COMMENTARY
By Jean-Marc Neimetz
November 10, 2009 | The life sciences industry is in a catch-22 situation accentuated by the current economic crisis, according to the eighth edition of Capgemini Consulting’s Vision & Reality report, Life Sciences: Performing in the Downturn and Beyond. Comprised of in-depth interviews with industry executives representing pharmaceutical, biotech, medical device, and agrichemical companies in Europe and North America, the report presents a perspective on cost initiatives affecting all life science industry players.
Innovation costs are escalating. Outcome-based trials and regulatory requirements are more complex, raising costs for new product approval and release. Meanwhile, price pressures, the combination of generics and shortened market exclusivity limit pharmaceuticals’ ability to fund innovation.
The current economic downturn accentuates longer term issues that face the industry. Governments and private payers are increasing scrutiny about health care costs and an increased number of patients are dropping treatments due to out-of-pocket payments. As society struggles to fund health care, calls for price controls, greater generic use, and increased regulation are universally strong and unlikely to change. Despite this difficult environment, the industry is resilient and continues to benefit from an aging population that demands health care.
Simultaneously, most companies are restructuring to cope with the massive revenue loss from products facing patent expiration. Over half of the report’s respondents (57%) state they will continue cost-cutting initiatives they have already started. A majority of these companies are also well-funded mid- and large-sized life science companies, with significant reserves of available capital. Companies reporting affected changes are primarily on the other end of the spectrum, such as smaller biotech firms vying for funding. All companies will be aggressively managing costs by implementing shared services and outsourcing, reassessing marketing and sales spend, including resizing of field forces, challenging the R&D portfolio, and driving savings out of the supply chain.
Innovation needs to be a part of these plans. Several key steps can be followed by the industry to restart the innovation cycle.
• Kill or out-license “me too” projects. Lack of innovation will delay approvals and provide inadequate or no reimbursement. Development costs are too high to bring products with limited payback to market.
• Anticipate requirements regarding comparative effectiveness to promote preferential product use and a higher level of reimbursement. A defined information strategy is required to generate and access outcome data produced by quality organizations, payers and health records. This movement is already on its way, enabling a new intimacy with key stakeholders—regulatory, patient advocacy groups, payers, government—to provide care with a strong cost/benefit proposition and risk-sharing agreements.
• Expand the company philosophy from offering products to health solutions by approaching care as an end-to-end process that supports patients and caretakers along the diagnostic, access and reimbursement, and compliance journey.
• Move gradually toward personalized or targeted treatments, based on R&D innovation. Treatments must move beyond the “one-pill-cures-all” mentality to one that offers personalized regimes to provide better care quality. Obviously, personalized treatments will require changes in reimbursement, requiring payers to take a long-term view on health care if the industry finds ways to make it affordable.
• Evolve the pharmaceutical business model from a traditionally integrated business model to a more networked/virtual model in manufacturing, research and, to some extent, marketing. Supply chain integrity and safety requirements will continue to increase, leading to greater logistical integration from manufacturer to point of care. In return, the information generated from this will enable a number of patient services that are difficult to provide today, helping to keep patients on treatment.
So what do these evolutions mean for life sciences IT?
A company’s IT department needs new and innovative information strategies to adapt and scale to these outlined changes. Data mining across development and marketed treatments will be a core capability to enable treatment comparison and encouraging new ideas for product development.
IT will also be expected to co-lead innovation by identifying new opportunities and defining and implementing new business models such as health solutions, network-based information management, and a secure supply chain to the point of care. The IT function is therefore at the beginning of a fundamental transformation of its purpose, capabilities and organization.
Jean Marc Neimetz is the Life Sciences Leader in North America for Capgemini Consulting. He can be reached at jeanmarc.neimetz@capgemini.com. For more information about the report, please visit: www.us.capgemini.com/VR-BioIT/