innovating the pharmaceutical … the pharmaceutical commercial model. ... commercial business...

KNOWLEDGE FOR INNOVATION

HOW FAR BEYOND THE PILL? INNOVATING THE PHARMACEUTICAL

COMMERCIAL MODEL


Our Mission

The Mack Institute creates and provides research-based guidance on managing the risks and rewards of emerging technological innovations that offer new value for customers and firms.

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A CENTRAL NODE IN A KNOWLEDGE NETWORK

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As the pivotal link in a dynamic learning network, the Mack Institute drives successful management of innovation.


Research Priorities

The activities of the Mack Institute are guided by the research priorities we have jointly developed with our industry partners, signaling issues for us to research as well as topics for our insight-building conferences.

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MACK INSTITUTE RESEARCH PRIORITIES

RESEARCH FUNDING

CONFERENCES

PUBLICATIONS

PARTNERS + FACULTY


Most pharma companies are thinking today about “beyond the pill” solutions

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“All of my clients today are looking at solutions. Everyone is talking about creating solutions.”

Pharmaceutical Consultant A

“By 2020, payers will expect the [pharma] industry to go “beyond the medicine” by providing prophylactics and healthcare packages designed to help patients manage their health.”

PriceWaterhouseCoopers – Pharma 2020

“Pharma marketers are beginning to see the opportunity in providing value‐added programs as a focal point for differentiating the brand and developing trust among brand stakeholders alike.”

Medical Marketing & Media

Source: PriceWaterhouseCoopers, Medical Marketing & MediaMack Institute Interviews, 2013


Key questions

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•What is driving the need for innovation in pharma’scommercial business model?

•What kinds of solutions can pharmaceutical companies offer to payers and providers?

•What are the challenges in implementing customer solutions?

•What organizational changes are needed?


Today, five environmental factors are putting pressure on pharma’s commercial model

• Loss of exclusivity driving loss in differentiation

•Decreasing access to physicians

• Shifting power balance towards payers

•Changing reimbursement model with more focus on outcomes

• Increasing patient advocacy and empowerment

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Loss of exclusivity driving loss in differentiation: Several key products are losing patent protection

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0

10

20

$30B

2013

11

2014

30

2015

22

Global Product Revenue at Risk from PatentExpiration ($B)

• Oxycontin

• Aciphex

• Zometa

• Xeloda

• Nexium

• Cymbalta

• Copaxone

• Celebrex

• Abilify

• Gleevec

• NamendaKey US

Expirations

Source: ZS Associates, IMS Health – The Global Use of Medicines

0

20

40

60

80

100%

2010

Branded64%

Generic27%

Other 9%

2015

Branded53%

Generic39%

Other 8%

Percent of globalrevenues


Decreasing access to physicians: Physicians and hospitals have reduced access to reps

Note: “Accessible” prescriber defined as those who see at least 70% of the reps who visit themSource: ZS Associates – AccessMonitor 2013 Executive Summary

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• Oncology and cardiology are among the most restrictive; dermatology, allergy, and endocrinology remain relatively open

• Key drivers:‐Consolidation of community‐based providers into health systems‐Mounting pressure to see more patients in same time‐ Sunshine Act


Shifting power balance towards payers: Payers are becoming more powerful and value-conscious

Source: ZS Associates

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1990s 2000s• Physicians had primary influence on prescribing decision

• Physicians still influential, but payers able to restrict patient choice through:

‐ Prior authorization‐ Step Edits‐ Tiered access‐Co‐pays

• Payers are requiring more comparative effectiveness data from pharma, especially vs. best in class drug vs. placebo

Key Drivers• ACA requirements

• Payer consolidation

• Increase in availability of generics

• Increasing government presence


Reimbursement focused on outcomes: Pharma’s role in patient adherence becomes more critical

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Current system:Fee for Service

Potential future:

Value‐based reimburse‐

ment

Payer ProviderReimbursement based on service provided;

few quality measures

Role of Pharma: Provide therapies as requested by provider; focus on solving unmet medical needs; less explicit emphasis on cost and patient adherence

