The first transformation to make is in how you think about it.

The future of strategy in the pharmaceutical industry is broader than pharmaceuticals; it also lies in servicing health. More specifically, the new center-of-gravity for competition lies in transitioning away from an industrial-era view of 'market' bounded within the context of discovering, pricing and promoting the technical merits of a physical product (i.e., drug), to a model based on embedding "drug" within entirely new ‘infrastructure for outcomes’.

You compete by creating a new dominant context.

It's the story at a system level that becomes the locus of innovation. The narrative transcends online, offline and the line in-between, solving multiple problem spaces, reshaping every important kind of relationship among all businesses, vendors and people. Strategy at a system level deals in quantity of effects; not one thing, many things simultaneously and interactively.

This is about a new form of leadership to create and communicate, a 'big design' vision that more closely aligns product cycles with helping customers meet their business objectives, ‘value alignment’ on shared marketspace. Because as it turns out, solving for deep and radical fragmentation is what pharmaceutical customers -- payers + providers + consumers ("patients" and caregivers) -- are looking for:

Cigna CEO David Cordani on Thursday [November 1, 2018] said the addition of the pharmacy benefit manager Express Scripts will help the health insurer offer a “more integrated approach that addresses the whole person.”

The ask is for 'new wholes' and models of care. And it's coming from customers worldwide.

Here is the perspective from the NHS, as framed by James Roach, Director, Accountable Care Partnership, West Essex Health and Care System and one of the frontline NHS leaders given the task of transforming fragmented local health and social care services into integrated systems:

"Given the challenges in the landscape, and the changing tone at NHS England and the Department of Health and Social Care (DHSC), the industry has a new opportunity to position itself as the catalyst for change. Having a comprehensive offer can add value to systems in many different ways."

Roach goes on to say pharma should fully commit to joint working arrangements in real terms with equal risk and gain share on both sides. "We need to foster a business-to-business type relationship, and set a clear direction of travel over the next 5-10 years..."

No Country for NRx

Strategy requires a sense of the whole that reveals the significance of the respective parts.

There's a difference between bringing a new drug to market vs. bringing a new outcome to market. Not understanding the difference can be an expensive lesson in strategic fit to a new operating environment, as Teva recently discovered (See: Teva Stands By Migraine Strategy After Ajovy Misses Boat On Express Scripts Deal).

Amgen in late October reduced the list price of Repatha by a blow-up-your-market-thesis 60 percent (see Amgen Cuts Cholesterol Drug’s Price 60% After Weak Sales), saying the new price will improve affordability by lowering patient copays, especially for Medicare patients. [Repatha is a PCSK9 inhibitor, part of a new class of biologics that also includes Praluent from Sanofi and Regeneron; both are used to reduce the risk of cardiovascular events and cholesterol in patients with heart disease.]

Repatha had US sales of $225 million in 2017, according to Amgen’s annual report. When they first launched, expectations were sky-high for the PCSK9 class ("an exciting new era in lipid lowering"); Repatha sales were forecast to hit more than $3.5bn in 2020.

Growth based on outcomes is increasingly less about analyzing and conceptualizing "drug" and drug pricing in isolation, regardless of how sophisticated the science and technology and digital used to win regulatory approval. Rather, it will be about mastering, marketing and monetizing system change.

Business as Abnormal

The soon-to-be $20 trillion global system of markets that constitute "healthcare" is transitioning to an entirely new context, one reaching for and re-orienting itself to compete on outcomes. This is a new kind of market that has pretty much everyone groping their way through the white space.

Which is why Ian C. Read's (CEO of Pfizer) "business as normal" answer to an analyst's question about drug pricing was a bit of a head scratcher. The exchange came on Pfizer's Q3 earnings call on October 30 (revenue came in about 2 percent below estimates and a softer outlook on 2018 sales):

Umer Raffat, Evercore Group:

"I guess Ian, Albert, for both of you, so when the price increases were rolled back earlier this summer, there's an expectation that price increases could be instituted again if no concrete steps are taken on rebate. So I guess my question is, are you planning on putting them back on in January, your price increases? And has there been any dialogue or are you expecting any pushback from the administration when that happens?"

Ian Read:

"Thank you, Umer. Well, on pricing, what I'm trying to indicate is that we did voluntarily agree to defer price increases until the blueprint was implemented over the end of this year. We've been working with the President on parts of the blueprint. And I expect our approach by the end of the year will be, what I would characterize, as business as normal."

By any measure, pharmaceutical companies face an adaptive challenge to a changed context for business (see “Zealand becomes a lesson in the rigors of commercialization as a slow launch triggers 90% staff cut, CEO exit”). The whole framework for getting new medicines approved is evolving, the amount of revenue generated by new drugs is dropping, market theories are collapsing, and atomizing customers are awash in information and competing data claims.

For commercialization teams, the sketch for ‘market access innovation’ comes from finding proportionality in strategy, in aligning ends with means: less investing in “optimizing” product promotion with digital, more dissolving boundaries and servicing a system as a whole to improve its performance over time (ecosystem-centered market strategy).

Said another way, "digital transformation” in the pharmaceutical industry is a story of 'system value' and computational imagination. The new equation for market innovation in healthcare (+ life sciences) looks something like this: Ai + cloud + data + HEOR = 'Outcomes-as-a-Service'

You fit the mix to the moment. Whoever does the better job aggregating, sequencing and managing the infinite flow of inputs and insights that enable population health will have a sustainable business model attuned to the needs of customers.

It takes an ecological sensibility. Some are better at it than others.

The Problem That's Arrived

The realms of experience in healthcare are blurring at a blinding rate. Things are fuzzy; thought doesn't have time to ripen. The shift to make is in reordering imaginations, psychologies and objectives to change the economics of healthcare as an n-sided market.

What real-world evidence shows is that the problem that's arrived for the pharmaceutical industry is how to reposition itself strategically, how to get in front of change rather than become a victim of it. This is about forging a new alignment with customers, not simply imposing old promises of technology to reinforce the status quo.

The new methods of thinking about relevance, the composition of value and "drug brand" management which the pharmaceutical industry should adopt for itself need to be worked out simultaneously with the destruction of its history. Regeneration through degeneration. Technology, for the most part, is simply a means to end.

To underscore why in healthcare we need to replace unbounded enthusiasm for unlimited aspirations of technology with something more pragmatic, here are three data points worth considering:

  • Despite spending about 18 percent of GDP on healthcare ($3.5 trillion), life expectancyin the U.S. is expected to be only slightly better than that of Bangladesh by 2040. (In 2015, the total public health budget for all of Bangladesh was $2.3 billion.)

  • Markets and Markets currently predicts the market for health technology will reach $104 billion by 2020. Except that "doctors hate their computers" and at least 40 percent of technology and digitization projects either are abandoned or fail to meet business objectives. Some sources report 70 percent failure rates.

  • In 2017, the pharmaceutical industry spent 5.8 billion U.S. dollars on direct-to-consumer media advertising; between 2009 - 2017, the industry spent about $40 billion on advertising to consumers alone.

More to the point, the first transformation to make is strategic; the second is digital applied to enable the first. It's going to be expensive confusing the two 🤘

Originally published as a LinkedIn post on November 5, 2018; updated with latest developments from Zealand Pharma, Bluebird Bio, Biogen and Novartis

/ jgs

John G. Singer is Executive Director of Blue Spoon Consulting, a global leader in Strategy and Innovation at a System Level. Blue Spoon was the first to apply systems theory to solve complex market access and integration challenges in the pharmaceutical industry.