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Darwin's Medicine blog

Professor Brian D Smith is an authority on the pharmaceutical industry and works at SDA Bocconi University and Hertfordshire Business School.

Segmentation, evolved

My research into the evolution of the life science industry reveals broad, sweeping trends, as I wrote about in previous PME articles such as “Selection Pressures” and “Explosive Evolution”. But those big trends are built on innumerable observations of small but important adaptations. From R&D focus to alliance management and from added-value services to pricing policy, the way that life science companies are adapting individual practices adds up to the evolution of new business models. Sanofi’s Praluent is a good example of this but, as usual, allow me to wander off into the parallels with biological evolution before returning to the practical lessons for our industry.

If you take a look in the mirror, or across at the colleague sitting next to you, you will see a supreme example of many individual adaptations adding up to the emergence of a fabulously adapted species. For example, you can walk upright for long distances at a reasonable speed. This allowed your ancestors to hunt well, even for animals that were bigger and faster than they were. And you can hear pretty well, certainly better than your primate cousins. In particular, your hearing is well adapted to speech, which enables not only hunting but all sorts of other social activities. This sociability seems to be associated, in evolutionary terms, with your power of speech which in turn leads to your large brain. Along with other less obvious adaptations, such as sweating and lactose tolerance in adulthood, these adaptations mean that you’re a pretty unique creature. In particular, while most other large animals can only survive in a limited range of habitats, you and your fellow human beings can thrive anywhere from the polar regions to the equator and from the jungles to deserts. Well done you!

So how is this relevant to the evolution of business models in the life science industry? Well, it means that we need to pay attention to apparently small adaptations and, as I mentioned, Sanofi’s announcement about Praluent is a good example of this. Along with results from its Odyssey Outcomes trial, Sanofi said that it plans to offer discounts of up to 69% to encourage payers to expand the use of the PCSK9 inhibitor. This is quite a big deal, as ICER president Steven Pearson implied when he said: “This would never have happened three or four years ago.” But there’s more to this than a simple change in pricing approach. Elias Zerhouni, Sanofi’s Global R&D head, pointed to Sanofi’s thinking when he said: “Not all patients with heart disease are the same... The data demonstrates that a precision-medicine approach in the field of cardiovascular disease may further advance how we treat high-risk patients.” I once interviewed Elias during my research and I could see that when he says something, it’s worth listening.

However, what this is telling us is less about pricing and precision medicine and more about an evolutionary adaption to market conditions known as contextual segmentation. Sanofi and its partner Regeneron have evolved away from segmenting prescribers alone. They are now segmenting prescribing contexts created by the convergence of payer, prescriber and patient needs. In this case, their target seems to be prescribing contexts where the payer is value-oriented, the patient high risk and the prescriber open to changing long-established practice. In my work, I’m seeing numerous examples of similar contextual segmentation, with Merck’s Keytruda being perhaps the most salient. It’s a much more effective method than traditional segmentation, which is really only data categorisation, as I wrote about in my PME article “Superior Segmentation”.

Contextual segmentation is one of a cluster of adaptations - from early market access involvement to re-engineered metrics - that I’ve observed in the evolution of various innovation-based life science business models. Other clusters of adaptive traits can be seen in other models, such as the eight or so generic models that are emerging. These evolutionary adaptations are a response to market selection pressures. In the case of Sanofi/Regeneron, it’s a response to failing to achieve the penetration it expected. Research by Amgen, which has a PCSK9 called Repatha, suggests that two-thirds of patients who requested the drug were denied access. Given that, it would be surprising if life science companies didn’t adapt in some way. Sanofi has done so via contextual segmentation, then targeting a specific payer/patient/prescriber context, then developing a discount pricing scheme and a precision medicine brand story. It’s too early to tell if it will work, but it looks promising.

But contextual segmentation has a downside too. Because it’s more difficult than older approaches, many firms find they don’t have the necessary capabilities to do it. Just like our ancestral cousins who couldn’t master upright walking and sweating, those companies will eventually become extinct.

9th April 2018

From: Research

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