	Specialty drug sales, record-breaking M&A paired with tax synergies, and global expansion helped to bring a new face into this year’s Pharma 50 top 10, and substantially boosted the rankings of several others.    

	Led by the breakout success of its hepatitis C virus (HCV) franchise, Gilead Sciences recorded $24.5 billion in global revenues for 2014. Gilead’s rise into the top 10 list of biopharmaceutical companies, up from No. 18 in last year’s ranking, demonstrates the fast-track opportunity of specialty markets, especially in areas of high unmet medical need. The company’s announcement of its first quarterly cash dividend to stockholders, to be paid out beginning this month, is a clear sign of the growth Gilead has achieved as an organization. 

	Other climbers like Actavis, which jumped six places from 24 to 19 this year, have pursued an opportunistic growth platform with respect to M&A. Actavis completed its $66 billion acquisition of Allergan earlier this year, and intends to change its name as a result; look for Allergan rising to take a second new spot in the top 10, in next year’s Pharma 50. 

	By now, the big Pharma players have all established a presence and capability in emerging markets. While the pace of growth has slowed in some emerging markets like Brazil and China, AbbVie was able to maintain its ranking position, in the No. 10 slot this year, due to its commitment to expanding the global footprint of its key products. 

	Buoyed by an impressive 41 new medicines approved by FDA last year, the biopharmaceutical industry is increasingly optimistic about the potential for growth. Cutting edge science and technology proliferate across industry

 pipelines, just as more patients gain access to health coverage and drug benefits. According to PwC’s 18th annual global CEO survey, released earlier this year, 92% of pharmaceutical and life sciences CEOs expressed confidence about their prospects for revenue growth over the next three years. Underscoring that confidence, 58% of the CEOs surveyed said they expect to increase total headcount over the next 12 months.

	“We are cautiously optimistic about the evolution of the global economy,” Joaquin Duato, worldwide chairman, pharmaceuticals, Johnson & Johnson, told PwC. “While emerging markets continue to be a very important driver of growth for us, the ability of the US, Japanese, and European economies to perform well will continue to be foundational to our growth.”

Macroeconomics aside, achieving consistent growth in the context of a high-risk R&D enterprise, and a commercial landscape that increasingly prioritizes lower-cost options, is no simple feat. Whether growth comes organically, through discovery, development, launch and lifecycle management functions, or inorganically through mergers, acquisitions, or licensing deals, a number of issues must be addressed in order to successfully manage growth, and ensure that it continues. Talent-that greatest of asset intangibles-sits at the top of the list.

	Growth by nature requires change, and a keen ability to identify the new skills necessary to develop and support new business capabilities. Regardless of whether companies are on the hunt for acquisition targets, preparing for a new launch, expanding into new markets, or implementing a cost reduction initiative, any restructuring process can serve as an opportunity to realign talent and business activities.

	In the case of a merger or acquisition, the organizational muscle to get a deal done is critical in capturing early value. From a talent perspective, a strong business development and legal function is necessary to both identify targets and follow through with due diligence to strike a deal. Finance departments can provide a valuable assist in this process by making use of the proliferation of public data now available on competing organizations. Insight into the brand strength of an acquisition target, for example, can deliver an edge in the vetting process. 

	The quantity and pace of biopharmaceutical deals-despite Federal Reserve Chair Janet Yellen’s comment last month that stock values generally are “quite high”-seems likely to continue in the short to mid-term. Appropriate post-merger activity is determined by the type of integration struck: organizations must decide on full integration, or the degree of autonomy to which it will grant an acquired entity. That important decision will drive the degree of synergy that can be achieved.

Once made, the first places to look for early value capture are the enabling corporate functions: efficiencies within HR, finance, IT, real estate, and the legal department. Second, are functions that support the value chain, including R&D, manufacturing and supply chain, and the commercial organization. Other groups at the intersection of these functions-like medical affairs and health economics and outcomes research-represent additional prospects for finding efficiencies and capturing value.  

	Just as there’s a need for an acquiring entity to have the organizational muscle to identify and close the deal on a target, similar strength and capabilities on the back end are needed to perform a successful integration. The success of an integration depends on setting up the entire organization for early value capture without business disruption, and doing it with a sense of purpose. Corporate culture is the North Star from which purpose shines, and the onus of enablement falls heavily to the HR function.

	Not everyone is out in the night air looking to mix it up with a new mate. For companies pursuing organic growth, different but equally critical issues are intrinsic to a strong talent agenda. One is building a new capability in the commercial function; capability in terms of both commercial strategy and commercial operations.  Market access strategy is replacing the narrow technical remit of the traditional pricing and reimbursement function. Capability building may include not just managed markets and other customer channels in the US, but also building the commercial capability across a global footprint and in both established and emerging markets. 

	The role of HR in this process is to be a true business partner in the marketplace: HR creates value when it is able to work with the commercial function to truly anticipate and articulate the capabilities needed to drive growth, and then to shape a compelling employer value proposition so that it can compete successfully. How an organization differentiates itself is crucial in a competitive talent market. HR can’t just be a benefit menu or a mouthpiece for issuing orders. 

	So what kind of talent is the right kind of talent? Critically, talent with a value add. Ninety percent of the pharmaceutical and life sciences CEOs surveyed by PwC said they look for a much broader range of skills when hiring that they did in the past (see chart below). That’s nearly 10% higher than the collective response to the same question from CEOs representing all other industries.   

	Diversity matters, too. Of the CEOs surveyed, 64% reported having a strategy in place to

 promote talent diversity and inclusiveness. Another 12% said they plan to adopt such a strategy. Asked about the positive business impact of a talent diversity strategy, six areas were cited by over 80% of CEO respondents. A diverse workforce helped companies: collaborate internally and externally; innovate; strengthen brand and reputation; enhance business performance; enhance customer satisfaction; and finally, attract new talent. Diversity also means geographic diversity.    

	The nod to collaboration is important. Increasingly, organizations need to go beyond the purely transactional execution of a partner contract, whether it’s contract research, contract manufacturing or contract sales. Internal roles that intersect with contracted services need finely-honed vendor management and relationship management capabilities. The latter is becoming a premium. By necessity, vendor management is in part managing the terms of a contract, but the move to managing the relationship and the ecosystem in which the vendor operates can elevate the conversation to one of shared value. Over time, the most rewarding interface is the relationship interface, because it promotes a sense of true investment in mutual success. 

