Changing Your Business Model

BioPharm International speaks with Tarja Mottram, CEO of Action for Results, regarding changing business models and strategies centered around Design for Value concepts, team management and leadership, and cross-functionality. Action for Results is a life-sciences-focused consulting company focused on building process capabilities and the practices needed for innovation. Part 1 of this article appeared in the April 2012 issue and focused on strategies for growing a biopharmaceutical product pipeline.

Tarja Mottram

DESIGN FOR VALUE AND FOR PATIENTS

BioPharm: You are a supporter of a concept called "Design for Value" and making that concept a reality. Can you explain this approach?

Mottram: Design for Value is a growing topic in the life sciences. It's existed in the background for some time, but has been more explicitly called out during the past few years. The concept supports the changing healthcare legislation in the US and around the globe—the idea being that we can demonstrate a clear and definite impact on healthcare outcomes. Companies have to be able to show improved evidence with their products, which places an added burden in the development area to create that evidence early on.

BioPharm: What is meant by "improved evidence of outcomes"?

Mottram: By focusing on healthcare outcomes, we go way beyond the traditional measure of clinical outcomes (efficacy and effectiveness) and include the patient and healthcare system impact. For instance, changes to the patient's healthcare status, quality of life, or cost of care. So not only do you need to show the scientific evidence to back your claims, you need to be able to provide conclusive evidence that your particular product provides "more value for the money" compared with other alternatives.

For me, this is about redefining value. Traditionally, most life-sciences companies have based their product innovation on input from physicians and scientists, looking for a scientific breakthrough measured by clinical outcomes. The development tradeoffs were between the scope of the development program (largely defined by the claims), the cost, and time to market. As long as you knew how to manage those three tradeoffs well, and your clinical evidence was solid, the development effort was considered successful.

That was complex enough. However, the emergent healthcare model requires a much deeper understanding of how to create sustainable healthcare value. The market has redefined itself and, as a result, we must understand and balance multiple stakeholder needs.

First, the patient's needs must be considered. Patients are much more informed today and demand more in planning their own treatment. Their definition of "effective outcome" is measured by things such as increased quality of life, improved functional status, and so forth.

Next, physician environments and access to providers is changing dramatically. As a result, the physician needs to demonstrate not only therapeutic effectiveness and good patient outcomes, but also improved (proven) cost effectiveness. Otherwise, he doesn't get paid.

This point brings us to payers. For the sake of simplification, the industry can divide payers into public and private entities (i.e., government reimbursement versus private insurance companies). These are powerful entities influencing use and access to therapies.

Of course, the reimbursement models are also changing. As government initiatives and public pressure is driving closer collaborations between public and private entities, providers and manufacturers must shift their focus from pure cost savings to cost effectiveness. This is different from a pure cost equation. I think, over time, we will see a closer alignment of value to reimbursement, and things like bundled payments that are tied to longer care cycles.

So the bottom line for a life-sciences company: value is defined by a larger set of healthcare outcome measures, which need to be built into the company's approach to product innovation.

MANAGEMENT AND METRICS

BioPharm: How and when should company leadership come into play here?

Mottram: Executives need to rethink how they position their products and what they need to invest in so that they are able to compete on value. Value leadership delivers "more value for the money" and recognizes the difference between cost savings and cost effectiveness. A particular product may actually cost more, but if the company can show evidence that the improved outcome is worth the extra cost (not just for one stakeholder, but considering the entire healthcare system), it can then compete on value rather than price. So, for instance, the company should consider whether its product's use can reduce other healthcare costs, such as decreasing the length of hospitalization, increasing early detection, or shortening lengthy follow-up procedures. Or, from a patient perspective, the company might ask, can the intervention (enabled by the product) allow the patient to gain his or her "normal" functioning faster, return to daily activities, or gain more independence? Companies need to be able to show evidence of value leadership.

The big breakthrough products that touch the masses are becoming harder and harder to find. So, as companies become more targeted in the markets that they are going after, demonstrating improved treatment and healthcare outcomes over time becomes an important source of competitive advantage. This value-based model changes the metrics for the industry.

BioPharm: How are the metrics different?

Mottram: A Design-for-Value model involves a long-term metric where value is defined as outcomes relative to costs. A value-driven product development program design starts with a target product profile that gets at the unmet customer and clinical needs, but also considers what the larger target outcomes should be. The big winners are the products that have a significant therapeutic impact (i.e., can cause providers to change established therapies) or that have a significant advantage over existing products as measured by cost-effectiveness (not necessarily direct cost-savings) and quality of life factors. Companies must understand in absolute, measurable terms what the key value drivers are and how to manage the tradeoffs inherent in those drivers.

