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THE FUTURE OF
PHARMA INDUSTRY VOLUME 18
Pharm. Ahmed I. Yakasia-PSN President Interview - The Future of Pharma Industry in Nigeria Pharma Business Models for the Future Choose to Win the Right War Lilly Chorus Strategy
N2500
Seeing the future of Pharma through the eyes of Hercepting Precision Medicine is Changing the Game in Pharma
Healthcare Management Review PAGE Volume 18 002
To prosper in the FUTURE, we must first make sure we have a FUTURE Healthcare Management Review PAGE Volume 18 003
The Future Is No Longer The Prolongation Of The Past
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R O VA C O L L E G E HEALTHCARE EXECUTIVES Executive Education
Albert Einstein
Executive Education is not the learning of facts, but the training of the mind to think.
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www.rovacollegeofhealthex.edu.ng
Endorsed by:
FEDERAL MINISTRY OF HEALTH NIGERIA
Phama Business Models for the Future
SPOTLIGHT
The Future of
Pharma Industry in
Nigeria
20 28
COLLABORATION PHARMA BUSINESS MODELS
The Age of proting
2 GETHER
42 44
Healthcare Management Review PAGE Volume 18 009
PHARMA
Collaborative Networks
Pro-Poor Pharma
Precision Medicine is changing the Game in Pharma
From Reactive to Proactive
46 54 58 62
Seeing the future of Pharma through the eyes of Herceptin...
64
Choose To Win THE RIGHT WAR
70
The Decade of Vaccines
72
Corporate Culture Sclerosis
74
Healthcare Management Review PAGE Volume 18 011
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Healthcare Management Review PAGE Volume 18 013
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Healthcare Management Review PAGE Volume 18 015
E D I T O R I A L
THE FUTURE IS US
W
e are in the middle of a huge upheaval where everything we know is turned on its head. Modern Healthcare is in a state of continuous change. This is a major challenge for all stakeholders involved in healthcare including the Pharma industry. Over the last 30 years Pharma companies enjoyed unprecedented success. Unfortunately, the almost effortless st growth and profitability the industry experienced is dramatically altered by the 21 century marketplace. The past decade has yielded a number of significant transition in global Pharma marketing, particularly those related to the growth rate, markets and R & D focus. Competition is increasing and profits are being squeezed, while resources are increasingly expensive. Meanwhile, the expectations for what it takes for a product to reach the market and be successful are higher than ever. The current market is driven by needs for innovation,-molecularly targeted products designed to treat small groups of patients with more complicated diseases. The decline of the blockbuster drug represents one of the most dramatic transitions in Pharma marketing. As the availability of blockbuster platforms has decreased, Pharma executives are redirecting Research and Development (R&D) budget and manufacturing strategies to niche indications. Generic are now replacing the current stock of blockbuster drugs at a faster rate than new blockbuster launches. Advances in molecular technology allow the development of targeted drugs used for smaller number of patients. The “one size fit all” approach will be replaced by a preference for narrowly targeted products designed by a preference for narrowly targeted products. It is clear that the success template of the last 20years no longer applies and that Pharma manufacturers have not responded to marketing transition as rapidly as they should. The solution to today's challenges requires new business models to seize new opportunities and profit from them.
Healthcare Management Review PAGE Volume 18 016
To close the productivity gap, the industry must act boldly to change the current R&D model across every dimension. This will require a significant evolution and a holistic perspective that accounts for strategy, process, people, organization and funding. The winners in the future will profit because they have developed an integrated and deliberate strategy for moving forward. In the face of uncertainty, smart players will take dramatic actions to reduce costs, improve flexibility and to adapt to more cyclical markets. The definition of 'product' will be rethought as drugs become part of much more comprehensive medical solution. The market of Pharma drugs has reached only a fraction of its potential, as there is still substantial unmet need, and drug therapies comprise only a small portion of the $4.5 Trillion spent on health care. Therapeutic breakthroughs will still be rewarded in the market place. The need for change is too great and the stakes are too high-to continue with the status quo. Pharma industry have to take control rather than simply react to the changing environment. So we have to look ahead to the future of Pharma industry a future much different than the past, but full of opportunities-its directions of travel and its potential destination. The Future is Us.
Healthcare Management Review PAGE Volume 18 017
Healthcare Management Review PAGE Volume 18 018
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Strategy is really about; ...how you create your future while managing the present.
�
Prof. Vijay Govindarajan Professor of International Business at the Tuck School of Business, Dartmouth College.
First Professor in Residence and Chief Innovation Consultant at GE Healthcare
The Future of
Pharma Industry in
Pharm. Ahmed I
Nigeria
Yakasai,
FPSN, FNIM, FNAPharm President, PSN. Healthcare Management Review PAGE Volume 18 020
EXTRACTS OF AN INTERVIEW WITH Pharm. Ahmed I Yakasai, FPSN, FNIM, FNAPharm President, Pharmaceutical Society of Nigeria (PSN) on the Future of Pharma Industry in Nigeria
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As a country, if we are really serious to achieve drug security and nip the bud against fake and counterfeit drugs, the government must support Nigerian pharmaceutical manufacturers in particular and the pharmaceutical sector in general with incentives that can drive massive growth of the pharmaceutical sector in Nigeria in the next 10 years.
�
Healthcare Management Review PAGE Volume 18 021
What major challenges are anticipated in the Pharma industry by 2025? The major challenges to be anticipated in the Pharma industry by 2025 include. i. A world class human resources: The approval of Pharm D. in Nigeria would produce new set of pharmacists that are trained with the latest trends in global practices about medicines and health care delivering. Pharm D. is the norm in many countries across the world, especially in developed countries. And pharmacy is a global profession. While it took us a decade to finally achieve this objective of making Pharm D. the status quo of pharmacy education in Nigeria in the interest of the profession and for public good, I'm so elated that we achieved this milestone as a body under my leadership as PSN president. I believe by 2025, the new set of trained pharmacists in the practice would be both patient and drug oriented. ii. A better Nigerian pharmaceutical industry. Presently, we have four of our pharmaceutical manufacturers that are Pre-qualified World Health Organization Good Manufacturing Practice. In addition, about 16 other pharmaceutical manufacturers in the country are coming on board pretty soon. By 2025, we would have many Nigerian Pharmaceutical manufacturing companies with WHO Good Manufacturing Practice certification; this would make our local medicine manufacturers to compete with other pharmaceutical companies around the world. The confidence in our pharmaceutical products would be enhanced and we can look into drug security in
Nigeria as well as export to sub-Sahara African countries, hence Nigeria becoming a pharmaceutical hub for Africa. I can see Nigerians having increased loyalty to Made in Nigeria drugs compared to foreign drugs. iii. A significant increase in local production of drugs and a sharp decline in importation. The first hydrocarbon manufacturing plant would soon come on board in Nigeria. This signifies that the benzene ring needed to manufacture many of the Active Pharmaceutical Ingredients (APIs) from petrochemical would be available locally. This will have a great impact on local production of medicines in the country. Most Nigerian pharmaceutical manufacturers would be able to source for their APIs locally, thereby increasing their production capability and decreasing their cost of production. On the other side, many current importers of medicines will gradually join manufacturing because of the favorable environment for medicine production in the country. I can see by 2025, more than 60% of the medicines consumed in Nigeria would be made in Nigeria drugs compared to 25%-30% mark we are currently experiencing. What are the most pressing challenges facing Pharma Business in Nigeria today? The issue of Foreign Exchange (FOREX) is the number one problem facing Pharma business in Nigeria today. Many of our pharmaceutical importers cannot get access to FOREX to import finished products as at when due. There is a lot of uncertainty, fear and doubt in bringing in medicines and pharmaceuticals because of FOREX instability. Healthcare Management Review PAGE Volume 18 022
manufacturing plants; this increases the production cost and overhead. The import duties leveled on raw and packaging materials is not the best for sustainable indigenous manufacturing of drugs at a cost-effective price. This good gesture should be extended to everyone in the Pharma business sector, particularly those who import raw and packaging materials. As a country, if we are really serious to achieve drug security and nip the bud against fake and counterfeit drugs, the government must support Nigerian pharmaceutical manufacturers in particular and the pharmaceutical sector in general with incentives that can drive massive growth of the pharmaceutical sector in Nigeria in the next 10 years.