	There is room to improve. Research conducted by PwC’s Health Research Institute (HRI) found that next to government-sponsored research, contract research organizations (CROs) are the most common type of partnership at pharmaceutical and medical device companies surveyed. In fact, outsourcing has grown to such an extent that it now encompasses over 40% of drug discovery and development spending. And yet, deeper relationships are not pervasive. HRI research found that 38% of the organizations surveyed characterize their partnership with a CRO as highly integrated and strategic, while 47% describe the relationship as being at arm’s length. These results suggest that some companies still see CROs as low-cost vendors for limited services. Companies may be missing a broader opportunity that comes from a full strategic alignment.   

	Beyond CROs and other traditional vendors, biopharmaceutical companies are beginning to partner more often across traditional lines to address the shift toward patient outcomes as the measure of product value. Developing a shared understanding of risk to reward-in partnering with health insurers, health systems, patient advocacy groups or technology firms-requires strong relationship management talent, and the ability to forge a consensus between sometimes competing incentive structures.   

	For  organizations operating in emerging markets, the talent strategy is the single determinant of whether strategic goals will be successfully achieved. In China, for example, there is such an aggressive talent market that the issue becomes keeping up with the pace in order to get people in the door-and keep them-within the commercial function. In Southeast Asia particularly, the No. 1 inhibitor in achieving a growth target is acquiring and retaining the right caliber talent. 

	Organizational culture is often both invisible and literally written on the wall. Companies able to bring their culture to life throughout the organization are successful in establishing a link between the business purpose and values, business strategy, and the behaviors that drive performance. Leaders in this area are drilling down from culture as defined by statements of mission, purpose and values to identify specific business activities that drive value creation. Further, these organizations are able to define the behaviors they need employees to exhibit in order to deliver on those activities, and to reinforce those behaviors through sanctions and rewards within the performance management system. 

	By doing that, the culture comes alive; it becomes the way of working. Reinforcement mechanisms establish recognition or reward for working in a certain way, or sanctions for doing otherwise. An example can be something as simple as in-the-moment feedback about performance, to acknowledge desired behavior or let an employee know that a behavior needs modification. Team-based in addition to individual rewards can also ensure that individuals are not only performing in their roles, but are contributing to their teams, business units, and company at large. 

	Many organizations stop short of taking the culture to this level of granularity. Anyone who’s walked a corporate office or manufacturing site has seen the posters and mission statements. But employees aren’t necessarily living the values, because there are no mechanisms to reinforce those values. Leadership must prove in a tangible way, on a day-to-day basis, that culture matters. If it doesn’t matter at the top, it won’t matter much anywhere else, either.   

	The entrance of millennials into the workforce represents a unique opportunity to boost the culture guiding an organization by tying those principles to a performance management system, including non-financial rewards. Money still talks, of course, but millennials in particular tend to look for something instead of or in addition to money. As PwC US chairman and senior partner Bob Moritz wrote in the Harvard Business Review last November, millennials respond to rewards that will benefit them in life- or career-enhancing ways, such as eligibility for a sabbatical to pursue an interest, travel, volunteer, or stay at home with family. 

	Once merely slow dance partners, pharma and biotech are increasingly joined at the hip, if they aren’t already housed under one roof. From a business perspective, it’s a perfect match: commercial and regulatory networks and expertise, in exchange for bleeding edge science and life-changing, even curative, new therapies. The great thing about science is that it doesn’t discriminate; brilliant minds of all kinds continue to be switched on by the math and mystery of biology or bioinformatics, and the desire to do something positive on a grand scale. However, many employees working in biopharmaceuticals over the past several years have endured layoffs, corporate integrity agreements, and leadership churn. Going forward, companies must anticipate the new skills needed to compete, involve HR in strategic planning and organization design, and be willing to invest in talent, financially and otherwise. An organization is only as strong as the people who show up to work every day. 

, partner, is the global pharmaceuticals and life sciences leader at PwC. He can be reached at 

, managing director, is leader of the pharmaceuticals and life sciences people and change practice at PwC, and cross-sector lead for HR transformation. He can be reached at 

 is senior manager at PwC’s Health Research Institute. He can be reached at 

Articles

Features

 Specialty drug sales, record-breaking M&A paired with tax synergies, and global expansion helped to bring a new face into this year’s Pharma 50 top 10, and substantially boosted the rankings of several others.    

Taking Flight: Pharm Exec's Top 50 Pharma Companies 2015

	The momentum behind dealmaking in pharma and biotech is so undeniable that a popular query has been to try to get someone to take the dark side, contrarian position, to hint at a disturbance in a growing bubble. Financing, M&A, and partnering activity appears indefatigable in 2015 with early data outstripping the record-breaking marks from 2014.

 and Campbell Alliance convened an intimate group of business development professionals, Jedi’s of the life science deal, to discuss current sentiments in the industry. The group gathered at

 New York’s contemporary beacon for research and collaboration in the field, the Alexandria Center for Life Science.

	Per tradition, the group received a sneak peak of Campbell Alliance’s annual survey, Dealmakers’ Intentions. The discussion informed a more complete take on the survey, its seventh iteration, which will make its rounds at the summer blockbuster conference, BIO.

	Among the recurring themes from the dialogue was the tremendous fervor across the industry and an agreement that the optimism surrounding life-saving treatments is no industry mind trick. Industry is seeing the culmination of genome era science and deep understanding of molecular mechanisms. The by-products of the exceptional advances are dollar signs with zeros. Excerpts from an afternoon of discussion follow here.

Besides the big price tags and astronomical valuations, we’re seeing great science. Is the connection from science to finance clear?

Nouhad Husseini, Regeneron Pharmaceuticals: 

Technology has to some extent caught up with itself, and the investments and scientific breakthroughs from last decade are really starting to bear fruit. Consider next-gen sequencing and human genetic research as an example of this, where we are now seeing real benefits from advances in these fields. 

	In terms of obtaining human genetic evidence that can validate mechanisms of action and doing the right clinical experiment in the right population, I really think all of that is directly connected to the success that we are seeing. You can also look at the fields of cell therapy or gene therapy, where we are seeing some recent breakthroughs, but only after literally decades of investment in basic research and clinical experimentation. Investors who put billions into the sector in the last boom cycle (1999-2001) largely had an unrealistic investment horizon, and were disappointed by how long it took that investment to pay off. Investments in basic science and technology take time, but we are now seeing those investments mature and bear fruit-we are harvesting it now.

