Wednesday, October 30, 2013

Wave of Change in Pharmaceutical Industry

The pharmaceutical industry is one of the most dynamic industries and has been constantly evolving. But recent advances in medical technologies, drug discovery and biotechnology has further accelerated this evolution and change in the pharma industry. Although the industry is constantly evolving, the business models of the pharma industry can be divided broadly into three phases.

Initially the pharma companies heavily relied on one or few drug compounds that generated majority of revenue. These were popularly called as “blockbuster” drugs, for instance Viagra was a blockbuster drug for Pfizer. These blockbuster drugs were patent protected and companies owning these patents enjoyed the exclusive profits. This was called the Pharma 1.0 model or the “blockbuster model”. But as the patents begin to expire and small biotech companies started to emerge and compete with traditional pharma companies a wave of business remodeling came along. The pharma companies started to replenish their product pipelines by acquiring these biotech companies and started to diversify their portfolio. Companies started to enter different areas like consumer products, animal health, specific therapeutic areas like oncology and diabetes. This second phase was the cost-efficient and diversified portfolio model called Pharma 2.0. Even though pharma companies are still trying to adjust and succeed in this model, there is another wave of change that is approaching. This is Pharma 3.0.

The Pharma 3.0 Model (Source: Ernst and Young, Progressions)


The pharmaceutical industry is witnessing the entry of non-traditional players like health IT companies, mobile app companies, and many other players enter into the traditional pharma industry. There has been a total investment of about USD 20 billion by these new entrants in the pharma industry. These investments are focused on improving patient experience and providing additional services. In addition, pharma companies continue to struggle with expiration of existing patents. In next five years almost USD 70 billion worth of drugs will lose their patents. Simultaneously the patient (consumer in this case) is getting more and more educated and informed, and has therefore started to demand more services and benefits for their money. Interestingly, the new non-traditional players are successfully serving to these new demands, like mobile apps for monitoring a disease or social media platforms to generate awareness and network people with similar diseases. These advances present significant challenge and at the same time a unique opportunity for the traditional pharma companies to adapt to this rapidly changing industry. In the Pharma 3.0 model, as Ernst and Young explains- “The companies will succeed or fail based not just on how many units of a product they sell, but rather on their ability improve health outcomes, with patients and payers squarely in the middle.” 

The pharma companies need to remodel and innovate new business strategies. The primary step would be to shift focus to put the patient at the center of the business model and focus on providing healthy-outcomes for the patients. This will involve making new collaborations, especially with new entrants in pharma industry, driving the brand value from customer experience rather than product efficacy, and innovative partnerships. This wave of change will make sure that only those companies that are able to adapt fast to this change will survive. This might not be a very good news for traditional pharma companies but is a definitely good sign of change for the patient and consumers.

References:
  • Progressions: Building Pharma 3.0. E&Y. 2012.
  • Beyond Borders: Global Biotechnology Report. E&Y. 2012
  • Pharma 3.0: A call for collaboration and experimentation. PharmaVoice. Vol 11. Number 6. June 2011

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