The global pharmaceutical industry is in the midst of a redefining transformation. Costs of product innovation are rising as increased regulatory scrutiny is raising internal development costs, risks, and time requirements for clinical trials, while licensing and acquisition markets have become more competitive. At the same time, revenue and market share growth have stagnated for most manufacturers due to commoditization, increasing competition, patent expiration, and problems related to product differentiation.
Markets are becoming fragmented as physicians, providers, patients, and payers look for focused solutions that have optimal efficacy and safety profiles for narrower patient populations. As healthcare consolidation continues, the role of payer organizations is increasing as the complexity of decision-making moves further from the physician. There is also much greater skepticism among regulators, payers, physicians, patients, and other key stakeholders in the integrity and soundness of the industry.
In addition, demands for affordable healthcare are challenging the economics and traditional business assumptions of the pharmaceutical industry. For instance, regulatory approval has historically been thought of as the main barrier to market access, and obtaining satisfactory reimbursement was a routine consideration. However, manufacturers are now beginning to realize they can no longer successfully operate under this longstanding business assumption.
The recent boom in biologics and personalized medicine promises new levels of clinical effectiveness, but has also contributed to soaring drug costs. Taken together with record public debt and shrinking budgets, payers across the globe are increasingly saying “no” to new treatments and therapies where value can’t be appropriately demonstrated to justify a premium price. This trend can even be seen in markets such as the U.K. and Germany, which have had more stringent pricing and reimbursement policies in place for a number of years.1,2
In the U.S., hospitals and physician groups are becoming increasingly focused on costs as well-a trend that is largely driven by declining reimbursement rates, the enforcement of financial penalties related to clinical quality metrics, and increased regulation. A sequence of events, including the Centers for Medicare & Medicaid Services’ (CMS) focus on value-based purchasing, never events (medical problems that providers created or should have been avoided), and readmission rates, as well as the Affordable Care Act’s endorsement of accountable care organizations (ACOs), has led to an increasing focus on moving risk associated with the quality and costs of healthcare to the provider. Recent announcements by CMS and a group of major commercial payers suggest that this trend toward value-based healthcare is not only here, but will quickly accelerate in the next few years.3,4
In short, economic and clinical value has become the basis for both differentiation and maintaining premium pricing, and the importance of the economic and clinical value case is likely only to increase. This trend is truly global in scope, applies to multiple key stakeholder groups (payers, physicians, and patients), and is particularly apparent in high-cost therapeutic areas where large numbers of new and costly therapies are being introduced for treatment of chronic diseases. Moving forward, economic and clinical value must serve as the foundation for all portfolio management decisions. Companies must also have processes and capabilities in place to focus on economic and clinical value as early as possible in the product development cycle. These include how clinical trials are shaped and conducted, and the duration and content of post-launch monitoring required.
The strategy table
Some of the most critical decisions a business makes are about its lifeblood: the stream of products it develops to generate a revenue stream. This portfolio decision-making has traditionally been the purview of the R&D and marketing functions in most companies. R&D introduces new product opportunities in terms of what is potentially possible from a technological perspective. Then marketing helps decide on the best projects by dimensioning the size of the potential for the new product concepts.
This decision-making approach worked in stable markets lacking any disruptive new technology or new buying decision variables. However, it is not sufficient in more turbulent markets, such as the ones manufacturers find themselves in today. The biggest flaw is the operating assumption that the market would continue to operate as it always had. Sales projections are based on expectations that demand for the company’s products will remain the same, disregarding the potential of non-traditional competitors or “watchful waiting” as an alternative treatment option. There is also the assumption that payers will continue to pay what they did the year before. The demographics of the market are then used to extrapolate business cases and financial pro formas for new products, which themselves are often just an extension of technology as we know it. As a result, under this traditional approach, reaching product portfolio decisions has become a fictional exercise completely disconnected from today’s market.