Les Funtleyder, E Squared Asset Management: 

For example, we invest in a gene therapy company with technology dating back to 2000. But the reality is that what we are seeing now is going to be another 15 years, even though there is a lot of excitement about gene therapy and oncology. It seems like we are in the early innings, and we just maybe don’t want to get too far ahead of ourselves, like we did the last time. People thought miracles would happen. It’s easy to forget how long it takes.

	My interest, besides the science, is the business model. It’s not like the old pharma model where you go to the pharmacy every month and get the prescription. So how do we reimburse for that? It’s more of a bioethical question, but it is an interesting one that I am pondering, and I would like to hear ideas on that.

When you are talking about a cure, a single pill, or injection, how do you do that financial model that’s at all useful for striking deals? Is there a precedent or tools to look to?

I don’t think it’s answerable. Arguably, you can say, well, it’s big up front and you come back for a tune-up every year, and if you are still disease free, we’ll pay you some month. I think that is the current standard of thinking, but I don’t know. I don’t know how we are going to do this yet. I think we are going to feel our way around. Given some really good data out there, we may have these conversations more quickly than we are prepared to have them.

 The different dynamics of the US vs. the European Union start to play increasingly more important roles in that payers in the US hold onto a covered life for about three to four years. Thus, they are incentivized to care for those lives for those three to four years. Whereas in Europe, in a country like France, the focus is potentially over the full life of the individual, and this different perspective will interject a new dynamic.

 Consider potential examples that might be more extreme than Gilead’s S

. For example, if you had a one-time shot that can permanently cure a genetic disease, it is not hard to argue that such a lifetime cure would be worth a million dollars of value. But who is going to pay that million dollars? 

	I’m sure we will continue to experiment with different and creative payment models; some will work and some won’t. It is a good problem to have. These patients are getting cured. Hopefully this will be a common problem for the industry.

 There are a lot of ways to skin a cat, we just don’t know which one is the right model yet. Models may work better for the relatively rare drugs, but when you start to get a bigger population, there’s greater complexity. That’s where 

 ran into trouble, not necessarily the price. If 10 people had hepatitis C virus (HCV), you wouldn’t have had a congressional hearing. So now you have a very expensive drug, for a big population. The result has been payer freak-out.

Paul Hadden, HealthCare Royalty Partner: 

I think it ultimately it will be dependent on the patient population, the incidence, the prevalence, and companies feeling out how best to price a cure given those underlying disease demographics and discussions with payers. 

What are you seeing in terms of opportunities? Are you seeing an increase in the number of opportunities, or has it maintained a relative steady state?

Let’s put it this way, at JP Morgan, you see maybe 40 or 50 companies, every year, and it’s still the same. I’d probably consider doing a deal with 10%, and this has been fairly consistent. But I think you have to look harder now, especially for late stage assets. That basket has fewer things in it now.

One thing I have noticed, the good assets are higher quality assets than they were a few years ago. They are well thought out, and better developed to their given stage. I don’t know the reason but maybe it’s because of the transition that many pharma folks have done to the biotech side. They are more familiar with clinical, regulatory, and commercial issues, and they do it more by the books. This is in contrast to how the old biotech used to do it-the cheapest, fastest way possible. 

While it doesn’t necessarily trickle down to something that is available for partnering, the best science always wins and the science has gotten a lot better. This year you will see it with PCSK9’s, new drugs for heart failure, and PD-1 inhibitors. The average asset you see isn’t that impressive, but the trend is in the right direction.

 I agree that good opportunities are not going away. As long as there is continued scientific innovation around things like genetic therapies and human genetics research, there will be no shortage of exciting new targets and therapeutics to go after.

The science definitely seems to be accelerating. But it is also the development timelines of those novel molecules. If you look at some of the PD-1’s in oncology, some of them were first humanized in 2008 and then six years later they were launched. So not only is the data really impressive, but the timelines are speeding up. It is the fact that both sides of R&D are accelerating that makes it quite exciting.  

Is it just the good assets that are coming together with a more robust data package or further thought through market research or greater scientific backing? Are all the assets you review now coming with more robust market research and scientific data, making the market more transparent?

 I try to draw a distinction between the “goodness” of an asset based on its inherent characteristics such as the rationale for its mechanism of action versus how well a given asset has been developed. It sounds like small companies are generally doing a better job developing assets. I won’t argue that. I was reflecting more on the first, just that the science underlying these things is more innovative, more well-validated, putting aside the drug development aspect of it.

I will add, because we do venture, too, there is still plenty of bad science out there. I can say it, maybe they can’t. We do see stuff and say, “Really, how dumb do we look?” But some still manages to get funded, which encourages people. There is still bad stuff out there.

There are bad ideas. Now they are getting funded, whereas a couple years ago they weren’t. So if there is a bubble, that is where it is.

The question is what is going to happen in the future. Because there was this period-it’s 

recent where venture funds, a lot of them, went out of business, i.e., they couldn’t raise another fund. But now the IPO window opened and these previously illiquid investments became liquid and people made a great deal of money. Investors who previously said, “I don’t want to allocate that much capital in my portfolio to private equity or venture any more,” those alternative investments now see these big IPOs getting done. That dynamic has resulted in new venture funds getting raised again. Ultimately, too many dollars are going to be chasing too few good deals. So if you look at valuations five years from now you might again see a disconnect between the quality of the science and the prices paid for it. 

All this talk and bluster about whether or not there is a bubble, but if there is an accommodating FDA and, therefore, more products are going to get approved, is that going to temper the bubble or is it not really a bubble in that case?

That is the trillion-dollar question. All you hear these days is bubble. This would be, I think, the fourth in my career, if this is actually a bubble. Nobody actually says so when it 

 actually a bubble. The last two, you had two or three lone voices in the wilderness, but everybody was very complacent. I see the opposite now, where people have their finger on the sell button.

	Ultimately, in healthcare, not a biotech per se, but we just watched Oscar, an HMO here in New York, go out for a $1.5 billion valuation, and they have 40,000 members. To me that is a bubble. It is probably 10 times what a publicly traded HMO would get for that same thing. I haven’t seen the private valuations creep up the same way yet. But there will be a time, I’m sure, because Wall Street, for no other reason, always over does everything. So eventually we will have a bubble and a crash. But as long as people keep shouting bubble on television, it’s not a bubble.

