Clifford Kalb, President, C. Kalb & Associates LLC
June 14, 2019
The Pharmaceutical Industry – An Introduction
The pharmaceutical business is a key component of the health care business. It is the source of some of the most dramatic medical advances in history such as antibiotics, vaccines, as well as medications for heart disease, diabetes, cholesterol, cancer, ulcers, asthma, and many other serious medical conditions. The research-intensive component of the industry is driven by companies who must continuously innovate, which is dictated by the daily changes in the knowledge base about the human body and the vast array of alternative medical means of intervention to treat or prevent disease. A number of core scientific disciplines are involved in the industry’s operations and its evolution, e.g., biology, chemistry, pharmacology, biotechnology, morphology, physiology, and genetics, just to name a few. This requires the players to be adaptive and nimble in the evolution of their business models. They must navigate the changing landscape of not only direct competitors, but other key stakeholders including suppliers, physicians, pharmacists, wholesalers, hospitals, patients, payers, regulators, and governments.
The pharmaceutical industry (pharma) is also subject to macro forces including politics, economics, regulation, demographics, and science and technology. Why take the time to discuss this? To illustrate that there is absolutely no aspect of the business that cannot benefit from the services of a decision support function such as competitive intelligence (CI).
CI plays a business critical role at any point in the pharmaceutical product life cycle. This cycle runs over about twenty years in most countries. It starts when a new molecular entity (NME) emerges as a twinkle in a scientist’s eye, leading to discovery, intensive research and drug development, registration, market planning, launch, sales growth and maintenance, and ultimately patent expiration and the post-patent period. (See appended graphic). In each and every one of these phases decisions are required that involve massive investment, high risk, and limited likelihood of commercial success. Executives responsible for these decisions benefit from decision support services provided by many different functional support groups, and CI is a key player, often viewed as a trusted decision partner.
In this industry in particular, a mature understanding of the external industry environment and current issues, and the three key internal functional areas of R&D, marketing and sales and production, is required for CI personnel to have the credibility to offer the kind of support necessary to “have a seat at the table.” It’s quite common for CI personnel to have several advanced academic degrees, some in science, some in business and some in both. However, the credentials are only a first step to enable pharma CI professionals to speak the language, walk the talk, and offer relevant intelligence products and services. Many will also have significant and deep industry experience in these key functional areas, and to embed them as respected internal consultants who support prudent, evidence-based decision making in such a rapidly changing and technically complex field.
The remainder of this document will therefore take a somewhat different focus from content normally provided in the CI literature. Based on the premise that CI can and should be an essential component of decision making processes occurring throughout a pharma entity, the focus will be on current business issues faced by C-Suite personnel at these firms that can be supported. The CI techniques deployed, the analytical frameworks used, the methodologies employed to define, develop and execute key intelligence topic (KIT) action plans are left for the reader to decide. Rather, this piece will focus on the top industry business issues commonly facing executives in C-suites in the current environment. It will serve as a guide for the CI professional to understand the broad range of common business issues that keep their clients “up at night” in the short, medium and long term. It is intended to assist the CI professional to see the world from his client’s perspective and help engage the client in an ongoing productive dialogue around the issues where CI can make a continuous, valuable, relevant and timely direct impact on improving business performance.
We have identified five key areas into which these issues fall. They are described briefly at a macro level, after which some detail is provided on subordinate specific strategic and/or tactical decisions that may form the basis of a short, medium or long term issue that needs to be addressed. In classical CI terminology, this might be viewed as a set of common industry strategic level KIT’s and a number of possible unique key intelligence questions (KIQ’s) that may support them that create the basis for focused intelligence action plans that will make a significant business impact.
Issue #1 – Replenishing the Drug Pipeline
A critical strategic element of competitive advantage in pharma is building and sustaining a full, constantly developing pipeline of potential new products with intellectual property protection (patents). The ongoing concern is to constantly develop enough successful new products through the R&D and commercial launch cycle to replace those that face commercial decline via loss of exclusivity (LOE) when patents expire and generic drugs can enter the market. The commercial value of those portfolio products introduced over the most recent five years should represent about twice the commercial value of those set to face LOE in the same five year period. This 2:1 ratio will generally support a firm’s growing industry market share.
