Rollercoaster’ to imply the
risk of this model structure. On 30th September 2004, the headline of Merck’s global withdrawn
of its blockbuster drug VIOXX, due to its side effect of heart attack and strokes, hits
pharmaceutical industry. Merck’s blockbuster product VIOXX, arthritis and pain medication,
which was marketed in more than 80 countries, generated up to $2.5billion worldwide sales in
2003. The moment Merck released this announcement, its stock price dropped from $45.07 to
$33, a large 22 percent. This is a perfect example to illustrate the risk that’s threatening the big
pharmaceutical companies under this blockbuster model.
On one side, some pharmaceutical companies are still holding the faith over Blockbuster Model
by adjusting business strategies to survive; while the other side, there still are blockbuster drugs
going busted. Evidently there is a huge risk over investing in the Blockbuster Model. However,
what is the bottom line of this blockbuster model? Is it running to the end of its golden age or is

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it still strongly committable to investors? It is the time to review this Blockbuster Model. To
answer these questions, I started looking into related literatures and researches hoping to find the
final answer.
Comment 1: The objective is effectively the last sentence of the Introduction paragraph.
This is amplified in the 2 questions in the paragraph above. The paragraph
below is simply a list of tasks to try and resolve that objective.
My initial approach is: to define Blockbuster Model Structure and to find out its historical
successful reasoning and essential requirements; secondly, to define its weaknesses by focusing
on top global pharmaceutical companies’ common difficulties and pressures; thirdly, to analysis
Blockbuster Model by dissecting its structure and to analysis its critical success factor, risks,
current threats and future opportunities; Fourthly, to analysis and evaluate current strategies
pharmaceutical companies are carried out; Finally, to combine those factors with drug portfolio
analysis to define the bottom line of this Blockbuster Model.

Literature Research
Due to the nature of my research objective and the pace of change in the pharmaceutical industry,
there is not much information widely availed in textbooks. Therefore my research is mainly
based on websites and library databases to obtain online academic journal articles, magazines
related to pharmaceutical industry.
Bain Company is a business consultant company, within its publication section, there are a wide
range of journal articles across variety of industries including Healthcare Industry. This source
was recommended by my previous manager in Eli Lilly Company.
Business Source Premier and Econlit databases are very useful. By typing “Blockbuster”with the
following: model, pharma, big pharma, market share, failure or success, combination provided
me up to 20 related articles. Using the same searching approach on Google Scholar, I obtained
another 17 related articles. Other available internet sources also including Pharmaceutical
Executive, McKinsey Quarterly, Economics, Drug discovery today and Wall Street Journals
(require internal loan).

Literature Review
Gilbert, Henske & Singh (2003) Rebuilding Big Pharma’s Business Model (The Business &
Medicine Report, November 2003), briefly defined the blockbuster model as an “approach
focuses the majority of a company’s investment on creating blockbuster product franchises – that
is, brands that achieve global sales of more than $1 billion.”
NOTE: The citation to Gilbert … above does not need the title, journal and full date.
However, it may be appropriate to include the title if this is particularly relevant
in the context – which it is in this case. The journal and full date are not needed.
Previously, “blockbuster model has served the pharmaceutical industry well; generating over
13% annual growth in market capitalization between 1992 and 2002”; building up a large
infrastructure around the blockbuster model within in pharmaceutical industry. Moreover,
Gilbert, Henske & Singh (2003) added, a successful blockbuster can yield returns 10 -20 times as
large as average drug which only can deliver 5% return on investment.
However, blockbuster model contains high uncertainties, requires long term investment and huge
cost with enormous risks.
As Rasmussen (2002) pointed out in his paper - Implications of the Business Strategies of
Pharmaceutical Companies for Industry Developments in Australia (Centre for Strategic