I’m interested to hear what the buyers from your point of view have to say. How much is a dollar of sales worth really in terms of a valuation multiple? Because is it six times sales? 10x? 20x? That’s high. The question is whether there will be consolidation that will take care of some of that excess. I agree with you, you only know in retrospect if AbbVie paying $21 billion for Pharmacyclics was rational or far too optimistic. 

One difference between now and what we had back in the high valuation of 2000 is that today’s high valuation is associated with companies that have assets. They have products that are closer to being commercial assets. Back in  2000, the high valuation-and in that case it was a bubble-was based on the technology platforms. Companies that had technologies that were years and years away from making it to the commercial stage. So indeed, the environment is different. You have the high valuation but it’s attached to an asset, whereas before it was attached to a technology that was not immediately ready to be fully capitalized on a commercial market. If valuations were to go down, they will go down gradually. The only single event these days that could “burst the bubble” is a drastic change in payers’ policy.

 I agree-within the biotech sector, you could have several micro-bubbles. So not a broad bubble per se, but discrete sub-segments of the market where every company in that space is getting the benefit of the doubt right now.  

I would say to the extent the regulatory environment has been a lot more permissive in terms of both the number of approvals and new pathways for breakthrough therapies, the payer environment has been the opposite. You have to expect that sales and margins are going to compress. If you are trading on a multiple of sales, you have to figure going forward something has to change. The payers finally figured it out. 

 was a wake up call for them. I don’t see that changing, especially the government, relative to Medicare Part D. It is a huge sales driver for many pharmaceutical products. If the government wants to restrict preferred formulary access to a limited number of products, they certainly can. I think going forward, if you are going to tell me sales are coming down and margins are coming down, then valuations are also coming down. The question is, when?

United Healthcare just bought Catamaran, speaking of deals. It’s not a duopoly, it’s a triopoly, when you have three major payers now, plus the government. The government is still not

 spoken for, by the way. I guess it will depend on who is in charge in 2016. You now have three payers, all of whom saw what they could do when they pushed 

, for example. But also-and we invest in payers also-they are all saying we are going to ramp up our exclusion list. We are not talking about fifth tier on the formulary. They are saying “no, we’re not paying for it no matter what.” It will be interesting to see how that plays out. I think it will require pharma companies to show pharmacoeconomic value, like differentiation. One thing that 

) taught us is that if you can do apples to apples comparisons in terms of efficacy and safety, nobody cares about convenience; it comes down to cost.

 Our firm spends a lot of time talking to payers. Our investments are so long term in nature, we have to understand how payers view a space today but also several years downstream. The payer environment has changed dramatically over the past few years-just look at Express Scripts and its exclusion list of more than 50 branded drugs at the start of 2014. The greatest strength payers have is at the start of a drug’s reimbursement life. Going forward, I think you are going to see that  payers focus on assets in high value therapeutic areas where there is either a lack of differentiation or no clear clinical benefit between two drugs. In those cases, you will see two sponsors pitted against each other as you did in the HCV market this past year.

When it comes to payers and pricing, it will be particularly interesting to watch the PD-1/PD-L1 race. This is unprecedented. There are over a dozen programs in this race-where else have we seen anything even close to this much competition on a single target? I think it’s going to be fascinating to see how the payers influence that when they do. 

 It is worse than that. There was excitement about 

for the treatment of melanoma. But the question remains, who is paying for combinations of immunotherapies? Are you going to spend $200,000 for these therapies? Nobody’s figured out how to do that.

It is going to be fascinating to watch how this evolves, because you are going to have downstream novel oncology therapies that will be added on top of the PD-1/PD-L1 backbone, and how that pricing mechanism gets solved, no one knows. You could have a sponsor going to a payer with three novel drugs, each with three novel mechanisms that could be synergistic and additive…and here’s the six-figure price? That will be an interesting discussion.

 The payer amounts are changing. I don’t know that it’s here yet. It may never come. But some sort of bundling is becoming more common. I’m sure if you did a survey five years ago, there was no bundling. Now there’s bundling. How are these pairs going to deal? If you have a $500,000 treatment for each drug, the PD-1, plus everything else. It’s almost inevitable that there is going to be pricing pressure. Where it comes from might be different. People are going to throw up their hands and say we just can’t afford it.

The other interesting trend is that while payers are focused on the immuno-oncology area, trying
	to control cost, they will also be trying to take cost out of the system with biosimilars. The biosimilar market will have unique players and price implications that will likely be launching concurrently over the next 5-7 years.

That brings up an interesting point. Biopharma companies enjoyed their margins for so long they are going to face it in a couple different ways. Their innovative technologies are in a horse race, and there might be pricing pressure. Those who have been cash-flush for so long are going to be encroached upon by biosimilars, and there will be pricing pressures there. It will be interesting to see how deep the margin cuts end up being.

Bringing patients groups to the deal table

Changing gears for a minute, considering the Cystic Fibrosis Foundation example, what will be the role of philanthropy and patient groups getting into the dealmaking space? Will these groups have a more active role?

 I think so because it gets results. Those groups can connect patients with drugs, with regulators, and move things along. And I think you have seen that these efforts have had success. As they get results, they are going to be playing a role. This is bringing another stakeholder to the table. In terms of the value question, you are not left guessing at the end whether patients and physicians want your drug; engagement with these groups helps you hear up front what the market is telling you they want.

So full disclosure. I’m on the advisory board of Boundless Impact, which is an impact investment firm. What they are looking for is to get a financial return in addition to a social return. Boundless isn’t the only one. There are a bunch that are trying to connect people with money and interest and people who know how to do such. I don’t know how it plays out, but money, interest, and intelligence, if you can merge those three, you kind of move things forward in a non-traditional path, whereas it used to be strictly a drug company thing.

Additionally, the value of these patient associations is they have access to patients and they can convince patients to participate or contribute toward certain studies to help us learn more about their disease. I came across a group that has access to a certain group of patients with a very rare disease. The patients have all agreed to contribute biological samples that can be used for research studies. That is highly valuable, to be able to have access to these bio samples that under normal circumstances is next to impossible to have in this small rare disease area. There is value in such patient associations beyond just the financial side of it. 

 The cystic fibrosis example is a bit unique in the sense that they did something different in terms of investing risk capital in clinical trials-I think they invested close to $75 million. That shows where you can have a real impact in terms of driving different outcomes versus just raising money for awareness and basic research. Look at last summer’s ALS ice bucket challenge that showed the power of some of these organizations to mobilize resources. I think the question is how do these organizations allocate these resources and what actions do they then take to support their underlying mission?