This has significantly affected the Pharma business in the country, as well as the general public in terms of drug prizes and availability of some drugs in the market. The Nigeria Pharmaceutical manufacturers are also not left out in this conundrum, many of the Active Pharmaceutical Ingredients, excipients and packaging materials are being imported to the country and they rely chiefly on FOREX. It is not a gainsaying that the issue of FOREX has negatively affected the Pharma business in Nigeria this year in a big way. The issue of power, import duties and harsh environment for manufacturing in Nigeria has also taken a toll on Nigeria Pharma business. Many pharmaceutical manufacturers depend largely on huge generators as a source of power for their
The first hydrocarbon manufacturing plant would soon come on board in Nigeria. This signifies that the benzene ring needed to manufacture many of the Active Pharmaceutical Ingredients (APIs) from petrochemical would be available locally. This will have a great impact on local
”
production of medicines in the country.
Healthcare Management Review PAGE Volume 18 023
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If the World Health Professions Alliance can bring all
health care professionals together and agreed on how
to collaboratively and harmoniously work as a team, I see no reason why we cannot have similar platform and work for the benefit of the patients.
”
As healthcare shifts focus from treatment to prevention,…..what will be the implication for the Pharma industry ?
Bill Gate considered this a decade of vaccines,….. why is the Nigerian Pharma manufacturers not in this line of business ?
Chiefly, as pharmacists and stakeholders of the Pharma business sector our bottom line is saving lives, all other things are addendum. Our prime goal as pharmacy entrepreneurs is not just to make profit but to help people feel better and live a good life in good health. For some decades now, the focus of World Health Organization (WHO) has been prevention. One of our own focuses at the PSN level is public education to foster prevention of diseases rather than treatment. Like we all agree, prevention is better and cheaper than treatment. However, there will always be people who will need treatment. So, I don't see this as a threat to the Pharma industry. In fact, the population of the world and Nigeria will keep increasing; therefore the demand for medicines (which is essential for life) will always be there.
I know that May and Baker is seriously looking into vaccine production and distribution. Vaccines are biological products that must be 100% sterile with a well-planned and well-executed stability program. Therefore, state-of-the art technologies to simplify vaccine development and manufacturing are needed. Because of its high capital investment that requires a long period before getting returns on investment and advanced technologies it requires a lot of expertise, commitment and professionalism to locally manufacture vaccines. However, when most of our pharmaceutical manufacturing plants have been WHO certified for GMP, then it will be quite easy for some of them to move into vaccine production and distribution in Nigeria as well as Sub-Sahara Africa if the government adequately support them.
Healthcare Management Review PAGE Volume 18 024
You are a strong advocate of integrated care and inter-professional harmony in healthcare delivery, how do you intend to achieve this dream? No doubt that there is continued instability in our health sector and in as much as we desire to have a comprehensive, coordinated, safe health system that is responsive to the needs of the population, efficient use of resources, increased job satisfaction, with reduced stress and burnt out health professionals, we seriously need inter-professional harmony based on trust and mutual respect. If the World Health
Professions Alliance can bring all health care professionals together and agreed on how to collaboratively and harmoniously work as a team, I see no reason why we cannot have similar platform and work for the benefit of the patients. At our level, we have started collaborating with our colleagues in the other health care professions which has witnessed an accelerated dimension. However, we need the unbiased intervention of the Honourable Minister of Health to create the atmosphere of harmony and trust within the system.
Our prime goal as pharmacy entrepreneurs is not just to make profit but to help people feel better and live a good life in good health. For some decades now, the focus of World Health Organization (WHO) has been prevention. One of our own focuses at the PSN level is public education to foster prevention of diseases rather than treatment. Like we all agree, prevention is better and cheaper than treatment. Healthcare Management Review PAGE Volume 18 025
Richard Foster. CREATIVE DESTRUCTION
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If companies want to outperform the market, they have to change at the pace of the market without losing control of core operations. Companies have to develop the ability to create new business, operate existing business and trade declining business.
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Healthcare Management Review PAGE Volume 18 026
Key Questions For Pharma CEOs
Ÿ What is our current business model?
...Does it play sufficiently to our strengths? ...Will our current business model enable us to expand into new markets – be these new products, services or countries – and satisfy the expectations of our customers in 2025? ...if not, what sort of business model will we need? ...What is the size of the gap and how can we reduce it as rapidly as possible? ...Do we have a clear picture of the opportunities and risks entailed by each of the alternatives available to us? ...Do we have a plan in place that will enable us to move forward quickly, while maximising the opportunities and minimising the risks?
Healthcare Management Review PAGE Volume 18 027
SWING
the
...it was the best of times, it was the worst of times, ...it was the age of wisdom, it was the age of foolishness, ...it was the epoch of belief, it was the epoch of incredulity, ...it was the season of Light, it was the season of Darkness, The opening words to Charles Dickens's novel ‘A Tale of Two Cities’ perfectly encapsulate the situation Pharma finds itself in right now.
The outlook of Pharma has never seemed more promising or more ominous.
Major scientific and technological advances, coupled with sociodemographic changes, increasing demand for medicines and trade liberalisation, will revive Pharma's fortunes in another 10 years and deliver dramatic improvements in patient care. ...but if the industry is to prosper in the future, it must first make sure it has a future.
Healthcare Management Review PAGE Volume 18 028
Charles Dickens (1828 - 1870)
An English writer and social critic. He created some of the world's best-known ďŹ ctional characters and is regarded by many as the greatest novelist of the Victorian era.
What decisions will Pharma companies need to make between now and the end of the decade to capitalise on the opportunities the next decade holds?
Healthcare Management Review PAGE Volume 18 029
the GOOD TIMES
L
et's start with the good news: a rapidly strengthening scientific base, growing demand for medicines and the removal of former impediments to free trade. A STRENGTHENING SCIENTIFIC BASE: The scientific foundation on which Pharma rests is improving exponentially, thanks to massive increases in processing power; advances in genetics and genomics; and new data management tools. For the last half-century, computers have been doubling in performance and capacity every 18 months. This revolution has transformed biomedical research. In 2001, it cost US$95 million to read an entire human genome. Today, two leading manufacturers are developing machines that can do so for as little as $1,000 – in a matter of hours. Inexpensive gene sequencing will let doctors diagnose and treat patients based on information about their individual genomes. And, by 2025, genetic testing will be part of mainstream medical practice in some countries. Technological developments have also paved the way for electronic medical record (EMR) systems that capture vast quantities of outcomes data. Numerous healthcare providers in the mature and growth markets alike are building the necessary infrastructure. Meanwhile, with sophisticated data sharing, processing and mining techniques, scientists can easily collaborate and make better sense of what they see. In effect, two changes are taking place concurrently. Our technologies for collecting
biological data are improving by many orders of magnitude. Our technologies for synthesising and analysing that data are also becoming much cheaper and more efficient. Together, these advances will help Pharma break through some of the barriers that have previously held it back. The progress we've already made in understanding breast cancer is a quintessential example. For many years scientists thought breast cancer was a single disease. Then, in 1990, researchers discovered the first gene to be associated with hereditary breast cancer. Now they've succeeded in teasing apart differences in DNA to identify 10 subtypes, each with a unique genetic fingerprint. This leap in our knowledge has transformed the prognosis for women with breast cancer. The five-year relative survival rate has soared from 63% in the early 1960s to 90%, and most of the improvement has taken place in the last two decades. A better understanding of disease has produced new medicines, diagnostics and lines of research. Take Benlysta, one of the first treatments to come from mapping the human genome and the first new therapy for lupus in 50 years. The researchers who discovered Benlysta trawled through a library of human DNA hunting for genes whose function wasn't known, but whose characteristics suggested they were linked to lupus – ignoring the conventional wisdom that you couldn't use a gene to find a new medicine without understanding what the gene did.
