There are three critical strategies that the life sciences industry must consider in the new healthcare environment.

1. Understand the customer and what they want
Life sciences companies will need to become better at identifying who their new customers are, what they want and how they want it delivered. In the old-world model, the customer was the prescribing physician and, to some extent in the US, the patients on the receiving end of direct-to-consumer advertising. In the new world, customers include the ultimate bill payer in all its various forms, whether it be a third party, government, a budget-holding physician group focused on value for money, or informed patients who are equally focused on value. In different geographies these key customers vary and strategies need to be adapted to maximize returns from new products.

2. Reshape R&D to provide reimbursable drugs and devices that deliver shareholder value
Notwithstanding the need to address whether developing drugs alone in the new healthcare space will be enough, the industry will need to address whether it is investing in the development of the right drugs at a cost that will allow satisfactory pricing for the new healthcare environment as well as a return on investment (ROI) that is acceptable to stakeholders.

To this end, several companies have already taken some of the following steps to improve the ROI on R&D:

• Increased partnering of research projects with academic institutions and smallbiotech companies.
• Increasing speed to proof of concept with use of virtual clinical trials such as Eli Lilly’s Chorus subsidiary and GlaxoSmithKline’s virtual proof of concept discoveryperformance unit.
• Reducing R&D headcount with a shift to greater externalization, e.g. increasedoutsourcing of clinical trials.
• Reducing excess R&D capacity, e.g. Roche’s closure of its Nutley New Jerseyfacility; recent closures in the UK by Pfizer and Novartis.
• Introducing pharmacoeconomic evaluations and comparative effectiveness early in the R&D process to enable earlier termination of uneconomic projects.

There are signs that some of the steps now being taken are having an impact. Eighteen months ago, KPMG published an analysis that showed returns on capitalized R&D had been steadily falling over the past 20 years. Updating this analysis for 2011 data indicates a sharp increase in returns over the period analyzed .

However, as the demands of the new healthcare economy deepen and broaden, they are likely to bring further difficulties in maintaining this upward swing in ROI on R&D. Strategies to develop drugs that will satisfy both payers and shareholders will become more complex and challenging to achieve.

3. Anticipate shifting power structures in the wider healthcare system
There are many parts of the new healthcare systems which are yet to be defined. However, those that can accurately assess where the balance of power will eventually lie will be able to ensure that a company’s strategy will be aligned with that of the ultimate decision maker. More time needs to be invested to understand the competing priorities that healthcare systems face. Strong leadership will be needed to manage the impact of regional approaches on the whole business.

The patient
The individual patient has a much greater share of the balance of power than in the past. Three forces are facilitating greater consumer involvement: new technologies and information that provide a better understanding of individual consumer preferences, new products and services that guide choice, and increased cost sharing and decision making by consumers.

The industry does not deliver value to patients by producing products that are poorly differentiated from existing marketed drugs. The choices that formularies make when there is little to differentiate between drugs make little difference to patients, except in the rare cases of specific intolerance. The industry needs to redefine its product offerings, to the extent possible within the requisite local regulatory framework. The provision by the industry of services to a consumer, within which its medicines are embedded, and which can be shown to lead to improved outcomes, is one route to differentiation. One such example is the lifestyle behavior modification program to improve the health of patients with type 2 diabetes recently initiated by Boehringer Ingelheim in collaboration with Healthrageous Inc. This program will involve digital technology intervention combining digital coaching and a wireless glucose meter transmitting data to clinical monitors.

The payer
If the life sciences industry can position itself as part of the solution to ever increasing healthcare costs, greater opportunities will result. Using their extensive knowledge and databases of patient and disease profiles, life sciences companies could help new healthcare bodies seeking value to drive disease prevention as well as more appropriate treatment. Investing time and technology in improving compliance with appropriately prescribed therapies would align the economic interests of payers with better outcomes for patients and potentially result in revenue streams of greater longevity.

The healthcare professional
The industry needs to work diligently to demonstrate to healthcare professionals that it is neither the enemy nor just a source of funding – old attitudes that still persist in many healthcare systems. Increased investment in education at all levels, particularly in tertiary educational establishments that are training the next generation of healthcare professionals, is one route to permanently changing such perceptions.

Conclusion
Global healthcare systems are evolving to deliver better patient outcomes at lower costs. This shift to paying for outcomes rather than units or episodes raises new challenges for the life sciences industry. We believe that by transforming their approach from the traditional supplier role to one of a solution provider through multiple partnerships with key stakeholders, life sciences companies can deliver sustainable long-term value to payers and patients alike and will drive superior returns for shareholders.

 Existing corporate structures aligned with the old-world product supplier model will be difficult to change, especially as, in the short term, there is likely to be a divergence of strategy required to deal with the volume growth of demand in the emerging markets as well as the low-growth reality of today’s developed economies.

 We see an opportunity for the establishment of new business units focused on professional services. These new clinical professional services units would collate external solution requirements, integrate internal pharma products with external partnered diagnostics, provider services, patient biometric input and compliance incentives and payer delivery models and services. This proprietary solutions-based approach could drive increased brand value, higher margins and improved business performance.

Hard questions need to be asked about what products are being developed by R&D and how these products will be positioned to deliver value in new healthcare systems. In today’s environment, having an effective product appropriately priced to gain reimbursement may not be enough. Companies need to go one step further: is there also an effective service model to consider in which the new molecule can be used? Bold decisions will need to be made about clinical development programs to ensure that the latest hot compound is compared with the best new marketed competitor, and not simply the standard of care. The earlier the indications that no significant advantages are realized, the more R&D dollars can be reinvested elsewhere.

As always the customer is king, but the kingdoms are changing fast. Corporate cultures should demand that ‘know your customer’ be a central message for every general manager in every country.
The industry has to change: the new healthcare environment demands a fresh approach.