Pharma business model – reactive rather than proactive, for how long?

© Shutterstock
© Shutterstock

The pharmaceutical business environment has changed dramatically in the past decades. However, it seems that its business model still struggles to catch up. For a long time pharmaceutical companies were in a continuous race to find the one drug that can cure masses, the one drug that can be sold in large volumes. In the process, the patient that was supposed to be the main stakeholder was slightly overlooked. Even though, the set of the blockbuster era was anticipated, no proactive measures were established in order to assure a smooth transition towards a new model.


Amongst the first undermining factors that threw pharma industry into turmoil were on one hand the economic volatility and the relenting productivity of the “classic” R&D practices on the other. While small and medium-size pharma found themselves coming short of funds in terms of development or with insufficient resources to market their innovation, big pharma were starting to sense the limitations of their innovative capacity. The obvious solution was to establish partnerships to benefit both parties. As the blockbuster race was starting to put players under pressure, partnerships evolved towards mergers and acquisitions (M&A). The most well-known example of a partnership that evolved into a successful acquisition is the story of Warner-Lambert and Pfizer. As Warner-Lambert’s intentions to merge with another biopharma company threatened Lipitor co-marketing agreements, Pfizer resumed to a hostile acquisition gaining full ownership of Lipitor and thus, tripling its revenues during the six following years.  M&A practices started to be hostile more often than diplomatic and they were largely used as a portfolio security measure. Many wondered at that time whether or not the new trend in the pharma world wasn’t actually counterproductive as financial efforts were turned away from innovation and evolution to acquire competitors.


No matter how much companies tried to win some time, with more patents expiring than being registered, prices have shrunk and prolific generic markets have risen while the cost for a successful product launch doubled reaching nowadays around $1.7billion. In other words, the inevitable has happened as the blockbuster model hardly delivers 5% return on investment.


Having no other choice, as the period of stagnation did nothing else but feed the gloomy scenarios regarding the industry’s future while the shares’ value was crumbling down, pharma companies started to revise their R&D and found solutions in biotechnology and complementary products to improve therapeutic values. Thus, the “all in one” pill to deal with multiple HIV symptoms was developed; better delivery forms, using technology, were considered to improve therapeutic profiles; the concept of the right drug to the right patients was born. The best known case of the beginnings of a more personalized therapy approach is the combination of Genentech’s trastuzumab (Herceptin) and the Her2-neu gene diagnostic.


Once things seemed to get back on track, another challenge arose, this time from the government. Facing budget reforms and increasing demands of reimbursement for expensive drugs, regulations became more severe. The sole evidence that a drug works in comparison with placebo was not enough anymore. Consequently, comparators have evolved from placebo to standard of care. And when pharma became comfortable with this demand, real world evidence became the new gold standard in healthcare. Now pricing and market access strategies have started to be developed earlier in a drug’s lifecycle in order to design the right clinical trials and build a solid evidence-based argumentation for the product’s benefit for the patient.


It took some time for the industry to realize the need to switch its focus from sole product to a “much more service-orientated model where the needs of the patient are at the very epicenter” (KPMG).

This change is catching the eye of many non-traditional players such as IT and electronic firms, mobile companies. In order to keep proving value, pharma industry needs to take the lead and act before environmental constrains occur. It needs to develop its business model around the patient through products and services on prevention, early diagnosis, monitoring and compliance, patient autonomy enhancement. It’s time to not only meet needs but anticipate them for a longer, healthier, more productive life.