The pharmaceutical industry is an interesting canary in the coalmine. It is an industry that is clearly shaped and massively impacted by STEEP disruptors (socio-cultural, technological, economic, environmental, and political). Whether it be government spending, demographic shifts, mobile and social media, alternative medicines, or eHealthcare, the pharmaceutical industry is one that will quickly need to move with the global changes in how customers (payers, patients, providers) behave.
No industry can shift customer behaviour back to what it used to be. Remember change doesn't care whether you like it or not, it happens without your permission.
So when you scan the horizon and look outside your own industry for external stimuli for new ideas, and thought leadership visions of 2020, the pharmaceutical industry is an interesting place to start.
Check out this thought leadership report on the state of the pharmaceutical industry and some predictions on how the disruptors will change the playing field toward 2020.
US spending growth is at historic lows - spending on medicines grew by 2.3% in 2010 continuing on the trend of 5% or lower growth per year that has occurred since 2007. The US market is expected to steady towards 2015, driving the market to a value of $345 billion in 2015. Total prescription levels grew by slightly above 1% highly correlated with total spending as one would expect. Anaemic growth is reflective of a combination of internal and external factors influencing pharma. (Datamonitor)
The next five years will be a peak period of patent expiries globally as products with revenue of more than 142bn, are expected to face generic competition in developed markets. Loss of patent protection will result in a severe decline in the companies' revenues as generics capture a whopping 80% of a brand's share within 6 months compared to 55% in 2006. (Source: IMS Health, National Prescription Audit, Feb 2011).
The industry is investing twice as much in R&D as it was a decade ago (high of 18% of revenues) to produce two-fifths of the new medicines it then produced, the average is merely one new remedy drug a year per company - big pharma's R&D productivity declined 20% between 2001 and 2007.
http://www.imap.com/imap/media/resources/IMAP_PharmaReport_8_272B8752E0FB3.pdf
Personal savings rates around the world are increasing while consumer confidence is decreasing. This is having an effect on patient visits as studies suggest that recent declines reflect cost-conscious patients training themselves to avoid making an appointment unless they believe it's absolutely necessary. IMS Institute for Healthcare Informatics: Patient visits to doctors declined by about 4% annually from 2009 to 2011. Only 25% of the recent decline in utilization is "cyclical". The other 75% is "structural," due to rising healthcare costs.
http://drsresource.com/declining-office-visits/
Aggressive marketing is becoming increasingly ineffective as a means of stimulating demand for new therapies deemed to offer only minor clinical improvements priced at a premium. The market is now saturated with sales reps resulting in declining returns on sales visits to doctors in the developed world.
Most Big Pharma companies have traditionally done everything from research and development (R&D) through to commercialisation themselves - supply chains that are neither flexible nor cost-effective. When the 'blockbuster' paradigm prevailed, this wasn't a serious problem, but the situation is now changing dramatically.
The vast majority of pharma companies are still far from having any kind of 'continuous flow'. Instead of producing on demand, they must hold large quantities of inventory, which drives up their working capital and overheads.
http://www.pwc.com/en_GX/gx/pharma-life-sciences/pdf/pharma-2020-supplying-the-future.pdf
For many years, pharmaceutical companies decided what their products were worth, and priced them accordingly. But healthcare policy-makers, payers and patient groups are now playing an increasingly important role in the valuation process. We are seeing a shift in the balance of power from Pharma to healthcare payers and patients - and this trend will accelerate, as healthcare expenditure everywhere continues to soar.
The push for e-prescribing will enable healthcare payers to influence the prescribing decision much more easily by providing doctors with clinical and financial information when choosing which products to prescribe. In one recent survey, two-thirds of participating physicians reported that they were more likely to prescribe a generic or plan-preferred medicine.
Patients are playing a bigger part in the assessment of the relative value of different medicines. The number of people using the Internet to find healthcare information has increased dramatically over the last decade as access to reliable healthcare information increases. Some 66% of US adults go online to research their conditions. Numerous blogs and online forums have also sprung up to cater for increasingly information-hungry patients. They include sites such as patientslikeme.com, which enables patients to compare symptoms and side effects; and medhelp.org, where doctors and patients work together to create "wikis".
In the health industries, providers have been active in the online conversation. Almost 1,200 hospitals participate in social networking.
