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A vision of pharma's next business model is starting to emerge. But how do we get from here to there?
There used to be a joke around the Pharm Exec office that we should change the tag line on our cover from "The Business Magazine of Pharma" to "Preparing the Pharmaceutical Industry for the 1980s." It was clear that big change was coming, the kind of change that had torn through other American industries a couple of decades before, but a startling number of folks in the industry appeared to be in denial. A year or so later, it seemed like everyone we talked to said pharma's business model was broken, but they said it in a way that made it clear that the solution, if any, wasn't coming on their watch. Finally, late in 2007, after a wave of CEO and CFO changes, the consensus seemed to be, "Yes, this is coming, and we're the generation who are going to deal with it—as soon as we figure out how."
Today, the image of a new business model for pharma is finally starting to emerge. The details are far from clear, but the basic components are there, some of them things that pharma needs to achieve (such as fleeter clinical trials with a lower failure rate in Phase III) and some that are going to be imposed on the industry (lower margins, greater concern with safety). To me, it appears at least five key points will be:
1) Lower prices. I know that's impossible, and that increased regulatory pressure, among other things, is raising the cost of developing drugs. But in a world where technology routinely drives prices down and quality up, pharma will eventually have to deliver, too.
2) Greater market penetration. Today, between missed diagnoses and appalling patient compliance, even life-saving drugs have a market penetration that looks a lot like consumer goods. That's not good for patients, and it's not good for companies. Drugs need to be less like the George Foreman Grill and more like the telephone.
3) Targeted sales and marketing. In the days of blockbuster drugs, the road to bigger profits was through expanding a drug past its label to "write everyone" status. But in the past several years, the government and the tort bar have proven effective at making companies disgorge revenue from that sort of expanded use. Medical education guru Hank Slotnick is fond of saying that the goal of drug marketing is to ensure that you get 100 percent market share of patients for whom your drug is the best choice and zero percent market share of everyone else. In the future, that's not going to be an idealistic goal; it's going to be a business necessity.
4) Focus on prescribers' and payers' business models. In the good old days, drugs could compete primarily on efficacy. In the coming golden age of drugs (which may not be that far away), patients, doctors, and payers will have more choices. Many of them will be made not on price but on bottom-line considerations.
5) A seat at the healthcare table for pharma. I know, today it seems like everyone hates the industry. But that doesn't mean that a turnaround—and acceptance—is that far away. When I was in my 20s, most of the couples I knew had a big bust-up just before they got married. It wasn't the end, but a final coming to grips. I think we may look back at this decade and see it as healthcare's prenuptial bust-up with a vital partner.
The big question: How do we get from here to there? Well, as science fiction writer William Gibson famously said, "The future is already here—it's just unevenly distributed." Maybe it's time for all of us to be stirring like crazy.