Compliance ConundrumIn 1999, more than 60 percent of patient visits to physicians resulted in a prescription, and 2.5 prescriptions were written
for the average US senior citizen per month. To meet the industry's revenue targets, the number of new prescriptions in the
US market must rise about 10 percent a year, which means that the number of prescriptions written must double every seven-and-a-half
If the market were to meet that projection, seniors would be receiving five prescriptions per month by 2006 and ten by 2013.
But are such expectations realistic? Instead, consumers may actually grow more resistant to taking or paying for the next
new thing as their therapeutic regimens become increasingly complex.
More advertising is only a partial answer. Pharma companies spent nearly $2.5 billion on direct-to-consumer advertising in
2000. In most instances, their efforts focused on raising awareness of innovative therapies, encouraging consumers to review
options with their doctors and building familiarity with brand names in crowded therapeutic markets. But brand building is
A few companies have responded by changing their products. Many have reduced the frequency of dosages from several times a
day to once daily, as in UCB Pharma's Ditropan (oxybutinin) for overactive bladder; Novartis' Dynacirc (isradipine), a calcium
channel blocker; and Bristol-Myers Squibb's Glucotrol (glipizide), an oral diabetes medication. By doing so, they have improved
patients' convenience and compliance, making their products more competitive in crowded areas.
Taking the concept to the next level, several companies have developed combination therapies, including Bristol-Myers Squibb's
Glucovance (glyburide and metformin) and GlaxoSmithKline's pentavalent childhood vaccine. That approach limits the number
of individual therapies a patient must take. And by combining a product approaching expiration with a new patent-protected
product, companies can also extend the patent lives of the older products.
Other companies have adopted innovative delivery techniques. Pfizer and Aventis are currently in Phase III trials for an inhalable
form of insulin designed to overcome the noncompliance resulting from diabetes patients' natural resistance to multiple daily
Developing new formulations is a start, but companies also must gain a deeper understanding of their customers. Development
teams will have to consider how new treatments fit into patients' overall therapeutic regimens. Areas of emphasis may shift
as companies strive to maximize their products' relevance to consumers' health, and the ability to segment customers by needs,
medical condition, and other factors will become one of the key differentiators in this area of competition.
For pharmaceuticals that treat chronic conditions, marketing teams will need to shift their focus from creating awareness
to ensuring compliance. Merck recently launched a program introducing the bone mineral density measure to patients taking
its osteoporosis therapy Fosamax (alendronate) to help them observe the progress of their treatment, because compliance generally
rises when patients monitor their own progress. Better compliance, in turn, leads to more sales.
Shift to Target DiscoveryTop companies' competitive positions have long been based on their investments, processes, and good fortune in identifying
effective compounds. With the advent of genomics, proteomics, combinatorial chemistry, and high-throughput screening technologies,
both the opportunities and resources for discovering therapeutic candidates have increased substantially. As long as competition
remains centered on the search for new compounds, investment in those technologies will continue.
Yet even as opportunities for identifying new entities expand, a whole new field of competition is on the horizon. According
to the Pharmaceutical Research and Manufacturers of America, the entire industry has, until now, focused on therapies that
target a mere 500 proteins. But PhRMA now estimates that research on the human genome will identify between 3,000 and 10,000
addressable protein targets. (See "Expanding Targets.") The contest to identify and gain control over the targets with the
highest potential value is perhaps the most obvious challenge.
Some companies have already begun to place their bets. One set of players is rapidly gathering legal rights to the genes themselves
to obtain broad patents. (See "Patent Power.") Even though the US Patent Office has mandated that gene patents will be granted
only if its function is understood, those companies could gain substantial control over all therapies designed to influence
the biological mechanisms associated with the genes they are able to patent.
For the most part, Big Pharma has chosen to forego leadership in the race to patent genes. US Patent and Trademark office
data show only GlaxoSmithKline, Novo Nordisk, and American Home Products are among the ten largest holders of gene patents
midway through 2000. Most of the top companies are instead betting on relationships with biotech companies to gain access
to the most promising targets.
Important recent examples of that strategy include Millennium's alliances with Abbott for the development of obesity and diabetes
treatments and with Aventis for therapies addressing several other conditions. By taking such actions, integrated pharma companies
commit to a strategy that emphasizes differentiation in commercial development and marketing capabilities.
The capital markets seem divided on what will generate the greatest return. Share prices for Big Pharma continue to soar despite
the potential threat to their fundamental business design. At the same time, valuations for some new companies are reaching
New Model on the HorizonFor the past 20 years, a large number of players based on the blockbuster business design have shared the bulk of the industry's
value. Competition has centered on identifying and developing new therapies, and growth has depended on companies' level of
investment and ability to exploit that model.
But future growth will depend more on companies' ability to overcome the new constraints and uncertainties presented by emergent
arenas of competition. If pharma follows the patterns established in many other industries, differing levels of performance
in those arenas will lead to a polarization of value between winners and losers.
According to Value Migration by Adrian J. Slywotzky and Profit Patterns by Slywotzky, et al., one company-at most, a handful-in
virtually every industry is able to identify and implement a winning business design ahead of the competition. That company
soon reaps the bulk of the profits while others stagnate, are acquired by the winners, or die.
A few large pharma companies will continue to prosper using the blockbuster model. They will adjust their business designs
to successfully overcome the challenges ahead. But others can no longer rely on that model alone.
Novartis and Aventis recently announced they will modify their strategies and focus on particular therapeutic areas. They
plan to raise their credibility with decision makers and better align development resources with customer priorities in target
Other companies are explicitly moving beyond the blockbuster model in ways that emphasize the relationship with patients.
Several are taking actions to maximize the value of new products with a business design that takes into account patients'
entire range of healthcare needs and priorities. Some future leaders are likely to extend that model, building consumer franchises
that link diagnostic testing, therapy selection, and monitoring of health indicators. Companies will be differentiated by
the trust patients put in their offerings.
Whatever the outcome of those approaches, it's likely that much of the value in the industry will migrate to new business
Although pharma companies, as a group, have been extremely successful using the old model, they would be unwise to ignore
the limits now surfacing. In the long run, some are sure to lose.