Payer ProviderRisk‐based reimbursement on quality

outcomes, capitated payment for population

Role of Pharma: Risk‐based reimbursement for only those therapies that show improved patient outcomes vs. best‐in‐class; heavy focus on patient adherence

• Common types of value‐based reimbursement programs/mechanisms:‐Accountable Care Organization (ACO)‐ Patient‐centered nursing homes‐Bundled payments‐ Pay for performance


Most pharmaceutical executives believe the current pharmaceutical model needs significant repair

Name of Presenter 12

Q: Many people have raised the idea that the current commercial pharmaceutical model is broken and needs significant repair. To what extent do you agree with this assessment?

Is the Pharmaceutical Model Broken?‐ % of Respondents ‐

(n=156)

Fewer than 10% believe the model is not broken 68% believe the model is broken

3%6%

22%

44%

24%

Strongly Disagree Disagree Neutral Agree Strongly Agree

Source: Booz & Co, 2011


Key questions

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•What kinds of solutions can pharmaceutical companies offer to pharma payers and providers?




What is a Customer Solution?

• Inside-out view: “A bundling of existing products and services to help us sell more”

• Outside-in view: “Help our customers succeed to our mutual benefit”, by:

• Enhancing their revenue and financial performance

• Decreasing their risks• Reducing their total life cycle costs

“There are products, and there are solutions: A product performs a function. A solution fulfills a human need. People want solutions.”

63% of Fortune 100 Firms claim to offer solutions. Which view prevails?

financial performance safety….

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Attributes of Superior Customer SolutionsValue Proposition

• Integrated bundles of products,

services, and information

• Customized to customer’s

requirements

• Shared risk

• Co-created with customer

• Problem solving support

• Single and accountable point of

contact

• Superior service on customer’s

terms

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Attributes of Superior Customer SolutionsValue Proposition

• Integrated bundles of products,

services, and information

• Customized to customer’s

requirements

• Shared risk

• Co-created with customer

• Problem solving support

• Single and accountable point of

contact

• Superior service on customer’s

terms

Business Model

• Deep customer insights Ability to anticipate emerging

requirements Understanding of customer

economics

• Close relationships at multiple levels

• Cross-functional teams with focus on

customer segments/key accounts

• “Have it your way” mind set

• Ability to orchestrate an ecosystem

• Risk-based contracting capabilities

• Outside-in metrics and incentives

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Value propositions of three levels of customer solutions in pharma

Customer solutions

Level 1: Bundle of products, services, and information for patient; minimal

patient support

• Therapy specific

• Leverages disease insights

• Shares a common solution program that could be technology enabled

• Provides basic education for patient and doctors

• Typically focused on increasing volume of drug

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Level 1 Solution: Merck Serono’s Easypod solution has helped increase adherence

The unmet need The Easypod Solution• Injection of human growth hormone, a business that Merck Serono is in, can leave room for errors for patients

‐ Accidental dosage changes‐ Hassle and inconvenience of administration

• Providers cannot always monitor adherence

• New Easypod system delivers Merck Serono’s Saizen HGH:

‐ User attaches SeroFine single‐use, disposable needle

‐ User positions Easypod® against the skin and administers injection by depressing the lighted injection button

‐ User detaches and disposes the used needle

• Easypod Connect software uploads injection history to a secure online database, Giving the provider a look at your injection history

• Company also set up call center for patient monitoring

• Compensation by payer (NHS) is linked to overall results

• Merck’s market share and profitability is higher

18Source: Easypod website, Mack Institute interviews

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2

3

1

2

3



Customer solutions


patient support






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Level 2: Therapy with payment contingent on performance; include patient

support

• Includes Level 1 solution, plus:

• Therapy and/or segment specific



• Pharma shares risk; pay‐for performance based reimbursement; potential for increased revenues if outcomes met

• Emphasis on patient adherence

• Potential to differentiate through vouchers and patient assistance programs


Level 2 Solution: Janssen Connect aims to increase adherence; shows importance of internal champion

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The unmet need Janssen Connect benefits How it was created

