The environmental pressures pharmaceutical companies face at the moment could easily give the impression the industry faces a perfect storm.
Austerity cuts continue to bite, demands for value increase, new – potentially disruptive – actors enter the scene, the traditional blockbuster model withers and that’s just the half of it.
Under no illusions as to the challenges the industry faces, Bruno Strigini tells me he remains very optimistic for pharma’s future. The president for Europe and Canada at Merck Sharp & Dohme (MSD), as Merck & Co is known outside the US, says he is buoyed up by scientific advances, the need for medicine to keep helping people and changes he perceives in the health ecosystem.
Nevertheless Strigini is clear-eyed about the way the environment is evolving and how pharma has changed in response – and must continue to change to meet tomorrow’s healthcare challenges.
Environmental changes and challenges
In terms of where the industry finds itself today these are clearly turbulent times. The typical growth rates of around 10 per cent that pharma enjoyed in 2002 are much less certain, and you will generally look in vain for that once-common phrase ‘double-digit sales growth’. If you cast your eye back to the pharma industry of 10 years ago, most companies followed very similar strategies, centred on blockbuster products in primary care with what diversification there was usually confined to consumer health, animal health or generics, Strigini says.
Now growth varies significantly by geography and therapy area. From Strigini’s vantage point southern Europe and emerging markets like China and Brazil have overtaken pharma’s traditional markets, while the growth therapeutic areas are to be found not in primary care but in areas such as specialty care, orphan drugs and oncologics.
At the same time healthcare expenditures have been growing much faster than GDP over the last few decades and efforts by governments and private payers to reduce costs were given a ferocious new impetus by the global financial crisis of 2008. Six years on and talk of ‘austerity Europe’ persists.
“Healthcare demand is increasing dramatically, as we all know, and European governments will have to take measures probably sooner than perhaps in other countries,” Strigini says. “The crisis of 2008 accelerated what was already an underlying phenomenon. Following the crisis they had to find solutions in order to lower their expenditures.”
As is usual when healthcare costs are scrutinised, pharmaceutical expenditure is often one of the first areas in which savings are sought. But Strigini argues that cuts have been too deep and made with little thought to the future.
What is clear today is that the reality of our market has changed. You cannot have a drug reimbursed if you don’t demonstrate superiority versus the standard of care
“They have disproportionately targeted the industry,” he says. “Pharmaceutical costs represent 10 to 15 per cent of overall healthcare costs. And over the last four to five years, we have been particularly targeted by the authorities when it comes to pricing and volume. They are looking at pharmaceuticals as a cost, and therefore part of a problem, rather than as being part of the solution.”
Working with HTA bodies
The other unavoidable piece of this puzzle is the rise of health technology assessment (HTA) bodies and their increasing influence. HTA bodies existed well before the financial crisis – NICE, for example, was nine years old when Lehman Brothers collapsed – but there’s no denying that companies have accepted the need to try to work with them more than perhaps they used to.
Typically, Strigini says, MSD looks to begin discussions with HTA bodies like NICE when products are in phase 2 development to demonstrate the value that they add to the healthcare system.
“We are collaborating more, and more early in the development of our products, with the authorities in this area in order to make sure that we take their requirements into account.”
These requirements, unsurprisingly, are all about value. “Basically the governments, or HTA bodies, are saying, ‘We want you to demonstrate the value of your products’. So there was a need for us to adapt to those new demands, if you will. I believe that the industry as a whole has been taking some steps to adapt to this and I see more and more collaboration and discussions happening with those bodies earlier in the development process.”
Addressing the Economist Pharma Summit meeting last month Strigini explained the clear cost of not addressing payer concerns. “In Germany, for example, IQWiG determined that 70 per cent of the drugs that were ‘presented’ to them did not prove their value. NICE has a similar approach, where we see that about 60 per cent of the drugs that were presented or developed by top-10 pharma companies have limited access or no access in the UK.
“What is clear today is that the reality of our market has changed. You cannot launch a drug or have a drug reimbursed if you don’t demonstrate superiority versus the standard of care, and that’s the reality of the world which we are in. If we want to be successful, we’d better be sure that we accept that,” he told the meeting.
