Pharmaceutical Company Restructuring Considerations for the Future

In the last post we discussed how Big Pharma might have avoided having to lay off so many of their loyal employees had they done a better job of managing their business for the long-term.  Well, easy to look back and criticize but how about looking forward?

Here are some things for Big Pharma executives to consider as they restructure for the future:

  • No single blockbuster product can fix a dysfunctional pharmaceutical company.  It can only buy time to make the inevitable difficult but necessary changes.
  • The pharmaceutical market will become increasingly global with less regional variation in treatment practices, regulation, and pricing.
  • Unsubstantiated value of seemingly unjustifiably high prices will be met with market rejection, outright price controls, government price negotiations, and higher rebate expectations.
  • Relative to Big Pharma pipeline needs, Biotech will have a finite supply of clinically meaningful differentiated innovative products available for acquisition
  • Traditional marketing and sales activities will have little impact on prescribing behavior which will be more influenced by scientific rationale, demonstrated meaningful clinical benefit, and the impact on overall healthcare costs of treating the patient
  • Prescribing will be increasingly managed with “best practice treatment guidelines” prompted and monitored for compliance through e-prescribing technology
  • Electronic medical records with medical information systems driven algorithms will allow for real world assessments for determining relative therapeutic benefits and healthcare cost implications of treatment options
  • Financial incentives, cost management benefits, and more effective products and programs will drive a revitalized interest in making preventive medicine and medically prescribed life style changes a priority
  • Product and treatment assessments will be more rigorous, more sophisticated, and less easily influenced by Pharma companies unless they have  compelling real world clinical data to support their claims
  • Comparative efficacy will become a regulatory and healthcare market expectation
  • Therapeutic options will include stem cell, gene therapy, and synthetic biology- derived treatments.  Some may ultimately eliminate the need for chronic treatment in small molecule mass markets.
  • Drug-device and delivery systems will target treatments to specific disease targets, increasing efficacy at lower doses while reducing the potential for side effects and adverse reactions
  • Companion diagnostics and personalized medicine will be a regulatory, market, and healthcare provider expectation
  • Reliable, high quality manufacturing that ensures consistency and safety will be a differentiating feature for pharmaceuticals, especially for generic drugs
  • Affordability will eventually mean denying insurance coverage (private or government) for high priced drugs with marginal therapeutic benefit, especially those with minimal end of life benefits
  • To maintain profitability under intense pricing pressure Pharma companies will be forced to dramatically reduce their operating expenses (well beyond their current thinking)
  • Big Pharma companies that maintain their large organizational size will have less pricing flexibility and will be hampered in their ability to deliver innovation, ensure customer satisfaction, and avoid regulatory and legal missteps

So what to do now:

  • Pharma recruiting, training, and talent management must improve with a focus on expertise, competence, and integrity.  Hire and develop “the best” (e.g., world class scientific expertise, visionary leadership with integrity, highly skilled operations personnel) rather than just finding somebody who has done or can do the job.
  • Focus research on comprehensive understanding of diseases rather than just exploiting chemistry and disease targets.  Strive for preventions and cures rather than just developing another compound or molecule to get to the market.
  • The number of pipeline projects is only meaningful in the context of new market expectations.  Products that can not deliver clinically meaningful differentiation should be objectively reevaluated for commercial viability in a more demanding healthcare market. Fewer development programs will make it past this assessment if companies are truly objective and critical in their evaluations.
  • Pipeline target product profiles should define the potential “comparative efficacy“ and the meaningful clinical benefits relative to other therapeutic options
  • Identify and develop plans for securing the specific data needed to substantiate the claims of efficacy, safety, and “value”.  This is not just to meet regulatory requirements but to withstand rigorous, more sophisticated managed market expert assessments.
  • Make companion diagnostics a requirement for pipeline projects
  • Develop managed market expertise throughout the organization not just as commercial function.
  • Develop healthcare system collaborations that allow for understanding, designing, and executing comparative product and treatment assessments in different electronic medical records systems
  • Assume none of the traditional marketing and sales tactics will work (including social media) and then prepare plans for promoting your products in this new healthcare market. For example, think about how electronic medical records and best practice treatment guidelines will influence e-prescribing.  How will you educate a physician population without traditional tactics?
  • Assume that even your most aggressive cost cutting programs in operations will not be enough.  Root out legacy, non-essential expenses as if you were facing bankruptcy.
  • All non-core competencies should be critically evaluated as outsourcing opportunities
  • Invest in expertise, competence, integrity, and high performance systems and equipment to ensure consistent high quality manufacturing (if the company plans to continue manufacturing as a core competency). Invest and retool your processes now for the future.

Critical Success Factors

  • Innovative new products with companion diagnostics
  • Robust real world data to support clinically meaningful differentiation
  • Organizational managed market expertise
  • Talent management focused on expertise, competence, and integrity
  • Low cost, efficient yet reliable operations
  • Commercial programs designed to help healthcare providers and patients realize the full value of the company’s products
  • Become a trusted and credible source of disease and treatment information
  • Patient well-being must be a priority (e.g., patient safety more important than negative impact on sales or potential implications for litigation)
  • Leadership and organizational integrity

The intent here was not to draft a business plan but rather to identify some of the predictable changes of the evolving new healthcare market that will impact Pharma companies.  This was merely to demonstrate that it is possible to anticipate the changes we see evolving in the market and prepare for them if we look forward and take action now.

Now, I’m sure some of you are thinking… ” do you think we are idiots? You made me read all this for nothing.  Obviously, the industry and its executives are doing this.  We have strategic planning groups of MBAs working full time on this stuff.”

Well, I’m pretty sure industry executives thought they were taking care of the future back in the mid-1990’s as well.

2 thoughts on “Pharmaceutical Company Restructuring Considerations for the Future”

  1. Mike, I don’t see anything about diversifying your business model. Pharma as a pure play is too risky. My first company, Abbott Labs has paid a dividend every quarter since 1924 because of its diversified model.

  2. pharmavet,
    Good point. And here is a less traditional way to think about diversification. A more comprehensive disease approach to research will not only lead to potential new drugs but other treatment alternatives, nutritional support, devices, diagnostics, and support services for that disease. Your company becomes the disease expert and the number of disease areas is driven by your ability to support business models in those diseases. Thanks for adding to the discussion.

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