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Economic Studies, March 2002, Pharmaceutical Industry Project, Working Paper No.1) that,
“the uncertainty of the discovery process and the potentially huge returns from the discovery of a
single drug means that success in the industry depends on a high measure of luck.” Therefore,
“returns from pharmaceuticals are highly volatile.”
He also briefly mentioned blockbuster model’s current urgent issues: “existing blockbuster
patents expire and expected blockbusters fail to materialize”.
Franco & Kaitin (2002) listed several pressures that are threatening current business model:
“Uncertainty over pipeline sufficiency”; “Genomics and the promise of personalized medicine”;
“increased speed of ‘fast follower’”; “reimbursement and cost pressures”; and “tightening of
regulatory pressures”.
Further more, Gilbert, Henske & Singh (2003) carried out a systematic research and study on
current blockbuster model’s issues and performance, pointed out that, “the blockbuster business
model that underpinned big pharma’s success is now irreparably broken, the industry needs a
new approach.” According to their study, cost of new drug launching has increased to $1.7
billion, while return on investment reduced to 5% only and possibility of achieving 12 percent
ROI is reduced from 30% to 15%. There is also a decline on R&D productivities, “Only one
compound now reaches the market for every 13 discovered and placed in the pre-clinical trials,
compared to one for every eight between 1995 and 2000.”
Therefore, they defined four business building blocks which they believe could replace existing
business model: “shift from opportunistic to focus”; “Shift from a fully integrated pharma
company model (FIPCO) to using partnerships to manage risk and return”; “Shift from science-
driven provision of specific drugs to providing customer solutions; shift from a functional to an
integrated business organization model”.
Evidently, Singh & Gilbert’s blockbuster model broken-down theory caused a range of reactions.
Thayer (2004) wrote “Blockbuster Model Breaking Down and Pharma industry reaches new
sales peak, despite rising costs and bigger challenges for drug R&D.” Clough (2004) wrote for
the 8th Annual Pharmaceuticals Conference, “Rethinking the Formula [and she questioned]…
new business model- the end of an era?” Krauss (2003) questioned, “Has the Pharmaceutical
Blockbuster Model Gone Bust?” Clarke (2004) also questioned “Is big pharma’s golden era
over?” Malek (2004) also stated “the blockbuster is dead, Long living the blockbuster!” and
suggested three alternatives approaches: diagnostic-led; single-pill and treatment-platform.
There is still substantial amount of discussions around blockbuster model, its issues and
company strategies and so on.
Evidence suggests that blockbuster model has strong dependency on patent protection. Gillin
(2002) also mentioned that blockbuster drugs strongly rely on patent protection therefore,
“Pharmaceutical companies go to protect patents because even a single day of sales reaps major
profits.” A direct consequence for those drugs losing patent protection would be the generic issue.
“The patent on 47 blockbuster drugs with combined sales of $31 billion will expire before 2005”.
Hirschler (2004) reported that companies would use acquisitions and other strategies to build up
a significant presence in generic or off-patent medicines.
Venture Capital Journal (2004) suggested that “big pharmaceutical companies are starting to
seek more investment deals and partnership opportunities with emerging companies. [The large
pharmaceuticals]…are more prone to enter into a deal with a small company to access new
products with strong patent protections.”
Ainsworth, S.J.(Ed) (2004) also mention a strategic move for “pharmaceutical companies who
no longer sees any opportunity to extend patent life on a prescription only product, may opt to

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petition FDA for over-the-counter status”, which could “help maintain revenue flow on the
product for a least a few additional years.”
Comment 2: A splendid literature review, wide-ranging but all relevant (to the objective),
logically structured and well argued.

Methodology
Semi-Structured Interviews
Bain Company and its followers strongly believe that the Blockbuster Model is broken, and it is
time for a change. While, Rasmussen (2002) emphasized that the management literature outlines
the efforts that Eli Lilly has made through the 1990s to improve the focus and efficiency of its
drug development pipeline for its blockbuster drugs. It shows that Eli Lilly was a strong
supporter and believer of Blockbuster Model. However, since there is a huge change within the
industry in recent years and more blockbuster model shortcomings have been revealed, what will
happen to Lilly’s strategy? I listened to the inside story from the industry itself and carried out
four semi-structured interviews with managers from four different departments: R&D, Marketing,
IT and Finance.
Interviews carried out within Eli Lilly Company managers focused on their understanding of the
blockbuster model including the benefits and shortcomings, their future expectation and other
affective elements. Interviews were varied according to interviewee’s position and roles within
the company.
Case study on Merck’s withdrawn of VIOXX
Before VIOXX’s withdrew out of global market, it was a blockbuster success marketing in 80
countries, taken by 2million people and generating up to $2.5 b sales in 2003. This particular
product’s life cycle fully reflected blockbuster model’s benefits and risk. From its long term
investment, approval and launching, and appreciated 4 years patent sales to the time of global
withdrawn, “it blew a $2.5 billion hole in Merck’s revenues and stirred up a storm of suspicion”.
(Aftershoxx - Lam 2004).
VIOXX does not only have a huge impact on Merck itself, but also an impact on COX-2s
inhibitors, including Pfizer’s two blockbuster drugs: Celebrex & Bextra. VIOXX also caused
crucial critics to Food & Drug Association for heavily emphasising on pre-marketed products but
lacking of after launching monitoring.
By studying on VIOXX case can clearly illustrate the dependency between single blockbuster
drug and company’s overall performance; high risk of single product dominate company’s
revenue; importance to increase R&D productivity and drug portfolios. Assuming VIOXX’s life
cycle will not terminate until its patent expiry, it will also face competition from generics and
Merck needs backup strategies to compensate revenue after VIOXX losing patent.
Online Secondary Data
Gilbert, Henske & Singh (2003) (Rebuilding Big Pharma’s Business Model) (The Business &
Medicine Report) calculated cost of a new drug by factoring commercialized cost – drug
launching. From the period of 1995-2000 to the period of 2000 – 2002, the total cost for a new
drug getting to the market increased from $1.1billion to $1.7billion, ROI decreased from 9% to
5%, the probability of reaching 12% ROI has been reduced from 30% to 15%.
However this approach defined a ROI decline by comparing a 2 years ROI from the period of
2000-2002, with 5 years ROI from the period of 1995-2000. This is not strong enough to
demonstrate the failure of blockbuster model. Decline of ROI could be caused by drug under
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performance and ‘market shrinks’; could be caused by short time scale. Besides, any unexpected
incidence could make a significant change, typically for recent hot topic regarding bird flu, made
normal flu vaccine becoming a blockbuster. Also regarding to R&D and drug launching cost,
strategies and new techniques could be introduced to reduce it in order to give a high ROI. For
instance, their approach looked at in-house produced drugs only, while many companies start
using outsourcing to reduce R&D cost and increase productivities. Finally, their approach did not
value those drugs that did not make through clinical trial. According to Augen (2002) that
compounds that failed clinical trial because patient subpopulations could not be characterized at
a sufficiently detailed level can now be “rescued” and re-evaluated, which means, those drugs
might become valued added products.
Comment 3: The critical discussion of the Gilbert, Henske and Singh paper above is
interesting but might be better placed in the literature review with a brief
reprise here of the aspects directly relevant to the methodology. The detail
above seems to interrupt the logical flow of the methodology.
Therefore, I would like to collect online secondary data business consultant companies’ research
focusing on drug portfolio. By focus on top pharmaceutical companies’ drug portfolios,
understand their potential for future blockbuster drugs, from near term to 2007, to long term to
2010.
Comment 4: The chosen approaches in the methodology make sense but represent a
great deal of work. A case on the viability of the blockbuster model could
probably be made with a little less material, for example without using the
Vioxx case or focussing on the Vioxx case but without the industry
analysis.

