Marketing

A new report by consultants AT Kearney suggests current business models may soon become irrelevant.  How should pharma firms respond?

A new report by consultants AT Kearney suggests current business models may soon become irrelevant.  How should pharma firms respond?

The pharmaceutical industry is at a tipping point, according to consulting firm AT Kearney. In fact, the group believes pharma faces three interconnected tipping points related to what it sells, to whom, and how it must be organized. There is a danger that the current pharmaceutical model may become irrelevant in the context of the 21^st centurys global healthcare needs, the group says in its new whitepaper, Pharmaceuticals Out of Balance. Healthcare is out of balance and, therefore, so is the pharmaceutical industry.

Kearney describes its three tipping points as transitions from therapies to service models, from rich niches to global mass markets, and from integration to connection. In this third of a three-part series on AT Kearneys analysis, eyeforpharma looks at how the group thinks these tipping points will force a shift in the industry from being R&D-driven to being market-driven. (To read Pharma at the tipping point I: Price versus value, click here and to read Pharma at the tipping point II: Emerging markets, click here.)

Becoming market-driven

One of the most fundamental problems for pharma companies, Kearney says, is that much of the industrys R&D efforts focus on therapy areas that are not particularly important to payers and arent targeted at mass market solutions. Although 20% of the industrys future growth expectations are banked on cancer therapies, the biggest killers continue to be cardiovascular disease, stroke, obesity and diabetes. In fact, the World Health Organization (WHO) estimates that over the next decade, emerging markets, including Russia, India and China, could lose as much as $500 billion in GDP to these diseases.

As pharmas focus on real-world health issues and seek competitive advantage from the ability to deliver service models that create system value rather than marginal improvements in efficacy, the traditional model of a globally integrated pharma company will struggle to survive, Kearney says. This traditional model, the authors stress, will be too large, unwieldy and unfocused to connect with stakeholders in the markets they seek to serve. The most successful companies, they predict, will be those that shift from being R&D-driven to being market-driven.

But this will require a complete rewiring, as Kearney describes it, of their organizations. The challenge, the group says, will be to determine in which therapy areas to focus. The current R&D-driven trend to specialize in specific therapy areas, they predict, will accelerate further.

New relationships with healthcare systems and local providers will be necessary to integrate drugs into delivery models and demonstrate value, Kearney says. And with the growth of local market access organizations, the group says, boundaries between government relations, marketing, sales, health economics and clinical management will shift and blur.

The shift to mass-market

The changes in the air will require a very different kind of sales-and-marketing organization, Kearney predicts. The trend toward industry-wide, dramatic reductions in traditional sales forces in favor of localized market access organizations will continue.

And the biggest internal challenge will be between these local market access organizations and R&D. Kearney says its work with clients shows that it is much easier to demonstrate value in the real world if the value propositions have been planned during the early stages of therapy development. So the link between the market and innovation is an area of weakness that needs to be addressed urgently, they say.

Researchers will need to understand not just the science of diseases, but the operational, human and political barriers to effective treatment, the authors stress. And innovative solutions will increasingly require establishing delivery platforms that unite multiple technologies.

Pharmas may need to develop a regional focus that aims to provide solutions specifically to meet local needs. And a robust process for identifying and reapplying local pharma breakthroughs on a global scale will be necessary, Kearney says.

The shift toward mass-market solutions also brings, the authors stress, a different dynamic to the supply chain. For mass-market products, margins will be significantly smaller something closer to those of consumer goods or electronics. And pharmas would be smart to look more closely at their manufacturing and distribution models to help drive down supply chain costs, Kearney points out.

Future manufacturing and supply chain operations will need to be more streamlined to bring new therapies into mass production quickly and cost-effectively. And the group predicts greater use of outsource manufacturing. Management of the contractual relationships with these providers will become a core competence of the truly connected pharma company and a major driver of profitability, they say.

The current shift from wholesale distribution toward direct-to-pharmacy will shift again to direct-to-patient, Kearney predicts, and the supply chain will become a critical part of the delivery model. Consumer-driven supply chains are likely to emerge and the challenge will lie in identifying opportunities for consolidation and cost reduction, while maintaining awareness of customer needs, they stress.

Three new types of pharmas

Because of the need to focus on specific capabilities, three types of pharma companies will emerge in place of todays integrated pharmas, the authors suggest. (1) Value-delivery companies will focus on specific therapies in certain countries, and will gear their value propositions in response to local market needs. (2) Health innovation companies will develop and leverage technologies in as many applications as possible to gain a return on investment at a reasonable cost, subsequently maximizing profit. (3) Supply chain companies will focus on optimizing operating efficiencies.

Pharmas of the future will have to decide which of these functions they want to deliver and how they should partner to access world-class capabilities, Kearney advises. Competitive advantage, they contend, will come from the ability to connect these capabilities to address critical health needs on a global scale.

Read more

Pharma at the tipping point I: Price versus value

Pharma at the tipping point II: Emerging markets

To access Pharmaceuticals Out of Balance, click here.

To learn more about AT Kearney, visit www.atkearney.com.