The pharmaceutical industry has historically been highly profitable. The biggest contributor was and is the pursuit of blockbusters, a chemical or molecule that treats a common disease and can make billions while it is under the protection of a patent. According to PWC’s report From vision to decision Pharma 2020, the pharmaceutical industry will be worth nearly US$1.6 trillion (£1.2 trillion) by 2020. In such a seemingly promising environment why are we seeing a shift in the traditional pharmaceutical business model? As customers of these companies, what do healthcare professionals (HCPs) think about this?
In the past 20 or so years there has been a significant change in how large pharmaceutical companies are operating. We have recently seen companies divesting business units, focusing on key therapy areas and engaging in strategic alliances to strengthen pipelines. Eli Lilly has sold off its share in animal health business Elanco, various companies are turning their eyes and pipelines to immuno-oncology, GlaxoSmithKline (GSK) may be merging its consumer health business with Pfizer and big pharmaceutical players are forming strategic alliances to jointly develop and commercialise compounds or therapies. Indeed HCPs have been keeping track of these events, authoring their own posts and reposting from others with links to press releases or news articles. Of the most discussed by HCPs in the last year is the GSK-Pfizer consumer health joint venture. HCPs shared posts from GSK’s Twitter account as well as authoring their own posts.
In this rapidly changing global environment, pharmaceutical companies need to make a number of important decisions which will influence their success and survival. Pharmaceutical manufacturers face a myriad of challenges in making these decisions to remain successful and survive.
Challenge 1: Falling off the patent cliff
The first major challenge facing pharmaceuticals is the oft discussed ‘patent cliff’ coupled with pressure by cost regulation groups, which presents a risk to profitability. Traditionally pharmaceutical companies relied heavily on blockbusters to fund or cover previous R&D investments, but with the increased need for value-based pricing, blockbusters may not provide the same profitability in the future (not to mention the fact that many are struggling to find the next blockbuster).
Some decisions made to combat the patent cliff may have negative effects on customers’ trust, as with AbbVie’s licensing tactics.
Challenge 2: Small is the new big
We are also seeing a shift towards individualised treatment and rare diseases that may, in part, be due to the incentives pharmaceutical companies receive from regulatory authorities. These treatments may have low prescription volume but the large cost of each unit and the various market incentives provide a significant return on investment .
As pharmaceutical companies look past the patent cliff these shifting economies of scale place them at a vulnerable position not only because of changes in where profit is made but also in their pipelines. We see that many companies have been eyeing out smaller biopharmaceutical companies or keeping track of the pipelines of their competitors who may already have drugs in R&D to acquire their individualised or rare disease drugs. This tactic stifles the search for blockbuster drugs, many of which can help manage patients’ long term conditions. This in itself poses a challenge to competition within the pharmaceutical industry. As the market is now open to cheaper generics (with few new blockbusters in sight) and individualised treatments, smaller players in the market now become competitors.
Challenge 3: Taking risks, or not…
A final challenge (although this is not an exhaustive list) is the risk and cost boundaries to new innovation. With uncertainty around long-term profitability and the risk of failure, in research and regulatory approvals, pharmaceutical companies are becoming more risk averse when it comes to investing funds into novel treatments. In this again we see companies turning to small firms and competitors for pipeline opportunities to acquire.
How do we see pharmaceutical companies addressing these challenges and subsequent decisions? One of the ways is to enter into strategic alliances, namely those to jointly develop and commercialise compounds or therapies. There are a number of benefits that motivate pharmaceutical companies to enter into these alliances. Firstly, a company can strengthen its pipeline by entering into a new therapy area or by seeing promise in a compound in development from another company. In this way, pharmaceutical companies can feed and develop their own pipelines. Secondly, both companies are able to mitigate the risks around cost and failure by sharing the cost of and investment into R&D. Other benefits include having access to new markets for commercialisation, which would have been cost and resource intensive if done by a particular pharmaceutical company internally, and knowledge transfer in either R&D or commercialisation strategies.
These changes in the pharmaceutical industry have a far-reaching impact from their stakeholders, to clients, to patients. When we analysed the online conversation of HCPs posting about strategic alliances, we saw that they have an interest in and actively post news of these alliances. Of note is the Bristol Myers Squibb (BMS) – Pfizer worldwide alliance collaborating to develop and commercialize apixaban (Eliquis®). HCPs were sharing and engaging with the BMS-Pfizer alliance in their efforts to engage HCPs in conversation around atrial fibrillation. A post from the BMS Twitter account mentioning an expert discussion at the World Stroke Congress in 2018 was shared by a number of HCPs including Tracy, a nurse practitioner. HCPs shared posts where Pfizer and BMS were particularly active in the conversation, including conferences and disease awareness days. Instead of alliances purely being strategic movements among pharmaceutical companies, these HCP initiatives show potential opportunities for alliances to develop and direct novel value for their HCP customers.
In this article we have covered challenges that pharmaceutical companies may need to and are currently navigating to remain successful in an industry that is shifting from its traditional model of doing business. Strategic alliances to jointly develop and commercialise compounds or therapies is one of the ways we see companies addressing these challenges. In the next article we will look at some of the key products that are involved in these alliances, and what HCPs are discussing about them.