Pharma’s Identity Crisis:
Four strategies for creating value in life
sciences
High blood pressure now affects more than 20
percent of the adult population around the world. Complications from the
condition account for 9.4 million deaths a year, according to the World Health
Organization. The number of people with diabetes surged globally from 108
million in 1980 to 422 million in 2014. The rise in these and other chronic
conditions is creating a need for healthcare on an epic scale. And it comes at
a time when the overall demand for healthcare is growing, as a result of the
Affordable Care Act in the U.S. and rising incomes in some emerging economies.
These circumstances have created growth
markets for pharmaceutical and life-sciences companies. Yet new opportunities
have also brought challenges. The competitive landscape for pharma companies
around the world is changing rapidly, and those shifts are likely to
accelerate. Drugs face greater pricing pressure; industry consolidation is
creating unfamiliar dynamics among insurers, hospital systems, and doctors; and
patients are far more involved in their own care. Rather than merely developing
and selling medicine to treat clinical conditions, pharma companies need to
shift to a mind-set based on improving patient health more broadly and creating
value for insurers and healthcare providers.
To
confront these forces, pharma companies need to be crystal clear about how they
create value and adopt
a focused strategy that allows them to dominate in one
specific aspect of the industry — along with developing a set of strong
capabilities to support that strategy. Some capabilities apply across the
entire pharma industry; for example, most companies conduct R&D at some
level. But those that can identify and build the right
capabilities for their particular strategy in ways
that are demonstrably better than those of their competitors will set
themselves up to win.
Competitive Shifts
The role of pharma companies in the
healthcare ecosystem is changing. Insurers are now asking them to interact more
with patients and physicians, as part of a shift from fee-based care to
value-based care. For example, pharma companies are working to ensure that
patients take their medicine as directed.
Such integrated care can ultimately be far
more effective than past approaches, but it affects the way drugs are priced.
Pharma companies that show superior results can potentially charge more for
their products. But pharma companies don’t have much experience in the delivery
of care. In addition, generating positive results can be tricky for complex
lifestyle diseases, for which outcomes require more than just drugs, and in
fact often hinge on factors such as diet, exercise, and stress management.
At the same time, the customers that pharma
companies sell to — physicians, hospitals, health systems, and pharmacy
benefits managers — are all getting bigger and more powerful through
consolidation. As they grow, those entities gain negotiating clout, leaving
pharma companies with the difficult choice of accepting lower payments or
losing big customers. Such consolidation also means that physicians at large
hospitals and health systems tend to have less autonomy regarding what they prescribe.
Technology presents yet another challenge to
pharma companies’ traditional way of doing business. Patient care is becoming
more high tech, through mobile apps, wearable devices, and other tools that
change the way medicine gets into patients’ bodies and how information gets to
those responsible for their care. Rather than having to remember to take
medicine in the correct dosage, a patient could soon wear a patch that delivers
medicine through the skin, measures the patient’s response to that medicine,
adjusts the dosage accordingly, and reports everything to the doctor and pharma
company.
Know Thyself
For established pharma companies, the pace of
change today can be dizzying. We have identified four strategies, each with
specific capabilities, that can help pharma companies succeed.
1.
Breakthrough science developers.
Companies
that follow this strategy create value by developing new medicines that lead to
measurably better patient outcomes, allowing them to charge premium prices.
Commercially, these companies have tools in place to help them identify and
segment patient populations, and potentially tailor their medicines
accordingly.
Breakthrough science developers have strong
but focused R&D pipelines, with capabilities in understanding new
technologies and assessing how they might apply to specific diseases. A
critical aspect here is analytics. For the last four decades, both the quantity
and the quality of medical information have grown exponentially, thanks to
advances in electronic medical records, high-resolution medical
imaging, and genomics. Yet integrating and analyzing that data simply
hasn’t been possible, because of technical limitations, high costs, and a
traditional, lab-based approach to discovering new drugs. Today, those
constraints are disappearing, and leading players are employing advanced
analytics to help them become more productive — in both developing new drugs
and getting them to market.
M&A
capabilities are also critical for this strategy. Consider U.S.-based Celgene,
which specializes in innovative treatments for cancer and autoimmune diseases.
