Disruptive External Factors Dictate Radical Internal Changes for Pharma

The pharmaceutical industry is not immune from the disruption that has visited upon other industries such as the automotive and transportation industries. The same changes that have upended business models have been impacting pharma for quite some time. As prepared as many companies think they may be for the coming pace of change, it may not be enough.  

KPMG forecasts that 2030 revenues will fall short as business and operating models do not reflect the turbulence in the marketplace (1). Two seismic shifts will impact the industry. The first is a shifting balance of power across the healthcare value chain, as government and insurers take center stage, pressuring pharmaceutical companies to reduce prices and demonstrate greater value from their therapies. The second is the rebalancing of funds from treatment to prevention, diagnostics, and cures, which will grow stronger and attract powerful entrants (e.g., Verily and Apple). This rebalancing is driven by technological advances, innovative therapies, and ongoing consumerization of health.

From these shifts, three rather new competitive arenas will emerge in the areas of pharma technology, genetics, and immunotherapy.

Pharma technology

The pace of new partnerships between medical device manufacturers, pharmaceutical companies, and technology businesses indicates that pharma technology is a quickly emerging field; medical device companies are leading the charge. For example, a $500-million partnership between Sanofi and Veriliy (the life-sciences unit under Google’s umbrella) aims to merge technology and medicine to fight diabetes (2).

Genetics

With increasingly rapid developments in CRISPR-CAS technology, gene editing could revolutionize healthcare and the treatment of diseases, enabling researchers to alter or edit problematic genes, which can--and has already begun having--a tremendous impact on neurological disorders, such as Huntington’s or Parkinson’s.

Immunotherapy

Immunotherapy is not a new area in itself, but KPMG notes a major boost due to the progress made possible by recent technological advances. The application of immunotherapy to long-term diseases, like cardiovascular disease, could lead to the prediction of the risk for heart attacks. In addition, immunotherapies are also increasingly becoming a viable treatment for various cancers.

The future of pharma

Pharmaceutical companies need to undertake a full organizational transformation. In light of the industry changes, three distinct operating model archetypes for pharmaceutical companies will emerge. Embracing one model will allow companies to effectively respond to these changes and take full benefit.

Archetype 1: Active portfolio
The active portfolio company has a diverse business mix, operates in several therapeutic areas simultaneously, and keeps an ear to the ground for new forms of therapy. Another key component to this mix is to constantly assess the success of the existing business portfolio. The best practice of this archetype is a modularized organization, with one overarching level of the business able to acquire and divest the portfolio in a plug-and-play fashion. Agility and the ability to quickly take advantage of opportunities is the key to success for the active portfolio model.

Archetype 2: Virtual value-chain orchestrator
As asset-lite companies take over industries that are traditionally heavily asset-based, the virtual value-chain orchestrator does not create or offer any physical product. By contrast, they own copious amounts of data about patients, research, and therapies. Like other industries, technology businesses are poised to own the pharma industry by creating ‘one-stop healthcare platforms’ that will drive pharma toward consumerization, offer the luxury of choice where it never truly existed from cradle to grave, and provide effective guidance through the often-difficult world of healthcare.

Archetype 3: The niche specialist
Niche specialist companies tend to be smaller and more focused than the other archetypes discussed. The tendency for niche models is to specialize in one specific disease or area, and to develop a bespoke portfolio of solutions across the entire care pathway, from prevention to real cure. The niche specialist focuses on all aspects of the ailment, including prevention, treatment, and research. A strong example of a niche specialist is Novo Nordisk, which focuses entirely on diabetes and has the noble goal of eradicating the disease entirely.

Take action

The industry is shifting at a rate with which traditional pharmaceutical business models will not be able to keep up unless there is a fundamental change in their set up. The pharmaceutical companies that manage to embrace, and tailor the most appropriate archetypes to ride the waves of disruption, will have the greatest chance to deliver real value to patients and be successful in the new, disrupted world.

References

1. KPMG, Pharma Outlook 2030: From Evolution to Revolution, 2017.
2. Sanofi, “Sanofi and Verily Life Sciences Announce Launch of Onduo, a Joint Venture to Develop Comprehensive Diabetes Management Platform,” Press Release (Sept. 12, 2016).