Ernst & Young Puts the Spotlight on Pharma 3.0

Feb 10, 2010

Ernst & Young, on Thursday, released a manuscript detailing the future of the pharmaceutical industry. Dubbed Pharma 3.0, the study consists of a series of articles covering the need for third-party collaborations, the need for targeted patient programs, and adoption of online and mobile programs. Pharm Exec called up Carolyn Buck-Luce, global pharmaceutical leader at Ernst & Young, to find out more about Pharma 3.0.

Between the recent mega mergers and company restructurings, pharma appears to be willing to make changes. What are you seeing from the outside looking in?
We see a dramatic change coming in an industry that has already gone through a major transformation. The original blockbuster model was about one or two drugs making up the majority of a company's revenue. The focus was on selling drugs in primary care and marketing extensively to a very large population of people. We know that that model is broken and over the past five years we've seen pharma move to a version 2.0, which is all about making strategic decisions, diversification, and focus. They moved from just managing top-line revenue, to managing bottom-line return.

So what is the next big leap for pharma?
The next huge change—which might even dwarf what we see today—is Pharma 3.0, where companies must operationalize their current strategy and move from being product centric to customer centric. Right now most of the business model changes have centered around a redefinition of the product portfolio. Pharma 3.0 puts the patient in the center and is about healthy outcomes. We are suggesting that there is a whole new ecosystem that is going to develop around healthy outcomes, which will bring in a lot of non-traditional players.

But how exactly do you operationalize a customer-centric approaches to business?
It's less about how my business model change, and more about how my model fits into the business model of nontraditional players coming into the healthy model space. Those players are IT players, data information players, retailers, insurers, consumer products companies, telecommunications companies. The core of this industry has been innovation and it will stay innovation, but the bulk of the money and the effort has been in the innovation of the product pipeline. What we are seeing going forward is the need for innovation of the commercial model in order to be able to respond to the mega changes of healthcare reform globally.

Do you see any pharma companies actually doing this right now?
Yes. For example, in January, Novartis invested $24 million in a biomedical company. This company is going to embed sensors into pills that will transmit data and monitor patient's vital signs to help boost drug compliance. In the past couple weeks, Pfizer and Keas partnered to help consumers take a more active role in their health and wellness. P&G also just bought the remaining stakes of NDBIP, which is a concierge doctor network. The reason they say they are doing this is to get a better understanding of the customer and patient experience as it relates to health outcomes.

Also a lot of the apps in the Apple Store are health related. J&J created a very popular app called LifeScan, which allows diabetes patients to upload and manage their glucose information on their iPhone. What we are seeing are the equivalent of Phase I commercial trials. As companies begin to experiment in commercial trials that will get them closer to patients.

How is this different from the current model of patient adherence programs on the Internet?
Pharmaceutical companies are taking more of a role in being part of these experiments and we also see that in the R&D side where there are collaborations around risk sharing and open innovation on the pre-competitive side where companies are coming together. For example, there is a collaboration between Abbott, J&J, Eli Lilly, Merck, Novartis, and Pfizer along with a company called Puretech Ventures—people coming together to develop pre-competitive technologies in order to create new approaches to the research side of R&D.

According to our research, 92 percent of our pharma clients said that they believe that there will be a lot of non-traditional players coming into the health space and 75 percent said that there were a lot of issues that are going to be challenging, such as evaluation, intellectual property protection, data privacy security, tax structuring, and creating customer experiences. The majority of the respondents said that they weren't prepared for the coming changes.

How dynamic do you think these collaborations will be, considering the egos in play at many pharma companies?
There was a recent collaboration between Pfizer and GSK called ViiV where a new company was created to work in HIV. Pfizer contributed assets to development and GSK contributed approved products as well as a commercial infrastructure. And the percentage ownership changes depending on which contribution creates more value. So these collaborations will be fairly dynamic.

How will the emerging markets play into these collaborations?
In some respect, we see it happening more rapidly in the emerging markets. We think there's going to be an awful lot of learning and reverse innovation on the commercial model that's going to be learned in the emerging markets and brought back to the developed markets. For example, mobile telephony has taken off in developed markets. There are four times as many people that have access to cell phones than the Internet. Within the next five years, 20 percent of cell phones are going to be used for health related purposes. It's using cell phones so patients can diagnose themselves by being able to connect to remote information.

Pharma is scared to death to do anything in the Internet space, could pharma use these third party vendors to run interference with FDA?
There is going to be a lot of experimentation. The UCB/PatientsLikeMe is a very interesting one. Obviously, there is a lot of concern about FDA regulations as it relates to social networking and the role pharma might play in the middle of that. But the bottom line is that patients are going to be using the Internet to manage their health and the knowledge about efficacy is going to be moving into the public arena as patients are active in managing their health an putting their records online.

How far out are we from these collaborations being common place?
These changes are going to be coming faster and faster, because the technology as well as the customers are going to be demanding it. They are going to be managing and paying for their health—information is going to be available to those patients and payer which is going to influence the commercial model of the pharmaceutical companies. The way pharma companies are changing their offer to pay for performance in the UK to be able to be on the formularies, and to be able to be approved by NICE is telling. As payors and patients are more involved in everything from comparative effectiveness to patient choices, pharma must respond in the way they respond, price and think about the patient experience.

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