Wednesday, April 24, 2013

#PCTUS 2013: Innovation and economics in Pharma

On our final day of Partnerships in Clinical Trials, we looked at how innovation is affecting other industries and the financial outlook for the industry.

Terry Jones
Terry Jones of,, American Airlines and author of The Business of Innovation, started off by stating that business has entered a self-service world. Consumers are multi-channel animals and as a result, the line between sales and service is blurred. They want both services in every channel that they operate. This is resulting into companies becoming obsolete. How many things do you use your Phone for now instead of other items? Even how many jobs this is changing? Customers are getting smarter and short circuiting traditional distribution. One innovation can render any business obsolete.  Jones pointed towards the traditional book store which was then replaced by Barnes and Noble, and Barnes and Noble was replaced by Amazon. And now in the mobile/social world, the Kindle App is moving everything the SmartPhone. This calls for any company to build a digital relationship with their customers where they are looking - via search engines - in the places they're looking.  This is not necessarily the product you are offering but the solution your product offers.

They're also increasingly trusting word of mouth and online platforms are a go-to source for these.   Give consumers a place to have a conversation online – because people trust individuals on the internet more than what the brands have to say.

How do you stand out online? Make your product part of the process – be fast and convenient to the customer. How do you get on the consumers good side? Communicate with your consumer when they want to communicate on their terms – open all the doors. Customers want to be treated like individuals and given solutions.

What is innovation? It’s about doing, putting your ideas to work. People are afraid of change because there is no incentive to change. Innovation rests on the culture of your company and your team. Then when innovations fail, learn from them. You can learn as much from failure as you can from success. Hire people who don’t fit in for new perspective and keep the innovation teams small. The leader needs to cultivate innovation and reach and encourage the innovation from the bottom layer of the company – they are the ones who are forward facing.

Economic Panel
We then transitioned popular panel: Wall Street Leadership Panel: Economic Outlook for Pharma in 2013 Opportunities  Investment Areas and Effects on the Outsourcing Industry.  We heard insights from Ian Lauf, Boehringer Ingelheim; Josef. H. von Rickenbach, Parexel International  Daniel M. Perlamn, RPS; David H. Windley, Jefferies & Company; Tim Evans, Wells Fargo and Brian Doyale, William Blair.

Tim Evans of Well Fargo began the presentation by identifying that the backlog conversion rates have been trending down over the past decade. In 2012, the conversion rates stabilized.  Every company has benefited from the increasing partnering model. Clinical has driven most of the growth in the industry since 2008. Public companies have stayed away from large acquisitions and growth has been organic. The price of growth is investing in partnerships to develop large trials – employees, technologies, geographic investment. The gross margin has seen the biggest hit – but this is where the employees costs are identified.

In the CRO industry, the free cash flow has gone up since 2008 in addition to Pharma R&D spending continuing ot be flat. The growth since 2008 has been driven by outsourcing penetration and market share gains for the largest CROs.

David Windley continued the conversation identifying that the market growth has been based on these factors and will continue: R&D Spending is growing, outsourcing penetration is continuing to increase and consolidation will continue.

R&D spending was down in 2009 by 5%, after it recovered in 2010 and 2011, it did decline 1% in 2012. In 2013, R&D Spending should go up 1% and will grow 2-3% over the next few years.

We then transitioned into a panel discussion that all panelists joined.  Von Rickenbach believes that partnerships are the future and the Partnerships conference has been on target for years: there are advantages for both sides when it comes to strategic partnerships. Dan Perlman went on to further comment that when a company has developed a relationship it’s hard to undo. It then forces the stake holders to work together – so what hurts one company hurts the other.  Windley believes that strategic partnerships have a lot of upfront investment. Many deals are three year deals – but – so in the time that it’s taken to set up the deal, it’s often hard to really track the revenue. So what will happen in the renewel cycle that we’re approaching?

Pre-clinical has declined since 2008. Things have stabilized and part of that is due to the Pharma companies are comfortable moving to a partnerships model in the clinical world.  One future factor to consider is pharmacy costs.  They account for 15% of all costs. There is a more difficult process to getting drugs on a formulary now. Insurance companies are looking at what's the best treatment at the most affordable price before they agree to cover specific drugs. It’s hard enough to find the 1 out of 10,000 compound, and it’s safe an effective, but now you’ve got formularies saying they won’t put it on and now your R&D model was evacuated.

One of the closing statements targeted the fact that partnerships are the evolution in the Pharma industry. Version 2.0 of the partnerships will focus more on how work can be done in versus out of house. RPS the future of drug approval sits in mid-Pharma. In the next year there will be major changes in the way mid-Pharma outsources.

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