There is a lot of capital flowing to patient groups. With social media as an enabler, there is greater ability to reach into the community to generate capital. The success story in the Cystic Fibrosis Foundation’s funding of 

 probably is going to be emulated because there is more capital available to patient groups and they will look to generate similar successes within their disease areas of focus.

Is there any risk of complications to having these groups on board?

It is challenging when you start talking about the “right to try” concept. You want to help these patients and give the drug, but you also have an ethical obligation to do good science and evaluate if the drug works and actually does something real to help this person.

We are glad to have them, but we have heard from people that it does close up the comp table a little bit when you have all these groups floating around. We’re happy, but I think we may be the outliers. We don’t care about a messy comp table. So there is not always going to be a great alignment. I don’t see that as a risk.

 Tell us about the process of dealmaking-where some of the snags are and any changes you’ve observed over the years?

Just to connect it to this idea of competition, one of the challenges some companies face is around internal decision-making. Managing internal stakeholders can be a big challenge-trying to get the internal alignment. That can take a lot of time. In a world that has become increasingly fast moving people at the table willing to move quickly-if you want to be competitive, you have to keep up, and being able to facilitate and connect very rapidly to senior-level decision makers with the right information is important. Sometimes, it forces you to move at an uncomfortable pace.

 Big companies have the buying power, but can they move quickly enough?

Well, you would be surprised. Some of these big companies can do deals fast. Again, it is about getting their really senior people on board. If it is a good strategic fit, if it’s a good deal, you may hear about a company doing a deal in four weeks, start to finish, putting big dollars on the table.

Our deal with Pfizer is an example of that. We partnered our PD-L1 program with Pfizer that from start to finish took six weeks. It set the record for the largest up-front for 50% ownership of a single asset. Pfizer moved very quickly and we kept up with them.

	To add to your point about the difficulties to get internal support to move a deal along, there are added complexities, which are based on partners’ demands these days. Many potential partners do not even let you in to look at the data before you submit a non-binding term sheet. I have to go to my senior management, get authorization for a non-binding term sheet, with very little data that the company has provided me, build a case, and try to get an approval for a non-binding term sheet. I am asked “But for what? You haven’t shown me anything.”  My reply, “Well, they are not going to show me until I show them what my terms are!”

	Potential partners are not making it easier, but they are in the driver’s seat. If you have a good asset you are going to get multiple companies that are going to show interest, and they don’t want to necessarily entertain eight or nine potential suitors. The difficulty for me is to get an approval for a term sheet that goes out, granted it’s not binding. But still, I cannot put a term sheet together until I go through a process, which adds to the complexity of getting an approval internally.

We have the same issue. There is a perception by some in the investment community that Japanese companies don’t move as quickly as other pharma players. The reality is that they move just as fast as everybody else. From the inception to the non-binding bid, that part is a lot of work internally. Laying the groundwork for a deal is complex, but by the time we get to the point of issuing a term sheet, we are all aligned.  The rest of it goes fast, but doing one in four weeks is really difficult for us. The other thing is a lot of companies are issuing their own term sheets. If you can’t sign up for this, you are not in the process. We see a fair number of things like that also.

I have a self-serving question. Say I have a Phase II oncology drug with some early data. What is the optimal way to move the process along for Big pharma? Let’s say I call you up, what do you want to see and hear that will get you passed the 10% threshold?

I want to see a compelling story in six or seven slides. I’m the first filter. I get bombarded by opportunities and I don’t have time to go through 50 pages of slides for each opportunity.   

One of the things sellers usually don’t know going in is what is that potential pharma partner looking for? For example, what is their oncology strategy? It’s really about whether you get through the first filter. Then making the diligence process as user-friendly as possible, having the data site up and running, without too many exclusions on your data site for key information. Everybody wants to do it in stages-I understand that. But really, once you get past the filter, you are at least in the ball game; you want to enable it as much as possible for us. We are looking at a lot of things simultaneously.

We advise our clients who are looking to outlicense that what they need to do is make it easy for the business development executive to sell the asset to the internal stakeholders. They should try not to run from the question of what the asset is worth. Don’t give the buyer an excuse to say no to a deal because you didn’t address the potential issues with the product head-on, i.e., if you believe there is tremendous pricing power, then you need to have market research to substantiate why you think they are going to get more of a premium. Just try to give the buy-side business development team what they need to go to champion for internal consensus.

Masters of the deal converge in New York to discuss the status of their trade and the forces propelling M&A, licensing, and partnerships in the life sciences for 2015.

Hard Science, High Hopes: Dealmakers' Roundtable

 is to search out new and emerging stakeholders with an impact on how we “do” innovation in the biggest sector of the US economy-healthcare. That quest led me last month to a meeting of a new network of 19 US and European academic programs focused on building 

an inventory of shared learning and best practices in health innovation to drive reforms in both the public and private sectors. The Global Educators Network for Health Care Innovation Education (GENiE, www.thegeniegroup.org) seeks to advance the idea that for healthcare to change, the education of its leaders must change first.   

	GENiE’s basic mission-to make innovation a central element in the education of future leaders in healthcare-emerged from a research survey of 59 healthcare CEOs conducted by Professor Regina Herzlinger of the Harvard Business School that documented how graduate education programs were not giving CEOs the talent pool required to execute around a more innovative business model. Among other flaws, the survey revealed that current education tracks were too specialized, theoretical, and prescriptive, with little effort being made to induce the characteristics of spontaneity, adaptability, and cross-functional awareness needed to navigate successfully in a real world of unpredictable, disruptive change.   

	 GENiE has met as a group three times, at Harvard Business School, the Duke Medical School, and the University of Alabama at Birmingham (UAB). The network now comprises more than 200 experts drawn not only from academia, including major schools of business, public health, nursing, and medicine, but from professional practice groups, consultancies, and industry as well.  GENiE also draws on 16 CEO Champions from, among others, J&J, Amgen, Medtronic, Cardinal Health, Athenahealth, and the American Medical Association. McKinsey, Bain Capital and KPMG represent the consultancy world while a global perspective is offered by CEOs from Discovery Health (South Africa), Medwell Ventures (India) and Amil Participacoes SA (Brazil).