Healthcare Management Review PAGE Volume 18 030
A RAPIDLY STRENGTHENING SCIENTIFIC BASE ESCALATING DEMAND FOR MEDICINES TRADE LIBERALISATION
Genomics isn't the only field in which we've made great headway. Several stem cell therapies have already reached the market and Canadian regulators recently approved the first stem cell medicine manufactured for off-the-shelf use. Developed by Osiris Therapeutics, Prochymal is a treatment for acute graft-versus-host disease, using mesenchymal stem cells derived from the bone marrow of healthy adult donors. With disciplines like epigenetics, we're also beginning to understand the impact of heritable biological elements that aren't directly encoded in our DNA. And with concepts like network medicine, we're developing the means to understand the molecular relationships between apparently distinct 'pathophenotypes'. So, while there's still a lot more to learn about the human body, medical researchers have made huge strides in the past few years – and even better things lie ahead. By 2020, the financial and intellectual investment of the last 10 years should be starting to yield big rewards. ESCALATING DEMAND FOR MEDICINES That's not all. The global pharmaceutical market is growing steadily, with sales reaching $1.08 trillion in 2011 – a year-on-year increase of 7.8%. The mature economies proved very sluggish, but the growth economies were another matter. Sales in the BRIC countries (Brazil, China, India and Russia) rose by 22.6%, while sales in the other 13 growth countries (the 'fast followers', as we call them) rose by 7.2%. If this pattern continues, the market for medicines could be worth nearly $1.6 trillion by 2025.
Indeed, it could be worth even more. Demand for Pharma's products is rising dramatically, as the global population increases, ages and becomes more sedentary. In 2010, there were an estimated 6.9 billion people. By 2025, there will be more than 7.6 billion. And, if present trends are any guide, many of them will have health problems. The global incidence of infectious diseases is increasing as well. That's partly because some diseases have become drug-resistant. But over the past few decades new pathogens such as HIV and MRSA have emerged. And old scourges like pertussis have reared their heads again. In fact, the number of cases of pertussis in the US is now higher than at any time since the early 1970s. Meanwhile, many of the growth economies are improving access to healthcare. Brazil's introducing mobile clinics for rural communities. China's on track with a US$125 billion programme to extend health insurance cover to more than 90% of the population by the end of 2012. Mexico has just completed an eight-year drive to provide universal coverage. And India's National Rural Health Mission has achieved considerable progress in the 6½ years since it was launched, although much still remains to be done. In short, there are more people – and more sick or elderly people – in the world today than ever before. More people have access to affordable healthcare than ever before. And, by 2025, access to healthcare may well be regarded everywhere as a basic human right.
Healthcare Management Review PAGE Volume 18 031
the WORST T I M E S
P
harma also faces some enormous obstacles. Innovation has declined, the regulations are becoming more onerous and market conditions are getting harsher, as healthcare costs everywhere keep rising. POOR SCIENTIFIC PRODUCTIVITY: Take the vexed issue of the industry's scientific productivity. Although the number of new medicines reaching the market picked up in 2011, Pharma's annual output has effectively flat-lined for the past 10 years. Developing new medicines is becoming an increasingly expensive business, too, although precisely how expensive is the subject of fierce debate MORE DIFFICULT MARKET CONDITIONS:
Things are even tougher on the marketing and sales front. The 'patent cliff' is one major factor; between 2012 and 2018, generic erosion will wipe about $148 billion off Pharma's revenues. Harsher price controls are another. Most of the mature economies already use direct and indirect price controls, Taxing times ahead'. But conditions are getting more difficult in the growth economies as well.
Some instances? Russia started enforcing markup limits on imported medicines in April 2010. India announced plans to control the prices of 400 essential products in November 2011. And Turkey has upped the discount on treatments reimbursed through its social security system. Many governments are also clamping down on dubious promotional practices. As the governments of the growth economies invest more public funds in healthcare, the regulators become more proactive and patients become more demanding, Pharma will come under even closer scrutiny. The way it conducts clinical trials, the partnerships it forms with payers and providers, its tendering and contracting strategies, pricing agreements and digital marketing, how it handles patient safety – all will attract more attention. SOARING HEALTHCARE COSTS: This trend is unsustainable, but the only way to reverse it is by altering our concept of healthcare itself. Instead of focusing on the treatment of disease, we need to focus on curing – or, better still, preventing – it. And pharma has a crucial role to play in making the transition.
Healthcare Management Review PAGE Volume 18 032
POOR SCIENTIFIC PRODUCTIVITY MORE DIFFICULT MARKET CONDITIONS SOARING HEALTHCARE COSTS
Today's challenge is to get to Tomorrow Two key challenges So where does the industry now stand? It's proved remarkably resilient, given the many problems it's dealing with. But, in essence, it faces two overarching challenges. Tomorrow's challenge is to develop new medicines that can prevent or cure currently incurable diseases. Today's challenge is to get to tomorrow – and that's a tall order in itself. Fortunately, there are a number of steps senior executives can take to help their companies reach 2020 and ready them for the opportunities the next decade brings. But some of these steps will entail making very difficult decisions. Ÿ Pharma's scientific productivity has flat-lined for a full decade. Ÿ Big Pharma's earnings are tumbling over the patent cliff. Ÿ Healthcare is consuming a larger share of GDP in rich and poor countries alike
Credit-PWC
Healthcare Management Review PAGE Volume 18 033
“ getting a new drug or formulation is as important as GETTING THE RIGHT BUSINESS MODEL”
Pharma Business Models For The Future Healthcare Management Review PAGE Volume 18 036
Chairman and CEO of General Electric between 1981 and 2001. During his tenure at GE, the company's value rose 4,000%
The pharmaceutical marketplace is undergoing huge changes, these changes will have a major bearing on the kind of business models pharmaceutical companies need to employ.
Healthcare Management Review PAGE Volume 18 037
All existing business models are wrong. Find a new one. - Hugh Macleod
What is a business model? The term “business model” is used to encompass a wide range of formal and informal descriptions of the core elements of a business. “A company's business model is the means by which it makes a profit – how it addresses its marketplace, the offerings it develops and the business relationships it deploys to do so.”
A
business model is an interdependent system composed of four components. The starting point in the creation of any successful business model is its value proposition – a product or service that can help targeted customer do more effectively, conveniently, and affordably a job that they have been trying to do. Managers therefore have to put together as a set of resources – including people, product, intellectual property, supplies, equipment, facilities, cash and so on required to deliver that value proposition to the large customer. In repeatedly working towards that goal, processes coalesce. Processes are habitual ways of working together that emerges as employees address recurrent tasks repeatedly and successfully. These processes define how resources are combined to deliver value proposition.
Healthcare Management Review PAGE Volume 18 038
Business model Business model innovation is the creation of a new set of boxes, coherently established to deliver a new set of value proposition because the value proposition is the starting point for every business model.
It’s not the Product ...It’s the Business Model.
Steve
Baker
Healthcare Management Review PAGE Volume 18 039
“
Disruptive Innovation is more than new products & services.
� Clayton Christensen Professor of Business Administration at the Harvard Business School. Healthcare Management Review PAGE Volume 18 041
COLLABORATION PHARMA BUSINESS MODELS Various forces are changing the environment in which Pharma operates and the relative positions of the dierent players in the healthcare arena. These trends all point towards the need for much greater collaboration.
