Pharmaphorum | Katherine Holland
Vision, innovation and new business models were all key themes during the
World Pharma Innovation Congress this week in San Francisco. Among the
discussion, there seems to be broad consensus that the industry needs to
transform its business model. But instead of just selling pills, could the industry figure out new ways
to be more involved with patients, monitoring adherence to treatment plans, and
providing services that guide consumers to better health?
The current business model is breaking. Blockbuster drugs like Lipitor and
Viagra will be replaced by low-priced generics. The pipeline of new drugs in
clinical trials address smaller markets. They have less potential to deliver
multi-billion dollar revenue streams. The Food and Drug Administration is
increasingly wary of side effects when approving drugs aimed at large
populations.
With widespread suspicion from the public, opinion polls consistently show
voters would like to see the government take steps to reduce drug prices.
Pharmaceutical companies need to quickly figure out new ways to help
deliver health care if they are going to stay in business. So far, their most
common response has been to find merger partners to expand their scale. At the
same time, they slash research and development spending, close labs and reduce
their sales forces.
I’d like to suggest an alternative strategy. Pharmaceutical companies
should try to create services related to their life-saving products that would
help patients deal with their illnesses and reduce the need for treatment in
hospitals where costs really explode.
This isn’t easy and it won’t happen overnight. But it is possible. We know.
At IBM, we went from being a company that depended on selling mainframes and
disk drives and PCs to a company that gets almost 60% of its revenue from
providing high-value services. We help our customers install and maintain our
computers and those made by other people. We help our customers find new ways
to use computers and harness data to understand the world.
We still make computers, and we also write a lot of software. But our
services business is the core of the company today.
Big pharmaceutical companies need to make a similar transition to becoming
more of an active player in helping consumers with their health care. That
means they will have to form partnerships with insurers and with healthcare
providers to promote adherence to prescriptions.
Much of the public animosity toward pharmaceutical companies is misplaced.
Only about 7% of total health care dollars in the U.S. go for pharmaceuticals.
Ideally, more spending on the right drugs would reduce spending on doctors and
hospitals. Emergency care, hospital treatment and treating chronic diseases are
the big cost drivers for health care. Drugs that control diabetes, prevent
hypertension and lower cholesterol should be viewed as cost savers.
However, even people who have prescriptions for drugs often take them
incorrectly, miss doses or corrupt their effect by eating the wrong foods.
Unless an emergency occurs, tests for blood sugar, blood pressure and
cholesterol only occur when they come to a health care facility.
Pharmaceutical companies are positioned to take a larger role in testing
and monitoring patients who take their life-saving drugs. But they need to
develop a sophisticated infrastructure with automated remote analysis to help
the patients. They also need to work with insurers and government payers to
explain how spending money on such services can pay off in longer term cost
avoidance.
Some pharmaceutical companies have begun to offer a few services. Makers of
blood thinners test for sensitivity to their drugs in order to figure out which
patients might develop hemorrhages. The FDA requires testing of patients before
doctors can prescribe certain cancer drugs.
In Denmark, discharged patients who use a blood thinner to prevent strokes
test themselves daily at home. They use a computer to report what they eat and
drink. And the system tells them what dose to take that day. The system has
sharply reduced visits to clinics to adjust dosage, cutting costs and
eliminating an inconvenience for the patients.
Adopting such systems in the U.S. might cause liability issues in case of
errors. But it provides a model of how pharmaceutical companies could become
more deeply involved in health care.
Becoming a service provider would be a wrenching change for big
pharmaceutical companies. But it offers a business model that could create
lasting value. Products come and go, especially when they face expiring
patents. But services last.
About the author:
Katherine Holland brings more than thirty years of global leadership,
expertise, industry insight and client experience to her current position as
IBM’s General Manager, Global Life Sciences Industry. She leads the world wide
strategy, solutions development, P&L and client satisfaction for clients in
the biotech, pharmaceutical, medical diagnostic and medical device industries.