“Although all the healthcare systems are moving in the same direction, they are moving in that direction at a different pace,” he adds.
“More and more we have to sit down with healthcare decision-makers to explain to them what the usage should be and discuss with them how the appropriate usage of our drug should be determined. This used to be at national level, but you see that now it’s going to the regional level, and even at the level of CCGs in the UK, for example. And you see that in several countries in Europe now, where the product is approved at national level – at a regional level you will have bodies that will determine the level of usage,” he says.
This ongoing change has implications also for the kinds of capabilities that pharma needs to have in place. “If you ask me, as the head of Europe of a pharmaceutical company, what are the capabilities that we need to build and we are building in Europe, at the moment it is certainly what we call market access around health outcome,” Strigini explains.
Looking beyond market access, Strigini highlights the need for stronger capabilities in areas such as clinical knowledge and real-world evidence, and big data. On that last area he notes: “When healthcare systems are getting more and more involved in analysing the data, we need to make sure we have the right capabilities in order to be able to interact with them and talk the same language.”
An industry adapting
There is little point in arguing against dealing with environmental changes of the magnitude that Strigini outlines, certainly not on any long-term basis. Instead the companies are best off working out how to re-engineer themselves for the future.
“In the old model everybody had very similar strategies centred around blockbusters. I mean, that was basically what it was,” notes Strigini. “Today, there are many more choices around what can be done. And you have companies that are diversifying, others around the country becoming pure players in the segment, and those choices are very important for the future of those companies, clearly.”
A number of companies have made wholesale changes to their business models, the latest of these being Baxter, which will next year spin-off its biotech business and operate under its existing name with a focus on its medical device interests. Baxter’s move follows in the footsteps of the Abbott/AbbVie split and Pfizer’s separation of its business into three parts (one for generics and two for branded medicines) in 2013. Slightly less headline-grabbing, though more numerous, has been the diversification seen as companies look to collaborate more widely, enter new areas – such as orphan drugs and biosimilars – and explore healthcare service offerings.
Although all healthcare systems are moving in the same direction, they are moving in that direction at a different pace
Such offerings are ‘wrapped-around’ a particular product or non-therapy area specific healthcare services. In the case of the former Strigini says MSD is interested in the outcome, not just “supplying a drug”.
He adds: “We are interested in healthcare services. We are considering different options. We are looking to this, but cautiously and conscious of the fact that it’s a new area, and respectful and mindful of the fact that there are many questions that remain unanswered.
“We are open to it, but I want to reiterate the fact that our priority first and foremost is innovation in the area of R&D.”
There’s also a greater focus on which areas companies will stick with. In MSD’s case its parent company Merck & Co last year set out four strategic areas on which it would focus: diabetes, hospital acute care, vaccines and oncology. “It doesn’t mean to say that we won’t be active in the other areas, but these areas are clearly areas of focus, and I believe that we have a fantastic pipeline,” Strigini says. Here among the products he points to are the company’s anti-PD-1 immunotherapy MK-3475, for which a rolling approval was filed earlier this year as a second-line treatment for melanoma. “When you see what’s happening in immuno-oncology today, it’s amazing the progress that science is making in the area of oncology. That’s why I’m optimistic,” he says. Pausing to consider some of the other scientific advances he’s seen over the year Strigini says: “Remember HIV 20 years ago? People were dying of HIV and now it’s a chronic disease, which brings other issues that you have to deal with, but at least people don’t die of it anymore. I think that the industry is becoming much more efficient than it was in the past.”
Returning to his optimism for the industry in the face of the challenges he’s outlined, Strigini says: “I feel that there is a willingness from all stakeholders in the ecosystem to work together in order to find a solution together. I don’t think that willingness was there before.”
He adds: “A lot of the organisations were very siloed, and I see little by little those silos disappearing and people being more open to work together. That’s what brings opportunities because we are all in it together in order to find the best solution for the patient. At the end, that’s what we’re all here to do, to make sure that the patients get better.”