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Open mind

Building strategy by painting pictures of possible scenarios

Model of human head made from rock, with segments moving away from headThe pharmaceutical industry works to long timeframes and is faced with the constant dilemma of trying to develop a strategy which anticipates the future, when all its knowledge is based on the past. This is where scenario learning plays a vital role. Of course this needs to be rooted in our insights of the past and present but we need to generate foresight of what the future could look like. Scenario learning enables us to paint pictures of the future, learn from them, and build the best possible strategies and contingencies.

There are five areas where I believe some of the biggest changes and challenges lie for pharma. In reality we would need to pull these together in various combinations to develop different scenarios, alongside other factors influential on the future. There is natural interplay between them, they relate to each other and there will be a cause and effect.

If we feed these five factors into a future scenario, we can start to build a bigger picture from which we can start to challenge our existing strategy and understand what we need to do. This is not about predicting but about learning, in the words of Nassim Nicholas Taleb, "it is better to be broadly right than precisely wrong".

1. Increasing regulation
Regulation is becoming tighter and more prevalent, in part because of a broader societal issue: people are becoming much more aware of the balance between risk and benefit. Regulators are bound to reflect the view of wider society. That increased awareness is influenced by a broad range of things that have gone wrong over the past few years – we all remember Vioxx, Zelnorm and Avandia.

Generally, there seems to have been an increased distrust and regulators have felt pressure, which has led to more legislation and a requirement for greater constraint and accountability from the industry, especially regarding issues of safety.

Companies will need to develop clinical trial robustness, that goes beyond current safety and efficacy endpoints. There will be fewer new chemical entity (NCE) approvals from the FDA and EMEA.

Even when EMEA approval gives you the opportunity to market, there are now reimbursement, health technology appraisal and market access challenges to overcome in each individual country. The EMEA has predicted that increasing numbers of approved medicines will not make it to certain European markets because national health authorities will reject them as too expensive.

This all looks and feels like a genuine move to ensure that pharma takes a more rigorous view and becomes more regulatory responsible and aware. This extends beyond medicines' safety. Recent European Commission raids on a number of pharma companies under anti-trust legislation could delay the launch of new medicines, and generics, to market.

Companies will need to be quicker, slicker, faster and more proactive in the way that they deal with risk and the regulatory bodies. Their overall risk management approach will be critical and will need to have mechanisms in place for earlier decisions on possible new products. Market access will need to form a central pillar of every pharma company, rather than exist as a bolt-on part of the organisation seen as an inconvenience to be overcome.

Companies will need the right people to engage with the right authorities early on in the process. An understanding of what is required beyond efficacy measures will ensure that they build the right value proposition to meet the needs of all key stakeholders.

2. Maximising profitability
This is about creating leaner, flexible, cost-efficient companies which are able to make decisions quicker and earlier. There is less emphasis on maximising revenue. We are already seeing this happening. AstraZeneca is shutting three sites and proposing huge job cuts. Pfizer is reducing its sales force, R&D and manufacturing capacity, on top of an overhaul of their core portfolio to focus on key areas of medical need.

There are many examples of pharma companies trying to make the most of synergies and efficiencies in the system. Novartis is looking at diversification in order to increase profitability and spread risk and Wyeth had attempted to "redefine the company's business model" with 'Project Impact' before its acquisition by Pfizer. Looking for the right in-licensing and acquisition deals will become even more important as companies refine, refocus and bolster their strategies. In the future, you can imagine companies making better use of outsourcing: moving more of their manufacturing to India and China, and getting external companies to carry out clinical trials.

Andrew Witty, chief executive of GlaxoSmithKline, was quoted last year as saying: "Companies need to be more flexible and have the finances which enable them to act quickly with respect to acquisitions or licensing deals."

Pharma companies will need to be able to do things quickly to complement their strategy. It is about reducing cost where you need to and having funds available to be more flexible. Revenue drive will remain fundamental, but will come from different streams. Companies will no longer be able to rely on the big, blockbuster primary care products. Therefore they will be looking for a simpler, more profitable approach to revenues, from concentrated therapy areas with more holistic solutions. All of this will put even more pressure on having the right marketers with highly developed marketing skills. This ties in with the next of our five factors – changing the focus of the portfolio.

