Expertise; the essential ingredient for improving pharmaceutical R & D productivity

Pharmaceutical companies pride themselves in their scientific research talent but with healthcare reform raising the bar it may be time to take a closer,  more critical look at the “expertise” they have had and what they will need for the evolving new healthcare market.  Discovering, developing, and proving that innovative new products can meet “comparative effectiveness” and “best practice treatments of choice” market expectations will require research teams with different skills and functional expertise, and perhaps a high level of expertise than most pharmaceutical companies have considered in the past.

Unfortunately, today everybody seems to be considered an expert at something.  Academic credentials and having worked in an area of study for any number of years does not necessarily make one an expert.  In the real world, there are few who can claim a true level of “expertise”,  especially in medicine and science or drug develpment.  Why does this matter and how can expertise improve pharmaceutical R & D productivity?

Expertise brings an educated, insightful, and unique perspective to research projects.  Expertise allows for efficiently processing of seemingly random pieces of data to draw conclusions and formulate correlations that otherwise might be dismissed or overlooked.  Expertise provides a basis for intuitively identifying solutions to seemingly irresolvable problems.  So what do you do about it?

First, who is on your team?  Research teams will need a broader range of specialists who collectively have comprehensive therapeutic area or disease state knowledge and expertise.  Does the team have somebody with biomarker and diagnostic development expertise?  Is there a geneticist, molecular biologist, or genomics specialist? Is there a physician specialist with expertise?  The specialists and expertise needed will be determined by the therapeutic area or disease being studied but it is almost certain to include expertise previously not considered.

Second. Does the team really include “best in the world”, “world class” therapeutic and functional expertise for the technology and disease being studied?  A single expert on the team does not make a team of experts.  So, who are the most knowledgeable researchers in the world, by functional specialty, for the disease states you are exploring?  Are they on your team? Where are they? At competitor companies?  At a CRO? In academia?  If you don’t have them on your team, how are you going to get them?

The increasing demands of the evolving new healthcare market will challenge even the best of pharmaceutical research teams.  No amount of money, information systems, computer programs, program management processes, or research management tools can replace the need for or the potential impact of strategically applied “expertise”.   Successful companies of the future will know how to build teams with “world class” expertise to improve their R & D productivity.

Pressure Testing Pharmaceutical Product Revenue Forecasts

How well will your product forecasts for US market revenues withstand the pressures of healthcare reform?  One  way to pressure test your pipeline portfolio and current product revenue forecasts is to begin with a “worst case” scenario to establish a baseline upon which to build.  This is difficult for most Big Pharma companies because they have established historically validated forecasting models. Unfortunately, these models often have incorporated legacy assumptions that are almost certain to be irrelevant or will change dramatically with healthcare reform.  The following approach can help you be much more objective as you reassess the impact of healthcare reform on your product revenues.

Do a product by product (or research project by research project) review and build a “worst case” scenario as your base case revenue forecast.  Here are some general market assumptions to consider:

  1. Healthcare delivery and prescription drug coverage will be even more “managed” with an intense focus on cost containment
  2. There will be a strong preference for generic drugs
  3. Increasing prescription drug coverage will increase the use of restricted formularies
  4. Proprietary branded products will require more “comparative” clinical and cost benefit data to gain formulary acceptance
  5. Traditional marketing and sales tactics will have limited impact on prescribing practices

Take your current product revenues and product by product apply assumptions that have the biggest potential negative impact on revenue. Here are some situations to consider.  What happens to your product revenue if…

  1. There is a national restricted formulary (or a recommended standardized formulary) based on a strong preference for generic drugs, including recommendations for therapeutic substitutions
  2. All drug coverage plans can purchase at “best price” which includes pricing given for government contracts (military, VA, etc.) or “public plan” contracts
  3. a “public plan” is legally permitted to negotiate pricing for “expensive” branded products where it feels it is needed
  4. Foreign market pricing can be used as “reference pricing” and importation is allowed and used as purchasing leverage in pricing negotiations
  5. no therapeutic class “best practice treatment” is identified and price drives formulary selection and product usage
  6. when no generic drugs are available in a therapeutic class, formularies are limited to no more than two proprietary branded products for that therapeutic class
  7. Except for therapeutic substitutions, “off-label” prescribing is discouraged, will have challenging reimbursement hurdles, and is closely monitored for value of clinical benefit
  8. e-prescribing controls formulary and prescribing compliance
  9. to manage costs and encourage formulary compliance, patients are required to pay full price (cost of drug plus dispensing fee) for non-formulary products.