Regulatory approval has historically been the key for successfully bringing a new product to market, just as subsequent reimbursement at the price demanded has typically been largely safely assumed. Consequently, manufacturers have often emphasized clinical efficacy and safety criteria in determining which therapies to develop rather than criteria such as total product value and quality of life outcomes. In today’s environment, however, manufacturers are increasingly required to demonstrate the economic and clinical value of new products to key stakeholders in order to justify market access and pricing.5 Payers want hard evidence that new products are worth a premium over comparative, older products. Hospitals are standardizing on those products that best enhance the economic and clinical value of their service line offerings. Even consumers are demanding value and price information as they take on an increasing share of healthcare costs. This trend can only be expected to accelerate.
Recently, there has also been a greater need for manufacturers to provide real-world evidence (RWE) such as patient reported outcomes to meet regulatory and reimbursement requirements and to support the value propositions for new and existing products.6 For example, global regulatory agencies are requiring additional data about the long-term safety and efficacy of new products when they are used by broader patient populations in real-world settings. At the same time, healthcare providers-and those who pay for healthcare-are demanding that new therapies provide better outcomes or greater value than existing standards of care, and are expecting real-world clinical evidence to support these claims. Effective RWE study design requires cross-organizational collaboration that RCTs do not offer. Managed markets teams, health and economic outcomes research (HEOR) scientists, clinical research, and medical affairs will all need to have input moving forward, which can be a challenge where this level of collaboration hasn’t existed before.
This is the world within which manufacturers now have to compete. To make their best bets in portfolio decision-making, they will need greater insight into this world and the implications for their products. One way to achieve this is by nurturing a global, cross-functional focus on economic and clinical value.
Invite non-traditional roles
Because the basis for competition in the market has shifted, manufacturers need to challenge the base assumptions on which product portfolio decisions are being made. Economic and clinical value management is an operating model grounded in cross-functional collaboration and incorporating the input of outside stakeholders to proactively identify and demonstrate the different value drivers of a product. Successful implementation requires generating buy-in across the organization and all levels of R&D and commercial senior leadership, as well as the managed markets and payer relations teams.
There are three functions which potentially can provide invaluable insight into the shifting needs and demands of the healthcare market and the implications for manufacturers’ portfolio of products: clinical affairs/medical affairs, regulatory affairs, and health economics & reimbursement.
These functions have traditionally been seen as tactical resources engaged to ensure regulatory endpoints are met during the development and launch of new products. Their work is understood as shaping and conducting the clinical research necessary to get regulatory approval. They should also be actively engaged in portfolio decision-making where their insights can serve as a source of strategic value for market access and commercial success. Specifically, these functions can provide invaluable insight into shifting needs, new buying decision considerations, new evidence expectations, or hidden costs that would lead to very different portfolio decisions.
Market access and reimbursement decisions have become more technical in nature and less subject to influence by marketing and relationship management. Scientific and technical staff can serve as a healthy reality check here, ensuring sufficient consideration to key issues such as:
Payers’ growing price resistance to existing products, or their willingness to reject new technology in favor of older, less expensive therapies in the absence of compelling economic and clinical evidence to the contrary.
The need to operate within an overall clinical strategy that manages predictable cost, leverages a collective body of disease state and technology research, and ensures that the evidence needed for commercial success can be feasibly generated.
New product business case anticipation and consideration of realistic regulatory paths, timeframes, and comparative evidence expectations beyond traditional efficacy and safety requirements.
In addition to ensuring decision-making consistent with shifting market demands, there is another reason for including these functional perspectives upfront in your portfolio strategy discussions. In this market, no company can afford sub-optimal use of its resources. Considerable infrastructure, resources, and expense go into the work of clinical/medical and regulatory affairs and health economics & reimbursement. These efforts must be efficiently leveraged over the entire product portfolio.
Regulators and payers have long been in a position to dictate the structure and objectives of Phase IV and other post-market trials, which in turn increases trial costs. The creation of a more collaborative, value-based environment across the global organization will allow for proactive shaping of trial endpoints that can generate the data needed to demonstrate economic and clinical value. Such collaboration will also enable commercial functions to plan ahead to best support new products’ value profiles throughout market launch.
In the absence of an integrated view of needs across the portfolio, companies are likely to overextend one-off new product projects that seemingly are justified on their own, but in fact collectively require resources beyond the company’s capacity to provide.
