Transforming the pharmaceutical industry through services
IBM Global Life Sciences Industry
Vision, innovation and new business models were all key themes during the World Pharma Innovation Congress this week in San Francisco. Among the discussion, there seems to be broad consensus that the industry needs to transform its business model.
But instead of just selling pills, could the industry figure out new ways to be more involved with patients, monitoring adherence to treatment plans, and providing services that guide consumers to better health?
The current business model is breaking. Blockbuster drugs like Lipitor and Viagra will be replaced by low-priced generics. The pipeline of new drugs in clinical trials address smaller markets. They have less potential to deliver multi-billion dollar revenue streams. The Food and Drug Administration is increasingly wary of side effects when approving drugs aimed at large populations.
With widespread suspicion from the public, opinion polls consistently show voters would like to see the government take steps to reduce drug prices.
Pharmaceutical companies need to quickly figure out new ways to help deliver health care if they are going to stay in business. So far, their most common response has been to find merger partners to expand their scale. At the same time, they slash research and development spending, close labs and reduce their sales forces.
I’d like to suggest an alternative strategy. Pharmaceutical companies should try to create services related to their life-saving products that would help patients deal with their illnesses and reduce the need for treatment in hospitals where costs really explode.
This isn’t easy and it won’t happen overnight. But it is possible. We know. At IBM, we went from being a company that depended on selling mainframes and disk drives and PCs to a company that gets almost 60% of its revenue from providing high-value services. We help our customers install and maintain our computers and those made by other people. We help our customers find new ways to use computers and harness data to understand the world.
“But instead of just selling pills, could the industry figure out new ways to be more involved with patients…”
We still make computers, and we also write a lot of software. But our services business is the core of the company today.
Big pharmaceutical companies need to make a similar transition to becoming more of an active player in helping consumers with their health care. That means they will have to form partnerships with insurers and with healthcare providers to promote adherence to prescriptions.
Much of the public animosity toward pharmaceutical companies is misplaced. Only about 7% of total health care dollars in the U.S. go for pharmaceuticals. Ideally, more spending on the right drugs would reduce spending on doctors and hospitals. Emergency care, hospital treatment and treating chronic diseases are the big cost drivers for health care. Drugs that control diabetes, prevent hypertension and lower cholesterol should be viewed as cost savers.
However, even people who have prescriptions for drugs often take them incorrectly, miss doses or corrupt their effect by eating the wrong foods. Unless an emergency occurs, tests for blood sugar, blood pressure and cholesterol only occur when they come to a health care facility.
Pharmaceutical companies are positioned to take a larger role in testing and monitoring patients who take their life-saving drugs. But they need to develop a sophisticated infrastructure with automated remote analysis to help the patients. They also need to work with insurers and government payers to explain how spending money on such services can pay off in longer term cost avoidance.
Some pharmaceutical companies have begun to offer a few services. Makers of blood thinners test for sensitivity to their drugs in order to figure out which patients might develop hemorrhages. The FDA requires testing of patients before doctors can prescribe certain cancer drugs.
In Denmark, discharged patients who use a blood thinner to prevent strokes test themselves daily at home. They use a computer to report what they eat and drink. And the system tells them what dose to take that day. The system has sharply reduced visits to clinics to adjust dosage, cutting costs and eliminating an inconvenience for the patients.
“…opinion polls consistently show voters would like to see the government take steps to reduce drug prices.”
Adopting such systems in the U.S. might cause liability issues in case of errors. But it provides a model of how pharmaceutical companies could become more deeply involved in health care.
Becoming a service provider would be a wrenching change for big pharmaceutical companies. But it offers a business model that could create lasting value. Products come and go, especially when they face expiring patents. But services last.
About the author:
Katherine Holland brings more than thirty years of global leadership, expertise, industry insight and client experience to her current position as IBM’s General Manager, Global Life Sciences Industry. She leads the world wide strategy, solutions development, P&,L and client satisfaction for clients in the biotech, pharmaceutical, medical diagnostic and medical device industries.
How can pharma companies become more deeply involved in healthcare?