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Big pharma faces big business model questions

To pick the best vacation spot for hiking in February, I look at climate patterns. In the world of business, external trends help suggest the most attractive market spaces. Arrive before the crowds, and you’ll have the best experience, a principle as true for industry convergence as it is for hiking.

Nevertheless, leaders too often stay stuck in current market spaces by failing to challenge historic answers to the vital business model strategy question, “What business are we in?” They get left behind as their industry converges with others, with pharmaceutical companies the latest example.

As scientists’ understanding of cellular and molecular mechanisms deepened, pharmaceutical manufacturers added biologics to their offerings by evolving their internal R&D approaches and acquiring or partnering with biotech drug discovery start-ups. But with a few exceptions, drug companies’ core business remains developing and selling drugs that treat specific diseases.

A number of external trends, at least in the US, suggest drug companies would find more attractive returns by expanding the scope of their business. These trends foretell a likely convergence of monitoring and diagnostics, pharmaceuticals and mobile health devices.

• First, demand for healthcare cost containment grows only stronger and no element of healthcare spending will be immune. Value will flow to market spaces that reduce the cost of care.
• Second, chronic diseases like diabetes are on the rise with current obesity rates portending our worsening population health status. We need a lot more than drugs to lower chronic disease costs and shaping individual behavior will be an increasingly attractive market space.

• Third, the efficacy of drugs, we are learning, varies significantly based on an individual’s underlying genome and health, with new drug discoveries better linking drugs to the person. Drugs plus diagnostics hold more value than drugs alone as personalize medicine takes hold.

• Fourth, mobile, cloud, advanced data analytics, wired monitoring, electronic health records and social media technologies enable ongoing patient monitoring and feedback away from health care settings. Imbedded nanotechnology sensors will be added to the mix someday. Eric Topol, M.D., Chief Academic Officer at Scripps and author of The Creative Destruction of Medicine, provides a glimpse into the future of how these technologies will come together. “If it takes five years (to develop diabetes), why can’t we detect that process? Currently we have medicines but we don’t know when the immune system is under attack. It’s not a constant attack, it’s episodic, but a nanosensor could detect that.”

• Finally, individuals are taking more control over their health, seeking answers far from their providers’ offices. Online health communities like PatientsLikeMe and CureTogether bring hundreds of thousands of patients together to learn from virtual peers.

Dave Chase poses the core questions facing pharmaceutical companies in an insightful blog, “What Pharma can learn from the railroads and IBM.” He asks, “Do pharmaceutical companies see themselves in the drug business or the disease management business, or, where possible, in the disease prevention business? This is the critical question to survive and thrive.” Chase is CEO and Co-founder of Avado, a Patient Relationship Management platform that automates interactions between individuals and their healthcare providers.

Forward-thinking drug companies recognize that categories other than drugs may have the best access to attractive reimbursement and patients’ share of mind. Among them are Roche, who is moving aggressively into diagnostic technologies to deliver better clinical outcomes, a move that is also leading to a hostile effort to acquire Illumina. Belgium-based UCB redefined its business model around the patient, adding services and communities that make living with chronic inflammatory-related diseases easier. Pharmaceutical companies that remain narrowly focused risk value migrating away from drugs to other categories, leaving them with lower returns, much as the move to mobile computing hurt Microsoft’s desk-based business model returns.

Should you expand your scope? First, understand outcomes that matter to your target market. Then, identify the underlying factors driving outcomes and where significant issues and opportunities exist for changing outcomes. In this larger systems view, you’ll see opportunities to broaden your offering to create better customer outcomes. Asking customers about “jobs they want done” is one way to surface innovations within the larger system, but don’t discount your own ability to envision innovations.

Your enterprise is not what it does any more than you are your job. Rather, your enterprise is a collection of knowledge, skills, experiences, processes, relationships and solutions that can be melded, molded, pruned and enhanced to create transformed and new business models that better serve your stakeholders. Asking “What business are we in or should we be in?” becomes a vital leadership practice in an economy in which industries’ boundaries are far more fluid than in the past.

More articles by Kay Plantes

Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. She resides in Madison, Wisconsin and Oslo, Norway. For more information visit her website - Business Model Innovation and read her most recent book - Beyond Price.

The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC. WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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