	The objective of the May 7-8 meeting at UAB’s Collat School of Business was “building curriculum and community.”  Consensus was taken to go forward on the following:

 Avoid formal accreditation criteria for health innovation studies for more practical ways to highlight this area as a distinctive field and to benchmark best practices in teaching/training, particularly for mid-career professional education.

 Expand and disseminate case study teaching aids appropriate to a business climate marked by ambiguity at every turn, meaning a strong case study should never exhibit a bias toward one answer.

 Impart practical, real-world urgency to curriculum development, organized around a single basic assertion: no task in business is more difficult today than bringing a regulated health product successfully to market. 

 Solicit examples of innovative health practices outside the US and Europe, especially in Asia and Africa, where reforms are more scalable and can be introduced at lower cost. 

Place more emphasis in the health innovation curriculum on computer science information technology (CSIT-not be confused with health informatics), marketing, and communications capabilities (you can’t sell innovation unless you can pitch it), and pricing/market access strategy, where innovation on the payer side is dramatically changing behaviors in all areas of healthcare. 

	There was also endorsement of the inherent inter-disciplinary nature of innovation, which led to an interesting definition of a successful teaching curricula: while at the outset of a program it should be simple to identify which students come from a business or a medical or a public health background, at the end of the program it should be impossible to do so.  

	The most objectionable single word identified by the group? Silos: of behavior, thought, and principle. All these characteristics remain endemic in healthcare, with anecdotes abounding, like the majority of new US medical school grads who believe Medicare and Medicaid are the same program. It’s another reason why professional education in health must cross and combine disciplines because, while there is no “magic bullet” to solve the sector’s problems, this one comes closest.   

	With 400 potential breakthrough medicines coming on stream through the end of the decade, there is also the pregnant question of whether big Pharma itself has the innovative chops to make it all happen. As we highlight in this month’s cover feature on our annual Pharma 50 list of top companies, the outcome depends heavily on the quality and effective use of human capital-people and talent. Does industry have that talent, in sufficient numbers, with the right mix of skills, transferable across functions and geographies, and capable of being passed forward to the next generation? It’s a key strategic issue for the “c-suite:” In our knowledge industry, education matters.

From the Editor

Institutionalizing the teachable moment with GENiE, and new network focused on advancing the idea that for healthcare to change, the education of its leaders must change first.

Health Innovation: Creating Next Gen Leaders

	Healthcare companies are being challenged to reduce costs while delivering innovative, quality care. A host of factors-shrinking reimbursement, penalties for quality shortfalls, more assertive payers, and the increasing transparency of provider pricing-are challenging traditional operating assumptions. Some of these changes are mandated by recent legislation, and others are market responses to this fundamental mandate for better quality at lower cost.  

	For pharmaceutical manufacturers, navigating this transition depends on understanding how to effectively engage healthcare delivery customers that look and behave differently. Specifically, rising cost pressures, stiffer financial penalties, and the imperatives of healthcare reform are forcing hospitals and health systems to develop new commercial models. One emerging tool is the integrated delivery network (IDNs) designed to aid the transition to a more value-based paradigm. Many health providers doing business with pharma are actively consolidating and/or creating alliances to develop them. 

	However, there is no common IDN model. Provider organizations vary in their development of and preparedness for a new business model.  Some IDNs have well developed procedures for managing clinical variation and are assuming risk for a population, while others are just beginning to establish the infrastructure for managing populations and risk. And there are still others that are just trying to conduct business as usual.  

	Manufacturers are finding themselves selling into an uncertain, stormy environment that has drastically different business drivers, risk tolerance, and operating environments. As providers become larger, more integrated, and take on more risk, pharmaceutical manufacturers must develop commercial models that can adapt to this rapidly changing delivery landscape. In addition, focus will need to be given to their R&D models to ensure they are developing the data they need to demonstrate value to these new, more demanding customers. 

The changing face of ‘Big Healthcare’  

	Although the healthcare delivery sector is in a state of turbulent change, one thing is certain: the drivers behind consolidation are here to stay, and IDNs will become more prevalent and influential.  In 2012, the number of deals more than doubled those in 2009, and the largest IDNs in 2013 brought in multi-billion dollar revenues that rival Fortune 500 companies. It’s not just large provider systems getting larger-local hospitals are partnering up to increase regional market share as well. Even some academic health centers have entered the consolidation frenzy, most recently seen in the merger between the University of Arizona Health Network and Banner Health. 

	While IDNs are becoming increasingly prevalent, the concept isn’t new-some of the best known (like

 Kaiser Permanente, Geisinger, and Mayo Clinic) have been around for decades. These organizations have been highlighted nationally as examples of efficient and coordinated healthcare delivery to which other provider organizations should aspire. Even these IDNs, however, have widely variable structures, governance, and strategies. A key part of their success is the culture they’ve been able to develop that supports their business models and strategy, built with significant investments in time, energy, and capital.

	Today’s evolving group of IDNs come in all shapes and sizes-the only common denominator is that they all own or manage multiple points of patient care.  Some IDNs operate in local geographic areas, while others may be in markets across the US or even abroad. A central goal for most IDNs is to effectively manage the cost and quality of care, yet each organization is likely to take a unique and nuanced approach comprised of some or all of the following strategies:

 A key driver behind healthcare consolidation is the desire to leverage volume to obtain better purchase terms. For pharma, this means fewer, larger accounts with greater market power. Broader use of group purchasing organizations (GPOs), and other cost controls are an outcome. In some cases, IDNs may expand their relationship with GPOs; other IDNs may choose to negotiate with manufacturers directly. This will have important implications for how manufacturers approach and segment their markets. Manufacturers may need to restructure their sales force and will need to build strategic account management capabilities to effectively target and engage these larger accounts.  

Administrators play a greater role in product decision-making.

  To varying degrees, IDNs influence clinical decision-making by making administrative purchasing decisions. This means that decisions about which products to use are becoming more centralized. No longer left up to individual physicians, such decisions are increasingly made by committees comprised of physicians and administrators for whom institutional objectives may factor more significantly into decision criteria than had been the case. 

	Depending on the governance structure and degree of centralization of the IDN, these administrative decisions may apply to facilities and physicians across the network, including affiliated physician groups or outpatient centers. Manufacturers need to understand how product decisions are made within an IDN and be able to provide data that demonstrates not only the clinical value of their products, but also the economic value. Consolidation of providers into fewer, larger accounts means that the failure to “make the cut” with any one IDN can have significant financial implications.  

