The Pharma sector has delivered unprecedented innovation over the past few decades, providing value to all stakeholder groups – particularly the patients that receive the products.
However, despite this level of innovation, many argue that the business model is Breaking Down because of a multitude of interconnected factors, including, notably, an ever-increasing downward price pressure.
Some key challenges
On top of the more obvious root causes of the downward price pressure that Pharma businesses face, such as the inability of payers to pay, a few bad actors have disrupted the degree of trust in the sector, which is negatively affecting the “sector’s standing” in the eyes of the payers and others in the Pharma ecosystem. As evidence of this, the healthcare sector, despite some improvement over the last two years still ranks relatively low (just above the lower quartile) in the Edelman Trust Barometer 2019 assessment of trust across various sectors.
Global healthcare spend is expected to exceed USD 10 trillion by 2022. There will be an increased expectation that new products and solutions will deliver “more for less” (i.e. they are highly differentiated versus the current standard of care). At the same time, there will be increased focus on efficiency gains across the board. Patients have become savvier and as their “out of pocket” contributions increase they will continue to demand more value in the form of holistic solutions as opposed to simple treatments (pills) in the past. There will be more focus on outcomes and on preventative medicine. Thus, the pharma industry will need to diversify its offering meaning the talent mix will need to change and there will be a greater need to partner as it will not be possible to build, in house, all capabilities needed.
The above examples are just a selection of challenges faced, all of which are surmountable over time if the right approaches to overcome them are taken. So, despite the apparent “doom and gloom” picture, what about the vast array of opportunities on the table?
Some key opportunities
One could also argue that the Pharma business model is Breaking Through as there are so many advances that can now be taken advantage of. For example, the widespread use of Artificial Intelligence (AI) and ever-improving data analysis capabilities will mean that less and smaller clinical studies may be feasible, leading to less exposure for patients and clear time and cost savings along the way. “Big data” analysis will facilitate a deeper understanding of the patient journey as a whole and of individual patients facilitating more individualised care.
The drive towards more pricing transparency will likely benefit the Pharma sector from a reputation perspective, with all the positive knock-on effects this will bring forth. After all, not more than 10% of the overall healthcare spend comes from the Pharma sector, but they are the ones who have suffered much of the negative reputation impact to date.
Furthermore, what can we say about regulatory opportunities? Whilst the dynamic political situation has undoubtedly led to higher complexity in the regulatory environment, there have been positive changes, such as the acceptance of bridging studies in Asian countries, the introduction of accelerated / conditional regulatory pathways, and, most recently, the signing of a mutual recognition agreement between the FDA (Food and Drug Administration in the USA) and the EMA (European Medicines Agency) for the inspection of manufacturing sites. Agreements like this will facilitate earlier access of medicines to patients in need, as well as facilitate cost reduction for the Pharma sector.
Wrapping up
The above overview is a high-level summary of the imminent challenges and opportunities that “matter” for the Pharma sector. A strong Enterprise Risk Management (ERM) team can play a valuable role in a Pharma business, by proactively bringing transparency to all the opportunities, and the threats, that lay ahead. This should facilitate early risk-informed decision-making, and support the creation of sustainable competitive advantage. Taking early action on the opportunities and threats is critical to the long-term success of organisations in the Pharma sector.
Author: Dr Michael Malone
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