- Therapeutic area (TA) and geographic diversification – Should we build on strengthening our position in disease areas of traditional strength or enter new ones? If new ones, which ones and what are the risks and opportunities? What are the greatest areas of unmet medical need and the level of competitive intensity in them? What are the geographic areas of greatest future growth potential, what do we know about the local health care system and competition, and if, where and when should we enter?
- Transition from small molecules to high priced biologicals – How should we manage the balance in our portfolio from traditional chemical entities for broad populations to biologicals for more narrow populations? What are comparative success rates, costs, speed of development and the likelihood of successful registration? What is our competitive position in leading-edge technologies necessary to produce biologicals? How will we manage pricing and reimbursement challenges unique to biologicals? Do we want to compete in the orphan drug (rare disease) segment?
- How do we compete in the coming era of “personalized or precision” medicine? – Do we need to build or partner for diagnostic technology capacity to be paired with our classic strength in therapeutics? Which disease targets offer areas of commercial opportunity for genetically based health care? Who are the players we will face and the degree of competitive intensity? Do we want to be pioneers or fast followers? What will be the reimbursement challenges?
- Internal efficiencies to reduce phase III failures – How can we improve go/no go stage gating decision making earlier in the development cycle to avoid costly project cancellation in the most expensive later development stages? What elements of our regulatory submission dossiers need change to anticipate regulatory and payer requirements? Are we anticipating regulatory and payer requirements for the broadest possible set of geographies for commercial sale? Is there a knowledge repository with the reasons for previous phase III failures that can be accessed to avoid repeating errors? How can we employ biomarkers to help predict likely R&D success?
- The licensing vs. organic development tradeoff – Given competitive dynamics, what are the benefits and risks of developing in house discovered compounds vs. taking a license on an external discovery? If we license in new molecules, are there opportunities to license out molecules as a form of trade? What beneficial commercial arrangements can be negotiated in the terms of a licensing deal? Should deals involve only development or should they be extended to include marketing and/or manufacturing arrangements as well?
- Future opportunities in treatment, delivery, device technology – Can we develop or partner for a patented device or delivery system to build or extend exclusivity for our medicine? Are there non-traditional competitors entering our space with disruptive innovations that may make our entry obsolete, e.g., a vaccine eliminating the need for a therapeutic? How do we partner with new players in healthcare IT to take advantage of the technology wearables trend? What opportunities for new/alternative revenue streams are offered in non-Rx pharmaceutical specific areas of health care, e.g., OTC’s, nutritionals, vitamins, herbals, nutraceuticals.?
Issue #2 – Maintaining value throughout the product life cycle
As indicated in the introduction, each stage of the pharmaceutical product life cycle offers the opportunity for building and/or sustaining competitive advantage. The decisions change at each stage, and the intelligence support required may be either strategic or tactical requiring early warning, the study of key players, or specific, time-bound investment, resource allocation, or other key business decisions or actions. Pharmaceuticals are a long cycle business, and a competitive advantage may be temporary as the marketplace evolves. The critical business partnering role played by CI is to anticipate changes in the external environment, and provide evidence-based analysis and recommendations that support purposeful actions to consistently enhance business performance and sustain competitive advantage. This often requires offering unique perspectives inconsistent with conventional wisdom. CI professionals must have the courage of conviction to support such perspectives with well-documented research and persuasive communication.
- Building a strong, broad patent position to protect IP long term – What is the competitivelandscape of existing patents in our intended area of discovery? Can we maximize patent protection around a family of related compounds early in discovery? Have we considered filing for all possible types of patent protection, e.g, substance, method of use, delivery system, unique dosage forms, etc.? Have we filed for exclusivity protection in the broadest possible array of geographic areas of current or likely future commercial interest?
- Maximizing clinical differentiation vs. current gold standard – What patient features or benefits of our products offer an efficacy or safety advantage that enables a clear innovative clinical difference for the patient in the marketplace? Is our feature/benefit advantage innovative enough value to justify and achieve a pricing premium from payers? If we determine early in development that our product will not likely be highly differentiated, will we recommend discontinuing development in favor of products of greater opportunity? What external models of successful innovation can we offer to our drug development teams as a guide to improve our chances of commercial success?