Requiring care protocols to improve efficiency.

 Many IDNs are managing variation in cost and outcomes by creating and adopting care paths that define treatment protocols. Some protocols outline general clinical decision points, while others are detailed to the point of defining the specific products to be used.  Understanding where products fit along care paths, how the protocols are being used throughout the IDN, and who makes these care protocol decisions will be critical for drug manufacturers going forward. Suppliers must differentiate themselves from competitors to avoid continuing pressure for commoditization, or being shut out of the care path completely.   

 A growing number of IDNs and other large provider organizations are starting to consider taking on risk in the form of bundled payments and population health management.  Some of this is driven by opportunity-CMS and the Center for Medicaid & Medicare Innovation (CMMI) have created a series of pilot models that involve various stages of risk management. Others are engaging with commercial payers and developing models for specific populations and subpopulations. As IDNs assume risk, they will look to manufacturers to do the same-and manufacturers need to consider how they will respond.  

	Regardless of the strategies and programs IDNs ultimately adopt, manufacturers can be certain that there will be an increased need to demonstrate economic and clinical value.  Manufacturers will also be dealing with new decision makers as physicians’ influence is shared with administrators and executives. Delivering value to this highly variable customer base requires a differentiated approach for each IDN. In order to successfully segment and engage customers, strategic account management capabilities need to be embedded throughout the organization. This should be accompanied by restructuring sales models to enable selling in a more complex environment. Finally, manufacturers must reevaluate the value that they offer to their customers, adjusting their R&D strategy and investments.

	There are compelling reasons for adopting strategic account management strategies for approaching IDNs. While all healthcare delivery organizations are focused on reducing cost and improving quality, each customer organization has unique characteristics that can have important implications for how to effectively approach sales. Some characteristics of IDNs, such as number of facilities, may be easy to discern. Others, such as the use of centralized purchasing, risk tolerance, and governance structure, will require in-depth understanding gained from relationship building and market intelligence. It’s necessary to understand their business drivers, identify their key decision makers, and discern their current risk profile. Ultimately you must be able to demonstrate value in terms that matter to each audience that is a part of the purchasing process. To do that, it’s critical to understand what those criteria are.  

	Strategic account management is more than high volume physician sales-it requires continuous management of complex relationships, multiple contracts, and different buying preferences across different types of provider organizations. The role straddles sales and marketing and requires integration across boundaries-within the customer and within the pharma organization. To be successful, strategic account management must have relevant and valid insights from strategic marketing. Real strategic marketing must start with an analysis of market trends, with the intention of determining current unmet clinical and economic needs-and predicting future needs as well. Strategic marketing also requires an ability to see the “white space” opportunities inherent in such trends. It also requires the organizational competencies to incorporate this insight into critical business decision processes such as portfolio management and product development.  

	With fewer accounts and more centralized decision-making, manufacturers will no longer require the

 extensive reach of a large sales force. This leaner sales force will need expanded capabilities to succeed in a new, more complex sales process. Prioritizing each account based on its potential and then working to optimize the value of the account requires a level of business acumen not commonly found among traditional sales reps trained to focus on a product’s features and benefits. The core competencies for reps focused on IDNs will need to be redefined-they must have the ability to engage key decision makers with sophisticated scientific understanding of their products and the financial benefits they offer.  Working sessions and training programs for sales staff are necessary to upgrade skills and translate them into practical applications.  

	As IDN account management becomes an important function within the sales team, accountabilities and reporting relationships will need to be redefined to ensure that there is clarity around roles and responsibilities.  New performance metrics will be needed to measure the quality of account management rather than just the volume of sales.  

Executing in an IDN world: Two critical steps 

	Economic and clinical value drives a market-based commercial model.  Manufacturers must identify what constitutes value to all relevant stakeholders-including payers, physicians, administrators, and patients. Absent any evidence supporting the economic and clinical value of the product, manufacturers will be left to compete on price. To avoid engaging in price wars, pharmaceutical companies must demonstrate value with data, and communicate the value proposition in terms that are meaningful to their customers.  

Consider value in early product development.

 This may require developing a strong economic and clinical value message earlier in the product development cycle. In addition to randomized clinical trials, evidence underpinning the value story will need to be broad, such as post-market longitudinal studies, patient reported outcomes, and other sources of real world evidence. The value proposition needs to communicate the net benefit of pharmaceuticals in the broadest “real-world” context (i.e., clinical, economic, quality of life, and productivity measures) relevant to the customer’s strategic objectives.  

	Companies must ensure that delivering value is at the core of all activities, from portfolio investment decisions, to product development, and extending across the entire product life cycle.  Designing and developing products and services that fit with your customers strategic requirements-and are profitable to you-requires collaboration across multiple parts of the organization. This includes R&D incorporating added value into the product design at an early stage. R&D should also consider real-world patient issues-such as elderly age cohorts, multiple chronic conditions, and poly-therapy.  

	As providers pursue strategies that focus on treating a certain population, whether by geography or disease state, pharmaceutical manufacturers will need to understand how their products serve that population. They may need to invest in targeted therapeutics/personalized medicine based on biomarkers.  The goal would be drug-diagnostic companions able to demonstrate high value in small subsets of the population that are of particular interest to the customer. By bringing their disease expertise to bear, manufacturers have opportunities to help providers stratify populations for different risk profiles or treatment responses in order to better manage scarce resources.  

 As providers work to better manage costs, they will find value in manufacturers that are experts in a therapeutic or diagnostic area. A customer’s needs may not be addressed simply through a new product alone. Pharmaceutical companies need to explore whether to develop “service wraps” that provide more complete solutions across the continuum of care. They can differentiate their products and portfolio by offering value-added services that help providers manage certain segments of their population. By leveraging their disease knowledge to create products and services, pharmaceutical companies can gain a competitive edge and dominate a therapeutic area.

	Manufacturers that are able to demonstrate ownership of a therapeutic area through a portfolio of effective products and services may be in a position to consider sharing risk with payers and providers for patient outcomes. In an environment where all stakeholders are working to manage costs and quality, this will be an effective way to differentiate on value. Important questions to consider when determining whether to take on risk include: Are providers looking for a partner to share the risk they have assumed as part of a capitated payment model? How confident are manufacturers that they can deliver products or services that help customers meet their goals? How much “skin” are pharmaceutical companies willing to put in the game? Are internal processes established to design, approve, manage and measure a risk-based arrangement where significant revenue is on the line and where those revenues might be deferred to some point in the future?