Healthcare Management Review PAGE Volume 18 042
P
harma's fully integrated business model enabled it to profit alone for many years – and to profit very successfully, as its track record in rewarding shareholders shows. The top companies saw their market value soar 85-fold between 1985 and 2000. But this model is now under huge pressure and, by 2020, it will not work. If the industry is to improve its performance in the lab, reduce its costs, serve the emerging markets more effectively and make the transition from producing medicines to managing outcomes – as healthcare payers, providers and patients are increasingly demanding – it will have to collaborate with other organisations, both inside and outside the sector. It simply cannot do everything itself. In addition there is a clear economic rationale for greater collaboration. Moreover, many companies will need to move fast. As the healthcare landscape changes and scientific expertise becomes less important than the ability to manage networks, the scope for competition from new entrants will increase. Several non-pharmaceutical companies have already entered the arena. Vodafone has, for example, joined forces with Spanish telemedicine provider Medicronic Salud and device manufacturer Aerotel Medical Systems to offer a wireless home monitoring service Similarly, British insurance giant Prudential is collaborating with Virgin Active Health Club to
offer a critical illness policy that provides subsidised gym membership and rewards people who exercise regularly by reducing their premiums. If the leading pharmaceutical companies cannot change their business models rapidly, such firms may ultimately feature more prominently on the healthcare scene than they themselves. The transition will not be easy, for collaborative business models are far more complex than the integrated model that has previously prevailed. Moreover, no one model will suit every company. Each will need to assess its position, options and future course in light of its individual strengths and needs. However, the prospects for any pharmaceutical company that can make the switch are very promising. The potential for reallocating resources to deliver better outcomes and maximise the effectiveness of expenditure on healthcare is considerable in most healthcare systems. To date, Pharma has focused on the profits it can earn from the estimated 10-15% of the health budget that goes on medicines. Yet there are many opportunities to generate revenues by improving the way on which the remaining 8590% is spent. It is these opportunities the industry will need to address in the brave new world. Healthcare Management Review PAGE Volume 18 043
The Age of proting
2 GETHER
By 2020, no pharmaceutical company will be able to “profit alone”. It will, rather, have to “profit together”, by joining forces with a wide range of organisations, from academic institutions, hospitals and technology providers to companies offering compliance programmes, nutritional advice, stress management, physiotherapy, exercise facilities, health screening and other such services. Healthcare Management Review PAGE Volume 18 044
M
ost 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 the predominant version of this model, a single company may employ contractors to supplement its own efforts, but it seeks to generate profits on its own. In essence, it pursues what might be called a “profit alone” path. But, by 2020, the strategy of singlehandedly placing big bets on a few molecules, marketing them heavily and turning them into blockbusters will not suffice. As J.P. Garnier, former chief executive of GlaxoSmithKline, recently pointed
out, it is a “business model where you are guaranteed to lose your entire book of business every 10 to 12 years By 2020, most medicines will be paid for on the basis of the results they deliver – and since many factors influence outcomes, this means that it will have to move into the health management space, both to preserve the value of its products and to avoid being side-lined by new players. If it is to make ground-breaking new medicines for which governments and health insurers are prepared to pay premium prices, it will also have to build the relationships and infrastructure required to ensure that it can get access to the outcomes data they collect. In short, the rules of the game are shifting dramatically. And, as Michael G. Jacobides, Associate Professor of Strategic and International Management at the London Business School, notes, when an entire “industry architecture” is transformed, it is not only “who does what” that changes, it is also “who takes what” By 2020, no pharmaceutical company will be able to “profit alone”. It will, rather, have to “profit together”, by joining forces with a wide range of organisations, from academic institutions, hospitals and technology providers to companies offering compliance programmes, nutritional advice, stress management, physiotherapy, exercise facilities, health screening and other such services.
Profit alone path “This is a business model where you are guaranteed to lose your entire book of business every 10 to 12 years.” J.P. Garnier,
former chief executive GlaxoSmithKline
Healthcare Management Review PAGE Volume 18 045
Colonel Eli
Lilly
(1838 - 1898) An American soldier, pharmacist, chemist, and businessman who founded the Eli Lilly and Company pharmaceutical corporation.
PHARMA
Collaborative Networks
S
everal Pharmaceutical ďŹ rms have already begun to use more collaborative models. One such instance is Lilly, which is currently transforming itself from a traditional fully integrated pharmaceutical company into a fully integrated pharmaceutical network, so that it can draw on a wide range of resources beyond its own walls.
Healthcare Management Review PAGE Volume 18 046
Lilly | CHORUS Business Model Innovations
T
he pharmaceutical industry suffers of a productivity crisis since the first
decade of the 21st century. Lilly, despite its advantageous position, was not
an exception and was affected also by this context.
In this regard, a remarkable fact was the patent expiration for Prozac. This drug, introduced in the 1980s and the company's best-selling product for treatment of depression, accounted among the most recent successful developments of the company and the most financially successful drug in the history of the industry: Prozac sales in the US accounted for around 20 per cent of the company's overall revenue, according to Lilly's 2001 financial report. Lilly lost its U.S. patent protection for this product in 2001, which triggered a drop in sales of 23% from 2000 to 2001, including a 66 per cent decline in the fourth quarter of 2001, with financial consequences of $36.8 billion dollar of losses in equity. Another big factor that negatively affected Lilly is the denominated "Risky therapeutic areas". Indeed, psychopharmacology, one of the historical core areas, is widely recognized to be stagnated, with no single novel drug reaching the market in more than 30 years. Healthcare Management Review PAGE Volume 18 047
STRATEGY
CHORUS
The immediate answer from Lilly's management to the setbacks described above included the increase in R&D budget about 30%, to more than $2.2 billion, hiring of 700 scientists in 2000 and in a search for the next blockbuster drug, focused only on the most promising projects with potential to reach US $500 million in annual sales (the already mentioned, "blockbuster strategy").
As a part of the strategic evolution of the R&D capabilities of Lilly, the model of chorus was born within Lilly in the year 2002. Chorus was developed as a part of an initiative aimed to explore alternative R&D approaches within the organization. Lilly claims chorus to be a unique model among the pharmaceutical companies. The model uses external venture capital and a virtual network which consists of both Lilly's scientists and hundreds of experts & companies from around the world. Chorus helps to determine the probability of technical support (TS) of a compound in the shortest time and at the lowest cost termed as “lean to proof of concept”, L2POC. The term “proof-ofconcept, POC” means that a drug must be effective and show no signs of serious side effects.
Another immediate response was to diversify the core therapeutic areas in which the company focused its R&D, so that the situation they had in the mid-1990s, of having 35% of their sales dependent on Prozac, won't repeat itself. Thus, the firm extended their areas from psychopharmacology to a large portfolio including Neuroscience, Oncology, Endocrinology, Cardiovascular, Musculoskeletal, Autoimmune and Urology. These were only the first steps in a progressive change of strategy towards a more open, sustainable model in the given context. Office of Alliance Management: To consolidate this approach and develop it from a partnershipbased into a network-based, Lilly created, in 1999, the Office of Alliance Management, whose mission was to source innovation based on a 3-step process (“find it/get it/create value” –Stach, 2006). This initiative, pioneer in the industry, perceived each partnership as a complementary part of the global strategy, and controlled the alignment and balance in each relation. FIPCo & FIPNet: Further development of the above strategy led to the creation of FIPCo and, ultimately, FIPNet. FIPNet iterates the fact that not all activities took place within the company and this term was a better fit. Therefore, FIPNet, aims to transform "from a Fully Integrated Pharmaceutical Company to a Fully Integrated Pharmaceutical Network" a look on various initiatives taken by Lilly as a part of their strategy to evolve their business model and improve R&D productivity.
Chorus model is based upon the “Quick win fast fail” model where the focus is to establish POC well ahead of the phase II clinical trial. The cost to establishing a POC for an NME through chorus was just US $6 million as compared to the traditional approach which cost almost US $22 million. Chorus utilizes external experts to take advice on experimental design and drug delivery, it also uses external vendors to provide manufacturing, toxicology and clinical work that the unit requires. Chorus manages all the vendors and experts through a software tool developed by chorus enterprise themselves known as “Voice”. Through Voice, Chorus maintains the network of vendors and experts and thus reduces the in- house workload and the fixed cost required to carry out the process internally.