3. Refocusing the portfolio
The trend of high clinical development cost and declining drug discovery looks likely to continue. The R&D machine is no longer as effective as it used to be and requires an urgent overhaul. There has already been a huge amount of press coverage about the need to rely more on biotechnology, but this area requires a whole new set of skills. Some companies are closer to achieving the required skills set than others. There are already predictions that companies like Roche, Novartis and sanofi-aventis will lead the way. Some cite Roche as the number one company by 2014 – perhaps because they are forging the route to a new biotechnology era.

Easton Associates predicted back in 2007 that 57 per cent of global prescriptions will be based on biotech business by 2012 – and that is a step change for the industry in a very short timescale indeed.

With improved genetic techniques, focusing medicines on the groups that are most likely to benefit will become a given, both for reasons of efficacy and cost-effectiveness. This means a move towards more personalised medicines – especially where we are already able to map a patient's genetic make-up such as in the case of the cancer drug, Herceptin.

Historically, this trend has been much more apparent in severe or rare diseases, but could become more widespread across chronic conditions including CVD, diabetes and Crohn's disease. This will change the way the industry is structured, who it partners with, and how it engages with regulators and stakeholders. Pharma will need to provide whole service solutions; not just a product. Potentially this could include:

• diagnostics to help find the right patients
• devices to deliver the product more specifically
• tools to help monitor and measure patient outcome.

We are moving away from blockbuster mentality towards therapies that cater for very specific patient groups. This is likely to mean a fundamental restructuring of the industry's R&D infrastructure and capabilities but may help companies screen new innovations and be more selective in the products they back.

Looking forward, there will be a change in mentality in the way that the portfolio is managed and products are brought to market. Companies need to build cross-functional teams to make commercial decisions early on in product development. These teams need to be able to liaise with relevant stakeholders and make commercial and clinical decisions.

4. Managing patent expiry
Most big pharma companies are being hit with patent expiry. Reuters talked in August 2008 about the "looming cliff of patent expiries which will see many of the world's top medicines cannibalised by cheap generics". This is supported by recent studies demonstrating clinical equivalence between branded and generic molecules, continued deregulation and greater acceptance of generic substitution.

Companies have big revenue holes to fill and will need to consider how they optimise the portfolio, review acquisitions and utilise in-licensing deals. More important is how they decide to build strategies that account for this inevitable future. Managing the life cycle of our products will be fundamental. Products that have the potential of working across a range of different disease areas, thus protecting their patents for longer, will be key.

This is no different for the new expansion in biologicals. Products such as Humira and Mabthera are being managed proactively within a range of indications and uses. Although biological products cannot be copied in the same way as small molecules, they face a similar threat from biosimilars. Companies developing a product through biotechnology need to establish its potential to treat a broad range of indications. They must also consider how they can protect their ROI against biosimilars.

Clinicians may be nervous about biosimilars but the EMEA is approving them and they will have an impact on the market.

Choosing the right products early on in development, protecting against erosion by adopting appropriate and holistic solutions, maintaining strong customer-centric value propositions, taking more personalised approaches and following robust life cycle management programmes will all be critical capabilities for pharma in the future.

5. Demand v dwindling funds
The industry will have to deal with government clampdowns, lower reimbursement rates, more cost-efficiency initiatives and stricter pricing and reimbursement. The future is about increasing value. This is more than marketing jargon, it is about looking at new ways of doing business, including opening dialogue much earlier, sharing risk, and teaming up with other industries and technologies.

Also, we should consider the impact of the current credit crunch. Many commentators have expressed the view that we are more immune than most industries, but we cannot escape lower tax yields, increasing benefit bills and rising unemployment. All this will increase the pressure on healthcare budgets.

The bigger picture
There are many elements that need to be incorporated into the scenario learning process if we want to ensure strategies are sufficiently robust. It is not enough to look at these five factors in isolation; we must look at the whole picture.

Learning and developing new ideas and strategies requires building and embellishing scenarios and painting pictures of possible worlds. Challenge the current approach and chew over ideas and questions.

The industry cannot build robust, sustainable and differentiating strategies based on a 'finger in the air' assessment of the future. At the same time, no one knows for sure what will happen. To safeguard our future, we must look beyond the plausible to all possible scenarios, to ensure our strategies are good enough to meet the challenges ahead.

The Author
Jon Bircher is a managing consultant at The MSI Consultancy, and is one of the creators of FUTURESTM, a new initiative to help pharma companies develop robust strategies that play out across possible futures.
To comment on this article, email

11th March 2009


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