Data & Information

I have outlined certain area of data I need initially, however, following the development of
dissertation itself, more detailed and systematic data will be desired. Therefore, further data &
information will be carried out accordingly.
Top Pharmaceutical Companies
Economist(2005), Prescription for change, Economist, 6/18/2005, Vol. 375 Issue 8431, Special
section p3-5, 3p, provided a latest list of Big Pharma firms by sales:

A – Company
B – Pharma sales, $bn 2004
C – Market capitalization, $bn: end 2000
D – Market capitalization, $bn: end May 2005

A B C D

Pfizer 51.1 290 207

GlaxoSmithKline 32.8 178 145
Saofi-aventis 27.4 49 128
Johnson & Johnson 24.7 146 200
Merck 23.9 216 71
Novartis 22.9 128 131

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A – Company
B – Pharma sales, $bn 2004
C – Market capitalization, $bn: end 2000
D – Market capitalization, $bn: end May 2005

A B C D

AstraZeneca 21.7 89 69
Roche 17.8 91 112
Bristol-Myers Squibb 15.6 146 50
Wyeth 14.3 83 58
Abbott Laboratories 14.3 75 75
Eli Lilly 12.7 105 66
Schering-Plough 6.9 83 29
Bayer 6.4 39 25
Sources: IMS Health; Thomson Datastream

Top Pharmaceutical Companies Drug Portfolios

UBS Investment Research (2005), Global Pharmaceutical – Portfolio Scores, UBS Investment
Research, 21 March 2005. The manager from the R&D department I interviewed provided me
with this report. It provides extremely value information regarding the top ten pharmaceutical
companies, portfolio scores, including generic exposure, growth from in-line, late-stag pipeline
portfolio, soft patent risk and Net Portfolio scores. Further more it also including Stock
valuations reflective of product portfolio scores. However, I need to tailor data and design an
appropriate valuation method to fit with my dissertation research objective.
R&D Productivities
Shaw (2004), Drug Discovery and Development, Reed Business Information, November 1st
2004 stated that: “between 1995 and 2000, one of every eight compounds put in preclinical trials
reached the market, compared with just one of every 13 today. Odds of FDA approval of a given
drug have dropped to 50% from 73%.” However, companies can now combine in-house produce
with outsourcing to increase R& productivities. Also, Rasmussen (2002) mentioned companies
use mergers and acquisitions to improve drug development.
Stock Price
I might need to look at the single blockbuster impact on company stock price; for instance, the
announcement of VIOXX withdrawn had a direct impact on Merck’s stock price. This could be
found from Merck’s website, news website. However for further requirement on other company
stock price changes, I need to look at historical prices rather than limited on journals. Datastream
would be an ideal tool, however has extreme access limitation. Alternatively, I could use
Yahoo.com to look at historical price, disadvantage of using this resource is: it only allow me to
look at one company each time, with daily, weekly and monthly price only.
Drug Launching Process & Time Scale
Yanni, M.,(15th Oct 2004), How Drugs get to market, The Star-Ledger, Retrieved 17/11/2004,
from noted the process from FDA approval to drug launching: Preclinical Research; Clinical

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Studies; Phase II; Phase II; Phase III; Initial Review; The Technical Review Process; Yes or No
Decision and Final Steps.
Market Segmentation and Forecast
For general market segmentation and forecast I can get information from industry profiles which
I obtained from university library catalogue. Understanding the market segmentation and its
growth or decline trend in the near future can help me understand the market environment and
limitation. The table below is an example from the United States Pharmaceutical industry profile.
It can be seen from the ‘percent growth’ column that the forecast of Pharmaceutical market value
declined from 2003 to 2007, with a slight increase in 2008. This Market trends might have effect
on Blockbuster drug on market performance.
Table United States Pharmaceuticals Market Value Forecast:
$billion, 2003 – 2008
Year $ Billion % Growth