Capabilities to reflect change
It is not enough to give clinical/medical and regulatory affairs and health economics & reimbursement a seat at the strategy table. Without changes in capabilities, these functions are unlikely to be able to deliver the value they’re expected to provide.
Having been typically utilized as tactical implementation resources, the capabilities of these functions have been developed accordingly. In order to contribute to up-front strategic market analysis and define implications for portfolio decision-making, these functions will need to build new capabilities… or “infrastructure.”
For example, global companies have traditionally had people assets on the ground in their chosen markets with little structure in place for these assets to proactively and consistently capture important information capable of influencing a product’s level of success (e.g., most relevant economic and clinical unmet needs, shifts in regulatory policies, and changes in market access requirements). Companies are now increasingly relying on registries and building global information systems to systematically define and capture data relative to the constantly changing clinical, regulatory, and economic evidence requirements across established and emerging markets.
However, to utilize this information to inform business strategy and portfolio-related decisions, companies will also need to develop more strategic capabilities in these key scientific and technical functions. Performance in this role will require people with the ability to discern trends in the data and infer strategic implications for the company’s portfolio management. For instance, these individuals will need to be able to look at RWE and clearly define how that data can be used to inform clinical study design (e.g., endpoints, choice of comparator, etc.).
These global strategists will also require a high level of business acumen, with a capability to articulate implications in the context of the company’s business and to influence portfolio strategy accordingly. Here, internal consultative capabilities are critical.
To be successful, clinical, regulatory, and health economics & reimbursement teams must effectively engage internal clients and share joint accountability for outcomes. Specifically, these scientific and technical functions will need to demonstrate their ability to diagnose problems; provide input into the framework for market research and business intelligence activities; contribute to business plan development; align processes with organizational strategy; guide implementation; and evaluate results. In order to optimize their value, technical associates will need to effectively identify and prioritize their work against broader organizational strategy and objectives.
Finally, scientific and technical strategists must be able to lead their own functions in the development of an integrated, overall strategy that efficiently and effectively addresses clinical, regulatory, and reimbursement needs for commercial success.
Definition of these roles, development of people to perform in them, and development of supportive processes is the “infrastructure” necessary to enhance strategic portfolio management with critical guidance from these functions.
New levels of competition
In our experience, there are three requirements to step up your ability to compete in a market demanding better outcomes at lower cost.
The first is to establish a truly strategic product portfolio management process-one that can optimize the use of limited resources to produce a stream of products that can serve as competitive growth platforms with demonstrated economic and clinical value. This is the strategy table.
The second requirement is putting all the right resources at that table, including clinical, regulatory, and reimbursement perspectives that can ensure decisions are made in light of a comprehensive understanding of the market’s requirements.
And the third requirement is building right the capabilities in these functions so they can provide their important perspectives as intended.
Rita E. Numerof, PhD, is the Co-Founder and President of Numerof & Associates. Jill E. Sackman, DVM, PhD, is Senior Consultant for Numerof & Associates. Michael J. Kuchenreutherf, PhD,is Research Analyst at Numerof & Associates.
1. Sackman, JS and Kuchenreuther, MJ. “Germany Post AMNOG: Insights for BioPharma.” BioPharm International. November 2014.
2. Sackman, JS and Kuchenreuther, MJ. “Getting to Value-Based HC in the UK.” Pharmaceutical Technology. January 2015.
3. Rau, J. “HHS Pledges to Quicken Pace Toward Quality-Based Medicare Payments.” Kaiser Health News. January 26, 2015.
4. Health Care Transformation Task Force. “Major Health Care Players Unite to Accelerate Transformation of U.S. Health Care System.” January 28, 2015. http://www.hcttf.org/releases/2015/1/28/major-health-care-players-unite-to-accelerate-transformation-of-us-health-care-system
5. Numerof, R et al. “ECV as Marketing Strategy-What Payer Changes Mean for Your Business.” 2014. http://nai-consulting.com/economic-and-clinical-value-as-marketing-strategy/
6. Numerof, R. “Avoiding Another Vioxx-Making the Case for Real-World Evidence in Market Access.” Eyeforpharma. August 2012.