By 2020, electronic medical records, e-prescribing and remote monitoring will also give healthcare payers and providers in many countries access to extensive outcomes data. They will then
be able to determine which medicines are particularly safe, efficacious and cost-effective in different patient populations. They will also be able to revise the prices they pay upwards or downwards, depending on how specific medicines perform over time.
Payers, namely the government, are looking to lower the costs of medicines in an effort to contain spiralling healthcare costs by promoting the importation of safe products especially generic medicine, taking on pharmaceutical companies that block cheaper generics from the market and eliminating the ban on the federal government negotiating drug prices.
The industry has already been forced to take the first steps down the path to pay-for-performance. For example, payment for Lucentis, Novartis's therapy for agerelated macular degeneration, is subject to a dose-capping scheme under which the company bears the costs of treating any patient who requires more than 14 injections.
Source: PWC's Pharma 2020 series report
Rising health care costs are a problem across the industrialized world, but they are higher and rising faster in the United States than in other industrialized countries. Between 2000 and 2006, expenditure on healthcare as a percentage of GDP climbed in every country in
the OECD. In the US, private expenditure on health as a percentage of total healthcare spending is highest out of G7 countries at 50% and growing.
http://www.nytimes.com/interactive/2011/09/27/business/A-Jump-in-Health-Care-Premiums.html?ref=business
Governments of developed markets, with public fund healthcare plans are looking to curb spending and support wider use of generic alternatives. This could mean promotion of trade flows, blockage of anti-competitive agreements and fewer concessions for patented drugs.
The number of people aged above 60 years throughout the world will triple to nearly 2 billion by 2050, accounting for 22% of the total world population by 2050, up from 11% in 2009. Four in five of those aged over 75 take at least one prescription product, while 36% take four or more. By 2050, 32 countries are expected to have over 10 million people each aged above 60, including five countries with more than 50 million older people: China (440 million), India (316 million), the US (111 million), Indonesia (72 million) and Brazil (64 million). Such elderly population is expected to boost the need for medicines dramatically. (Global One Source)
Chronic illnesses like cancer, heart disease and diabetes have reached global epidemic proportions and now cause more deaths than all other diseases combined. NCD's accounted for 36 million of 63% of
deaths worldwide in 2008 and pose a greater threat than infectious diseases such as malaria, HIV and tuberculosis. The rise of chronic diseases along with other changes including urbanisation, over-population and global warming will create new openings for pharma.
Emerging markets bring new opportunities to pharmaceutical companies, which are registering lower growth in major markets such as the US and Japan. The emerging markets are expected to grow at a CAGR of 13-17% through 2014, with China emerging as the third largest pharma market by 2011. By 2025, 50% of the new patients in high growth areas including diabetes and cancer are expected to come from BRIC countries. (DataMonitor)
The economic case for change is clear. The decline of revenue growth and margins result in reduced shareholder returns which will force pharmaceutical companies to adapt. There is a compelling case
for increased collaboration. Delivering drug therapies to payers and patients in a 2020 world will require new skills, technologies and channels - the infrastructure required will be uneconomic for anyone, other than the largest players, to build internally.
PWC Pharma 2020 Series: Collaborative Business Model
Most Big Pharma companies have traditionally done everything from research and development (R&D) through to commercialisation themselves. But we predict that, by 2020, this model will no longer work for many organisations. If they are to prosper, they will need to improve their R&D productivity, reduce their costs, tap the potential of the emerging economies and switch from selling medicines to managing outcomes - activities few, if any, companies can accomplish on their own.
Even the largest pharmaceutical companies will have to collaborate with other organisations to develop effective new medicines more economically, help patients manage their health and ensure that the products and services they provide really make a difference. Moreover, they may have to step far outside the sector to find some of the partners they need.
Big Pharma's traditional business model hinges on the ability to identify promising new molecules, test them in large clinical trials and promote them with an extensive marketing and sales presence; it seeks to solely generate profits on its own. As shown in the declining productivity of R&D, this model will no longer suffice.
Pharmaceutical companies need to adopt a more collaborative model by joining forces with a wide range of organisations from academic institutions, hospitals and technology providers, even companies offering physiotherapy, exercise facilities and health screening.
What do you think? How will Big Pharma cope with the speed of change? What can other industries learn from these disruptors?
Add your comments below to contribute to the conversation.
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Anders Sorman-Nilsson
research: Ware Kuo
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