2003 217.5 10.80%

2004 238.1 9.50%
2005 259.3 8.90%
2006 280.7 8.30%
2007 302.1 7.6%
2008 325.2 7.70%
CAGR, 2003 - 2008 8.4%
Source: Datamonitor DATAMONITOR
Others
There are other issues I might look at as additionals to expand the research objective. By
studying the Merck’s VIOXX case, I may also look at similar component COX- 2 drugs on the
market. Investigation was carried out after VIOXX’s drug safety issue rose in 2004, which have
significant impact on Pfizer’s blockbuster drugs Celebrex & Bextra. Secondly, FDA (Food and
Drug Association) has strong influence in pharmaceutical industry; especially its regulation and
drug approval process has strong restriction on drug launching and patent bottom line. Thirdly,
VIOXX case also revealed the ethical issue that by knowing VIOXX’s side effect of heart attack
and strokes in 2000. Without informing the public, Merck Company continued to sell VIOXX
for another four years in order to gain huge investment return. Finally, I might briefly mention
investor’s expectation on pharmaceutical innovation and blockbuster model.
Comment 5: Overall, an impressive, scholarly piece of work on a highly ambitious and
challenging topic.
NOTE: The student started on this while on placement and had done quite a bit of
background reading before the start of the final academic year. Marks
connected with (background) research and understanding of the subject matter
were particularly high.
Comment 6: Well presented. Although the language is quite flawed in places this does
not significantly detract from being able to understand what is said.

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Bibliography
NOTE: The bibliography and Appendix IV – Further reading list total 7 pages. The final
dissertation had a bibliography of 9 pages. Thus the student had gathered
nearly all the literature eventually used by the proposal stage. This is quite
unusual and reflects the amount of time the student spent working before the
start of the final year.
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Landers, P. (2003), Cost of Developing a New Drug Increases to About $1.7 Billion, The Wall
Street Journal, December 8th 2003, Retrieved February 10th 2005, from
http://www.bain.com/bainweb/publications/publications_detail.asp?id=14245&menu_url=public
ations_results.asp
Malek, J.J. (2004), The New Building Blocks for Blockbusters, Pharmaceutical Executive,
September 1, 2004, retrieved February 15th 2005, from
http://www.pharmexec.com/pharmexec/article/articleDetail.jsp?id=123006
Multinational Monitor, (2004), Big Pharma’s Scams, Multinational Monitor, Jul/Aug2004, Vol.
25 Issue 7/8, p44-44, 1/2p, Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=14373205
Pharmaceutical Technology Europe, (2005), News: The Future of COX-2s – Will FDA Decide
to Pull the Plug? Pharmaceutical Technology Europe, Feb 2005, Vol. 17 Issue 2, p8-8, 1p,
Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=16203311
Rasmussen, B (2002), Implications of the Business Strategies of Pharmaceutical Companies for
Industry Developments in Australia, Centre for Strategic Economic Studies, March 2002,
Pharmaceutical Industry Project, Working Paper No.1, Retrieved 10 Dec 2004, from
http://www.cfses.com/documents/pharma/01-Business_Strategy.PDF
Rubinger, B. & Davis, H. (2003), Protecting IP throughout the Product Lifecycle,
Pharmaceutical Executive, August 1, 2003, retrieved February 16th 2005, from
http://www.pharmexec.com/pharmexec/article/articleDetail.jsp?id=64069
Shalo, S (2004), The lifecycle of Cipro, Pharmaceutical Executive, August 1, 2004, Retrieved
February 16th 2005, from
http://www.pharmexec.com/pharmexec/article/articleDetail.jsp?id=109680

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Shaw, G. (2004), Drug Discovery and Development, Reed Business Information, November 1st
2004, Retrieved November 18th 2004, from
http://www.bain.com/bainweb/publications/printer_ready.asp?id=18154
Singh, A. & Gilbert, J.L. (2002), The limits of Scale – Pharmas need to successfully restructure
around a few therapeutic franchises to grow. Bain Strategy Brief, May 1st 2002, Bain &
company Retrieved November 17th 2004, from
http://www.bain.com/bainweb/PDFs/cms/Marketing/7150.pdf
Singh, A., Gilbert, J.L. & Duelli, J. (2002), Better Medicine, The Daily Deal, June 4th 2002,
Retrieved February 10th 205, from
http://www.bain.com/bainweb/Publications/wbb_articles_detail.asp?id=7654&menu_url=wbb%
5Farticles%2Easp
Singh, A. & Gilbert, J.L. (2002), Mergers Can’t Save the Drug Industry, The Wall Street Journal
(Europe), May 27th 2002, Retrieved February 10th 2005, from
http://www.bain.com/bainweb/publications/publications_detail.asp?id=7545&menu_url=publica
tions%5Fresults%2Easp
Thayer, A. M. (2004), Blockbuster Model Breaking Down, Modern Drug Discovery, June 2004,
Focus on Business, p23-24, Retrieved January 20th 2005, from
http://pubs.acs.org/subscribe/journals/mdd/v07/i06/pdf/604business3.pdf
UBS Investment Research (2005), Global Pharmaceutical – Portfolio Scores, UBS Investment
Research, 21 March 2005, www.ubs.com/investmentresearch
Venture Capital Journal (2004), Big Pharma Eyeing Startups, Venture Capital Journal, October
1st 2004, Retrieved February 20th 2005, from
http://www.bain.com/bainweb/Publications/in_the_news_detail.asp?id=17710&menu_url=in%5
Fthe%5Fnews%2Easp
Yanni, M., (15th Oct 2004), How Drugs get to market, The Star-Ledger, Retrieved 17/11/2004,
from
http://www.bain.com/bainweb/publications/publications_detail.asp?id=17992&menu_url=public
ations%5Fresults%2Easp

