Deloitte Suggests Attempts to Move “Beyond the Pill” Successful
In part one of a two-part report, we explore the broad trends affecting the sector.
Looking ahead to 2016, global consultancy firm Deloitte throws the spotlight on three key issues for pharma companies as they enter the New Year: questions relating to operational excellence; the accelerating move towards outcomes-focused models in healthcare; and continued piloting and roll-out of off-site patient engagement and patient-centric models.
Greg Reh, Global Sector Leader, Life Sciences at Deloitte and one of the authors of a “state of the nation” report addressing the outlook for pharma and other elements of the life sciences sector, explains: “The existing regulatory environment, cost pressures, and other drivers increasingly heighten the priority for addressing operational excellence.”
He adds: “The way the whole product development lifecycle complexity is managed, I think could have a significant impact on operational costs and effectiveness. There are still too many silos between divisional and functional aspects of the development, commercialization and manufacturing continuum that really introduce a lot of inefficiencies.”
Secondly, Reh highlights the move towards outcomes-focused models as an ongoing topic next year: how evidence is generated, how data is shared, how organizations navigate the regulatory barriers around collaboration.
Thirdly, he flags opportunities and issues around off-site patient engagement and patient-centric models, an area that has seen significant numbers of pilot projects and some rollout activity. “I think that will be an ongoing topic in the coming year as well, given the emerging models for home health, and advances in telehealth technology. Respondents to our 2015 Survey of Health Care Consumers are beginning to view telehealth as an acceptable care alternative.”
Opportunities and challenges
2016 Global life sciences outlook – Moving forward with cautious optimism sets out the opportunities and challenges for a life sciences industry that has fared well in past economic recessions but which now faces a volatile marketplace, characterized by economic uncertainty, reform-driven pricing pressures, increased demand for innovation and value, more focus on the consumer and consumer engagement, and an ever-changing regulatory and risk environment.The 28-page report covers the broad topics of: “navigating market dynamics”; “countering pricing and cost pressures”; “promoting innovation”; and “adapting to an evolving regulatory and risk environment’.
Setting out the economic outlook for life sciences players, Reh and his fellow authors write: “Entering the second half of this decade, most life sciences organizations appear to be adopting an attitude of cautious optimism. Significant opportunities exist in the global marketplace but challenges exist, as well.
While spending growth is expected to pick up beginning in 2016, the pressure to reduce costs, increase efficiency, and prove value remains intense.
“Spending growth in pharma, biotech, and medtech is projected to follow an upward trend due to increasing demand, but pricing challenges are still an issue. Industry margins are being eroded by high discounts, retail sector price controls, public-sector purchasing policies, and the move to value-based care. Strong economic growth looks hard to come by in many countries; therefore, assumptions on health spending may need to be revised downward.
“In response to today’s dynamically changing clinical, regulatory, and business landscape, pharma, biotech, and medtech companies are re-evaluating and adapting traditional research and development (R&D), pricing, supply chain, and commercial models.”
The authors add: “While spending growth is expected to pick up beginning in 2016, the pressure to reduce costs, increase efficiency, and prove value remains intense.” Accordingly, global healthcare spending is expected to increase by only an average of 4.3% in 2015-2019, more slowly than it did before the 2009 recession. Deloitte also expects spending as a percentage of GDP to decline, from around 10.3% in 2014 to 10.1% in 2019. Meanwhile, per-head health spending is projected to increase from $1,145 in 2014 to $1,412 in 2019. However, spending levels will vary greatly among developed and developing countries.
So what advice can the authors offer in terms of adapting to market conditions, and how are the industry’s new business models working?
Navigating market dynamics
“Faced with the complexities of managing product pricing and access issues in multiple geographical regions and under various government policies, life sciences companies need to think and act creatively to understand and navigate policy trends and market dynamics,” the authors suggest. “In addition to relying on traditional information sources, companies should consider participating in local projects and partnering with local firms, academic institutions, and government entities to gain ‘real’ insights into local needs and challenges.
“Life sciences organizations should also consider piloting alternative customer models and new customer engagement strategies, such as online learning modules for physicians or call centers for patients. Companies should also revisit the interface between sales and marketing, clarifying the ways marketing can effectively support the sales team. Finally, given the enhanced innovation capabilities of local firms and improved R&D ecosystem in many established and emerging markets, partnering with local firms on R&D could be a strategy to shorten approval times and reduce development and marketing costs.”
Evolving business models
As life sciences companies evolve their business models “beyond the pill” – along the entire length of the product value chain – and seek to engage more fully with providers and patients, they are looking to “transform what is possible”. Recent data indicate these efforts may be starting to pay off, according to the report.
“The current net present value (NPV) of the pharma sector’s pipeline surged 46% from 2013 to 2014, to an estimated total of $418.5 billion in potential future revenue. However, R&D expenditures are forecast to grow just 2.4% between 2013 and 2020, reaching $162 billion, below sales growth and continuing the industry’s balancing act between fostering innovation and containing costs. In time, the benefits of new business models may also become apparent in more macro measures, such as total shareholder return (TSR).”
The report highlights personalized care as one important clinical development driving business-model transformation: scientific advances can provide optimal value when targeted to particular consumers. “Widespread adoption of ‘personalized/precision care’ will likely be made possible through investments in offerings that integrate drugs and devices with low-cost diagnostics, disease management programs, and clinical decision support,” the authors suggest.
“For example, the proposed US FY2016 budget includes $215 million for the Precision Medicine initiative, which is focused on building a large research cohort for longitudinal studies and ensuring regulations are appropriate to facilitate sharing of patient data across institutions and agencies. Ultimately, the goal is to get more targeted treatments for a variety of diseases to patients faster.”
Meanwhile, the size of the global digital health market comprising wireless health, electronic health records (EHR), electronic medical records (EMR), mHealth, and telehealth, among others, is expanding rapidly. It was $60.8 billion in 2013 and expected to increase to $233.3 billion in 2020, growing at a compound annual growth rate of 21.2%.
In addition, these offerings are leading to developments in related markets such as wireless network tools, sensors, and devices. Digital health venture funding exceeded $4 billion in 2014; telemedicine was the fastest-growing segment at 315% year-over-year growth from 2013 to 2014.
Countering pricing and cost pressures
“Pharma, biotech, and medical device manufacturers should expect that gaining approval, access, and reimbursement coverage for very innovative but also very expensive drugs may require extensive negotiations and novel pricing mechanisms (e.g., risk-sharing, outcomes-based, and managed-entry agreements),” the authors warn.
They conclude: “To improve their chances for product approval and favorable pricing, pharma companies may want to consider transitioning to a strategy of developing new drugs or drug delivery mechanisms that target complex disease areas that are high in value but low in competition. Furthermore, they should take the necessary steps to ensure that the effectiveness of these new drugs or drug delivery mechanisms is not easily replicable.”
2016 Global life sciences outlook – Moving forward with cautious optimism is published by Deloitte. You can contact author Gregory Reh, DTTL Global Sector Leader, Life Sciences, via email@example.com
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