• Two of Janssen’s CNS drugs, Invega Sustenna and RisperdalConsta, made for schizophrenia and Bipolar disorder, must be administered by the physician‐ Injections need to be administered weekly or monthly depending on need

• Patient adherence can be a significant problem because of inconvenience to get to the doctor’s office and forgetfulness

• Alternate sites of care:‐ Provides injections in pharmacies, primary care offices, infusion clinics

‐ JC representatives help schedule appointments and alert physicians if there are issues

• Access and reimbursement: ‐ JC provides prior authorization support and benefit verification support

• Continuity of Therapy: ‐ Reminder to patients of future appointments

• Distribution support:‐ Ensures that all providers have drugs on hand

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2

3

4

• Internally championed by one executive

Source: Janssen website, Mack Institute interviews


Level 2 Solution: The Janssen Connect Model in action

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Customer solutions


patient support

Level 3:Integrated, co‐created solution designed to improve patient

outcomes at the best total cost






• Includes Level 2, plus the following:

• Diagnosis/disease specific

• Focused on providing a suite of drugs and other care that a patient needs to improve outcomes

• Creates an ecosystem of related products from other companies

• Based on mutual trust

• Likely will require partnerships with other pharma companies

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Level 2: Therapy with payment contingent on performance; include patient

support

• Includes Level 1 solution, plus:

• Therapy and/or segment specific



• Pharma shares risk; pay‐for performance based reimbursement; potential for increased revenues if outcomes met

• Emphasis on patient adherence

• Potential to differentiate through vouchers and patient assistance programs


Key questions

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•What kinds of solutions can pharma companies offer to payers and providers?




Six criteria must be met to enable successful solutions

Perceived capability

Trust in pharma company

Motivated pharma company

Internal advocate within company

Strong Customer Need• Solution must improve outcomes, increase convenience,

and lower cost. There should be latent dissatisfaction with the lack of good solutions

Demand Side

Readi-ness

Supply Side

Prepa-redness

• Providers must believe that the Pharma Co. understands their need and has specialized capabilities to deliver solution. Pharma Co has access to relevant data

• Providers and Payers must be willing to trust the pharma company

• Pharma Co. must have the right internal expertise, ensure that the solution meets all regulatory requirements, and not be conflicted

• Pharma Co. must be motivated and incentivized to invest in a solution, despite its potential risk and lower gross margins

• A credible internal advocate must exist within the company to champion its cause

Right internal capabilities

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Pharma companies face many challenges when trying to successfully create customer solutions

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•Lack of Trust / Credibility•“Inside‐out” Orientation•Lack of Patient Outcomes Data

•Weak capabilities for selling to economic buyers

•Other healthcare players more motivated to innovate

•Lack of reimbursement for incremental innovation

•High margin expectations

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Lack of trust and credibility: Our interviews showed a clear lack of trust in the industry

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Some believe that lack of trust comes from divergent interests…

…while others point to years of pharma’sunwillingness to understand their customers’ needs

“At the end, pharma has different goals from providers and payers. Every dollar that pharma earns is a dollar that hospitals and managed care does not. So I would think of this relationship as divergent interests.”

Current Pharma investor and Former Pharma Executive

“If pharma wants to create a solution to help us, they might as well create an offering under a different name. We don’t trust them today.”

Hospital Executive

“I had a pharma rep come to my office, claiming to help provide wellness solutions. I was instantly suspicious. If you are serious about talking to us, why send a drug rep who does not understand our needs? They just doesn’t understand what we need.”

Managed Care Executive

“Every time a pharma company asks me "how can I help you?”, I’m skeptical since I think their job is to push the pill. It’s just very hard to have a fruitful conversation with this mistrust.”

Hospital Executive

Source: Mack Institute Interviews, 2013

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“Inside-out” orientation: Pharma’s business model has not required it to understand the patient

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“We promote the best rep, but do they see the world through the customer’s eyes? No.”

Pharma executive

“If a pharma company wants to create beyond the pill solutions, it needs to have a deep patient understanding and know how they can add value. However, we haven’t needed to fully understand the patient to date.”