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Appendices

Appendix I - Chapter Plan

Appendix II – Timetable

Appendix III - Interview 1

Appendix IV - Further Reading List

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Dissertation Proposal 180215

Appendix I - Chapter Plan

Chapter 1: Introduction
It will briefly introduce dissertation structure, research objective, methodology and the
goal I try to achieve. It will also introduce the case of VIOXX and the background of the
Pharmaceutical “Blockbuster model”.
Chapter 2: Literature Review
This chapter will cover literatures I reviewed related to Pharmaceutical blockbuster model.
It will focus on Singh & Gilbert’s research study and their theory.
Chapter 3: Methodology
3.1 Interviews
Four interviews with Eli Lilly Company managers from four different departments
provided broad information related to the Blockbuster model from insiders point view.
3.2 Case Study – Merck’s VIOXX
Case study focused on Merck’s VIOXX global withdrawn. This typical case can
demonstrate a blockbuster drug’s life cycle from its launching till its dying out the market.
3.3 Secondary Data Collection
Online internet searching for secondary data from recommended sources. In order to
support the “blockbuster model” critical factor analysis, this chapter will particularly focus
on drug portfolio, R&D scale and drug patent risk.
Chapter 4: Merck’s VIOXX
4.1 VIOXX’s Life Cycle
Briefly look at VIOXX life cycle from its Approval and Launch to its withdrawn.
Information will be based on its annual sales before withdrawn and product side affect.
4.2 Internal Impact
Briefly look the internal impact on Merck’s stock price, Market position, and Sales
revenue by the withdrawn of VIOXX.
4.3 External Impact
4.3.1 VIOXX’s Impact on FDA
The case of VIOXX increased public pressures on FDA (Food & Drug Association)
regarding drug safety issues. FDA is tackled for its clinical trial limitation and lacking of
monitoring for after launching product.
4.3.2 VIOXX’s impact on COX 2 – Product
COX 2 component products have been suspected due to the VIOXX case. Further
investigation on blockbuster drugs Celebrex and Bextra caused impact on Pfizer.
Chapter 5: Beyond the VIOXX
5.1 Define Blockbuster Model

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180215 Dissertation Proposal

Introduce the blockbuster model background and define its model structure and briefly
summarize current performance within the industry.
5.2 Blockbuster Products Success & Failure
Briefly illustrate success and failure blockbuster products cost and sales from year 1990 to
year 2005.
5.3 Blockbuster Reasoning & Critical Factor Analysis
5.3.1 Blockbuster Reasoning
Analysis blockbuster historical success reasoning from internal companies’ quality and
external environment.
5.3.2 Critical Factor Analysis
Analysis Blockbuster Model’s critical factor, focus on R&D Scale, Soft Patent and
Pipeline & Drug Portfolio three areas to define blockbuster model’s bottom-line.
5.4 Current Pressures & Difficulties
Objectively analysis exiting model’s pressures and difficulties within the industry,
combined with the change pace of the industry including, uncertainty over Pipeline
sufficiency; patent expiry; increasing R&D and tightening of regulatory pressures.
5.5 Threats
Analysis industry environment to define elements that threatening blockbuster models
including, new competitors, new technologies, techniques and challenges; patients and
customers desire; distribution network and generic competition
.5.6 Opportunities
Define the opportunities to extent blockbuster model through productivities increasing and
new technologies improving; generic medicine could become opportunity rather than threat.
Chapter 6: Others
6.1 FDA
FDA regulation and drug approval process has strong restriction on drug launching and
patent bottom line.
6.2 Ethical issue
VIOXX case revealed the ethical issue that by knowing VIOXX’s side effect of heart
attack and stokes in 2000, Merck Company still continue selling VIOXX for another four
years.
6.3 Investor
Briefly look at investor’s view pharmaceutical innovation and blockbuster model.
Chapter 7: Conclusion
Summary above issues and conclude the argument of if existing blockbuster model can
still move on, if yes, what the bottom line is.

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Dissertation Proposal 180215

Appendix II – Timetable

Item Objective Notes Time

1 Preparation
1.0 Dissertation Proposal Submission 9th Dec 05
1.1 Literature Review Further literature review 19th – 23rd Dec 05
& additional reading
1.2 Methodology Four semi structured last interview will be
interviews; in 20th Feb 06

Merck’s VIOXX case 9th - 14th January.

study and related
information collection;

Online source to obtain 2nd Jan – 8th Jan 06

secondary data

1.3 Data Sorting R&D Scale Data Data sorting time from
Patent Risks 16th Jan – 20th Jan 06
Drug Portfolio
Others
1.4 Specification Specify Dissertation 27th – 28th Jan 06
structure, format and
revise chapter plan

2 Execute 1st Feb 06

2.1 Literature Review Chapter writing & 1st – 5th Feb 06
structuring
2.2 The Case of VIOXX Writing & Structuring 6th - 8th Feb 06
Merck’s VIOXX
Merck Internal Impact
External Impact
Other similar cases
2.3 Beyond the VIOXX Chapter Planning & 15th Feb 06
Structuring
2.3.1 Define the Model Writing & Structuring 17th Feb 06
2.3.2 Blockbuster drug success Research & Writing 20th – 22nd Feb 06
or failures
2.3.3 Blockbuster Reasoning & R & D Scale Analysis 26th - 28th Feb 06
Critical Success Factor Soft Patent Risk
Drug Portfolio Risk
2.3.4 Pressures and Difficulties Structuring & Writing
2.3.5 Threats & Opportunities 3rd – 5th Mar 06
2.3.6 Companies Strategy Mergers

