New Commercial Realities – Part 1: Key drivers of the evolving pharmaceutical landscape

pharmafile | September 15, 2010 | Feature | Sales and Marketing |  Kinapse, White paper 

Faced with a changing healthcare environment and the prospect of diminishing commercial returns, the pharmaceutical industry has recognised that traditional commercial models based on sales force arms races are no longer viable. In order to adapt to new commercial realities that require more complex decision-making processes and involve a greater number of stakeholders influencing at a range different levels, pharmaceutical companies must undertake a fundamental and systemic rethink of their commercial operations.

This article is part 1 of a 4-part series. In this first article of the series we describe the key drivers of the evolving pharmaceutical commercial landscape. Subsequent parts of the series discuss in turn the key stakeholders in the changing healthcare environment and the key implications of this evolving landscape for pharmaceutical commercial operations. Later in the series we describe an actionable approach for implementation of new commercial models that considers future roles & competencies, organisational scale and governance.

Pharmaceutical markets are undergoing fundamental change

The much-vaunted post-blockbuster era is no longer a prophecy for the pharmaceutical industry, with many key products facing imminent patent cliffs. BMS and Eli Lilly are just two companies contemplating future revenue streams bereft of billions of dollars, owing to loss of exclusivity of Plavix and Zyprexa respectively – in each case without obvious replacement. Across the industry it is estimated that $97.7bn of US 2008 sales are potentially at risk to generics through to 2013. For BMS and Lilly, this could represent as much as 30% of sales.

In parallel, the rapidly changing healthcare environment with increased pressure on costs is changing the rules of the game for pharmaceutical companies, rewarding innovative medicines and a focus on unmet medical need whilst limiting the prospects for me-too drugs. As a result, although Primary Care currently represents 60% of global market share, global market growth is predominantly being driven by Secondary Care.

This trend seems set to continue as the number of NME launches are increasingly dominated by specialty products. 17 of 2009’s top 20 new products are speciality care focused, with no Primary Care products at all appearing in the top 10.

Big pharma are also aggressively pursuing externally oriented strategies aimed at bolstering pipelines with speciality products, as exemplified by the high-profile deals over recent years involving AZ/MedImmune/CAT; Roche/Genentech; BMS/Imclone and Lilly/SGX.

The changing environment is also resulting in the emergence of different organisational models, such as Category Leaders (with focus on selected Therapeutic Areas) and BioPharmas (blending global operations from big pharma with entrepreneurship and innovation from biotech). What is clear is that in order to take full advantage of the changing commercial environment, big pharma will need a footprint in both Primary and Secondary Care markets.

This article examines the commercial realities and operational implications of these two very different markets and seeks to understand the extent to which the critical success factors for each market are mutually compatible.

Pharmaceutical companies must adapt to changing commercial realities

For decades, pharmaceutical commercial strategies were principally based around engaging a well-defined and rather limited set of stakeholders – primarily prescribers – in a sales process based on 1-to-1 transactional relationships.

This is no longer the case. Decision-making processes are more complex, involving more stakeholders influencing at different levels. And the picture differs markedly for Primary Care and speciality products.

Primary Care – limited scope for innovation; evolution toward a service proposition

Tomorrow’s success in Primary Care will look very different from previous Primary Care successes such as arms races and battles for share of voice. The challenges are likely to be multiple and exist along the lifecycle of brands.

New Primary Care products are unlikely to demonstrate the degree of innovation that justifies first line indication(s) and premium pricing. More realistic outcomes will be either achieving this goal for a very narrow indication/set of patients, and/or uptake as second or third line therapy after generic and cheaper alternatives. As an example, Novo Nordisk’s Victoza has recently been recommended by the UK’s healthcare cost effectiveness body, the National Institute for Health and Clinical Excellence (NICE), for treatment of diabetes patients, but only under certain conditions and for selected forms of the disease; and this despite proven benefits both for lowering blood sugar and promoting weight loss.

Generic substitution is an increasingly common feature of Primary Care markets. A recent study in the UK and Germany, found that in some therapeutic classes such as depression, >90% of first line patients could be prescribed generically. Proposals to increase the prescription of cheaper generic medicines for Primary Care have recently been set out in the UK – currently, around 83% of prescriptions issued by the UK’s National Health Service (NHS) are for generic drugs, with the new proposals recommending that this figure should rise by around 5%.

Recognising the limited scope for medical innovation in Primary Care, pharmaceutical companies are moving ‘beyond the product’ towards holistic healthcare solutions that focus on improving overall patient outcomes, such as  development of patient management programmes and tools to improve adherence and compliance. For example, Novartis is currently piloting an advanced ‘chip and pill’ concept for the antihypertensive Diovan, whereby each pill contains a tiny microchip that alerts patients by text message if they fail to follow their doctors’ prescriptions. Early results from a 20-patient pilot study demonstrated and increase in patient compliance from 30% to 80%.

