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Many who are unfamiliar with the pharmaceutical market see it as a homogeneous grouping of huge companies entrenched in pursuing a traditional, little-changing business model. This may have been correct for several decades, in which healthcare costs were manageable and little changed in the market itself. However, this industry, like all others, is forced to change with the times, and these years are seeing significant shifts. These relate both to the market itself and to the nature of the products which the companies are offering to patients. They have already altered the way pharma companies conduct the entire scope of their business, from R&D to sales and marketing, and will continue to do so in the coming years.

pharma-300x286On the R&D side, the well-known slope of dwindling blockbusters and increasing research and development costs have forced companies to seek new revenue stream sources, from new product classes such as biologic drugs (treatments based on molecules synthesized using organisms and not chemical reactions) and stem cells, through partnering with other companies to achieve at least some cash inflow, to scouring the academic and small and medium enterprise (SME) field in search of promising novel therapeutic developments. In most cases, several of the above strategies are employed simultaneously. I will examine the future of pharma R&D in an upcoming post.

While these trends in R&D strategy are quite well known and have been written of extensively, the changes occurring in the way pharma companies market and sell their products, their relationship with the wide range of stakeholders in the healthcare market, and above all the very nature of what they as an industry offer to society looks set to change. This aspect of the changing pharma market has so far not received sufficient attention.

The focus of this change revolves around the pharma industry being pushed by healthcare market conditions to add more and more value to their products, beyond the intrinsic benefit which each drug represents. Companies are thus being pushed to compete not only on their products’ safety, efficacy and cost-effectiveness, but  also on what value they can add to their two key customer groups – patients and physicians.pharma_pills

In contrast with the changing R&D field and resultant product map, these changes are not dramatic – no government will one day announce that pharma companies must offer comprehensive support and information services on top of their products (indeed, many will balk at the idea) – however subtle shifts brought about by a number of factors are pushing towards this outcome. Even within the industry itself many are unaware of the magnitude of these changes and the necessary alterations in the way pharma companies do business.

The aforementioned factors are:

  1. Increasing pressures on healthcare budgets which bring about increasing governmental pressure on drug prices
  2. Overloaded doctors with time for little beyond minimal consultations and an inability to remain up-to-date in fields containing an ever-expanding amount of scientific data
  3. Increasingly empowered patients looking for healthcare ‘experiences’ and comprehensive health solutions, with some willing to pay extra for such service package

These factors result in companies  being ever more pushed to offer to both doctors and patients solutions built around and on top of their drug products. A natural development in this respect is the companies becoming directly involved in Medication Therapy Management (MTM) and lifestyle packages built for patients using their products. The added value which companies can bring to MTM and similar programs stems from their deep understanding of diseases and the drugs used to treat them; their “deep pockets”; their wide ranging and close contact with large numbers of physicians, in particular prominent ones; and finally their ability to effectively interface with a large number of healthcare system stakeholders, bridging ones which do not normally touch eachother, such as pharmacists, specialists, payers and government.

2003122901100301Particular programs and initiatives by pharmaceutical companies which are included in such services are,  among others:

  1. Patient support programs: use of nurses, call centers, remote telemedicine and other means to give the patients much more information, support and  assistance than their doctor can, to confidently take their medicine as prescribed and achieve their medical goals set.
  2. Solutions for doctors: trainings regarding improving communication and patient management techniques, software solutions to facilitate improved clinic efficiency, making it easier for doctors to keep up to date with rapidly evolving fields.
  3. Tailoring together with payers enhanced treatment packages with tiered pricing levels, including a range of informational, technique-related sessions and tools or those which pertain to related aspects of the drug or disease in questions. For example, for multiple sclerosis patients pharma companies may be drawn to help with information sessions on the disease and it’s treatment, seminars on advances in research, and, importantly, augmented nurse services to support patients with drug taking and related issues.

In many ways, the pharma industry is in a similar situation to companies in the numerous other business areas which have been forced to pile solutions and services on top of products. However, a significant difference is that in the pharma business strong regulation exists to keep the companies separated (to varying degrees) from their customers. This will mean that, in some countries, the expenditure, creativity and changes that may be necessary for companies to survive will be substantial and may put a significant strain on these companies’ viability.

In almost all cases, pharma companies will be forced to undergo the same changes experienced by companies in other fields when faced with such shifts. They will be required to develop internally, or outsource, competencies they have never had to have or make use of before, such as management of IT tools, healthcare support services, specialized training and much more.

The need for these services, coming from the healthcare stakeholders which pharma companies interface with, means that the companies and the parties they work with will be pushed further and further towards eachother, not being able any more to continues working in a mostly isolated fashion.  Those who will be most open and able to collaborate on win-win projects will emerge the big winners, and those who remain focusing on their products alone will slowly degenerate with the changing of the market and the tightening of healthcare budgets.

Sources:

  1. Byron G. Auguste, Eric P. Harmon, and Vivek Pandit:  The right service strategies for product companies
  2. Glen Allmendinger and Ralph Lombreglia: Four Strategies for Smart Services


…well, not quite. It appears that the price of mass gene sequencing is plummeting faster than the world’s stock markets, and a company called Complete Genomics has just announced it is offering full-genome sequencing for 5000$, putting this well within your average Joe’s buying power. As a comparison, remember that the first full sequencing in 2003 cost $2.3 billion!

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However, it’s important to note that the service will initially NOT be available to individuals, but will rather go to pharma companies and academics. This is interesting mainly because it is a sign of things to come – the coming age of personalized medicine will be based exactly on this presence of very low cost genome sequencing, allowing (or, perhaps, forcing) drug companies to include genome screening for their clinical trials patients in order to examine whether the side effects or benefits of their drugs are linked to specific genetic codes within the genome. One day this may become mandatory for marketing authorization…

While 5000$ a pop may still be a bit expensive for outsourcing and companies may yet cling to the machines they own, a company who focuses on sequencing will always ultimately prove cheaper in the long run, similar to any non-core outsourcing effort. Thus, Complete Genomics and the others of its ilk definitely have a future!

Bloomberg Story