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The end of big pharma and the new pharma business models

Jo Pisani pwc

In the not-so-distant future, the phrase Big Pharma may be a thing of the past as pharmaceutical companies downsize and outsource more responsibilities, and work more closely with stakeholders. Even those outside the traditional pharmaceutical circle.

The changes will not be easy for some companies, but it is inevitable if corporations want to remain solvent and not lose ground to new entities in the drug business, note two recent reports that discuss future business models for the pharmaceutical industry.

According to the report, Pharma 2020: Challenging business models: Which path will you take?, prepared by PwC, the industry is due for a “disruptive innovation,” or involuntary shake-up. The report is part of a thought leadership series PwC began publishing in 1998.

Collaboration is necessary

While Big Pharma’s fully-integrated business model generated huge profits for stockholders for many years – the market value for top companies grew 85-fold from 1985 to 2000, the report notes—by 2020, that model will not work.

“If the industry is to improve its performance in the lab, reduce its costs, serve the emerging markets more effectively and make the transition from producing medicines to managing outcomes – as healthcare payers, providers and patients are increasingly demanding – it will have to collaborate with other organizations, both inside and outside the sector,” states the report. “It simply cannot do everything itself.”

“The key social, economic and technological changes currently taking place in the pharmaceutical and healthcare arena will all necessitate the development of multinational, multidisciplinary networks drawing on a much wider range of skills than Pharma alone can provide,” the Pharma 2020 report notes. “The constraints that previously hindered organizations from collaborating over distance are simultaneously evaporating – paving the way for the use of new business models.”


“Corporations will grow smaller through a process called “demerging” and will join networks of providers working to deliver the best care possible to patients,” said Jo Pisani, partner, pharmaceuticals and life sciences strategy at PwC UK, and one of the key authors of the report.

“Researchers spending years trying to find the next breakthrough drug is no longer practical,” she said. “The problem is, research and development is a game of luck,” Pisani added. “The feeling has been that if you keep doing R&D the same way, you will find another blockbuster.”

Reinvented pharmaceutical companies will need very efficient innovations, links with the biotech industry and academia; precompetitive collaborations, open innovation and closer links with health care organizations to help meet those goals, Pisani noted. “If you accept that the blockbuster model is dead, you can engage on three points; real world data, personalized medications and patient adherence.”

The report continues: “By 2020, most medicines will be paid for on the basis of the results they deliver – and since many factors influence outcomes, this means that [companies] will have to move into the health management space, both to preserve the value of [their] products and to avoid being sidelined by new players.”

A potential future ‘Netflix’ approach

The explosion in the amount of available data and the increasing sophistication of technology are factors on which pharmaceutical companies need to capitalize, according to the report from the Economist Pharma Summit 2014: Reinventing Business Models and Markets. The report noted that during the conference there were many discussions about how to “drive industry business models from the old ‘own, control, manage’ paradigm to today’s ‘in-license, leverage, look for efficiencies’ approach, and on to a potential future ‘Netflix’ approach whereby companies will be able to use all the technologies they want.

“Big data and the rise of connected technologies are fundamentally reshaping pharma,” according to the report’s summary. “The industry is still working out how to leverage these data for R&D, and evidence-based medicine is becoming increasingly popular in the clinical sphere, as is the use of activity and cost data.”

Resources and knowledge to collect and sort data

Finding ways to utilize that data, though, will be a challenge, said Karin Meyer, CEO of the Swedish Pharmaceutical Society “There will definitely be some nice unshaped diamonds for the industry to grab onto, tapping into technology and data, but companies need to have the resources and knowledge to collect and sort data to see how they can use it for the payer and ultimately the patient,” Meyer said. “But there will be a part of this big industry has to grab onto.”

The pharmaceutical industry currently has 100 million “active years” of data at its disposal with more than 107,000 medical codes, “creating the world’s most complex and disparate set of data,” the report noted. “This creates high-volume, high-velocity, high-variety assets that require new forms of decision- making to enable use of this new dimension of cradle-to-grave patient tracking. The data must be open for those that require it, and the system must be safe by design for access by approved researchers with approved protocols.”

A fantastic opportunity

“If it is to make groundbreaking new medicines for which governments and health insurers are prepared to pay premium prices, it [pharmaceutical industry] will also have to build the relationships and infrastructure required to ensure that it can get access to the outcomes data they collect,” according to the Pharma 2020 report.

Meyer predicted that the industry will utilize more shared knowledge and technology in order to streamline the value chain and possibly will see a staggered approval process so companies can use real-time clinical trial data in a more optimal way.

“The industry now has a fantastic opportunity to harness new technology and big data, alongside new funding and value methodologies, in order to thrive once more,” concluded the Pharma 2020 report.


Photo of Jo Pisani, PwC