Life sciences companies will need to become better at identifying who their new customers are, what they want and how they want it delivered. In the old-world model, the customer was the prescribing physician and, to some extent in the US, the patients on the receiving end of direct-to-consumer advertising.
In the new world, customers include the ultimate bill payer in all its various forms, whether it be a third party, government, a budget-holding physician group focused on value for money, or informed patients who are equally focused on value. In different geographies these key customers vary and strategies need to be adapted to maximize returns from new products.
Notwithstanding the need to address whether developing drugs alone in the new healthcare space will be enough, the industry will need to address whether it is investing in the development of the right drugs at a cost that will allow satisfactory pricing for the new healthcare environment as well as a return on investment (ROI) that is acceptable to stakeholders.
To this end, several companies have already taken some of the following steps to improve the ROI on R&D:
- Increased partnering of research projects with academic institutions and small biotech companies.
- Increasing speed to proof of concept with use of virtual clinical trials such as Eli Lilly’s Chorus subsidiary and GlaxoSmithKline’s virtual proof of concept discovery performance unit.
- Reducing R&D headcount with a shift to greater externalization, e.g. increased outsourcing of clinical trials.
- Reducing excess R&D capacity, e.g. Roche’s closure of its Nutley New Jersey facility; recent closures in the UK by Pfizer and Novartis.
- Introducing pharmacoeconomic evaluations and comparative effectiveness early in the R&D process to enable earlier termination of uneconomic projects.
There are signs that some of the steps now being taken are having an impact. Eighteen months ago, KPMG published an analysis that showed returns on capitalized R&D had been steadily falling over the past 20 years.1 Updating this analysis for 2011 data indicates a sharp increase in returns over the period analyzed (see figure above).
However, as the demands of the new healthcare economy deepen and broaden, they are likely to bring further difficulties in maintaining this upward swing in ROI on R&D. Strategies to develop drugs that will satisfy both payers and shareholders will become more complex and challenging to achieve.
There are many parts of the new healthcare systems which are yet to be defined. However, those that can accurately assess where the balance of power will eventually lie will be able to ensure that a company’s strategy will be aligned with that of the ultimate decision maker. More time needs to be invested to understand the competing priorities that healthcare systems face. Strong leadership will be needed to manage the impact of regional approaches on the whole business.
The individual patient has a much greater share of the balance of power than in the past. Three forces are facilitating greater consumer involvement: new technologies and information that provide a better understanding of individual consumer preferences, new products and services that guide choice, and increased cost sharing and decision making by consumers.
The industry does not deliver value to patients by producing products that are poorly differentiated from existing marketed drugs. The choices that formularies make when there is little to differentiate between drugs make little difference to patients, except in the rare cases of specific intolerance. The industry needs to redefine its product offerings, to the extent possible within the requisite local regulatory framework. The provision by the industry of services to a consumer, within which its medicines are embedded, and which can be shown to lead to improved outcomes, is one route to differentiation. One such example is the lifestyle behavior modification program to improve the health of patients with type 2 diabetes recently initiated by Boehringer Ingelheim in collaboration with Healthrageous Inc. This program will involve digital technology intervention combining digital coaching and a wireless glucose meter transmitting data to clinical monitors.2
If the life sciences industry can position itself as part of the solution to ever increasing healthcare costs, greater opportunities will result. Using their extensive knowledge and databases of patient and disease profiles, life sciences companies could help new healthcare bodies seeking value to drive disease prevention as well as more appropriate treatment. Investing time and technology in improving compliance with appropriately prescribed therapies would align the economic interests of payers with better outcomes for patients and potentially result in revenue streams of greater longevity.
The healthcare professional
The industry needs to work diligently to demonstrate to healthcare professionals that it is neither the enemy nor just a source of funding – old attitudes that still persist in many healthcare systems. Increased investment in education at all levels, particularly in tertiary educational establishments that are training the next generation of healthcare professionals, is one route to permanently changing such perceptions.
1This analysis is based on data on R&D spending and revenues from the Pharmaceutical Manufacturers of America. We amortise the R&D spending over 15 years and assume flat 30% operating margins and 25% tax rate over the period. For further details please see Future Pharma: Five strategies to accelerate the transformation of the Pharmaceutical industry by 2020.
2Collaboration health rageous
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