	The market and regulatory forces driving providers to form IDNs will continue to intensify as managing healthcare costs and quality continues to be a priority. This means that a variety of different care models will be competing in the US market for the indefinite future. Manufacturers should invest in developing new capabilities and R&D priorities that allow them to be nimble and responsive to providers, regardless of their current operating model and risk profile. By doing so, manufacturers will ensure that their models reflect the new market realities and they are equipped to meet rapidly evolving customer goals.

, MBA, is a Senior Consultant at Numerof & Associates Inc. She can be reached at 

, PhD, MPH, is a Research Analyst at Numerof & Associates Inc. She can be reached at 

What you should know about integrated delivery networks.

When Care Models Collide

	Over the past decade, many industry journalists, analysts, and consultants presumed that specialty markets, pricing pressures, and pharmacogenetic testing would kill off billion-dollar products. However-to paraphrase Mark Twain-reports of the death of the blockbuster have been widely exaggerated. 

	Contrary to popular belief, the blockbuster model is alive and well. Despite a specialty market and intense pricing pressure, Gilead Science’s hepatitis C virus (HCV) anti-viral

soared to an historic $10 billion launch last year. Evaluate Pharma projects that sales of 

i will exceed $15 billion in 2015, surpassing the record annual sales of the cholesterol king

, the best-selling agent of all time. Even while entering a so-called “niche market” limited to HER+ test expressers with metastatic breast cancer, Roche’s 

has become a $5 billion blockbuster. Currently, there are more than 50 drugs with annual sales exceeding the blockbuster level of $1 billion in global annual sales. According to Thomson Reuters, there are 11 more projected blockbusters launching in 2015, including Bristol-Myers Squibb’s cancer agent 

and Regeneron/Sanofi’s cholesterol agent 

	Ironically, pharmaceutical companies’ bigger challenge has not been finding but following blockbusters. What can these companies do for an encore? How can companies successfully follow their own blockbusters when

 threatened by rivals’ brands or generic competitors, either before or after patent expiry? Pfizer’s well-documented struggles to replace its blockbuster 

 highlight the immense challenges that many companies face as they pursue “Blockbuster 2.0.” Pfizer tried numerous strategies to replace or extend the patent life of 

, including combining it with the developmental HDL-raising compound atorvastatin, but ultimately failed. GlaxoSmithKline with its respiratory juggernaut 

 and Sanofi with its gold standard insulin 

 are among the many companies currently facing this predicament. 

	There are many reasons why companies fail to follow a blockbuster with a Blockbuster 2.0. First and foremost, a product has become a blockbuster because it is so well received by market stakeholders, especially providers and patients. It can be very challenging to improve upon the gold standard. Providers and patients trust and rely on the product and often resist switching. For many doctors, prescribing a blockbuster becomes habitual. Payers may have contractual arrangements or financial incentives such as rebates, discounts, or tenders which restrict switching from the blockbuster agent. Branded or generic competitors may offer better or lower-priced alternatives. 

	A number of pharmaceutical companies however, have demonstrated effective approaches to remedy this situation. Here are eight strategies for following a company’s own blockbuster:

 The most commonly pursued approach is to convert providers and patients into users of the company’s next generation blockbuster. The classic example of this strategy is AstraZeneca’s switch from its $6 billion blockbuster heartburn agent 

, a closely-related stereoisomer. According to a 2002 Wall Street Journal report, AZ initiated the “Shark-Fin Project” seven years before the proton-pump inhibitor 

was scheduled to go off-patent. The internal team identified numerous ways to convert 

 believers, including conducting head-to-head studies of the two products demonstrating Nexium’s better results in gastro-esophageal reflux disease (GERD); legal and regulatory activities to protect intellectual property rights; an aggressive advertising campaign to switch “the purple pill” positioning from 

; and a massive direct-to-consumer marketing campaign. As a result of this highly controversial approach, AZ overcame branded rivals, prevented generic competition, and successfully established Nexium as a $6 billion successor heartburn drug. 

	Sanofi is currently borrowing a page from AZ’s Blockbuster 2.0 playbook as it seeks to fend off branded and generic rivals for its market-leading basal insulin 

. The company is seeking to switch diabetic patients to 

, its follow-on “next generation of basal insulin.” The company has conducted several head-to-head trials demonstrating the advantages of 

, featuring a more flexible and sustained dosing profile with reduced hypoglycemic episodes and weight gain. The company is also taking legal actions against potential biosimilar competitors and aggressively promoting the product. Despite these steps, analysts expect 

’ $8 billion in annual sales. To further offset 

’ expected sales losses to competitors, Sanofi has broadened its diabetes franchise with new products, including developing 

, and adding MannKind’s inhaled insulin 

 Gilead is an expert in combining products to ensure follow-on blockbuster success. The company built its HIV/AIDS franchise with its two-fixed dosed combination blockbuster 

. It followed that act with the three-dose combination Blockbuster 2.0 

, which replaced its predecessor as the world’s best-selling HIV therapy. Gilead next launched S

, a four-ingredient single-tablet regimen, which has already achieved blockbuster status. The company is applying a similar strategy to its HCV franchise, starting with the mega-blockbuster 

’s sales have already eclipsed the huge quarterly sales of the original molecule 

Building on market entrenchment and physician familiarity of

for metastatic  breast cancer, Roche launched two follow-on agents: 

(trastuzumab emtansine, or T-DM1), an antibody-drug conjugate that combines the HER2 inhibition of trastuzumab (the active ingredient

. These two follow-on agents and a potential bundling of Roche’s HER2 breast cancer drugs represent a critical anti-biosimilar defense strategy for Roche. As shown in the chart, Roche is encouraging oncologists prior to the launch of 

What can companies do for an encore when their own blockbuster product is threatened by branded or generic competitors?

Pharmaceutical Executive-06-01-2015

Taking Flight: Pharm Exec's Top 50 Pharma Companies 2015

Hard Science, High Hopes: Dealmakers' Roundtable

Health Innovation: Creating Next Gen Leaders

When Care Models Collide

Blockbuster 2.0: Eight Ways to Follow that Leader

Bridging Industry's Charisma Chasm

Big Data's Big Opportunity in China

More Mandates for FDA

2015’s Disruptive Dozen

Country Report: Morocco

What Does the UK's "New" Government Mean for the Industry?