Healthcare Management Review PAGE Volume 18 048
INNOCENTIVES In an effort to explore the application of internet in Business, the idea of Innocentive was born in the year 1998 at Lilly and the minds behind them were Alpheus Bingham and Aaron Schacht. In 2001 Innocentive was launched with majority of the seed funding from Lilly. Darren Carroll led the launch effort and became the first CEO of Innocentive. Innocentive was the first internet-based platform designed to help connect Seekers, those who had difficult research problems, with Solvers, those who came up with creative solutions to these problems. Innocentive's clients at the start were mostly R&D intensive companies whose innovations were based upon chemistry, Biochemistry, biology and material science which were typically industries like Pharmaceutical, Chemical, consumer goods and petrochemicals. The employees of Innocentive worked with the scientists from these firms and provided them with separate “pavilions” on its website which was divided based upon the topic area. The scientist could post their problems anonymously in these pavilions and seek solutions from a global community of independent scientists and scientific organizations that were associated with Innocentive. The best possible solution which satisfies the criteria jointly set by the Innocentive employees and the client scientists or the seekers will be awarded. Innocentive provides the seekers with tools and methodologies specific to their industry to define their problems more precisely. Open innovation drug discovery program: When it came up to improve the productivity of the R&D process, apart from the increase in R&D budget mentioned above, and in line with the FIPNet strategy, Lilly opened up the R&D
process in more subtle ways other than the use of outsourcing. These approaches rely on the idea of opening up company's resources and expertise to trigger an exchange of knowledge, The common traits of these two initiatives reside in the fact that Lilly opens up the R&D process to external collaboration by sharing (without charge) its internal resources (basically, molecules in company's portfolio to be used as starting points on drug discovery and development) with external scientist (mainly, academia, and small biotechnology companies.
In exchange, Lilly will profit from external skills and expertise applied on the shared resources by having access to the results that external collaborators came up with after carrying out R&D efforts based upon the molecules initially provided by Lilly's PD2 and TD2. Specifically, Lilly's goal here is to receive quality inputs from the outside rather than a high quantity of proposal submissions. The key point is that Chorus boost the productivity of the R&D process by relying in a virtual team, whose creation is only possible by tapping into the existing Lilly's network of external vendors, manufacturers, scientist and consultants, establishing, to some extent, a collaborative product development. Despite of the managerial complexity that such a virtual organization can imply, Lilly has managed to run this alternative R&D model with low costs.
How did Eli-Lilly add value to their R&D process? What were the benefits of Eli-Lilly Innovative Business Model? ©Credit-Borja Herandez Raja
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Shire’s Pharmaceutical’s Virtual Federated Business Model Vision
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n a virtual Pharma federated business model, most or all of a company's operations are outsourced and the company itself acts as a management hub, coordinating the activities of its partners. Several industries have already adopted some aspects of this model. The semiconductor industry typically outsources its manufacturing in order to concentrate on product development, for example, and a number of companies in the medical devices sector are now following suit. Similarly, strategic outsourcing of design and manufacture to suppliers has redefined manufacturing functions within industries such as aerospace, computing and electronics. Most large pharmaceutical companies also use external contractors to supplement their inhouse resources, but very few firms have gone any further. There are very good reasons why pharmaceutical companies should outsource their R&D, manufacturing and promotional activities where third party alliances can provide a wider range of opportunities, specialist skills and market access. A pharma company can then focus on the value adding functions where they can leverage on their relationships, scale and market knowledge – i.e., project management, business development, regulatory affairs, intellectual property management and the formation of good relationships with key opinion leaders and healthcare providers. The virtual variant of the federated model has other advantages, too. It would enable companies to reduce their initial capital outlay, convert some of their fixed
costs into variable costs, utilise their resources more efficiently and become more flexible. Equally important, it might help the industry leaders to expand into new product/service areas or geographic markets without resorting to further mega-mergers (and thus facing the huge challenges associated with integrating two formerly separate entities) or succumbing to the corporate bureaucracy that so often strangles innovation. However, the virtual variant also comes with some significant drawbacks. The balance of power might shift to suppliers, as it has done to a certain extent in the automotive industry, where a number of Tier 1 suppliers now manage their own supply chains. Alternatively, a major supplier might get into financial difficulties and start offering an inferior service or even default on its obligations altogether. But such risks can often be managed by using multiple suppliers, wherever possible. Some pharmaceutical companies might also see their earnings diluted, since every participant in the value chain would expect a return for the services it provides. Theoretically, this should not happen, since specialist contractors typically have lower costs than integrated pharmaceutical companies. Indeed, according to one study, a company that performs certain preclinical development activities in-house can expect to pay more than double what it would pay if it completely outsourced these activities to a third party. But a shortage of top-class service providers or experts in particular areas such as biological manufacturing could drive prices up. Healthcare Management Review PAGE Volume 18 050
I n a v i r t u a l P h a r m a f e d e r a te d business model, most or all of a company's operations are outsourced and the company itself acts as a management hub, coordinating the activities of its partners.
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Shire’s virtual vision Shire Pharmaceuticals is the epitome of a virtual company. It outsources almost everything, from discovery to medical monitoring to data management to statistics to medical writing. With the exception of its genetic therapy division, every product it develops has been purchased from an outside source, via inlicensing or acquisition. Healthcare Management Review PAGE Volume 18 051
Apple's core strategy of collaboration
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ondon Business School Professor Michael G. Jacobides has recently argued that successful companies do not compete in a sector; they shape the nature of a sector. They redefine the part of the value chain they occupy, and keep most of the valueadd through the intelligent design of their collaboration with others in the sector. Thus collaboration is not just a tool for doing the same things more effectively. At its most powerful, it can reshape an entire market, as Apple has shown. Apple redefined the mobile music sector by outsourcing the production of the devices and accessories, while retaining control of the iTunes software. In other words, it recognised that it could make money by creating and orchestrating a network of relationships – by
controlling, rather than owning. Apple used three specific tactics to change the rules of the game. It enhanced the mobility of the parts of the sector in which it has no presence, by establishing a small set of suppliers who know that they can be replaced at any time. It made itself into a bottleneck, by holding onto the music format and ensuring that files compatible with iPod can only be played on iPod devices. And it redefined who did what, by encouraging other companies to develop accessories rather than entering the accessories market itself. This has enabled it to benefit from the efforts of those that support its architecture, without making any capital commitment itself.
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Pro-Poor Pharma Designing products for people in the lower part of the income pyramid. Using mass-market techniques to deliver complex services. Pooling resources for different purposes.
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ocusing on the masses isn't proving any easier than focusing on the affluent elite who can pay for costly new medicines. But that doesn't mean it's impossible to make a profit in the growth markets. On the contrary, there's much pharma can learn from the most innovative organisations. Consider the following examples.
Designing products for people in the lower part of the income pyramid. When Ratan Tata decided to develop a car for India's urban masses, he started with a question: how to produce an affordable – and better – mode of transport for people who normally used motorbikes. The result was the $2,500 Nano, a fuel-efficient vehicle that seats four passengers but comes without expensive frills. GE Healthcare has applied the same approach to the medical equipment sector. Among other things, it's launched two stripped-down MRI machines that sell for $700,000 to $900,000, compared with a normal price of about $1.6 million.
Using mass-market techniques to deliver complex services. Dr Devi Shetty has perfected the science of high-volume heart surgery. At Narayana Hrudayalaya Hospital, in Bangalore, 42 surgeons – each specialising in a single procedure perform some 600 operations a week. Dr Shetty charges about $1,500 per operation. Yet his profit margins are higher than those of the typical US hospital, and his quality as good. Healthcare Management Review PAGE Volume 18 054
Eye-hospital chain Aravind has also used assembly-line techniques to deliver healthcare. It performs about 350,000 operations a year and its operating rooms have at least two beds, so that surgeons can swivel from one patient to the next.
Pooling resources for dierent purposes. When Simon Berry, founder of British charity Colalife, wanted to distribute antidiarrhoea products in the developing world, he had a brainwave: Coke gets everywhere aid doesn't, so why not pack the crates with medicines? Colalife designed a wedgeshaped container that ďŹ ts between rows of Coke bottles and is now piggybacking on Coca-Cola's distribution network.