- Risk averse regulatory authorities and delays in marketing approval – How can we improve our operating relationship with regulators early and often during the R&D cycle? Do we have clear definitions of required endpoints to achieve in our study designs? Will health outcomes measures be required as well as traditional proof of safety and efficacy in statistically representative trials of our intended patient universe? How do we improve proper drug comparator selection in trial design to assure the earliest possible approval? What is our plan for the ideal sequence of the timing of regulatory approvals around the world to optimize our competitive advantage in each jurisdiction?
- Crowded therapeutic areas – increased in-class competition – What does the expected order of market entry of new players dictate for decisions about our likelihood of success? What are the strengths and weaknesses of first and second entry competitors in a therapeutic class, and are there other strong fast followers coming? What are our internal standards for the basis of differentiation, and if it is relegated to price or convenience alone, is that acceptable? What are environmental trends and definitions for substitutability among key payers and government authorities, and what are the necessary criteria to offer differentiating features and benefits that will protect our brand(s) market position?
- Strategies to accelerate launch uptake – What can be legally and ethically done pre-launch to build anticipation and demand for our coming new entry? How can unique positioning contribute to the speed of awareness, trial, and usage by health care practitioners? What programs are in place to assure widest possible distribution and availability of product immediately after marketing authorization? What elements of the launch marketing strategy are best deployed in what sequence and directed at which customer group? How can we best deploy our field sales personnel and non-personal promotional tactics to assure rapid diffusion of innovation from key opinion leaders to the practitioner network they influence?
- Post patent growth plans – What models of generic erosion in the post-patent period can we study to help inform and optimize our plan to slow the revenue decline curve?Can an Rx product be repositioned for alternate uses in an OTC application, either marketed ourselves or with a strong OTC marketing partner? What new dosage forms, combination products, or delivery systems can be added as line extensions in the final years of patent life that will not easily be copied by generic competitors? Should we plan to actively participate in the generic or biosimilar market for marketed forms of a molecule once the loss of exclusivity (LOE) occurs? Can we benefit from becoming a supplier of active pharmaceutical ingredient to others who will compete in the generic market of final dosage forms?
Issue #3 – Securing and maintaining market access
While the early costs of drug discovery, research and development are massive, (most recent estimate is well over $2 billion per NME), the commercialization window from first market launch to patent expiry is very short to recover those costs and earn financially acceptable margins. Yet pharma faces global, regional, and local environments of a variety of health care cost containment restrictions. Payers employ restricted use policies and tiered access formularies, step-care protocols, discounting requirements, annual competitive bids and tenders, and mandatory substitution laws. This is often most severe in single payer markets where national health insurance programs control access, pricing, reimbursement levels, and in some cases, even pharma profit levels.
- “Commodization” of chronic care drugs and loss of price flexibility in oncology and other specialty TA’s – How to overcome limitations to patient access for maintenance care drugs facing payer obstacles placed between what the MD prescribes and what alternative is dispensed at the pharmacy? Addressing the need to prove value to payers of economic justification of the cost-benefit of treatment with new medicines for oncology, HIV and other life-threatening conditions? Determining a means of abiding by forced government discounts, or across the board industry mandatory price cuts while maintaining obligations to provide expected returns to investors?
- Co-pay offset strategies, rebates and risk sharing – In markets like the US. tiered patient co-pays are required to deter patient access to premium priced products. What strategies can be offered to patients to help provide access while minimizing patient out of pocket cost? Can patient, pharmacy, wholesaler, buying group or private or public payer program rebates linked to purchase volumes be legally and ethically designed and offered? How do we plan to deal with distribution disruptors (like Amazon) who threaten to eliminate intermediaries with direct to consumer distribution models? What novel drug cost risk sharing programs can be negotiated with payers based on agreed metrics for the value of patient outcomes parameters? How do we responsibly deal with pricing acute care cures vs. chronic care maintenance medicines?
- Managing price point diversity across geographies – When price points are negotiated with payers in distinct countries or regions that differ based on local competition and regulation, what strategies should be employed to deal with country demands for price parity with lowest publically available price points? How to best manage losses due to the practice known as parallel importing of your brand from lower priced to higher priced markets? How to develop pricing policies for markets that do not recognize intellectual property, and produce counterfeit versions of your brand for local sale?