The company excels at buying or partnering with VC-backed companies that have
products in preclinical testing. It has no strict deal template, instead
working on a case-by-case basis to determine the right structures (such as
strategic equity investments, option licensing deals, and structured
acquisitions). Moreover, Celgene has developed a corporate culture that puts
science and scientists first. It allows younger and more nimble biotechs wide
leeway to control their own operations — making the company more attractive to
potential future partners. Celgene closed 10 acquisitions or partnerships in
2014, and in
March 2015, Bloomberg reported that
it had 37 active alliances.
2.
Disease outcome enablers.
Companies that adopt
this strategy have historically thrived by building up expertise and
credibility within one or two therapeutic areas, along with a cohesive
portfolio of products that capitalize on their expertise. This approach
dovetails with the shift to value-based care. Some disease outcome enablers
have gotten much better at engaging with patients and providers. For example,
they have developed patient-education programs and other kinds of support that
help patients manage their own treatment, leading to better outcomes at lower
costs.
In the next couple of years, these companies
will need to build on this progress, with capabilities in integrating drugs,
devices, and technology in order to better track patient health, collect data,
and adjust dosages over time. Other critical capabilities for disease outcome
enablers include helping standardize the way patients receive care and
coordinating directly with physicians, researchers, labs, and other entities
involved in treating patients in the pharma company’s target area.
Shire, based in Ireland, specializes not in
one clinical area but in a category: rare diseases, for which patients usually
need more personalized attention. In the U.S., Shire has developed the OnePath
program, which designates a personal case manager for each patient. Case managers
serve as a single contact who can coordinate care and access to therapy. They
communicate with nurses, genetic counselors, pharmacists, and physicians, and
they make sure that patients have the information and support they need, even
regarding nonclinical issues such as finding a treatment center and
demystifying insurance coverage.
3.
Commercial value optimizers.
Companies
that adopt this strategy typically have a portfolio of low-risk, established
products; a large global network; and a highly efficient infrastructure. They
have strong capabilities in manufacturing different categories of drugs and
selling them through various channels, and they are ruthless about wringing out
costs.
These advantages are generating potential
rewards for commercial value optimizers as several trends develop. Growing
global demand for effective healthcare in multiple customer channels and
segments will likely boost their business. Innovative technologies, such as
advanced manufacturing tools that help lean manufacturers accurately plan
demand, have emerged to help fuel operational efficiencies as well. U.S.-based
Mylan is a good example. The company has a wide-ranging portfolio of more than
1,400 generic and branded products, and it benefits from a large research and production
system of more than 50 facilities around the world. Many pharmaceutical
companies outsource a large portion of their manufacturing, but Mylan produces
roughly 80 percent of its medicines internally.
4.
Disciplined portfolio managers.
The
fourth strategic approach — and the hardest — is to operate with a large,
diversified portfolio of business units and product areas. This category
includes many of the larger legacy pharma companies, which historically have
been able to succeed through diversification. Pfizer and Novartis, for example,
are legacy pharma companies with multiple business units and a wide portfolio
of products, including generics, specialty drugs, and primary-care treatments.
These companies require capabilities in managing brands, marketing, and
assessing the ROI of new products in a wide range of categories and markets.
And they need to strike the right balance between assigning accountability to
each unit and central oversight of all of them.
The optimist’s stance is that in a highly
volatile market, disciplined portfolio managers may be better able to respond
to market shifts, by reallocating resources among their various businesses.
Because they have bets in many areas, they are less vulnerable to major
disruptions. Yet disciplined portfolio managers still face clear risks. Their
approach complicates their ability to differentiate itself from competitors,
which limits the potential upside to the strategy. In addition, companies that
have grown through acquisition may struggle to maintain deal volume as
competition for assets gets tougher. In fact, some such companies may need to
get better at selling off poorly performing drugs and business units.
Meeting the Bar
In the current healthcare market, success
requires that pharma companies do some soul searching. They need to look at
their current strategy and capabilities and determine whether that combination
will allow them to outperform the competition. Some companies may have the
right strategy, but discover that they need to build up key capabilities.
Others may find that they need a new strategy, with corresponding changes to
their organizational structure and portfolio of products and services.
That’s strong medicine, but the complexities
of healthcare today mean that a me-too strategy is no longer a viable option.
New competitive dynamics and customer expectations have raised the bar, and the
market will reward those that are truly able to deliver.
by Rick Edmunds, Jo Pisani, and Douglas Strang
http://www.strategy-business.com/article/Pharmas-Identity-Crisis?gko=ac347&utm_source=itw&utm_medium=20160628&utm_campaign=resp
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