Tracking the Transitions

With this broad survey of the landscape as backdrop, Pharm Exec highlights four strategic drivers that should compel the attention of our "C-suite" readers in 2012:

1) A reinvented business model won't change what is fundamental: Higher pipeline productivity in the form of new patented products is still the best source of future profits. This year will see new therapeutic breakthroughs that may revitalize the blockbuster, to include biologic drugs intended for targeted patient populations with few treatment alternatives. Many are novel not only for their indications and superior efficacy and safety profiles; they also mark an advance in the mode of delivery, replacing injectables with a once-a-day pill or acting in combination with other compounds to provide more precise dosing with fewer side effects.

Says Peter Tollman, Global Leader of Boston Consulting Group's biopharma sector, "Successful R&D organizations are being forced to justify their investments in discovery and development around a precise estimate of value, one that includes consideration of the payer perspective and the impact on patient outcomes." He notes that tomorrow's R&D organization must look beyond the drug toward process and organizational innovations that facilitate consultation with the customer. "We are seeing a higher level of engagement around information tools like patient registries that highlight practice patterns relevant to a particular drug candidate. It's a way to differentiate against existing therapies and bring both the innovator and the payer to a consensus on value." Companion diagnostics is another model for this kind of interaction, where the payoff can be measured in ways beyond that of the technology itself.

Growing optimism about a return to innovation doesn't mean that the debate over the best blueprint for R&D will be resolved—at least not in 2012. It takes on average a decade to commercialize a promising compound from proof of concept, so much of the current discussion around alternative approaches—from outsourcing key aspects of development to the "string of pearls" focus on science generated in-house—amounts to sheer background noise. Consultants can't charge for this, and the evidence is purely anecdotal, but what does seem to matter is a long-term commitment to the science; retaining good people; acknowledging that internal competition can boost overall productivity and performance against agreed targets; a knack for finding and keeping a diverse circle of partners; and a healthy helping of luck. Analysts call it the "hybrid" model and companies will continue to tailor R&D strategies to fit their own circumstances.

Moreover, to cope with these developments, brand manufacturers are spending heavily on incentive programs like copay cards as well as patient support activities geared to raising adherence to therapy. "We estimate that industry spending on these copay card and rebate programs will exceed $34 billion this year, which is roughly three times the cost of deploying the field force," Tenaglia tells Pharm Exec. Much of this activity is geared toward influencing the commercial business, and the added cost exposures will sharply depress margins there just as higher rebates mandated by health reform turn the public Medicaid and Medicare Part D programs into loss makers. "In Medicaid, you're lucky if you get paid at the level of the cost of goods—there is no margin left there," Tenaglia says.

As a result, 2012 will see more effort to change the incentive package for sales reps, on the premise that "not all prescriptions are considered equal." Pay incentives will motivate reps to win more non-controlled, third-tier reimbursed prescriptions rather than just focusing on the volume of scrip. This in turn will provide the rationale for more culling of the ranks—selective deployment of this human resource is key.

Tensions between brand manufacturers and pharmacy benefit managers over the impact of these incentive programs will also shape the competitive landscape this year. Nevertheless, some observers are optimistic that both sides will recognize that such conflict is misplaced. Paul Kandle, general manager for Cegedim Relationship Management's OPUS Health business unit, focused on patient adherence programs, notes that there is value for all parties in these programs—if their impact is measured in terms of better health outcomes. "It's less than meaningful to evaluate copays and other dollar offset plans as just a way to cut costs to the patient without considering their overall impact within a well designed adherence program. Their real value is unlocked when we understand how they improve adherence to treatment, enhance quality of life, or produce a gain in public health outcomes. At OPUS Health, we are focused on accurate assessment of these programs, improving analytics, and we are committed to designing the most well thought out programs to maximize overall value."

3) Advances in information technology will continue to shape the conversation with customers on access, value, and price. That conversation is going to take place in public, as evidenced by the growth of cloud computing, which "hyper-democratizes" access to the vast resources of the Web—it's the everyman's Google. But Big Pharma is a business, with proprietary interests, so a key priority that will play out through 2012 is marking progress in defining basic standards on the application of IT. The goal is to ensure those business interests are protected while adding benefits through agreed channels for data sharing—the new Pistoia Alliance of companies engaged in precompetitive research is a good example—as well as improved IT management processes that raise efficiencies and lower costs.