...we anticipate that, by 2025, the biggest pharma companies will be pooling resources with health insurers and community care providers in the growth markets to stimulate demand for their products. They'll also be participating in cross-industry transportation networks to reduce their distribution costs. Healthcare Management Review PAGE Volume 18 055
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R O VA C O L L E G E HEALTHCARE EXECUTIVES Executive Education
Intel's co-founder.
STRATEGIC INFLECTION POINT
"...an event that changes the way we think and act." Healthcare Management Review PAGE Volume 18 057
Precision
Medicine is changing the Game
in Pharma
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Precision Medicine is changing the game
A review of the impact of Precision Medicine on Pharma and Change in Mindset neccessary to fit this new reality.
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harma is at a crossroads, and these companies can't afford to continue with business as usual. There are several interrelated issues that will either be their death knell or slingshot them to the head of the pack. THE FIRST IS THE VERY NATURE OF THE PHARMA BUSINESS. For years Pharma companies have chased after the next blockbuster to drive growth. Given the extraordinary time and cost associated with clinical trials, it's easy to understand the mindset. And when you combine that with a limited budget, on the surface, it makes sense to react by restructuring, cutting costs, desperately seeking pipeline via M&As or in-licensing, outsourcing where you can, focusing on big therapy areas, and trying to find ways to expand. But these are not long-term solutions. The blockbuster model cannot sustain itself
indefinitely. The industry is slowly moving to alternative models (although many old school CEOs are still clinging to the blockbuster model). For instance, some companies have started to adopt a more diversified model, expanding their focus to encompass more rare diseases, generics, biosimilars, OTC, and vaccines. And there is a growing movement towards a value/outcomes model, where the focus is on value and health outcomes. In this model, the industry is not simply delivering drugs, but providing products and services planned for health improvement and engaging up close and personally with their stakeholders to meet their needs. But the transition is proving painful for some. While the values/outcomes model makes sense, it looks at the issues a little too simplistically. There are radical changes taking place that are challenging everything we thought we knew about pharma. Healthcare Management Review PAGE Volume 18 060
...HOW? Credit - Dr. Bates -Talk Back
WE HAD IT ALL WRONG Precision medicine is a game changer in the truest sense of the term. So much has been discovered recently in medicine that soon all the textbooks will have to be rewritten.
The blockbuster model cannot sustain itself indeďŹ nitely. The industry is slowly moving to alternative models.
Precision Medicine is a game changer in the truest sense of the term. So much has been discovered recently in medicine that soon all the textbooks will have to be rewritten. Nature Medicine describes precision medicine as referring to the idea that molecular information improves the precision with which patients are categorized and treated. With an accurate diagnosis of a patient at the molecular level, the treatment can be precisely matched to the underlying molecular pathway and relevant gene expression, and therefore will work as it is meant to. This in turn will provide strong value and outcomes for the patient, the payer and ultimately, the pharma company. This approach is eye opening, as we are now discovering that we know so little about most conditions. For example, recent discoveries in oncology demonstrated a breast cancer and a bladder cancer as being identical. And interestingly, leukaemia was found to be in fact 51 separate independent diseases! This shows that we have been on the wrong track for a long time in oncology, with some notable star exceptions that focus on the molecular pathways and gene expression—namely Herceptin, Iressa and Gleevec. It is all about the molecular pathways and gene expression, rather than the old-fashioned body part classiďŹ cation, such as CRC, BC, LC, etc. Healthcare Management Review PAGE Volume 18 061
From Reactive to Proactive RECISION MEDICINE is the ability to match the best treatment for a patient, based on genomic, environmental and personal information. This individualized care plan enables the physician to skip the trial-and-error approaches of common medicine and get the patient on the right pathway on the first attempt.
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that works for most similar patients, based on best practices. If the treatment doesn't work—or worse yet, if it causes harm—the provider will adjust and select another treatment option. This trial-and-error method is unnecessary when precision medicine could provide greater insight into the specific disease and specific patient.
Scientists first mapped the human genome more than a decade ago and, since then healthcare has matured its capability to use genomic information to improve diagnosis and treatment. Studies show that a majority of physicians agree that precision medicine will influence everyday clinical practice in the near future.
A growing number of chronic conditions and diseases that have clear genomic expressions can help guide clinical decisions. For example, our genes reveal predictive potential for depression, asthma, Alzheimer's disease, hypertension, cancer and the list goes on. These genomic mutations can have a significant influence on prevention and wellness planning, especially when clinicians have that information early enough.
The Pharma industry should recognize the value of personalizing patient care with genomics in combination with other personal and health information. Healthcare IT is making strides to bring precision medicine into the mainstream. Practical precision medicine will help identify the relevant patients for a specific treatment or tailor a treatment to a subpopulation of patients. This capability will increase the cost effectiveness of the treatment and accelerate the intervention opportunity. Today, providers mainly interact and engage their patients when they are sick. Providers try to diagnose the problem correctly and select the best treatment
Instead of reactive approaches, precision medicine seeks to move healthcare toward more proactive and ultimately predictive approaches. For example, if a man has a genetic mutation linked with an increased risk for colon cancer, providers and payers can monitor his condition closely with a higher frequency of subsidized colonoscopy. Oncologists are among the early adopters for precision medicine. For many oncologists, precision medicine is already influencing the recommendations for certain treatment protocols in specific cases. Healthcare Management Review PAGE Volume 18 062
to Predictive Medicine PRECISION MEDICINE is the ability to match the best treatment for a patient, based on genomic, environmental and personal information. This individualized care plan enables the physician to skip the trial-and-error approaches of common medicine and get the patient on the right pathway on the first attempt.
Closing the Loop with Clinical Trials and Research As the industry more widely accepts precision medicine, across different disease states, we see new trends in population health management. Precision registries help define populations and subpopulations, identifying patients that require more customized treatment and introducing earlier diagnosis and risk stratification. While being able to diagnose a patient much earlier than before is very powerful at the point of care, this capability is especially impactful for clinical trials and research. President Obama's January 2015 announcement of a precision medicine initiative, aligned with the industry's current maturity level in this area, will, among other things, 3 accelerate the lifecycle of drug research. With the right technology in place, precision medicine will enable researchers to identify or disqualify patients for clinical trials based on genomic information. Even better, this technology can close the loop by collecting information about how patients respond to the prescribed regimen. Harvesting that information through the Electronic Health Records and aggregating it for researchers is extremely valuable in recommending treatments for the next patient. Credit-Assaf Halevy Healthcare Management Review PAGE Volume 18 063
Seeing the future of Pharma through the eyes of Herceptin...
What many in the industry don't appear to realize yet, is that it soon won't be just about the drugs alone, but about the successful linked pairing of a diagnostic and a drug. Companies that do this combination successfully will be the winners of the future.
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o accurately be treated with Herceptin, you have a diagnostic test, and if you have the HER 2 positive gene expression, then Herceptin is your drug. And it works reliably in these patients. However, if you have breast cancer without this gene expression, you would be wasting both time and money on Herceptin. Essentially a diagnostic and a drug are paired like a lock and key. If Herceptin had done clinical trials without the diagnostic, it probably would not have got approval as not all the patients would have been HER2 +ve in
which case the lives of the hundreds of thousands of people it saved would not have been possible. In fact, having the diagnostic not only got it approved and saved lives, but also got it done much faster (the typical 5-10 years was reduced to 2 years due to having the right patients in the trial), and the cost of the trials was also signiďŹ cantly reduced due to the precision of the diagnosis and applicable drug. When you change your mindset to ďŹ t this new reality, you can see the massive impact on nearly every aspect of pharma. Healthcare Management Review PAGE Volume 18 064
Almost everything about the future of Pharma can be seen around HERCEPTIN and things they did right.
