Progressions report from Global Life Sciences Centre
New York, 11 February 2010 - Information technology (IT) companies, large retailers, and telecommunication firms are strategically poised to capitalize on rapid changes taking place in health care, and pharmaceutical companies are increasingly looking for innovative ways to collaborate with these new players to reach and improve outcomes for patients. Despite near universal agreement among pharmaceutical industry executives that these nontraditional companies will help reshape the healthcare marketplace, most feel unprepared to address the challenges these new creative alliances will bring. These findings and other insights were released today in Progressions, Pharma 3.0 Ernst & Young’s annual global pharmaceutical report.
The Progressions report identifies several industry trends driving nontraditional companies into the sector, including health reform, health IT, comparative effectiveness, and the rising confidence in consumer power. These factors and others are prompting pharmaceutical companies to broaden their focus from producing new medicines to delivering “healthy outcomes” – a shift that will be driven through creative partnerships and business model innovation.
“Despite the tumultuous changes over the last few years, executives realize the road ahead will become even more complex with the entry of new players which are being lured to the sector in increasing numbers,” remarked Carolyn Buck Luce, Ernst & Young LLP, Global Pharmaceutical Leader. “In this environment, successful companies will find new ways to combine their unique assets and attributes with those of partners through dynamic collaborations focused squarely on patient outcomes and the consumer experience.”
The Progressions report describes the rapid transition from the industry’s long-standing vertically integrated blockbuster-driven model, defined in the study as Pharma 1.0, to today’s Pharma 2.0 business model. Under this business model, companies have adopted a number of changes to improve productivity and financial performance, from pursuing more targeted therapies, broadening their portfolio of products and capabilities, to establishing more independent and flexible R&D units, to boosting partnerships with biotech firms, and universities and outsourcing many non-core functions.
The report finds that even as pharmaceutical companies continue to implement strategies to prosper in Pharma 2.0, these efforts may be overtaken by a Pharma 3.0 “ecosystem” comprised of established industry members, nontraditional companies and an increasingly informed data- empowered consumer.
The entrance of many non-traditional players in Pharma 3.0 will heighten the need for further business model innovation by traditional pharmaceutical companies, making development of innovative new commercial models a critical counterpart to the development of innovative new medicines. Managing and optimizing an increasingly complex network of partners will pose new tests for industry leaders, whose success will come increasingly from adapting their company’s unique assets and attributes to fit someone another company’s business model. Early industry attempts to adapt to the Pharma 3.0 environment highlight some of the challenges ahead, according to the report. For example:
- As patients play an increasingly active role in managing their health care enabled by personal health records, smart phone applications, and other technologies, pharmaceutical companies remain largely on the sidelines of this revolution, hampered by a regulatory framework governing patient interactions which has been slow to evolve.
- As leading hospitals and payors mine electronic health records for correlations between prescribing patterns and patient outcomes, pharmaceutical companies have lost the exclusive control they once had over outcomes data, posing reimbursement risks and forcing strategic decisions to be made about whether to build new proficiencies in data analysis.
- As pharmaceutical companies expand into emerging markets, they are increasingly considering alliances with non-traditional partners – from micro-lenders who could bridge the affordability gap to food companies with existing distribution and infrastructure networks to help manage supply chains. The unprecedented nature of these new partnerships pose new challenges in determining how deals are structured and how each partner’s contribution is valued.
Business development leaders see challenges ahead in Pharma 3.0 deal execution
As part of Progressions, Ernst & Young surveyed key business-development executives from 24 unique companies, including 11 of the 15 largest global pharmaceutical companies and members of new industries expected to enter the Pharma 3.0 ecosystem. Survey responses underscored the challenges ahead. Among the key findings:
- 92% of respondents believe new entrants will enter the Pharma 3.0 ecosystem, with e-health, mobile-health and new medical technology firms being the most likely new entrants
- 67% of respondents said they are not well prepared for valuation and modeling potential deals with nontraditional partners
- 75% of respondents believe that corporate and deal strategy, offer and market positioning, and due diligence will all be more challenging in Pharma 3.0 alliances
- 50% of respondents expect deals will become more challenging in Pharma 3.0, while only 2% expect that they will become less challenging
“While this has always been an innovation-driven industry, the winners in Pharma 3.0 will approach innovation in new ways,” said Patrick Flochel, Ernst & Young LLP, EMEIA Life Sciences Leader. “Innovation is no longer just about the product — it now encompasses how you do business, who you do business with and how you mobilize your resources to contribute to healthy outcomes for patients.”
About Ernst & Young’s Global Life Sciences Center
Ernst & Young’s Global Life Sciences Center brings together a worldwide team of professionals to help life sciences companies address their challenges at every stage of development. From the emerging biotech or medtech firm to the well-established, global pharmaceutical company, our industry teams bring deep experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify implications and develop points of view on relevant industry issues. Whether it’s forming innovative alliances, improving operations, new regulations or exploring new markets, we can give you a clear perspective on how to drive value in an increasingly complex, competitive and risk-driven environment. It’s how Ernst & Young makes a difference.
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