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As pharmaceutical companies of all sizes continue to adapt to the ongoing internal and external pressures of the new health economy, it remains imperative that strategy maintain distinct capabilities to position the company ahead of its competitors.
Escalating demand for medicines and major scientific advancements seem to paint a bright future for the pharmaceutical industry, but beneath the rose-colored tints of optimism, some see an unsettled landscape. As payers, providers and patients look for better treatments at lower cost, the old ways of doing business are fading, leaving pharmaceutical organizations to take an in-depth look at how they create value in the new health economy.
As seen across multiple industries, companies that build their strategy on a set of coherent capabilities generate greater returns. A capabilities-driven strategy requires each company to identify their distinct value proposition, or unique “way to play,” align the strategy to the changing market landscape, and then cultivate differentiated capabilities to execute it. The advantages of this approach are especially applicable to pharmaceuticals.
Focused on fostering unparalleled core strengths in areas such as R&D or operational efficiencies, there are four primary categories of capabilities-driven strategies in the pharmaceutical industry:
• Breakthrough science developers harness innovative platforms and technologies to create products that address unmet needs across a wide range of indications.
• Disease outcome enablers demonstrate expertise of a particular disease or condition, creating a leading portfolio of products and extensive connections across the healthcare landscape.
• Commercial value optimizers excel at generating operational and commercial excellence, utilizing the advantages of scale and extensive M&A to produce cost efficiencies across a portfolio of established, high-demand products.
• Disciplined portfolio managers are typically mature companies with a diversified set of business units and products, employing a global footprint to leverage scale.
Depending on their chosen way to play, companies can expect market trends to impact them in very different ways. Broad-scale scientific advancements, as well as the explosion of data gathering and analyzing techniques, are accelerating the development of new products. This is where breakthrough science developers have positioned themselves, with access to novel technology and platforms that fuel new product innovation. By meeting market demand for specialty treatments, breakthrough science developers open the door to extensive premium pricing, but as the value-driven environment continues to apply the brakes to rising costs, these organizations are under constant and increasing pressure to validate outcomes and continuously fuel innovation.
Commercial value optimizers, on the other hand, utilize tightly managed operations as a means to maximize value and profits from a portfolio of high-demand, but low-risk products. In the current cost-conscious environment, they are favored for scale efficiencies, but as the market puts a premium on differentiation, commercial value optimizers will need to gain and productize new assets in order to receive favorable reimbursements from payers.
Disciplined portfolio managers are in a similar situation. Despite a high capacity to leverage scale-oriented capabilities, such as advanced analytics and better positioning with consolidated buyers, a disproportionate lack of highly innovative products makes new partnerships harder to come by and opens them up to greater reimbursement pressures from payers.
As healthcare turns toward advanced models of patient care, disease outcome enablers are well positioned to partner on outcome-based initiatives. Their extensive knowledge of a disease and targeted portfolio allow them to interface more directly with patients, providers, academic institutions and technology companies, fostering the development of more effective treatment pathways and patient support programs. However, tight regulatory constraints and doubts from major stakeholders as to the role pharma can play, may keep disease outcome enablers from realizing their full potential value in the market.
To meet the demands of the new health economy, companies must cultivate unparalleled capabilities consistent with their distinctive way-to-play. Breakthrough science developers excel at applying novel technologies to a broad portfolio of well-differentiated products, but to maintain access to attractive markets and pricing, they will need to keep the innovation engine turning. This will require a market-leading approach to accessing big data as well as innovative technologies, and the ability to effectively and efficiently apply them to the areas offering the greatest potential for commercial success.
Recognized as a leading authority on a particular condition, disease outcome enablers utilize their extensive expertise, connections, and analytics capabilities to fine-tune patient segmentation in support of evidence-based treatment pathways. Looking toward the future of integrated care, disease outcome enablers need the capability to combine drug, device and technology platforms, expanding product outcomes and providing insights that can be reported directly to patients and providers. It’s about building bridges across healthcare sectors and patient populations and better serving those with complex needs.
Given the scrutiny over drug pricing and value, companies with a clear strategy for delivering high-quality products at an affordable price can excel. This is where successful commercial value optimizers will play, utilizing global networks to augment efficiency and generate cost savings across a low-risk, but targeted portfolio of investments. They are pharma’s smooth and savvy operators, but as the market continues to show preference for differentiated products, they will need to focus on augmenting commodity drugs with a diverse set of higher priced products that capture the market’s value vote. The ability to organically deliver more efficient operating and commercialization models such as fit-for- purpose analytics, will be paramount to identifying which channels lead toward maximized profits and effective delivery to the right patient populations.
Focused on commercial and operational efficiency, disciplined portfolio managers have built a diversified set of business units and products, but to withstand ever-evolving demands for differentiated treatments, they will need to lead the industry in complex operating models. The capacity to shift resources according to business requirements and market pressures is key, but of equal importance is the ability to drive success from focused parts of the business, while also fostering cross-unit cooperation where it can significantly enhance access to the insights, technology and scientific knowledge necessary to fuel innovation and a powerful position with consolidated buyers.
In the new health economy, the primary challenge for pharma is to create value for patients, providers and payers. A capabilities-driven strategy makes pharmaceutical companies more agile and responsive to the changing market. By keying into their strengths and aligning capabilities accordingly, companies will drive better outcomes for all.
Rick Edmunds is a principal with PwC Strategy& where he leads the Strategy& team within Pharma Life Sciences. He is also now part of PwC's Global Pharma & Life Sciences (PLS) leadership team.
Michael Swanick is a partner with PwC and the Global Pharmaceutical & Life Sciences (PLS) leader that includes over 5,000 professionals providing assurance, tax and advisory services worldwide.
Jo Pisani is a partner leading the UK Pharma and Life Sciences consulting practice. She is a key author on PwC’s Pharma2020 thought leadership series.
Doug Strang is a partner and Global and US Pharmaceutical & Life Sciences advisory services leader at PwC. He has over 25 years of experience in Health Industries and is a member of the firm’s Global Health Services Leadership Team.