Branded Pharma – Who moved my “Blockbuster Cheese”?!

Despite enjoying the highest operating and net margins of any mainstream industry (see below), life-science companies especially Branded Pharmaceuticals find themselves challenged with expiring patent protection on Blockbuster drugs, that will potentially put at risk over $ 160 Billion in revenues by 2015!

Indeed, it is time to question the sustainability of the Big Pharma Blockbuster model, because of the following macro and micro-economic factors impacting the business environment:

1. The need for superior clinical outcomes from treatment at a lower cost, from patients
2. The ability of generic manufacturers, especially across the world, to quickly bring a blockbuster substitute to market, following patent expiry
3. The rising cost and time-to-market of drug development (> $ 700-800 million per drug) and reduced productivity (approx. 1 in 25 compounds makes it to the market as a viable commercial product) that is impacting the margins of the Pharma industry as a whole – margins have stadily declined over the last four years
4. Pricing pressures to combat the higher-than-inflation price increases of insurance and treatment from the government, payers, businesses and patients themselves

Given this reality and the impending decline of the Blockbuster Factory model, branded pharma CEOs face the daunting challenge of bringing a larger number of drugs to market faster at a lower cost, and targeted to smaller market segments with annual revenue potential of less than $ 1 Bn per drug that most blockbuster drugs have delivered over the last 10-15 years.

This calls for a radical re-thinking of the current paradigm and potentially, a transformation of the Blockbuster factory model. Potential imperatives to render this new model viable, for success and competitive advantage include the following:

1. Deploy automated target screening technology to be able to screen a far larger number of target compounds, using “in-silico” drug discovery platforms
2. Focus on therapeutic areas of strength to preclude dilution of resources and leverage economies of scale, scope and learning curve advantages
3. Leverage (build, buy or partner) bio-tech and pharmacogenomics in combination with traditional combinatorial chemistry based development, to innovate faster and potentially cheaper – pharma companies currently have cash on their balance sheet considerably greater than the combined market cap of all bio-tech companies combined – in the next 5-10 years, I prognosize that the lines between Pharma and Bio-Tech will blur and metamorphose into Bio-Pharma
4. Explore re-positioning of existing drugs to find new, targeted and potentially highly lucrative indications, to assure new revenue streams
5. Clinical trial management often contributes 50-60% of the total drug development costs, and can be outsourced to hi-skilled, lower cost locations like India and China, and to companies that have developed Clinical Research Outsourcing (CRO) as a competence, like Biocon, the largest bio-tech company in India
6. Develop a collaborative platform for drug discovery, development, and manufacturing to connect the silos that exist not only between functions, but also enables intra and inter-enterprise collaboration with partners across the globe
7. Embrace operational excellence (please read my impending blog on “Why can’t Life-Science companies become like P&G, Dell and Toyota?”) to slash current inefficiencies across R&D, manufacturing, supply chain, procurement, compliance and sales and marketing. As an example, life-science companies deliver far lower customer service levels (98.4 %) and have the lowest inventory turnover (just 1.5 to 3 times annually) despite carrying the highest inventory levels of any industry (100-200 days on average). Addressing operational excellence would enable CEOs to release cash flow for innovation
8. Life-Sciences companies approx. spend 30-35 cents of every sales $ on sales and marketing- among the highest of any industry segment. The model of adding highly paid but often not-adequately trained sales people to secure face time with physicians and push their products is fast reaching the point of diminishing returns. The model needs to be transformed based on well-trained “solution sales professionals” targeted at physicians based on their life-time revenue potential for the company and sales person. Also, deploy e-detailing and automated marketing techniques leveraging the Internet as an effective channel to reach beyond physicians, to influence buying and paying behavior of patients, payers, governments and all relevant stakeholders and nodes in the Healthcare Value Chain
9. Last but not the least, securing, analyzing and using patient insights to shape new treatments and demand is currently a distant, but not so impossible dream. Being able to secure access to Patient Electronic Records (espeically from clinical trials) and running advanced analytics would not only enable life-science companies to prevent astronomically expeensive late stage product failures, but also proactively communicate efficacy of new treatments with the patient population afflicted with that disorder (Multiple Sclerosis as an example) to drive superior clinical outcomes and potentially, highly profitable revenue streams

Please re-visit this blog for future posts that address some of the solutions I have enumerated above.

Apropos the well known Chinese proverb, “May you live in interesting times”, these are interesting times for the life-science industry, and especially branded pharmaceuticals, for sure!