Despite unprecedented demand for its products in a global market that is expected to double in value by 2020, the pharmaceutical
industry is at a pivotal point in its evolution. The industry faces the same dilemma that the music business encountered during
its digital transformation and that the automobile industry is grappling with today: change or be changed.
The pharmaceutical industry can isolate itself in a diminishing linear business model that is growing weaker as blockbuster
patents expire, generic competition whittles away market share, and fewer new drugs prove innovative and economically viable.
Or, the industry can channel a whirlwind of technological, scientific, social, and economic change into innovative business
models that are more relevant to today's outcomes-focused healthcare delivery system.
To build these new business models, each pharmaceutical company must identify and focus on its core strengths rather than
trying to control every aspect of the value chain (see Figure 1). While concentrating on core strengths, companies can form
collaborative partnerships and alliances that envelop product with service offerings to drive superior patient outcomes. Healthcare
delivery networks will link pharmaceutical companies, device manufacturers, payers, providers, research organizations, academic
institutions, health and fitness centers, and technology companies.
Figure 1: The pharmaceutical value chain.
By combining the resources of diverse organizations, industry can meet and exceed future market demands. With this type of
business model, companies will be able to produce personalized packages of products and services that include diagnostics,
medications, wellness, and compliance programs. Prescription therapies, which might come from competing manufacturers and
include generic drugs, will be only one component of this package.
Innovating research and development
In a more patient-centic business model, the pharmaceutical industry must direct its research and development (R&D) investment
to products that the healthcare market defines as truly innovative. The industry must seek the involvement of public and private
payers, providers, and patients by reaching out to these stakeholders earlier in the R&D process to ensure that products are
viewed as innovative.
To develop new medicines, companies will need to continue to tap into academic research and biotechnology. Mergers and acquisitions
can beef up product portfolios, but companies will need to rely more heavily on in-licensing and partnerships to accomplish
the same goal at a faster rate and at lower cost. Megamergers may become less typical in the future because many have tended,
in the past, to stifle creativity and failed to deliver sustainable cost reductions.
The most dramatic R&D changes will come in the way clinical trials are conducted. Clinical trials will become smaller, more
targeted, and more iterative as regulators allow "live licensing" (in-life testing) to vet the safety and efficacy of therapies
in selective patient groups before expanding to larger or different populations. In this environment, R&D will concentrate
on complex, targeted products. Demand will shift to specialized medicines, primarily in the form of biologics. Although biologics
are more complicated to develop, manufacture, and distribute, they hold industry's greatest hope for sustained profitability.
Focusing on outcomes
With advances in genomic research, lower-cost genetic mapping, and comparative effectiveness studies, industry will be better
equipped by 2020 to determine which medicines have the most potential for delivering positive outcomes to specific patient
subpopulations. This ability will be critical as health insurers and the federal government increasingly refuse to pay for
therapies that fail to deliver cost-effective results. This "value-based purchasing" or "evidenced-based medicine" will further
intertwine the value chains of payers, providers, and pharmaceutical companies, with each owning a stake in treatment effectiveness.
As the US Congress considers creation of a program for universal healthcare coverage, a strong likelihood exists for more
government pressure on pharmaceutical companies to lower drug prices. An early indication of this move was illustrated last
May when President Obama discussed a pledge by a consortium of executives from leading payers, providers, and pharmaceutical
manufacturers committed to reduce the annual growth of healthcare spending by 1.5%—an expected savings of more than $2 trillion
by 2018. In emerging markets, governments seeking to expand healthcare access for their surging populations also will demand
price concessions. Broader access and rising incomes in emerging markets, however, may result in a higher number of prescriptions
being written and may help offset some profit erosion.
Around the globe, technology-enabled outcomes measurement will drive product development, pricing, and reimbursement decisions,
as well as risk-sharing arrangements. Electronic health records, ePrescribing, remote monitoring, pharmacovigilance systems,
and other technologies will yield extensive, real-time outcomes data on the effectiveness of medicines. With appropriate privacy
safeguards, monitoring this treasure trove of data will enable pharmaceutical companies and other organizations to more closely
observe and encourage patient compliance. Better patient compliance will improve health, build broader product demand, and