Depending upon the strength of  product profiles and the data to support assumptions for clinical efficacy and safety and cost benefit you can mitigate the impact of negative assumptions and add revenue to your baseline forecast because:

  1. Healthcare reform will make the availability of affordable prescription drug coverage for more patients
  2. The market has an aging population and there will be an increased need for long-term treatment of chronic diseases of the elderly
  3. Products with proven clinical superiority (safety or efficacy) or demonstrated cost benefit over other products will be preferred with prescribing and and use being encouraged
  4. Healthcare plans will develop and support programs that encourage patient compliance and adherence for formulary approved products
  5. Healthcare plans will encourage the use of branded products with proven ability to reduce other healthcare costs
  6. Unique, innovative new products that demonstrate a clear clinical, therapeutic benefit will become “best practice treatments” with widespread use for that indication.
  7. Proprietary branded products recommended as “best practice treatments” will experience widespread use for their corresponding therapeutic indications
  8. Documented clinical data that helps establish “best practice treatments” will make it difficult for subsequent innovative new branded products to displace them before patent expiration and generic drug availability.

What does your revenue stream look like now? Which products are most vulnerable to healthcare reform?  Which pipeline projects no longer make sense financially to continue?  Which ones have bigger market opportunities than they might otherwise have?

Companies depending on historical revenue forecasts to support their ongoing business will find it more challenging than those who take an objective new look now, develop transformational plans accordingly, and have flexibility to make adjustments to the evolving new healthcare market. One of the important variables that must be considered is timing for the impact of your assumptions.  Aggressive timelines (impact comes sooner) may be too conservative but will add clarity through exaggeration of financial impact.   Artificially delayed impact, on the other hand,  may give a false sense of near-term security and help rationalize “no need for action”.  Forecasts have always been challenging in the pharmaceutical industry but they will become increasingly difficult to model with fewer historically valid data points as we look to healthcare reform becoming a reality.

Healthcare Reform and Pharmaceutical Company Revenue Forecasts

Most pharmaceutical companies are probably going through an endless series of meetings trying to figure out the potential impact of healthcare reform on their revenue forecasts.  Much of the public press has focused on the industry’s potential windfall and revenue upside from:

  • Prescription drug coverage expanded to include an additional 45 million currently uninsured patients.
  • Growing, aging population with the potential to treat more chronic diseases over a longer period of time
  • Prescription drugs will be seen as cost saving alternatives with the potential to reduce the chances for more costly medical complications and avoid costly hospitalizations
  • Cutting the $80 billion over 10 years deal to pay 50% of drug costs for seniors in the “doughnut hole” of Medicare coverage will make those drugs more affordable,  increasing the probability that patients will continue to take their branded medicines and reduce the chance that they might switch to cheaper generics during that time.
  • Heightened prospects for establishing programs to enhance adherence and compliance (keep patients taking their medicines as prescribed)

These upsides, however, will come with new market expectations and realities that could have perhaps an even more dramatic downside impact on revenue forecasts.

  • A strong preference for generic drugs supported by insurer driven prescribing influence (think compliance through e-prescribing technology) and an intense focus on controlling costs
  • An expectation for proprietary brand products to meet “best practice treatment of choice” clinical proof before they are considered therapeutic options to generic drugs
  • An expectation for treatment “guarantees”, cost sharing, risk sharing and other, yet to be created, tactics to offset the financial impact of high cost treatments
  • Increased pricing transparency will increase market pressure to gravitate to the lowest negotiated price for a therapeutic class
  • The potential for government price negotiations.  Private insurance plans will be challenged to do better than they are currently doing in price negotiations.  If they fail, prescription drug prices appear out of control, and  regardless of whether there was a deal struck between the industry and the Obama administration, the government will end up negotiating prices, at least for government sponsored coverage.
  • Formularies will leverage their negotiating power and realize the financial feasibility of having no more than 2-3 therapeutic options (e.g., no need for 10 cholesterol lowering agents or anti-hypertensives) on their formulary.
  • Formularies will collectively structure to the lowest cost options for drug treatment, reducing the market opportunity for more costly or less preferred branded products in a therapeutic class
  • There will be less opportunity to directly influence physician prescribing or patient preference through traditional sales and marketing tactics

So how do your products fit this new world picture?   What do your forecasts look like? In the next post we’ll show you how to pressure test your product portfolio against the evolving new healthcare market.