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Item Objective Notes Time

th th
Evaluation Drug Licensing 6 – 9 Mar 06
Other Strategies
2.4 Others FDA Influence
Ethical Issues 13th – 15th Mar 06
Investors Expectation
2.5 Conclusion Structuring & Writing 16th – 17th Mar 06
2.6 Chapter 1- Introduction Structuring & Writing 18th Mar 06
2.7 Abstract 19th Mar 06

3 Review & Updating

3.1 First Review Review with Prof Puff 21st Mar 06
Updating Self Updating 22nd – 25th Mar 06
3.2 Second Review Review with Prof Puff 28th Mar 06
Updating Self Updating 29th – 1st Mar 06
3.3 Final Review Review with Prof Puff 7th April 06
Self Updating 8th – 12th April 06
3.4 Break Break 15th – 26th April 06
3.5 Final Updating Self Updating 27th – 31st April 06

4 Finishing
4.0 Submission Printing & Biding 1st – 2nd May 06
Submission 3rd May 06

NOTE: The timetable is quite detailed and quite closely linked to the chapter plan.
Again, this reflects the amount of time the student had already put in before the
start of the final year.

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Dissertation Proposal 180215

Appendix III - Interview 1

Interview with: * *
Position: **
Date: 14th June 2005
Time: 15:00 – 16:00
NOTE: Before any interview such as this takes place, the student must get the Ethics
Approval Form signed by their supervisor and it must cover the ethical
considerations connected with the interview.
Q 1: Government policies have a huge influence in the Pharmaceutical companies; if we look at
UK and US respectively, in which way do you think US government or policies has made
Pharmaceutical companies easier to compete than UK.
A: Yes, I think there are quite a few differences between UK and US market in terms of
Government Policies. The first one I can think is Advertisement. In the US pharmaceutical
companies can advertising drugs in public to introduce product to customers directly. However,
in the UK, the law restrict company to do so; therefore we only can rely on doctor’s prescription.
Recently, US Government has introduced a new tax legislation to allow returning profit from
overseas to US in order to develop and expand local business. Cash return to US can contribute
companies’ capacity and dimension. In US company is free to set drug’s price without consider
about government line. While in Europe, there are price pressures from Government. Especially
the UK government introduces PPRS policy to reduce pharmaceutical company’s Marginal
profit and drug price in order to control and reduce NHS cost.
Q 2: What advantages or disadvantages do you think European market is having now compared
to US Market?
A: As I mentioned in the last question, US market is more attractive because there is no
government price control. This is the disadvantage we have in the European Market. There is
always some additional cost in UK, considering about Animal Health and other effects.
Other disadvantages could be different currencies, for example UK is in Stirling, and others are
in Euros, it will cause difficulties in cash collections and exchange rate. There is another element
I want to mention here is “Parallel Import”, for example in UK, if we sale drugs in Spain we
have to set lower price according to Spain Government policy, however, distributors can import
drugs from Spain in lower price and resale in UK in higher price than Spain Market but lower
than UK market. However same case happened in US, distributor import drugs from Mexico &
Canada and resale in the US market, difference is it has been treated illegal by FDA (Food and
Drug Association). However, European Market does have its advantages, the Euro group is
bigger than US in terms of amount of countries and European Union is still expanding.
Q 3: Do you know if there are other organisations having impact on Pharmaceutical companies’
business processing?
A: Surely in US, FDA the Food and Drug Association has a strong impact on pharmaceutical
industry, their speed on drug approval will direct effect drug patent’s bottom line. Also strong
regulation on manufactures also has put lost pressures on our companies. We have equivalent
organisation in Euro, (EMAE), also we have National Clinical & Trial institution, there are still
other organisations and parties could effect pharmaceutical company’s business processing.

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Q 4: What makes a successful pharmaceutical company?