Pharma executive


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Lack of patient outcomes data: Pharma is missing key data on patient outcomes

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Challenges created by not having access to patient outcomes data

• Lacking key data necessary for forming appropriate risk‐based contracts‐ Difficult to attribute patient outcomes to individual company’s therapies

‐ Difficult to disaggregate contribution of individual company’s drugs versus other treatment received

• Inability to monitor and standardize the use of therapies across providers to improve patient outcomes

“The use of data is a hot topic in pharma companies right now. But the truth is, pharma companies have no outcomes data, which limits what kind of solutions they can create.”

Pharma Consultant

“We tried to set up a partnership with a payer to help them standardize patient care. But in the end, they didn’t want to share the data and the partnership was shut down.”

Pharma Executive


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Weak capabilities for selling to economic buyers:Group selling capabilities must be built

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Drug Rep Physician

Traditional selling model:Physician Detailing

Emerging system:Rise of

economic buyer

Drug RepHospital

Physician

Payers

Gov’t

“I would be open to pharma approaching us with a solution that can help reduce costs and improve our patient population. But to date, this has just not happened – new products introduced today aren’t attempting to create cost savings.”

Managed Care Executive

“We are in a brand new world today, facing capitated and bundled payments. We need pharma to take risk and help us reduce costs, but to date they haven’t shown us anything beyond trying to push pills..”

Provider Executive


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Model requires group sell capabilities, including MSLs,

nurse educators, and reimbursement specialists


Pharma needs several new capabilities in order to successfully create solutions

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Marketing Go‐to‐market model

•Deep patient insights about issues such as:‐Why patients become less adherent

‐What complementary offerings can help improve disease management

• Insights on effect of pharma therapies on patient outcomes from outcomes data

•Risk‐based contracting capabilities

• Skill‐set to understand customer economics

• Sales teams willing to focus on key large customers such as government, payers, and large provider systems

• Sales force incentives based on solution sales, not drug volumes

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Other healthcare players more motivated to innovate:pharma faces less short term pressure

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Player Pressure to innovate business model

Rationale

Providers Higher in the short term •Facing reimbursement pressure from public and private payers if patient outcomes not met

•New reimbursement models may require re‐engineering entire workflow

Payers Higher in the short term •Facing immense pressure to contain costs because of ACA

• Looking for risk‐sharing with providers to create incentives for cost reduction

Pharma Lesser in the short term •ACA had limited impact on business•Diversification into emerging markets limits US risk


Lack of reimbursement for incremental innovation:New products are often not reimbursable

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“When we tried to sell our solutions to payers, they said ‘give me the value added product, but give it to me for free’.”

Pharmaceutical Executive A

“Payers are not willing to reimburse us for a value‐added product unless it lowers costs. It’s a tough environment and showing increased efficacy is not enough.”

Pharmaceutical Executive B

“We don’t even consider incremental reimbursement for a value‐added product. The goal for this initiative is to drive higher volumes of our companion high‐margin drug.”

Pharmaceutical Executive C

Source: PriceWaterhouseCoopers, Medical Marketing & MediaMack Institute Interviews, 2013

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High margin expectations: Pharma’s high-margins make investment in low-margin businesses less attractive

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Consequences of high‐margin orientation

• Unwillingness to disrupt own business, even in response to changing market conditions‐ Ignoring new customers and their needs

• Missing potentially lucrative opportunities

• Culture that discourages risk‐taking behavior

“Everyone talks about creating a solution, but as soon as they realize that the economics are less attractive than the current business, management cuts the project.”

Pharma Executive

“Pharma is doing everything to make sure it doesn’t destroy shareholder value. Shareholders don’t like low‐margin businesses, and no CEO wants to claim that he destroyed value.”

Pharma Executive

“My clients know that the industry is threatened and they are trying to innovate the business model. But no one wants to innovate by getting into lower‐margin businesses.”

