As the sector stands at a crossroads, the traditional pharmaceutical business model may become obsolete. Although it may be too late to halt its decline, it’s certainly not too late to rethink how pharmaceuticals can adapt and thrive in the face of shifting payer attitudes and patient empowerment.
Anyone taking a cursory glance at the current pharmaceutical industry would think that all is well. However, two seismic shifts are set to disturb the industry status quo: pressure to drive drug prices down and a shift from treatment to prediction, prevention and complete cures.
Taking a closer look at these shifts, KPMG’s recent white paper Pharma Outlook 2030: From evolution to revolution skips ahead to a 2030 scenario to examine the trends revolutionizing the sector – trends that are expected to have a dramatic impact.
Shift 1: Downward pressure on pricing
With rising demand for healthcare and falling budgets, the first shift will be in the balance of power across the healthcare value chain. Governments and payers are taking center stage, pressuring pharmaceutical companies to reduce prices, increase transparency around drug pricing and demonstrate greater value from their therapies.
In response, one of the challenges facing drug manufacturers will be building closer relationships with patients. This has many benefits – including better understanding of patient experience and improved adherence. However, the industry has some way to go to become a trusted part of the healthcare ecosystem.
Shift 2: From treatment to prevention… and beyond
With the swing from treatment to prevention, diagnostics and complete cures, new players will enter the market, both from inside and outside the sector – putting traditional models under immense pressure. By 2030 we shouldn’t just expect more targeted therapies. We’ll also see a paradigm shift as practitioners predicting the likelihood of a certain diagnosis or health condition aim towards preventative measures and full recoveries.
This shift requires the pharma sector to reimagine its future. The discovery of groundbreaking therapies, emergence of new, disruptive technologies and the consumerization of health as patients gain more access to their data will reshape the industry. Patients will play a huge role in driving change as they gain more access to data, better understand their conditions and get more involved in managing them.
Growing emphasis on collaboration and partnership
Some pharmaceutical companies are starting to recognize the impact of these two major shifts which upset the status quo and open the door to new competition – forcing companies to rethink where they play – and who they play with.
As a result, we see new playing fields emerging in response to disruption: pharma tech, genetics and immunotherapy. And an increasing number of pharmaceutical firms and medical device companies are partnering and integrating with technology businesses. In fact, medical device companies are leading the cooperation with tech companies.
Emergence of three pharmaceutical archetypes
Shifts in the business model, and a refocus on new fields of play, can help pharmaceutical firms to adapt to disruption. But even these changes are unlikely to generate the kinds of growth and revenue that shareholders demand. This means rethinking how to play, which gives rise to three distinct pharmaceutical archetypes.
- Active portfolio company: Typically active in several therapeutic areas within its portfolio, the company is equipped to acquire and divest parts of their portfolio in a flexible and agile way.
- Virtual value chain orchestrator: Companies that primarily own data and don’t own anything physical. These platforms will be the new way to link supply with demand.
- Niche specialist: Smaller companies focused on a single therapeutic area or disease.
In Switzerland today, we see that pharma companies’ portfolio decisions or focus areas already reflect some of these trends. We’re also seeing inorganic growth via acquisition and growing portfolios as a strategy to combat downturns in income due to competition from generic or bio-similar drugs.
Recognizing these shifts is not enough
To avoid becoming a casualty in a disrupted industry – immediate action is necessary to get ahead of the changes. You may not be able to predict the future, but you can test potential ones in think tanks or laboratories.
So, one way CEOs can prepare for the future today, is by setting up fully independent, integrated Pharma 2030 experimental laboratories to test new archetypes and business models, determine which new organizational capabilities are needed and develop a balanced transition map. By preparing for this future now, CEOs will reduce the risk of declining income but also create new opportunities for growth.