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White Paper addresses pharma model

A T Kearney, has highlighted key areas of the pharma model that it believes must be addressed for future success

Management consultant firm, A T Kearney, has highlighted key areas of the pharma model that it believes must be addressed for future success in its White Paper, Pharmaceuticals: reaching the tipping point.

It states that there are three interconnected tipping points from which the industry will emerge greatly changed. These relate to what the industry sells, to whom, and how it must be organised.

The first tipping point is the move from selling therapies to service models. Doctors are increasingly constrained or influenced by payers and regulators. Payers are looking at the effectiveness of the treatment pathway more than the cost-effectiveness of a particular drug. They want a service model that enables therapies to be administered with high compliance and which can be proven to result in fewer admissions. Even better if this could be demonstrated in the payer's specific care system and target population. Positioning a therapy in this context dramatically increases its value.

The second tipping point is from niche markets to mass markets. Prices are based on what the US market will bear, but as the US market fails, mechanisms to limit access to medicines based on their cost effectiveness will inevitably spread. Meanwhile, healthcare demand is shifting towards the developing world, with emerging markets experiencing a dramatic increase in diseases long common in developed countries. Over time, emerging state-funded systems will need to develop cost-effective solutions to Western-style health problems, but they will not pay Western-style prices.

Pharmaceutical companies will need to price in a way that maximises revenue over the drug's lifecycle and throughout the global portfolio. There are pressures to create low-cost mass-market solutions. Indian and Chinese biotech companies, once focused on treatments for local patients, are becoming significant innovators on a global scale. Emerging markets must be viewed, not just as an opportunity for lowering R&D costs or demonstrating market commitment, but as a source of low-price, breakthrough innovation.

The third tipping point will see success for companies moving from integration to connection as they move from being R&D-driven to market-driven. The current R&D-driven trend to specialise in specific therapy areas will accelerate and the reduction in traditional salesforces in favour of localised "market access" organisations will continue.

Mass-market solutions will mean closer scrutiny of the supply chain as such costs become key profit drivers. There will be further emergence and consolidation of highly efficient outsource manufacturers. Management of the contractual relationships with these providers will become core and a major driver of profitability.

As focus moves from hospitals towards home- and community-based care, the current shift from wholesale distribution towards direct-to-pharmacy will shift again to direct-to-patient. A T Kearney believes several types of pharmaceutical companies, all with different competencies, will replace integrated pharmaceutical firms.

Value-delivery companies will focus on specific therapies in certain countries, and will gear value propositions in response to local market needs. Health innovation companies will develop and leverage technologies in as many applications as possible to gain a return on investment at a reasonable cost. Supplychain companies will focus on optimising operating efficiencies. The truly connected pharmaceutical company will have to decide which functions to deliver and which companies it needs to partner with to deliver other services.

16th September 2009


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