Other fields being exploited in the development of healthcare solutions are those relating to prevention and diagnosis. These are areas that are likely to receive increased focus over the next few years as healthcare providers place increasing emphasis on prevention policies in attempts to reverse (or at least slow) the growth in overall healthcare spending. The NHS has made prevention a central theme of its manifesto, NHS 2010–2015: from good to great, preventative, people-centred, productive, and has recently made available a bank of self-care knowledge and resources. Companies are also beginning to exploit developments in healthcare IT in the area of prevention and diagnosis. For example J&J’s LifeScan has developed a smartphone app that allows diabetes patients to upload and manage their glucose information on their mobile phone or PDA.

Patient management programmes can also help to maximise the value from existing and mature products, alongside payor relations and cost management initiatives. One successful example of these latter initiatives is contracting – where health insurance funds and manufacturers agree fixed contracts based on price and volume. This is currently proving highly effective in Germany.

It is clear that this new Primary Care service proposition will involve a whole new ecosystem of providers along the care and service continuum. Companies seeking to implement this proposition will therefore need to evolve from existing integrated Primary Care business models towards new models that enable the management and coordination of the diverse range of stakeholders spanning treatment pathways and brand lifecycles.

Secondary Care – demonstrating the value of medicine

Demonstrating the economic value of treatment to secure market access is the key single success factor for a speciality care product. Whilst negotiations around price do occur in Primary Care through discounting schemes and contracting, issues relating to cost-effectiveness and risk/benefit are of more fundamental importance for selling in Secondary Care.

Increasingly many companies are experiencing to their cost that clinical benefit does not guarantee reimbursement – even in therapy areas with high unmet need, such as oncology, as evidenced by recent guidance from NICE recommending against reimbursement of Merck KGaA’s Erbitux, Bayer Schering Pharma’s Nexavar, Roche/Genentech’s Avastin and Wyeth’s Torisel for treatment of patients with kidney cancer.

The need to demonstrate value is becoming an imperative for almost all key pharmaceutical markets. While the UK, Germany and the US are generally thought to be a step ahead in terms of health technology assessment, others are quickly catching up and implementing new rules for market access. For example, the remit of France’s HAS (Haute Autorité de Santé) has recently been extended to include economic assessment of health services, whilst in Spain the definition of strict protocols by disease is expected to be implemented at a regional level in 2010.

The two key dimensions of healthcare value are i) the overall cost burden (direct and indirect) to society and ii) the overall benefits (clinical and others) expected and the nature and emphasis of the value proposition for speciality products is likely to differ across therapeutic areas.

Therapy areas with high cost burden and limited scope for differentiation will show similar dynamics to Primary Care markets with high focus on cost reduction; on the other hand therapy areas with greatest potential for innovation (typically high unmet need) are more likely to support premium pricing of products that demonstrate differentiation and expected benefits.

The increasing need to demonstrate value is forcing the industry to consider the issue of reimbursability earlier in the development cycle in order to accelerate access of innovative medicines and maximise value for patients and society as a whole. ’Real world’ methodologies have the potential to redefine the design and conduct of clinical trials and which could significantly bring forward the ability to demonstrate clinical benefits and value in a real world setting.

And the requirement to demonstrate value won’t end at product launch. Products that are able to demonstrate continued long-term benefits through the accumulation of real world patient data are likely to achieve higher volumes. It is also expected that for many specialist drugs, approval for indications will be staggered overtime with initial narrow labels becoming expanded as evidence is accrued.

In recent years risk-sharing schemes designed to link market access and reimbursement to clinical and cost-effectiveness outcomes have been trialled for a number of speciality products. For example, in the UK Janssen Cilag agreed to link the funding decision for its myeloma drug Velcade to the response rates observed in a selected patient population; more recently, NICE granted access to UCB’s Rheumatoid Arthritis drug Cimzia on the premise that UCB provide the first 12 weeks of treatment for free. Meanwhile in Italy Bayer Schering Pharma and Pfizer recently agreed to subsidise treatment with their respective oncology drugs Nexavar and Stutent up until such point that treatment proves effective. Such schemes represent innovative approaches to the problems of healthcare rationing and illustrate how manufacturers can work in collaboration with payers to demonstrate cost-effectiveness in high cost or controversial health interventions.

This article – part 1 of a 4-part series – describes the key drivers of the evolving pharmaceutical commercial landscape. In the second article in the series we go on to consider the key stakeholders in the changing healthcare environment and the key implications of this evolving landscape for pharmaceutical commercial operations.

We have written this series of articles from a practical as well as a conceptual perspective, and would welcome comments, feedback and ongoing dialogue with all stakeholders to develop further thinking and pragmatic insights into the industry’s evolving commercial realities. The full series of articles are available as a complete White Paper or can be accessed via our website at www.kinapse.com.

About the Authors

Jean-Francois Delas is a Vice President at Kinapse Ltd. and leads the Marketing & Sales Consulting Practice.

E: jean-francois.delas@kinapse.com

Stephen Mayhew is a Manager in the Consulting Practice at Kinapse Ltd. He consults to the life sciences industry in valuation, deal-making and asset and portfolio management.

About Kinapse

Kinapse provides consulting and outsourcing services to the life sciences industries, globally.

Our mission statement is: ‘Collaborating with our clients to innovate for exceptional results’. Kinapse clients include many of the world’s leading pharmaceutical, biotechnology, medical device and specialty pharmaceutical companies, government organisations and life sciences service providers.

For more information please visit www.kinapse.com.