Thursday, November 28, 2013

Applying Blue Ocean in Pharma

The global pharmaceutical industry is estimated to reach an astounding $1.1 trillion by the year 2015. Increasing investments in the pharmaceutical industries of emerging countries and the growing popularity of generics are two factors pushing this growth and worldwide expansion.

However, even though the United States of America is a leading producer and user of pharmaceutical products, the nation is experiencing a slowdown. As opposed to the tens of hundreds of new molecular entities being researched upon, the U.S. Food and Drug Administration (FDA) only approved 300 new drugs, vaccines and biologics in the decade spanning 1995 to 2005. And therefore, beginning 2004, the FDA implemented creative initiatives to enhance innovation, reformed the drug approval process by including new indications for existing drugs and has managed to transform the entire process by which drugs are developed and evaluated in the last 20 years by introducing initiatives like the Critical Path Initiative to foster organic growth.

The major players in the U.S. pharmaceutical industry are multi-national conglomerates with a strong global footprint. In the U.S. per se, the industry players are competing in a complex and challenging environment. The market is being challenged by primarily two market drivers:
  1. Stagnating growth and demand in the domestic market and,
  2. Restructuring of the U.S. healthcare delivery system
While the U.S. pharmaceutical market is expected to grow from $300 billion market in 2009 to an estimated $350 billion by 2015, the growth rate is experiencing a slowdown and is estimated to be a dismal 0-3%. Patent cliffs for major blockbuster drugs, the increasing presence and demand for generics, pricing pressures, strict regulatory framework with lesser FDA approvals along with increased R&D risk, lower productivity and a slow pipeline development are negatively impacting the U.S. pharmaceutical industry.

Another major cause of concern is the rising cost of healthcare and the fact that expenditure on pharmaceutical products accounts for 8% of the entire healthcare costs.

To counter innovation challenges and the lengthy and costly clinical trial pathway required by the FDA to achieve market approval, the industry is strategically applying the blue ocean strategy in a unique manner wherein they are looking to meet the drug/therapy requirements of targeted and smaller groups by using better patient monitoring decision support tools instead of focusing on blockbuster drugs which aim at large patients groups which can consume the drug. Bigger pharmaceutical companies are moving towards clinical research outsourcing and functional service providers (FSPs) who fulfill specific roles in the drug development and approval process. FSP services cover a range of areas, including clinical monitoring, data management, biostatistics/statistical programming, pharmacovigilance, and regulatory strategy. Following the basics of the blue ocean strategy, they are focusing on how to create uncontested market space by reconstructing market boundaries, focusing on the big picture and reaching beyond existing demand.

Moreover, if we specifically look at the drug development strategies in place, the ‘one drug fit all’ concept is outdated and no longer applies to pharmaceutical products especially for burgeoning and specialized sectors like oncology and cardiovascular diseases where treatment is directed by genetic make-up and similar factors. Hence, the industry is focusing on developing personalized therapies and strategically occupying larger market shares of a healthcare pie whose slices keep getting thinner and thinner.

I am interested in the various decision support systems like Reverse Engineering and Forward Simulation models which can be used in this context and the fact that these strategy tools are being developed in start-ups who will form alliances to assist Big Pharma. I would like to see how this specialty industry develops and merges with the healthcare industry.

References:
Cognizant Report, The Future of Pharma: A U.S. Sector Review, 2011 (http://www.cognizant.com/InsightsWhitepapers/The-Future-of-Pharma-A-US-Sector-Review.pdf
Select USA - The Pharmaceutical Industry in the United States (http://selectusa.commerce.gov/industry-snapshots/pharmaceutical-industry-united-states
Yahoo Finance, Pharmaceutical Industry in the United States - 2013 Report (http://finance.yahoo.com/news/research-markets-pharmaceutical-industry-united-174400833.html)
IMS Biopharma Forecasts & Trends
IMS Health report, “Restoring innovation as global pharma’s centre of growth”
Michael Kunst, Rafael Natanek, Loic Plantevin and George Eliades, “A new pharma launch paradigm: From one size fits all to a tailored product approach”, Bain & Company report, 2013



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