Precision Medicine & Diagnostic Paring
Clinical trials: Currently many patients in clinical trials are not actually good candidates for that treatment, so it takes a long time to ensure you have enough good data to show safety, efficacy etc. Better targeting will change this. Operations and organizational structure: The constant restructuring and outsourcing are products of the outdated blockbuster model. In the new era, pharma will be able to reduce costs, increase efficacy and reduce side effects while increasing value, outcome, profit and share - without giving up control of important aspects of their business. Marketing: If you're not hitting the right audience with the right message, you're wasting your marketing budgets. Pharma companies that embrace change will have access to better analytics and information and services that goes beyond the pill and the only way to really get this right is using analytics.
PRECISION CREATES VALUE. Precision medicine is changing much of what we thought about several conditions, and along with it, the drugs used to treat people who have those conditions. By pairing diagnostics with specific drugs, pharma companies are able to offer more value to all parties. From patient treatment and hospital costs, to clinical trials to the reduction of lawsuits, the potential savings to the system is staggering. Consider Herceptin. The drug costs $79,181 per patient when a diagnostic not used. But when it is used only with patients who will respond, the cost drops to $53,738—a difference of $25,443. And think of all those drugs that failed to get approval after clinical trials did not show efficacy in enough patients. If you could find the gene expression and molecular pathway of the subgroup of patients that responded, those drugs could possibly to be resurrected and, in fact, save many lives. This approach of testing for precision with a diagnostic adds more cost initially - which is probably why it is not already being embraced widely. But that's short-term thinking. Pharma companies should be considering how they can better pair a diagnostic with a drug if they want to succeed in the long term. Healthcare Management Review PAGE Volume 18 065
TARGET
DRUGS
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he Pharmaceutical industry is going through a revolution. The rise and fall of one-size-fits-all medicine has left Pharma reevaluating pipelines and searching for new ways to develop drugs that are safe and effective for patients. The genetic underpinnings of some diseases have been discovered and used to develop higher-efficacy treatments for targeted populations — treatments for particular patients, not just for particular diseases. This approach, called Precision Medicine (PM), uses diagnostics to identify and segment patients into targeted populations for specific drugs. PM allows Pharma to develop drugs that link to better outcomes while cutting development time and cost. Pharma companies are collecting these targeted products into formidable and sustainable portfolios. But PM requires a significant scientific and business model shift. To successfully develop patient solutions that include access to both drug and diagnostic, Pharma companies must proactively seek out partnerships with a whole host of other entities. They need access to diagnostic testing, life science tools, reference labs and global distribution networks (to name a few). Credit: Kris n Pothier
Healthcare Management Review PAGE Volume 18 066
The Pharmaceutical industry is going through a revolution. The rise and fall of one-size-fits-all medicine has left Pharma re-evaluating pipelines and searching for new ways to develop drugs that are safe and effective for patients.
“PM requires a significant scientific and business model shift.” Here's an example of how a partnership might work in an ideal world: ·
PharmaCo creates Treatment X for a specific disease.
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In early research, it's found that 5% of pa ents who take Treatment X have a debilita ng side effect, and FDA approval is at risk.
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Instead of hal ng development, PharmaCo forms a partnership with Diagnos cCo to create a simple test, Test Y, which shows with 99% reliability which pa ents are suscep ble to the side effect.
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PharmaCo gets FDA approval for Treatment X by marke ng it with Test Y.
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The partnership between PharmaCo and Diagnos cCo brings success to both companies.
This model assumes that the two stakeholders, PharmaCo and DiagnosticCo, are aligned in their timelines, objectives and return on investment. But that is frequently not the case. Often, companies seek their partnerships too late. The drug is almost ready to launch in the market and that's when they start looking for a distribution partner for their companion diagnostic or a new diagnostic company to
transfer development of their companion from a small partner to the large global presence they need. This makes for hasty decisions, messy partnerships and stakeholders that are not aligned. Pharma needs to start early and embed PM objectives through the entire development process so that stakeholders have time to come to the table together. For successful global PM, pharma must: 1. Support targeted R&D por olio planning that maps and quan fies PM op ons at the early research stage 2. C o m m i t t o c h o r e o g r a p h e d diagnos c/therapeu c development so that the diagnos c and the drug are ready for trials and launch at the same me 3. Address global market access for targeted therapeu cs/diagnos cs to ensure that all pa ents have access to the integrated solu on. PM is a new business model for Pharma. With me, commitment and proac ve diligence around partnerships and internal development to meet these three objec ves, companies will maximize the success of their PM investments.
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Michael G. Jacobides, Associate Professor of Strategic and International Management at the London Business School
When an entire “industry architecture” is transformed, it is not only “who does what” that changes, it is also “who takes what” Michael G. Jacobides,
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Choose To Win
THE
RIGHT WAR In Pharma, in general, the technologic enable limiting therapeutic efficiency is diagnostics. Yet (and not surprisingly) a parallel pattern of the divesture of tomorrows attractive business has begun in the Pharma industry. For example, BAYER recently sold its diagnostic unit for $5.3b. In 2007, Abbot Laboratories negotiated to sell much of its diagnostics business for $8.13 billion. These companies, following the tradition established by IBM and General Motors' are reacting to the past rather than preparing for the future. A warning to all who contemplate this deal is that the investment bankers who urge them on have been prone to peer into the future through a rearview mirror.
Are we walking away from the right war in order to win the wrong one?
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ittle by little and layer by layer scientist and physicians are peeling away the shrouds that have masked true understanding of diseases leading us toward greater precision.
Much of applied science and nearly all of the commercialization technology in the transformation is being developed and implemented in pharmaceutical and medical device companies. Indeed, the most recent victories in the match towards precision medicine emerged from firms likes Novartis (Gleevec) ASTRA Zeneca (IRESSA) Genentech (Herceptin) and others. The pharmaceutical and medical devices industries must play a pivotal role in the disruptive transformation of health care, because they supply the technological enablers that allow lower cost venue of care, and lower cost care givers, to do more and more remarkable things. The disruptive transformations in health care profoundly affect the structure of pharmaceutical industry itself – posing extraordinary challenge to the leaders of these companies. The disruption threat to Pharma is a supply chain disruption and it is already under way in the industry. Many of the vertically integrated Pharma companies that have long dominated the business began actively out sourcing many of their functions to specialist companies, Healthcare Management Review PAGE Volume 18 070
ranging from the discovery and development of new drugs, to the administration of clinical trials, to manufacturing. Those to whom this work is being out sourced to are integrated to add more and more to their offerings even as the Pharma companies are shedding activity after activity, seeking to do less and less. In Pharma, in general, that technologic enable limiting therapeutic efficiency is diagnostics. Yet (and not surprisingly) a parallel pattern of the divesture of tomorrows attractive business has begun in the Pharma industry. For example, BAYER recently sold its diagnostic unit for $5.3b. In 2007, Abbot Laboratories negotiated to sell much of its diagnostics business for $8.13 billion. These companies, following the tradition established by IBM and General Motors' are reacting to the past rather than preparing for the future. A warning to all who contemplate this deal is that the investment bankers who urge them on have been prone to peer into the future through a rearview mirror. At the same time, molecular diagnostics firms like Celera Genomics and Applied Biosystems, sensing the strong technological interdependence between diagnostics and therapeutics in the future have already began to acquire Pharma companies other players like Millennium Pharmaceuticals, have worked in diagnostics and Pharmaceutical from the start, while Roche has a long history of impact in both industries. The value created by precision diagnosis can be significant. One study, for example, measured that the breast cancer therapeutic Herceptin cost $79,181 per patient cured if the diagnostic test led to identify the over
expression of the HER 2 protein was not done first. When the diagnostic text was performed at the outset, the cost per patient cured was $54,736. The reason? Without the precise diagnosis, the drug was given to some patients who could not benefit from it. The test, by the way, cost $366 to perform, and yielded nearly $24,000 in saving per patient. As the system value created by precision diagnostics and predictably effective therapeutic become more apparent, we expect that the five forces determining attractive profitability will shift to this point in the industry's value chain. The recent push to incorporate genetic testing into the protocol for administering the blood thinner warfarin (also known as a Nomogram), indicate a willingness and desires of the system to improve clinical care by combing testing and treatment. In Pharma, this suggests that in the future, activities that link precise diagnostics with predictably effective therapeutics will become the center of industry profitability. At the core of this will be the management of clinical trials which need to be framed as research trails, rather than end of the process test of whether drugs work. The development of diagnostics and therapeutics will be intertwined through these research trails. For reason that seem (to them) to be perfectly rational and profit – maximizing, most leading Pharma companies are walking away from these activities. Which will coalesce as the critical core competencies of tomorrow. The leaders of Pharma would be wise to reverse course.