A: There are quite a few core elements contribute a successful Pharmaceutical company, first of
all, company has to create products that meet customers’ needs. Then, the company itself have
an integrity working force, enable to work efficiently and create work efficiency. Key thing in
Pharmaceutical company is on R&D, therefore, innovation is extremely important to drug
discovery and development. Next element is Sales & Demand Realisation capabilities; turnovers
will be generated by sales. Therefore sales capacity is a core area as well. Also first in class
medicine treat and the ability to heal deceases all determine if a pharmaceutical company’s
successes.
Q 5: What do you think of this Pharmaceutical’s Blockbuster Mode?
A: In my mind, it is ground situation product with large sales, which drive expectation in future
growth, and drive R& D and support the continue growth in making investment on R&D and
demand realisation. It enables the company to make commitment to investors, in long term to
increase in and out house productivities and capabilities.
Q 6: Do you know how pharmaceutical companies get into this Blockbuster Situation?
A: Well, I think it starts by company discovering the drugs that being desired by large amount of
customers, then, meet the markets’ needs and satisfied the investors’ expectation. Therefore huge
revenues have been generated enable the company to continue expanding their investments on R
& D to create next blockbuster drugs. Basically, I think this is a long-term life cycle, start from a
small snowball, then rolling bigger and bigger.
Q 7: Nowadays, lots big pharmaceutical companies are facing variance of difficulties, however,
what are the challenges this blockbuster model has created to big pharmaceutical
companies at the moment?
A: I think the challenges are those risks that associated with them. Firstly, R&D addresses
medical needs, without new drug discovery & development; company will not stand a growth.
Secondly, blockbuster drugs have strong dependencies, especially relying on patent protection.
Once patent is challenged before deadline, company will have difficulties to meet the
expectations.
Another problem is Price pressures; cheap medicine normally will stand a priority on the market.
Also, if the government force companies to reduce blockbuster drugs’ price, there will be less
turnovers generated. Blockbuster model put company in a strong dependent & risky situation;
some companies simply rely on one or two products.
Q 8: What do you think those companies who chose Mergers & Acquisitions to survive this
difficult time?
A: Mergers & Acquisition as strategies are likely to be short-term benefit. There are always
opportunities on reduce cost and improve R&D. However, in long term, companies still have to
rely on R&D to create new components, to produce new drugs. The ability of having new
product is the key to survive.
Q 9: Are there any other possible solutions do you think those companies could adapt in order
to survive?
A: Yes, surely there are lots strategies, they can use for internal structure adjustment. For
example, building company’s flexible capacities, by reducing fixed elements, by having
contractors rather than permanent employees. Especially in sales forces, recruiting part time
employees, to increase sales capacities, also easy to reduce in the future. Companies need to

18 example 1
Dissertation Proposal 180215

concentrate on R&D. There are so many ways they can improve it, for example, in house
discovery, buy in component or build partnership, enhance technology & innovation, licences
new products and so on.
Q 10: Lilly is a strong pipeline pharmaceutical company, what are the key reasons that Lilly can
mange to maintain this?
A: Obviously strong pipeline requires a strong foundation. Lilly is managing to keep a strong
pipeline, because we have spend a critical mass investment on R&D and manufacture to increase
our discovery opportunities and manufacture capacity. We combined in house and out house
production, buying in the right products and licensing them instantly.
Q 11: Strong competitions between pharmaceutical companies, kind of push innovation forward,
however, during lab discover and innovation, there are bound to have significant cost
wastage, why don’t they merge their R&D together in order to save cost?
A: First I will not say those costs are wastage. All of those costs spending on R&D are kind of
investment, which leads companies’ competitions. If you do not have the product, you will lose
the market, disappoint the investors. Of course duplicating research always existing in R&D, and
they all cost a significant amount of money. That is why even the government is trying to get
involved in order to reduce these expenses. However, R&D is the core function; this situation
just reflects the nature of the pharmaceutical industry. I don’t think mergers will be realistic if
the competitions still exist.
Q 12: Which competition elements can easily make a pharma company standing out?
A: There are lots of elements could make a pharma company standing out. However, R&D
innovation and Sales & Demand Realisation are two core function areas to determine a pharma
company’s successes. Of course there are lots other support functions to support those two core
functions from products’ Research, Commercialise to Launching, for example manufacture, IT,
Finance etc.

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180215 Dissertation Proposal

Appendix IV - Further Reading List

Agarwal, S. Desai, S. Holcomb, M.M & Oberoi, A. (2001), Unlocking the value in Big Pharma,
McKinsey Quarterly, 2001 Issue 2, p64, 10p, 1 chart, 2 graphs, Retrieved November 9th 2005,
from http://search.epnet.com/login.aspx?direct=true&db=buh&an=4425967
Barrett, A. (2005), Another Blockbuster Is Busted, Business Week Online, 12/20/2004, pN.PAG,
00p, Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=16494052
Blauvelt, B (2003), Benchmarks for Blockbuster Launches – A new study revels the best
practices in global new product commercialization and the companies that model them,
Pharmaceutical Executive, February 1, 2003, Retrieved February 15th 2005, from
http://www.pharmexec.com/pharmexec/article/articleDetail.jsp?id=44950
Blodget, H. (2005), The world’s most expensive technology, Euromoney, Mar2005, Vol. 36
Issue 431, p30-30, 1p, Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=16598045
Breivis, J. S.(2005), Overcoming Bias in Technology Assessment, American Academy of
Orthopaedic Surgeons, February 2005,Retrieved November 10th 2005, from
http://www.aaos.org/wordhtml/bulletin/feb05/acdnws8.htm
Bonifant, B.(2001), New Playing Fields – Companies must create alternate business designs if
they are to hit a home run in the new business environment, Pharmaceutical Executive,
September 1, 2001, Retrieved February 16th 2005, from
http://www.pharmexec.com/pharmexec/article/articleDetail.jsp?id=781
Buehler, K.S. & Pritsch, G. (2003), Running with Risk, The McKinsey Quarterly, 2003, Number
4, Retrieved February 16th 2005, from
http://www.mckinseyquarterly.com/article_page.aspx?ar=1351&L2=5&L3=5
Carey, J, Barrett, A. & Cropper, C.M (2004), Lessons from the Vioxx Fiasco, Business Week,
11/29/2004 Issue 3910, p42-44, 2p, 1 graph, 1c, Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=15098088
Carné, X & Cruz, N. (2005), Commentary: Ten lessons to be learned from the withdrawal of
Vioxx (rofecoxib), European Journal of epidemiology (2005) Volume20, Issue 2, p127 – 129.
Chemical Market Reporter, (2004), Merck Slammed by Vioxx, Chemical Market Reporter,
10/4/2004, Vol. 266 Issue 11, p2-29, 2p, Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=14641662
Christy, J.H. (2005), Drug Bust, Forbes, 3/28/2005, Vol. 175 Issue 6, p202-202, 1/4p, 1 graph,
Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=16406601
43) Clinton, P (2005), The Other Vioxx Scandal, Pharmaceutical Executive, January 1, 2005,
Retrieved February 17th 2005, from
http://www.pharmexec.com/pharmexec/article/articleDetail.jsp?id=146589
Devine, P. (2002), Pharmaceutical Development: Why biotechnology and Pharmaceutical
Companies are working together, Australasian Biotechnology, Vol. 12, No. 4, Aug-Sept, 2002,
pp. 52-53, Retrieved Nov 4th 2005, from http://www.bioline.org.br/request?au02027
Dueli, J. & Singh, A (2002), Manager’s Journal: Developing the Personal Drug of Choice, The
Wall Street Journal, June 11th 2002, Retrieved February 10th 2005, from

