Surviving the Tidal Wave
Pharma needs new strategies in the face of a 'tidal wave' of costly and complex diseases.
Disease is getting more complex, development costs are skyrocketing and payers are demanding value-based, real-world assessment to counter the rising cost of healthcare – the dilemma facing pharma is well known.
Following the publication of a new report, Facing the Tidal Wave, a Partner at Deloitte, Hanno Ronte, shares some of the emerging strategies that pharma can employ to manage risk and simultaneously pursue innovation in drug development.
A tidal wave?
The healthcare equivalent of global warming, the tidal wave Deloitte refers to is the growing complexity of disease. In the past decades, pharma has been very successful in developing highly effective medicines and vaccines that have increased life expectancy and improved quality of life for many patients.
However, the associated costs of age-related illnesses such as cancer and dementia, as well as behavior-related conditions such as obesity and diabetes, have swelled. The prevalence of ‘metabolic syndrome’ across US and UK hospital patient populations might only be 5%, but it accounts for 35-40% of hospital costs.
Meanwhile, our knowledge on illnesses – life-threatening, chronic, orphan – and their causes/pathways is broadening, while developments in genomics have expanded our understanding of individual genetic responses to therapies. Precision medicines with small-to-medium-sized patient populations are demanding attention from the healthcare system.
Along with this tidal wave of diseases, pharma companies are being asked to identify and address a broad range of patient clinical requirements, a task made even more challenging by the widespread adoption of cost-containment policies and ever-greater scrutiny of prices and value.
“The payer will always take the best drug,” says Ronte. “Reimbursement is in a ‘winner take more’ mode, and pharma needs to reduce the risks for payers. Innovation is important to create solutions that meet patient and healthcare system needs – otherwise we will not be able to deal with the tidal wave.”
There are three categories of risks in drug development, he says. The first is scientific risk; the very slim chance any drug has of even reaching the market. Here, Ronte says that companies must drive research efficiency: “There is a need to increase the quality of hypothesis,” he says.
The second category is economic risk; the astronomical cost of drug development along with a reduction or deceleration in sales. Pharma companies must come up with a price that covers R&D and innovation costs, while also compensating for slumping sales. At the same time, the price needs to fall within the value criteria set by payers.
Delivery risk is the final category; the risk that physicians will not prescribe, patients will not take and payers will not reimburse a new drug. With the urgent need to contain health costs, many payers are reluctant to grant high prices and frequent reimbursement, and pharma companies must be able to accurately trace and quantify health and economic outcomes to demonstrate value.
Innovation is important across all aspects of the value chain, not just in the new molecule itself. Innovation in commercial and service delivery to realize the potential will become a differentiator.
The risk profile varies for every product, depending on the target patient population, the economic capability of the company, and the general payer landscape, says Ronte. “Pharma already has diverging operating models – think of companies focusing on generics or those in specialized medicines versus primary care. We believe this is more likely to become pronounced, and that the way in which these different diseases are served by pharma will continue to evolve.”
He offers a clarification; innovation is not limited to clinical advancements, it is also about managing risk. For this reason, innovation must be viewed from a wide perspective. “Innovation is important across all aspects of the value chain, not just in the new molecule itself. Innovation in commercial and service delivery to realize the potential will become a differentiator,” says Ronte.
Developing the pharma business model
Many companies are shifting from product-oriented to service-oriented, in order to demonstrate value, yet Ronte warns that repositioning can be difficult and can potentially dilute margins, increase liabilities and add operational complexity. To optimize such a repositioning, ensuring that stakeholders feel there are benefits to such a model change, companies must develop and sharpen the ability to focus on de-risking and producing innovation.
The report outlines seven strategies to de-risk the pharma business model and generate value. They are:
1. Continuous R&D innovation – reducing scientific risk by improving research effectiveness, collaborating with a range of partners, hiring multidisciplinary staff, and practicing destructive creativity
2. Collaborative directed research – reducing economic risk by involving outside funders or government bodies to direct the research based on unmet need (eg, public and private funding of vaccination research for Zika and Ebola)
3. Accelerated access processes – reducing delivery risk by redesigning market access and accelerating availability/reimbursement of new medicines
4. Lifetime patient data management – reducing scientific and delivery risks by integrating patient data from a clinical trial with data from real-world settings to create a comprehensive view and develop a better focus on unmet needs, biomarkers, and target patient sub-populations
5. Clinical pathway delivery – reducing delivery risks by understanding the patient clinical journey and determining opportunities for treatment, prevention and intervention
6. Digital platforms - reducing scientific, economic and delivery risks by providing more efficient and up-to-date methods for stakeholder engagement and information sharing along the supply chain and throughout the development process
7. Launch factories – reducing scientific and economic risks by standardizing core launch elements such as methodologies, tools, data sources and processes, making the launch process more efficient.
Such strategies can be adopted as incremental breakthroughs, an essential approach considering that most, if not all, are not yet done at scale. “The concept of collaboratively directed research and the elements of launch are not new to pharma,” says Ronte. “However, the opportunity for further industrializing and reaping the scale benefits from these is.”
The challenge of scaling such developments in the pharma operational model can be overcome. “Being able to define sensible and detailed solutions in partnership with the healthcare systems is the only way for the industry to create a win-win that delivers better outcomes,” he says.
Across these strategies, there are recurring themes, namely collaboration, learning to fail faster and driving efficiency. In order to ride out the tidal wave of diseases and rising drug development costs, pharma companies must first have a clear understanding of risk profiles and develop a mindset and strategy to scale their efforts.
With effective strategies for de-risking and innovation, pharma can weather out the tidal wave and continue to deliver valuable health solutions to patients.