Pharma Consultant


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Kodak/Fuji: Until 2001, Kodak enjoyed high margins and a strong share in film

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Source: Thomson One, Deutsche Bank ReportsShare of Film Market

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Kodak/Fuji: As digital gained traction, Kodak’s film businesses collapsed while Fuji diversified itself

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Fuji buys controlling stake of document processing segment

Fuji uses expertise in film to grow Flat Panel

Display Materials segment

Fuji uses film and chemicals expertise to enter cosmetics and drugs businesses

Fuji grows medical imaging

business

Kodak digital strategy relies on printing of digital photos using its printing services

Digital camera industry revenues

peak in 2008

Kodak enters highly competitive inkjet printer market

Kodak creates printers for in‐home photo

printing

Source: Thomson One, Analyst reports, The Economist

Kodak files for Chapter 11 bankruptcy

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Kodak/Fuji: Imaging, declining at 11% a year, became a small part of Fuji’s business

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Source: Thomson One, Analyst reports, Fuji Annual Reports

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Kodak/Fuji: Several factors led to Kodak’s decline

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• Kodak held a myopic view of its business‐Believed that it played in the film business, not the image creation and processing business

• Kodak showed an unwillingness to disrupt their business model to enter a lower‐margin, disruptive business‐Placed bet on printing of photographs despite growth of digital

• Kodak did not build the internal capabilities to succeed in digital‐Did not invest early in digital camera, which was created at Kodak in the 1970s‐Entered into a highly competitive photo printing market

“The difference between [Kodak’s] traditional business and digital was so great. The tempo is different. The kind of skills you need are different. Kay [Whitmore, President] and Colby [Chandler] would tell you that they wanted change, but they didn’t want to force pain on the organization.”

A Swasy, Changing Focus

Source: A Swasy, Changing Focus: Kodak and the Battle to Save a Great American Company, Knoeldge@Wharton, 2012

“Kodak had a choice in how it pursued innovation: If it focused on the need, it would have to find new ways to take and store photos. If it focused on the solution, it would have to find new markets for its chemical coating technologies. Kodak's competitor, Tokyo-based Fujifilm, focused on the solution, applying its film-making expertise to LCD flat-panel screens, drugs and cosmetics.”

Knowledge@Wharton, 2012

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Agenda8:30 a.m. – 9:00 a.m. BREAKFAST

9:00 a.m. – 10:15 a.m. INTRODUCTION AND REVIEW OF RESEARCH STUDY CONCLUSIONSInsights from emerging pharma marketsCommentary by Prashant Nikam, Global Marketing Lead, Mozobil and Legacy Brands,Sanofi-Aventis

10:15 a.m. – 10:45 a.m. BREAK

10:45 a.m. – 11:30 a.m. HOW CAN HEALTHCARE COMPANIES BECOME PROTAGONISTS FOR CUSTOMERS?Larry Huston, Managing Director, 4iNNO

11:30 a.m. – 12:30 p.m. PANEL: TAKING THE PROVIDERS PERSPECTIVEJim Peters, CEO, Geisinger Medical Management Corp.; S.V.P., Office of the President, Geisinger Health System; Head, Strategic Industry Partnerships & NegotiationsRoy Rosin, Chief Innovation Officer, University of Pennsylvania Hospital SystemMike Tarino, Vice President, Strategic Partnerships, Geisinger Health Plan

12:30 p.m. – 2:30 p.m. WORKING LUNCH & BREAKOUT SESSIONS

2:30 p.m. – 4:00 p.m. REPORT BACK AND NEXT STEPS

4:00 p.m. ADJOURN


Working Lunch & Breakout Sessions

Small group facilitated discussions, with each group assigned to one of following topics:

(A) What are the conditions for successful level 2 or 3 customer solution? How will the barriers to success be overcome? How will technology advances, such as personalized medicines, impact the ability of pharma companies to offer solutions?

(B) How can pharma companies meet the organization requirements of level 2/3 solutions (what capabilities, incentives and structures)? What is the role of leadership?

(C) What is the profit model? When and how will pharmaceutical companies make money from customer solutions? Are there intermediate benefits (customer satisfaction, loyalty, etc.) that can be monetized?

innovating the pharmaceutical … the pharmaceutical commercial model. ... commercial business...

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