As life sciences companies head into their annual strategic kick-off meetings for the year, spare a thought for their CEOs and senior execs. It’s a cliché these days to talk about ‘disruption’, but as we enter 2018 there are some fundamental shifts happening that are confronting business leaders in the pharmaceutical and biotech sectors, as in many sectors.
There’s already the litany of strategic challenges that have faced the industry for years, such as R&D productivity, the rise of genetics and biotechnology, community attitudes, payer budget constraints, the value-for-money discussion, compliance and new medical breakthroughs. But there is another set of emerging, broader trends that are increasingly influencing the life sciences industry.
The rise of the patient
There’s been a lot of talk about ‘patient-centric care’, but the health sector is still grappling with what this really means, including patient groups. Today’s patients are increasingly taking control of their own health. They are knowledgeable, have buying and lobbying power, they talk to each other – often through social media, and use the internet to research and see what’s available in other countries. They vote with their feet, with their ballot papers, and with their consumer spending. With health regularly being one of the big political issues in elections and with an ageing population, this is only going to get more intense.
Patient demand and control is manifesting in a variety of ways, some not seen before. Examples here include patients travelling across the globe to buy cheap medicines for buyers’ clubs, networking over social media, or choosing to spend sizeable portions of their income on complementary and alternative therapies when the medical value and regulation of many of these has been questioned.
The ‘emerging’ markets have emerged
As in other industries, the growth of what were once called ‘emerging’ markets – countries with high growth rates and rapidly growing middle classes – is rapidly affecting health and pharmaceuticals. We know that as countries and their citizens get richer healthcare is one of the things they demand more of – half a century of post-war trends in OECD countries proved that. We’re now seeing the same trend in major emerging countries in Africa, Asia, Eastern Europe and Latin America. With this comes a major change for companies: the locus of attention, power and decision making is increasingly shifting to these markets.
Emerging markets have shown strong growth in the global pharmaceutical market over the last five years. This is expected to moderate over the next few years, although some major countries like Brazil and India could still see double-digit annual growth. Meanwhile African countries are starting to assert their influence and authority in health debates and investing more in their healthcare systems, which will have an increasing influence over the direction of global markets.
Universal health coverage
All the nations of the world have agreed at the United Nations that by 2030 everyone in the world will have access to some form of healthcare financial protection – the goal is that no one will be impoverished if they get sick. While some countries have had universal health coverage (UHC) for decades, many countries are wondering how to marshal the funding to do it. Governments are getting more active in debates about value for money in healthcare. This is not new territory for the pharmaceutical industry – arguments about this have been around for at least 60 years.
What’s rapidly changing now is that, with the rise of UHC, there is a significant increase in the number of governments with a stake in the discussion and starting to throw their weight around in the debates. This year the focus of WHO, the World Health Assembly and World Health Day will be UHC – where all countries are being asked to identify their commitments to implement it. Against this backdrop, governments, payers, international organisations and commentators will be more focussed than ever before on the value for money debate in health care. As a result the politics around this will continue to evolve rapidly.
New business models
Companies will continue experimenting with new models for developing, delivering and pricing their medicines, driven in part by the need to find new business models that deliver high quality medicines to low income groups in both rich and poor countries. The sweet spot in future healthcare is finding solutions to global public health problems that also make good business sense. This movement is important in areas as diverse as non-communicable diseases, AMR and HIV.
Differential or tiered pricing models – where the price of a medicine varies with level of income – will become more common. A prediction here is that future disruption in medicine pricing will be driven as much by companies as any activists with slogans or government ministers with an axe to grind. Watch this space for companies negotiating more outcomes-based payment deals, where companies get paid based on when their drug works in treating patients, not on how many prescriptions get filled. Also look out for innovative, evolving distribution systems for medicines.
Big data, artificial intelligence and blockchain
If this still sounds like science fiction fantasy to you, you probably haven’t caught up with what it is happening in healthcare. The integration of genetics, artificial intelligence, big data and high-powered computing will mean that we will increasingly be able to track in real time the impact of health interventions on a population. Accountability and transparency in healthcare will kick up several notches. If there’s something wrong with your company’s medicine in the market or treatment pathway, it will show up quickly. Equally, if you’re negotiating a new outcomes-based pricing deal with a payer, big data is going to be an enabler of these types of pricing deals. One question is whether companies are ready to use big data effectively.
For newbies to blockchain technology, get your heads around it. Soon. Already this technology is being used in some really interesting ways in various sectors and social settings. In life sciences, there are some real potential applications. One can envisage improving supply chain integrity, preventing the use of fake and counterfeit medicines or (finally) driving the use of patient e-health records.
Influx of companies from outside life sciences
For a long time, success in life sciences has required the participation of many different types of companies, but in coming years we will see more and more ‘outsiders’ entering the healthcare sector – companies and technologies that historically have had little engagement. They’ll be attracted by the ageing population, growing healthcare technology markets, and their ability to bring innovative technologies, strategies and processes to a new market.
Retail giant Amazon is rumoured to be entering the medicines business leveraging its impressive retail and distribution channels. Already drones are being trialled to deliver vaccines to communities in Vanuatu or blood products to hospitals in Rwanda. Also watch for new private financiers and insurers getting involved in healthcare in ways not seen before and what that does for strategies for life sciences companies. Factors referred to earlier, such as an ageing population, the growth of emerging markets and universal health coverage will drive this further.
Transparency, governance and corporate responsibility
There is shift happening in society’s expectations of the corporate sector in many industries that will have implications for how the life sciences sector operates. The 2018 Edelman trust barometer revealed that the community today wants the private sector and CEOs to take the lead in achieving society’s goals. We’re also seeing a shift in attitudes not from radical social activists, but from practitioners in strategic management and investment managers, calling on companies to be more aware of their social responsibilities.
The pharmaceutical industry is responding to this in various ways, such as providing more public information on pricing strategies, numerous international partnership strategies for poorer countries and new information platforms on the patent status of medicines. Companies will continue to be questioned on how they are leading in areas such as openness, accountability, ethics, information and on their contribution to social, as well as corporate, goals.
Culture shift
Against the backdrop of all these changes there are even debates about whether companies in the sector have the right culture to succeed in an environment like this. Historically, pharmaceutical companies have worked well when they have had silo divisions, stringent centralised standards, and a measured approach to risk. And with good reason. There’s not much room for error when you are testing the safety of a cancer drug or managing internal accounting standards and companies have been burned before when straying from these standards.
But the now emerging environment does present challenges for companies to consider in not just their products, services and processes, but in their very culture and the way they do business. Does the company reward new, out-of-the-box thinking? Does it tolerate failure in the interests of being innovative? How are staff rewarded and incentivised? What are the company’s standards on the balance between private return and public good? How good is the company really in partnering with non-commercial partners? How should life sciences respond to changing customer and market expectations driven by disruptive companies in other sectors like Google, Amazon, Tesla and Uber?
These sorts of issues aren’t unique to life sciences. Just about every sector of the economy is having to confront these business strategy and leadership questions in one way or another today. The difference for life sciences and healthcare is that the necessity for the industry to grapple with these issues has ratcheted up several gears due to recent developments.
The genie is out of the bottle.