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Dissertation Proposal 180215

http://www.bain.com/bainweb/Publications/wbb_articles_detail.asp?id=7755&menu_url=wbb%
5Farticles%2Easp
Economist, (2005), Vioxx Nation, Economist, 1/29/2005, Vol. 374 Issue 8411, p78-78, 1/2p,
Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=15873091
Economist, (2005), The lessons of Merck’s bad day in court, Economist, 00130613, 8/27/2005,
Vol. 376, Issue 8441, Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=18066938
Economist (2005), Big trouble for Merck, Economist, 00130613, 11/6/2004, Vol. 373, Issue
8400, Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=14972842
Economist, (2005) Safety First, Economist, 2/19/2005, Vol, 374 Issue 8414, p58-58, 1/2p.
Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=16177799
Franco, R, Jackson, T. & Kirkpatrick, S (2001), Bottom Line Booster, Pharmaceutical Executive,
July 1, 2001, Retrieved February 16th 2005, from
http://www.pharmexec.com/pharmexec/article/articleDetail.jsp?id=1974
Gorman, C. & Kher, U (2004), A Painful Mistake, Time, 10/11/2004, Vol. 164 Issue 15, p48-49,
2p, 6c, Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=14612713
Greener M,(2005), Drug safety on trial, EMBO reports 6, 3, 202–204 (2005)
doi:10.1038/sj.embor.7400353, Retrieved Nov 4th 2005, from
http://www.nature.com/embor/journal/v6/n3/full/7400353.html
Grubb, T & Lamb, R (2003), Pfizer can Mold its Future by Learning from the Past,
Pharmaceutical Executive, June 1, 2003, Retrieved, February 16th 2005, from
http://www.pharmexec.com/pharmexec/article/articleDetail.jsp?id=59326
Henry, D (2004), Market Lessons from Merck’s Decline, Business Week, 10/18/2004 Issue 3904,
p40-40, 1p, 2 graphs, 1c, Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=14672157
Herper Matthew, (2005), Pharma Prophet, Forbes, 2/14/2005, Vol. 175 Issue 3, p60-60, 1p, 1c,
Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=15905576
Ho, J. (2003), Extending the Product Lifeline, Pharmaceutical Executive, July 1, 2003, Retrieved
February 16th 2005, from
http://www.pharmexec.com/pharmexec/article/articleDetail.jsp?id=61952
Idinopulos, M. & Kempler, L. (2004), Do You Know Who Your Experts Are? The McKinsey
Quarterly, 2003, Number 4, Retrieved February 16th 2005, from
http://www.mckinseyquarterly.com/article_page.aspx?ar=1358&L2=18&L3=31
Koberstein, W (2002), When Worlds Collide – The Unleashed Power of Marketing / R&D
Collaboration, Pharmaceutical Executive, September 1, 2002, Retrieved February 16th 2005,
from http://www.pharmexec.com/pharmexec/article/articleDetail.jsp?id=29963

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Lam, M.D (2004), Aftershoxx, Pharmaceutical Executive, Nov2004, Vol. 24 Issue 11, p46-52,
4p, Retrieved Nov 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=15066731
Maclean’s (2004), Health, Maclean’s 10/11/2004 – 10/18/2004, Vol.117 Issue 41/42, p17-17,
1/4p, Retrieved November 9th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=14613697
Merck (2004), News Release – Merck Announces Voluntary Worldwide Withdrawal of VIOXX,
Merck, September 30th 2004, from
http://www.vioxx.com/rofecoxib/vioxx/consumer/press_release_09302004.jsp
Multinational Monitor (2002), Editorial: Stripping Away Big Pharma’s Fig Leaf, Multinational
Monitor, June 2002, Vol. 23, Issue 6, p5-6. Retrieved June 15th 2005, from
http://search.epnet.com/login.aspx?direct=true&db=buh&an=6965984
Mullin, R. (2004) Outsourcing – Wyeth Tears A Page From The Book of DuPont, Chemical &
Engineering News, February 16 2004, Volume 82, Number 07, CENEAR 82 07 pp.26-27 ISSN
0009-2347. Retrieved Feb 10 2005, from
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McGuire, S. (2004), Vioxx withdrawal spurs rivals into action, Medical Marketing & Media,
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