- New investments in evidence/information technologies, big data analytics, and outcomes modeling to prove cost/benefit as a definition of value – Increasingly, payers base coverage/reimbursement decisions on pharma’s proof that their medication is a cost-effective intervention that reduces total patient management costs. How to invest in, design and execute studies of appropriate data to meet these new requirements? How to build patient outcomes measurement studies into pre-launch R&D to be able to offer this evidence as early as possible to payers? How to anticipate and adapt to changing payer standards for acceptable measures of value as the academic literature evolves?
- Corporate policy reforms to allow for success in high growth emerging markets – How to successfully enter and build a market presence in local emerging markets with unconventional local business practices? How to define and characterize local competition in markets where local medical practices rely on centuries of traditional non-clinical trial proven alternatives, e.g., herbals, holistic care, local dietary habits, etc.? How to meet the basic need for low cost generically available medicines if your primary business is premium priced proprietary medicine? How to convince management to be flexible with the corporate business policy in recommending which emerging markets to enter, why, when and how?
Issue #4 – Achieving global operational efficiencies
Over the past several decades, the US, European and Asian based leading pharma competitors have expanded their global footprint to a point where most now compete in over 100 countries. This has largely been accomplished through a series of mergers, acquisitions, joint ventures and other forms of partnering. Industry consolidation is still ongoing and although global market revenue is now approaching 50% concentrated in the top ten players, the industry remains highly fragmented as compared to other industries. This consolidation pattern dictates a need for facility and personnel rationalization. Corporate restructuring initiatives are typically undertaken to capitalize on competitive advantage offered by an evolving global presence, capabilities and changing business needs.
- Rationalization of the manufacturing supply chain across geographies – A need exists to conduct due diligence studies of potential merger/ acquisition targets, production facilities, capabilities, technologies, plant and equipment to support synergy recommendations. What facilities are duplicative? Which ones offer superior technology as compared to in-house technology? What is the global, regional and local distribution of facilities and staff as it relates to each step/phase of an optimally efficient supply chain compared to in-house capabilities, capacities and access to necessary outside vendors? What recommendations for facility and personnel rationalization will produce the optimally efficient supply chain and low-cost producer configuration?
- Outsourcing of high-cost R&D functions, e.g., high-cost late phase clinical trials and R&D testing – Which contract research organization (CRO) can conduct our phase III clinical trials faster and at a lower cost, while still maintaining our established quality standards? What other elements of the phase II program can be outsourced to a trusted professional CRO to reduce cost and development time? Can we conduct other high-cost components of our R&D program in other geographies at high quality and lower cost while still meeting regulatory requirements? How can upgrading R&D IT systems, adding artificial intelligence and use of mobile technology accelerate our development programs?
- Managing a more diverse, scaled down knowledge workforce – How can we improve staff quality by attracting, retaining and developing the best and the brightest talent? How do we develop best in class staff, state of the art knowledge teams in the new and evolving scientific, technical and business management disciplines? How can we improve collaboration with academia and the university community to ensure ongoing access to cutting edge thinking and experimentation? What new kinds of arrangements should be made with non-traditional partners outside our industry to advance the quality and value of our products and offerings to our customers?
- Leveraging and protecting information assets – How can we effectively combine basic operating IT systems before a full-scale post-merger integration occurs to avoid productivity loss for staff? How can we assure confidentiality of proprietary documentation throughout the key functional areas of R&D, production and marketing and sales? Can we work with IT and global vendors to deliver reliable global connectivity at all facilities with secure video, audio, and intranet systems? Are we secure from potential cyber and external threats to our IP and essential operating IT systems? How do we securely connect our systems to external digital assets to support the growing need for real-world evidence of value?
- Global go-to-market harmonization – What is a best in class model for a global commercial strategy development group that can support local markets who need it and assure market planning and execution consistency with those large enough to manage with little headquarters support? How can we rationalize relationships with advertising agencies to build consistent imaging and messaging in marketing and sales collateral across geographies and local languages? How do we re-structure field sales forces to take legal and ethical advantage of opinion leader and specialist support and endorsement of our brands, and fully exploit digital media with technology to reach customers efficiently?
Issue # 5 – Improving our company and industry’s societal reputation
The pharmaceutical industry has faced a long term problem of poor reputation with the public. Survey after survey has ranked pharma among the most hated industries with consumers along with tobacco and oil. This reputation is linked to perceptions of high priced products, safety issues, side effects, addiction problems, and product recalls and withdrawals. Pharma has also been accused of unethical and illegal marketing practices, some of which have led to convictions and large government fines. The recent issue with opiate addiction and overuse is just one example. The story of the industry’s discoveries, R&D successes, and positive impact on public health and major disease states is not well known or widely accepted by the public, many of whom believe that most beneficial medicines and vaccines were discovered and developed by the government.