NOMOGRAM The future activities in Pharma that link precise diagnostics with predictably effective therapeutics will become the center of industry profitability. Healthcare Management Review PAGE Volume 18 071
Bill Gates
Bill Gates
The Decade of Vaccines Healthcare Management Review PAGE Volume 18 072
The introduction of antibodies by prophylactic vaccination against infectious diseases has been the most effective medical intervention in human history. Bill Gates recently acknowledged as much when he called on the World Health Assembly to make this 'the Decade of Vaccines' and set some basic goals: eradicate polio in the 1% of the globe where it remains; develop five or six new vaccines; and build a system capable of delivering vaccines to every child. That, he said, would 'save 10 million lives by 2020'.
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dvances in vaccinology are providing the tools with which to develop more effective vaccines for a much wider range of diseases. With structure-based antigen design, for example, Xray crystallography is used to determine the threedimensional structure of an antigen-antibody complex and then computational protein design is used to engineer an antigen. New delivery technologies are also expanding the ways in which it's possible to insert antigens into the immune system. Researchers at the University of Oslo have developed one approach that uses electrical impulses and DNA code to trigger a molecular reaction. The technology has two major advantages; it dispenses with the need for an adjuvant and produces a much quicker, more powerful immune response. A new generation of vaccines is now in the pipeline. Some of them aim to treat infectious diseases like malaria and HIV or antibiotic-resistant pathogens like MRSA. Others aim to treat chronic or acute conditions and addictions.
Vaccines for a wide range of chronic illnesses, including diabetes, obesity and cardiovascular disease, are already in clinical development. Several cancer vaccines are also showing considerable early promise, one such instance being a 'universal' vaccine that operates on the principle of training a patient's body to recognise and destroy tumour cells by itself. And work on vaccines to curb nicotine and cocaine addiction is likewise well underway. Many of these new vaccines for non-infectious conditions are designed to slow down, as distinct from curing or preventing, disease. But it's prophylactic vaccines that represent the industry El Dorado – and here, too, there's been progress. Novartis recently filed for approval of a vaccine that protects infants against meningococcal disease, for example, while GSK has commenced Phase III trials on a recombinant vaccine for preventing malaria. And Inovio Pharmaceuticals is testing a synthetic DNA vaccine that might both treat and prevent infection with HIV from clade B, the subtype of virus mostly seen in North America and Western Europe. Healthcare Management Review PAGE Volume 18 073
Corporate Culture Sclerosis
Bruce Booth; Life Sciences Venture Capitalist.
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Despite seismic shifts, the organisational culture at many Pharma companies has changed very little – or, if it has changed, some people suggest, it's only changed for the worse. The Big Pharma culture has been homogenized, purified, sterilized, whipped, stirred, filtered, etc. and lost its ability to ferment the good stuff required to innovate,
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he values, beliefs, habits and management style that determine how people in an organisation think and behave have a profound bearing on its decision-making processes. And when the environment in which the organisation operates alters, these characteristics often need to alter, too. Yet most pharma companies still rely on a corporate culture that prevailed 20 years ago. The 1980s and 1990s were a period of relative economic stability. Today, there's much more economic volatility. The global distribution of wealth is also shifting, with the rise of the growth markets and greater gender equality. Demographic and epidemiological trends that were still on the distant horizon in the early 1980s have simultaneously come to the fore, while new communication technologies have empowered individuals. In the Facebook era, patients can see – and say – more about the organisations they deal with, and the medicines they take, than at any previous time in history. Pharma's business model has also altered almost beyond recognition. In the 1980s and 1990s, it made medicines for chronic diseases, marketed them to doctors and focused on urning them into blockbusters. These days, it's concentrating on specialist medicines, which it markets to healthcare payers – who use different, and more rigorous, selection criteria. But despite such seismic shifts, the organisational culture at many pharma companies has changed very little – or, if it has changed, some people suggest, it's only changed for the worse. “The Big Pharma culture has been homogenized, purified, sterilized, whipped, stirred, filtered, etc. and lost its ability to ferment the good stuff required to innovate,” life sciences venture capitalist Bruce Booth argues.
In one recent survey of 150 R&D executives, 54% cited lack of creativity as a key organisational issue, while 53% cited lack of coordination between the R&D and commercial functions. Why this cultural sclerosis? One possible reason is the fact that most of the industry's top executives learned their business while the blockbuster model reigned supreme. They were also promoted from within, or recruited from similar companies, and naturally tend to reinforce the existing culture because it's the one in which they feel comfortable. That's slowly changing with the appointment of a number of younger executives keen to embrace new ways of doing business and growing internal acceptance that the existing state of affairs can't continue. As revenues, profits and share prices fall, and redundancies become more widespread, many employees have recognised that the old days are truly over. But shorter periods in office are also an obstacle. In 2000, the average tenure of a chief executive was 8.1 years; by 2010, it was down to 6.6 years. It's lower still in pharma, with a typical tenure of 4.8 years for the chief executive and just 3.6 years for the head of R&D. This presents particular problems for an industry whose product development cycle is at least a decade. In essence, the incumbent management has to make major decisions it can't see through to the end. To sum up, then, today's top pharma executives face a formidable test. They must pilot their companies through turbulent waters, drawing on experience acquired in very different circumstances, without any leeway in which to make mistakes.
Booth isn't alone in blaming the industry's declining scientific productivity on cultural influences. Healthcare Management Review PAGE Volume 18 075
Creating a more innovative culture So what can the industry's senior figures do? We believe there are a number of changes they can initiate to foster a more creative corporate culture and reinvigorate their companies. Bring fresh blood into the top team
The industry is going through a period of profound change. Any company that wants to weather the transition will have to focus on delivering value, not charging high prices. It will have to supplement its products with services. And it will have to become an integral part of the healthcare continuum.
Successful innovation requires strong leadership, commitment and solid decision-making. It also requires an open mind and the courage to experiment – both traits that are harder to find in companies where most of the management comes from the same mould. Set clear rules and stick to them Both employees and shareholders need to know where they stand, so it's crucial to set clear ground rules. Internally, senior management should specify the sort of innovation it wants, how it plans to measure innovation and the trade-offs it's willing to make. It should also make sure the right resources are in the right places. Externally, senior management should let investors know how much the company plans to spend on R&D over the next few years – and stick to its guns in the face of short-termism. Jeffrey Immelt, the highly respected head of General Electric, has long followed this policy. “Over a 10- or 20-year time period, the businesses that are hard to do had the best returns,” he says. “So the arithmetic works over time.” Lessen the layers Too much bureaucracy stifles creativity – and Big Pharma companies tend to be very bureaucratic. We recommend eliminating as many layers of middle management as possible, minimising the number of committees and creating autonomous R&D teams that report straight to the top. Locating these teams in biotech clusters can also stimulate innovation. But the main point is to remove roadblocks. Every R&D team should be given a specific challenge, budget and timeframe, and then left to get on with the task without having to plough through vast quantities of paperwork, grapple with the latest management craze or worry about surviving the next cull. If a team doesn't deliver, it should certainly be held accountable – but not before it's had a chance to do its job. A company's culture alters only when the people who work in it alter how they think, talk, decide and act – and that happens only when top management shows the way. It's now more imperative than ever for Pharma's business leaders to blaze a new trail. Healthcare Management Review PAGE Volume 18 076
“The ultimate measure of a man is not where he stands in moments of comfort, but where he stands at times of challenge and controversy.� Martin Luther King, Jr.
Healthcare Management Review PAGE Volume 18 077
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