Finding commercial success via patient outcomes
Recent research suggests that companies which focus on turning science into value through demonstrating benefits to patients will ride the wave of increasing investor confidence in the US pharma industry.
Significant strategic moves are dominating the landscape of biopharma as companies refocus on growth areas of the market (mostly speciality indicators) and build portfolios with dominant market positioning.
A refreshing wave of new science has driven the output of new drug launches to levels not seen since the mid-1990s. Investor confidence is positive for the first time since 2007, reflecting a predicted return to growth.
This confidence stems from the wave of new science-based innovation sweeping the sector, as demonstrated by the output of New Molecular Entities (NMEs) approved by the US Food and Drug Administration (FDA) reaching 41 in 2014 – the highest level since 1996. Furthermore, the average annual output from 2011-2014 was 34.2 NMEs, which is 53 per cent higher than the preceding six years (2006-2011), and analysts forecast these elevated levels to persist over the next five years. Around two thirds of the NME approvals in 2014 were in speciality indications, and over half originated from smaller biotech companies or academia – increasingly seen as the innovation growth engines.
These statistics come from a recent study1 analysing the long-term performance of ‘pure-play’ biopharma companies (those with more than 75 per cent of their revenue derived from pharma products). The research determined that six leader companies, collectively called high performers, have advanced ahead of their peers in terms of growth forecasts and a portfolio of new-science products and innovations. What is making them perform at this level and how can their peers equip themselves to match it?
Key findings
Confidence is back. The continued recovery in the first 10 months of 2014 increased Enterprise Value by 11 per cent, and 36 per cent above the pre-recession peak of 2007. While share prices have been mixed, overall the Arca Pharmaceutical Index has outperformed the Standard & Poor’s 500 by approximately four per cent over a two-year period. This market improvement has yielded a marked increase in the industry’s future value.
The future value rating went from -6 per cent of enterprise value last year to +2 per cent this year – the first time it has been positive since 2007. Nine of the 16 companies in the peer group analysed have positive future value, up from seven companies in the previous year. This is the first time since 2007 that more than half of the peer group had positive future value.
“High performers had an estimated 2015 growth rate of 4.7 per cent where their peers only exhibited 1.1 per cent”
The growth of the high performers away from their peers has polarised the group. The research found that high performers had an estimated 2015 growth rate of 4.7 per cent where their peers only exhibited 1.1 per cent.
Looking at future growth, it is forecast that the high performers group may obtain 3-9 per cent 2015-19 CAGR versus the peer group with 0-3 per cent 2016-19 CAGR. If the high performers achieve, and possibly exceed, the global pharmaceutical market forecast growth of 4-7 per cent from 2015 to 2019, the polarisation could deepen and cripple peer groups.
In order to capture the full value of new science innovation, continued expansion of operating margins will need to occur. These fell over the last two years, with industry core EBITDA/revenue down three percentage points to 32 per cent in Q3 2014. With forecasts that developed markets will spend an additional $125 billion on pharmaceuticals between 2014 and 2019 compared to $190 billion spend on recent and upcoming NME launches, affordability is an issue, with an estimated $65 billion gap. However, reimbursement is helping the industry shift to new products. For example, in hepatitis C, there have been intense price negotiations with AbbVie and Gilead, resulting in both forming partnerships with payers as they seek to demonstrate a balance between patient outcomes and affordability.
Closing the gap
High performers are driving operational change to keep up with the pace of innovation. They are doing this by developing new commercial and operational capabilities. Given the high cost of science innovation and the need for increasing numbers of commercial launches, this adaptability is essential. Several operational attributes and capabilities are distinguishing, including:
• Collaborating to get the best science and breakthrough speed to approval and launch. For instance, Bristol-Myers Squibb (BMS) partnered with Seattle Genetics to explore several blood cancer therapies and has immuno-oncology partnerships with Incyte, Eli Lilly, Novartis, and more. Further, Amgen has several notable partnership deals including a strategic collaboration with Kite Pharma in next-generation Chimeric Antigen Receptor T-cell immunotherapies and a collaboration with AstraZeneca covering five monoclonal antibody inflammatory programmes including anti-IL-17 MAb Brodalumab in psoriasis.
• Transforming their organisations to focus on growth, leveraging partnerships, acquisitions, divestitures and asset swaps. Acquisitions, divestitures and partnerships, both large and small, have sharpened their focus and differentiation in high-growth segments. They have also committed to continuous operational change to meet the demands of investing for growth. For example Novartis underwent a large-scale refocusing through a three-way asset swap deal with
Eli Lilly and GlaxoSmithKline in 2014, enabling them to refine their focus to three growth segments. At the same time, they announced operational efficiency plans to generate more flexible funding for innovation.
• Developing new business models in response to the consumerisation of healthcare. For example, Roche recently signed a five-year agreement with PatientsLikeMe’s global online patients’ network to explore real-world experience and incorporate these insights into decision making. Novartis has established a joint investment company with leading wireless investor Qualcomm Ventures where a $100 million investment will support early-stage technologies that go ‘beyond the pill’ and assist Novartis in capturing data on the right medicine for the right patient.
• Mastering flexible pricing and market access strategies while demonstrating superior outcomes. For example, Astellas and BMS secured reimbursement recommendations from UK price watchdog NICE for cancer drugs Xtandi and Yervoy, respectively, by providing a patient access arrangement and discounted pricing in specific patient groups.
Indicators show investor confidence has returned to the industry due to the exciting allure of new drug approvals. However, this science innovation-driven growth boom may come at a cost. While growth is expected to return in 2016, the polarisation between the high performers and their peers is expected to deepen owing to operating margins and delivering on launch expectations.
Sustained high performance will come from those that can drive commercial and operational changes that keep pace with innovation. The major challenge will be to turn science into value through new operating models that can deliver on the commercial opportunity of new launches in a changing healthcare economy.
1Read more in the report: Turning Science into Value: Biopharmaceutical Companies That Focus on Patient Outcomes are Finding Commercial Success
About the author:
Tom Schwenger is a senior managing director in Accenture, and the Life Sciences North America Client Service Group lead. He is responsible for Accenture’s business in the pharmaceutical, biotech, medical device, wholesaler, and consumer health industry segments within North America.
He has over 26 years’ experience developing, managing and deploying large-scale technology systems, business processes, and strategies for some of the world’s leading life sciences companies.
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