Report Summary
The value challenge is the second in a series of four reports by the Economist Intelligence Unit, following the first report, The innovation imperative in biopharma. These reports are part of the Reinventing biopharma: Strategies for an evolving marketplace programme, sponsored by Quintiles. The Economist Intelligence Unit conducted the survey and analysis and wrote the report. The findings and views expressed in this report do not necessarily reflect the views of the sponsor.
The biopharmaceutical industry today is facing a multifaceted "value challenge". It is no longer enough for biopharma companies to create products that are simply safe and effective: they must also develop medications which provide results that are superior to those already on the market. At the same time, companies have to demonstrate this added value to a range of stakeholders if they wish to command prices that are higher than those of existing treatments. These tasks are further complicated by a shift in the balance of power among industry stakeholders, each of which may require different evidence to be convinced of a product's value. Previously, doctors might have been satisfied with even marginal improvements in efficiency at any price; today, increasingly influential healthcare payers are no longer so easily convinced.
To understand the nature of the value challenge and how the industry is addressing it, this Economist Intelligence Unit study, sponsored by Quintiles, draws on a global survey of 399 senior executives in the life sciences industry and in-depth interviews with experts in the field, corporate leaders from biopharmaceutical companies and senior officials from prominent healthcare organisations. The report's key findings are summarised below.
- The value challenge is not just a temporary symptom of current economic conditions, but a long-term issue that is a leading concern for a majority of drug companies worldwide. In our survey, 64% of respondents from biopharmaceutical companies, service providers and generics makers say that demonstrating value is a significant challenge facing their businesses. In every region of the world except the Middle East and Africa, a majority of survey respondents whose companies operate locally report that demonstrating value has become more important. Moreover, although deteriorating financial circumstances are prompting some payers – particularly governments – to focus more closely on reducing pharmaceutical spending, the demand for proof of value has been evolving for decades.
- Many stakeholders, especially biopharmaceutical companies, lack confidence in the industry's ability to respond to the value challenge. Only about one-half of survey respondents (55%) say that the pharmaceutical sector is adjusting well to increasing demands for proof of value. Traditional biopharmaceutical companies – a group which excludes contract research organisations and generics manufacturers – are even less optimistic: just 36% say they are performing well. All respondents are harsher about biopharmaceutical companies' ability to demonstrate value and, among payers and regulators, only 25% are confident about the broader claims of value made by biopharma firms.
- Companies are actively experimenting with a range of ways to address the value challenge but have not converged in their choices. According to 68% of life sciences respondents, the growing demand to provide value has had an important impact on their business models. More respondents have taken steps to demonstrate value better: 85% have made at least one change to their business model for this reason, 82% to their research and development (R&D) strategy, and 78% to their commercial strategy. A closer examination of the specific steps taken, however, shows that no single strategy to improve business, commercial or R&D models has been adopted by a majority of companies.
- Leading companies are more active both in addressing the value challenge and in co-ordinating the response to it across the company. Based on respondents' rankings of their company with regard to creating and demonstrating value and financial performance, we have classified top performers as "value leaders". These companies are more aggressive than their peers at pursuing strategies to respond to the value challenge. More important, rather than a scattergun collection of responses, these efforts involve extensive, integrated change across the company, particularly in how research and trials are carried out, and in how the R&D department interacts with the commercial function and outside stakeholders.
- Biopharmaceutical companies see their market power decreasing, but others still regard them as dominant players. Respondents from traditional biopharmaceutical firms are more than twice as likely to say their market influence over the last three years has decreased rather than increased. At the same time, they believe that the power of payers and regulators of formulary access has increased. Collectively, the other participants in the survey have a notably different perspective: although they observe some relative growth in the influence of payers, they see a much smaller shift. "Our influence has increased, but payers are still price takers for most medications," says Dr Ed Pezalla, the national medical director for pharmaceutical policy and strategy at Aetna.