- Establishing transparency/compliance as an ingrained business practice – How do we design and implement a corporate business ethics and compliance program? Can we draft, execute and ingrain a corporate code of business conduct with all employees? How do we develop a corporate-wide internal culture of transparency and knowledge sharing, and break down silos and knowledge hoarding? Is our CI program following formal legal and ethical guidelines consistently around the world?
- Recasting drug promotion as a measure of good science –What should be done to refine our marketing and sales communications to professional audiences. How do we switch from a messaging mindset of product promotion to listening, educating, building trust and improving health outcomes? As mobile and telemedicine health management grows, what is our strategy to optimize digital opportunities to interact with our health care provider audience? How can we convert big data predictive analytics and real-world evidence to documentation for health outcomes improvement?
- Anticipating/identifying the changing needs of the patient – What are the opportunities and risks for interacting with patients through the use of social media? How do we improve our value to individual patient disease management behavior with “beyond the pill” strategies? How do we routinely ensure that we are tapping “the voice of the customer” by including patient input in drug development, marketing, and product usage decisions? How do we best align with organized patient advocacy groups that will support a positive image of our brands? How do we build patient health value propositions into their use of wearables and digital devices?
- Expanding the breadth and network of stakeholders – How can we improve our relationship and communications with our stockholders and the investment community? What can be done to change the relationship with public and private payer groups from adversaries to partners? How do we build a broader network of scientific opinion leaders in teaching hospitals and university research settings? Should we operate as a venture capital group to broaden our network of relationships with biotech startups? Can we identify and partner with health technology partners in the diagnostic, device and the electronic health records business? What are the early warning signs of technologies of disruptive innovation we must be prepared to compete with that can revolutionize health care as we know it? How do we best avoid being blindsided by disruptors who substitute prevention or cures for chronic treatment? In which areas of the business should we be collaborating with competitors to share in successful outcomes?
The world of healthcare is dynamic and hyper-competitive. CI professionals in the pharmaceutical segment of the industry will need to broaden their thinking to keep pace with the integrated healthcare systems of the future. The impact of IT and the role of non-traditional competitors change at a pace far faster than that of classical pharma, and the industry has been conservative and slow in adopting digital applications across the value chain. While some change is evolutionary and predictable, we should anticipate that increasing elements of change will be revolutionary. Those firms whose business strategies are nimble, forward-looking, adaptable and drive change, rather than always responding to it, will succeed as winners in the marketplace. Firms that are rigid, avoid prudent risk-taking and continue to believe that the future will look just like the past are not likely to survive.
Consolidation among pharma companies, and between pharma and other firms with core competencies in other related areas of the health care business will continue. Business leaders will need to identify and vet potential partners thoroughly and manage post-merger integration with alacrity, professionalism and culturally open minds. CI and other decision support professionals will continue to be respected and engaged in these strategic decisions if they 1) maintain and expand the breadth of their health care industry expertise, 2) anticipate and focus their work on the key business needs of their clients, and 3) remain committed to providing unbiased independent analysis and recommendations to drive strategies that will improve business performance, and build and sustain competitive advantage.
Cliff Kalb is President of C. Kalb & Associates, LLC, a pharma consultancy in intelligence and strategy. He has served for over four decades in a broad variety of senior level functions the industry. Cliff was Senior Vice President with Wood Mackenzie life sciences consultancy. Previously, he served as Senior Director, Strategic Business Analysis at Merck, heading their global intelligence function. Earlier he worked at Marion, Pfizer, and Roche in sales, market analysis, health economics, public policy, marketing, licensing, business intelligence and business development. Mr. Kalb has served as Chair of the Conference Board Council on Competitive Analysis. He is also former President of SCIP, and the Pharmaceutical Business Intelligence and Research Group (PBIRG). Mr. Kalb is a CI Fellow, a Meritorious award winner, a Faye Brill distinguished service award recipient, and a former Chair of the Council of CI Fellows. He has been named one of the top 100 most inspiring people in the pharmaceutical industry