In the past, the life sciences industry has been focused on developing the next blockbuster drug, or expanding to markets that can offer considerable growth. But now, companies also have to contend with a wave of dramatic changes in many markets. Countries like the United States, China, Brazil, Germany, France and the United Kingdom have recently passed substantial health care legislation that will have a significant impact on the life sciences industry. Indeed, senior executives say health care reform in much of the world needs to be one of their leading priorities, but they also admit that their firms are responding reactively rather than strategically. However, if companies are able to understand and adapt to these changes, they may reap the benefits that these reforms offer.
This Economist Intelligence Unit study, developed in collaboration with Deloitte, examines the common elements of the recent wave of global reform, national differences through three case studies, and how life sciences companies are reacting.
Key survey findings include:
Reducing costs, enhancing innovation and widening market access are the defining goals of health care reform.
Reducing costs is a universal objective of reform in both developed and emerging markets. At the same time, many countries are seeking to enhance innovation in life sciences and medicine more generally. As a result, some are adopting value-based pricing structures for life sciences products, while others are combining cost containment with assistance for companies investing in R&D.
Respondents expect the main impact of reform eventually will be on innovation and sales models.
Dealing with new government agencies that are still working out how to operate is the most common reform-related challenge (42%). Accordingly, regulatory/compliance functions have been the biggest beneficiaries of increased spending within businesses (43%). Sixty-five percent of respondents, however, say they have changed or will change their innovation processes in three years, and 58% will adapt their sales models in light of legislative reforms.
Specific elements of reform vary by country, requiring companies to have national approaches.
In China, recent reforms have put intense pressure on the prices of generic and over-the-counter (OTC) medicines, while increasing the size of the market for proprietary, patented drugs. Overall, survey respondents find the Chinese market more attractive now than before reforms, especially as government policy is now more transparent. In Brazil, a growing pharmaceutical market, driven in part by an increase in judicial decisions about government spending on drug expenditures, is making branded generics and proprietary drugs of greater interest to pharmaceutical companies. Finally, reforms in Germany have the “stick” of cost-cutting, but seem to lack the “carrot” of expanding market size apparent in other markets.
Leading companies are remodeling their innovation and sales activities in the face of reforms.
Respondents who benchmark their company’s financial performance most highly compared with peers see the benefits of changing their innovation processes and sales models most clearly. They are more likely to see opportunities arising from reforms (61% of this group do, compared to a survey average of 47%), have been more active in responding to them, and are more likely to believe that these responses have positively affected profits (56% compared to 35% on average).