The Target Product Profile (TPP) in this sense becomes the most important strategic decision-making tool that an executive or project team can have. The development scenarios must address the crucial trade-offs (see Figure 1).

Figure 1: To deliver products that have sustainable healthcare value, a deeper understanding of the healthcare value chain and player interactions is a requirement.

Every time a company makes a decision in one of these dimensions, it affects the other parts, and so the value impact is not as straightforward as what one may first think. One needs to go back to that value-based TPP and ask whether the company is still within acceptable parameters of success. It's an ongoing process that occurs at the governance level and at the team level. We need to teach organizations to conduct these types of tradeoff conversations—they don't happen automatically.

MAKING IMPROVEMENTS

BioPharm: Going back to cross-functional competencies, what's currently lacking among the industry in this area?

Mottram: It depends on the company, but most companies are far better at building functional competencies than developing true cross-functional capability. Cross-functional competencies are the things that bring people and teams together so they can deliver a product with the right value at the right time. Most companies have established cross-functional teams, but they tend to operate more as working groups, force-fitting their individual pieces together and reporting outputs. They lack the deep cross-functional engagement needed to come up with the best innovation strategies, development scenarios, and business and clinical risk–benefit evaluations.

Figure 2: The Target Product Profile sets the boundaries for product value and should be used as a strategic decision and trade-off tool by management and program teams.

Along these lines, companies have difficulty making a distinction between programs and projects. They often assign "rookies" to drive large programs and get into trouble as a result. There should be a clear career path for project and program managers, which includes increasing strategic facilitation capability. Understanding program management and project management as core disciplines and not separating them out of the product development life cycle, but rather, integrating them as competencies is key.

Milestones are still the most common project metric used by life-sciences companies. This practice worries me, especially when used the wrong way, which can cause teams to rush to meet an arbitrary milestone rather than doing the right upfront analysis and experiments that form a foundation for success. Industry needs to do a better job thinking about how to incentivize early-stage teams versus development and late-stage teams.

Empowering teams to make smart choices requires that functional managers set higher expectations, along with guidance and training that enable cross-functional engagement to take place without people having to run back to their management with questions.

BioPharm: How can teams improve this engagement?

Mottram: Having deep scientific insight to understand what the "make or break" questions are in the early stages of product development is crucial. At the same time, the ability to define upfront what creates business and customer value is necessary to know that the investment is solid. So teams need good scientific leadership coupled with a keen eye on what it takes to win in the marketplace and the courage to challenge each other and, at times, their management.

Life-sciences companies have to accept the fact that they are project-based. Ninety percent of their operations depend on projects. Some larger companies have project management offices (PMOs), which is good. However, the role of PMOs should be clearly defined so that it includes building cross-functional project management capability.

By embracing cross-functional disciplines, such as project management, teams can identify crucial connections and manage interdependencies in a more systemic and purposeful manner—leading to more proactive understanding of risks and ability to take the right actions to prevent unnecessary failure.

FUTURE MODELS

BioPharm: Where do you see these business strategies moving over the next 5 to 10 years?

Mottram: Design for Value is here to stay. So we're going to see a shakeup in the industry. We'll see some companies emerging very strong with that approach, building new partnerships and networks that set them apart from their competitors.

We are already seeing a huge increase in co-development efforts that involve multiple partners and capitalize on a hybrid innovation model. There are many elements to co-development and partnerships, including understanding how to manage alliances and relationships better. Companies that are thinking about this strategically will do better. Partnerships that have clear strategic goals translated to operational plans and processes bear the real fruit expanding the value to both partners.

This approach will change the model between the large and small companies. We'll learn to approach acquisitions and mergers differently as a result. Today, large companies have a lot to offer, they have the process knowledge, they have the business acumen, and they have the capital.

They want the small company for its entrepreneurial agility and scientific discovery. Unfortunately, they sometimes try to merge the environments too tightly. In the end, they lose the essence of what that small company had to offer and the small company doesn't necessarily realize the full benefit from the infrastructure of the larger company. So there is room for improvement in learning how to collaborate with internal and external partners in ways that embrace the essence of each partner to create something new and better.

I think this is a challenging but exciting time and I have high hopes for the industry. Different metrics are already emerging. We'll likely see more emphasis on collaboration and deep scientific engagement by the new industry winners, who will introduce different business and team models. With the right focus, we can change the trend and start improving R&D productivity across the industry.

Tarja Mottram, CEO of Action for Results.