Is Pharma doing a Rip Van Winkle?

An environment of relentless challenge and change is the norm for pharmaceutical and healthcare companies. Despite critical need and high demand for its products, the industry remains under pressure from physicians, patients and regulators to deliver more effective treatments at lower cost. It is well known that the current business model, based on development and marketing of blockbuster drugs, is increasingly economically unsustainable and operationally unsuited to the kind of quick action needed to meet complex stakeholder demands.

To tackle this, strategic teams in most large biopharmaceutical companies have done the obvious – resorted to low priced generics as a growth driver. This may well prove to be a temporary strategy considering the large number of biotechnology (and other niche specialty therapy area) companies that have, either been acquired or their products in-licensed for later commercialization, by pharmaceutical companies.

To provide context lets consider PhRMA’s stated mission. The Pharmaceutical Research and Manufacturers of America (PhRMA) represents the United States’ leading pharmaceutical research and biotechnology companies, which are devoted to inventing medicines that allow patients to live longer, healthier, and more productive lives. PhRMA members (most BigPharma companies) invested an estimated $45.8 billion in 2009 in discovering and developing new medicines. Including low priced generic medicines as growth drivers into business models over the short to medium-term is hardly what PhRMA (and BigPharma) stands for. This was best captured by Mr. Severin Schwann, CEO, Roche in an interview with the Financial Times .Referring to the evolving business model based on diversification, he said, “A lot of people call it diversification. I call it giving up.”

This seems more like a knee-jerk reaction than a far-sighted, strategic approach. Is pharma doing a Rip Van Winkle like the Dutchman from the fable who went into the mountains and fell asleep for twenty years of his life to escape his wife’s constant nagging?

What gives me hope and holds my faith is that the pharmaceutical industry is a knowledge based one and innovation is its lifeblood. And through innovation the future holds promise.

1. The ramp-up of personalized medicine and increasing number of biologic products in development portend growth for the industry. Roche’s Schwann recently told an interviewer that he felt the importance of personalized medicine in short to medium-term plans should not be underestimated. “Personalized medicine is not a concept anymore,” he said, “it is reality”.

2. Delivery of targeted, specialty medicines to selected groups of patients should improve outcomes and boost profitability.

3. Rising populations and personal incomes in India and other emerging markets have the potential to broaden the customer base in untapped and underserved regions.

Pharma’s business model is changing. It must change. According to Andrew Witty, CEO of GlaxoSmithKline the pharma business model is transforming from being “blockbuster dependent” to becoming “blockbuster capable.” What he means is that as we wait for new blockbusters to arise, companies must become efficient at innovating and commercializing a steady stream of products within the $50-500 million range of annual global sales.

Growth opportunities are inherent in this change. To seize these opportunities, the industry must embrace a fundamentally new approach to doing business. Over the long-term the industry must adopt transformational business models that rely on collaboration with healthcare payers, providers (assuming that healthcare insurance will consolidate and grow in India) and nontraditional partners. The goal: to deliver bundled product-service packages of patient-centered, outcomes-based care.

The pharmaceutical industry may have done a Rip Van Winkle for decades now. It has often been accused of being a laggard while adopting marketing and technological innovation. But, a lazy Dutchman in a fairy tale is surely no role-model for an industry that can potentially provide healthy lives to billions around the world.

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