Thursday, July 18, 2013

What are some of the new business models being embraced by the Pharmaceutical industry?

Clinical Collaboration Congress Conference Chair Kenneth I. Kaitin, PhD, Professor and Director, Tufts Center for the Study of Drug Development Tufts University School of Medicine recently sat down with us to examine the Pharmaceutical industry and the changes it's seeing in reaction to the challenges that face today's industry.  Download his full podcast here.

Over the next few weeks, we'll have a look at what he had to say on various topics such as concerns with a multi-national Pharma industry, the industry's response to those challenges, clinical collaborations and more.  Today, we start with his opinion on the new Pharma business model.

What are some of the new business models being embraced by the industry?

I think you can look at three different approaches to changing business models within the industry.
  • 1) One of the changes that is getting a lot of attention now is that the industry is shifting from what you might call a high-volume, low-margin model. In other words, products that could be given to large numbers of people and at the same time, prices could be held at a reasonable level because you are making up for the difference by having large numbers of people take your product. You could think of drugs for cholesterol lowering, lowering blood pressure where industry always was looking in the past for products that could be given to huge numbers of people and have very large markets. I think it’s fair to say that it wasn’t that long ago that the industry wouldn’t even look at orphan drug business model or targeted medicines. The question was obvious: “Why would we limit the number of people that are taking our products?” But, there has been a very clear shift within the industry and I think over the last few years we’ve seen many companies look at targeted medicines, narrow populations and orphaned products as a very viable business model.
    So, every large company now is looking at this case. I think there are various reasons why this is attractive. One of the reasons is that there is an explosion of scientific knowledge on the genetic mechanisms of many diseases. So, there is a lot of information and science that can be leveraged to help companies develop these products.
  • 2) Another reason is that there is a tremendous amount of unmet medical needs in these areas. So, serving the public good by developing these products.
  • 3) Third is that these products – once they reach the market – generally get a good place on formularies. Third party payers are often willing to pay the price that the companies are asking to market these products simply because rarely are other products available to treat these patients. Also, the patient population tends to be small so the payers are willing to allow pricing that is favorable to the industry on this.

The other advantage for companies to focus on in this area is that there tends to be less competition because fewer companies will go after one narrow population as opposed to the numbers of companies that might go into the area of cholesterol lowering or lowering blood pressure or reducing depression. So, I think that is one very noticeable change across the sector is the focus on these targeted medicines that I like to call the low-volume, high-margin products.

To read more about global development strategies, novel partnerships and industry/academic, folow the jump.



Another change across the industry is global development strategies. Although we certainly saw a move over the last decade or so for companies moving into regions of the world where they could reduce their overall spend – especially in the clinical space – I think this is becoming a more pronounced strategy as more companies are looking to partner with the domestic companies in some of these emerging markets and to get a foothold in regions where the growth of the pharmaceutical marketplace is growing very rapidly. So, when you look at the average rate of growth – compounded annual growth rate – that is expected in regions like the United States or Western Europe, according to IMS those figures are 0-5% at the most whereas if you look at an area like China or India or South or Central America, the growth rates are substantially larger. In fact, in China the average growth rate is expected around 22%. So, you are talking about markets that, at some point, will represent very substantial opportunities for the pharma industry. So for those companies that wish to get a foothold in these regions, I think that they’ll have a competitive advantage as the world economy is changing.
The last business model change that I’ll mention is one that I’m very interested in, which is the collaboration, alliances and partnerships. That has really highlighted the changing landscape across the industry. These collaborations, alliances and partnerships take all different models. One of the models is the types of consortia. Companies get together and share information and they help and share pre-competitive data with each other. TransCelerate and Life Bioscience are some examples of those.

But we are also seeing other types of more novel partnerships. We are seeing, for example, academic/industry partnerships that are taking a new form from the types of partnerships that we’ve seen in the past that were more contractually based. Now we are seeing clear partnerships where partnerships will enter into longer term relationships with academic institutions and come up with opportunities where academic researchers could actually work side-by-side with industry on research projects that benefit both sectors. I think what is helping this along is that academics, at the same time, are looking for new revenue streams as NIH funding has been on the decline over the last few years.

We are also seeing other types of academic/industry partnerships, but we’re also seeing all types of alliances and collaborations within the industry. Others that I’ll mention are, for example, the types of partnerships that we are seeing between industry and patient groups, which are fulfilling a need that we certainly didn’t see in the past. I think it’s fair to say that drugs like Kalydeco, the Cystic Fibrosis drug that was recently brought to the market, has benefited extensively by the cooperation and collaboration of the Cystic Fibrosis Foundation in helping not only provide funding for the development of drug products, but also access to patients and knowledge and insight as that drug was being moved forward through the development pipeline. So, we are seeing those kinds of partnerships.

We are also seeing other types of partnerships that we really haven’t seen that much in the past. For example, partnerships with venture capital companies and pharma companies where products that the pharma company decides not to bring forward can be developed by the venture capital companies who feed money to the creation of a new entity to develop the product and then that product can be brought back to the post company – the pharma company – if it looks like something that they want to pursue. So, these are all different types of relationships that I think are very critical to the industry.


The Clinical Collaboration Congress will take place September 25-27, 2013 in Boston, MA.  For more information on about this event, download the agenda.  As a reader of the blog when you register to join us and mention code XP1825BLOG, you'll save 15% off the standard rate!  Have any questions?  Email Jennifer Pereira.




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