Health Care Reform: Commercialization Considerations for Life Sciences Companies
An interview with Scott Evangelista, National Commercial Practice Leader, Deloitte Consulting LLP.
Q: What do you think will be one of the biggest strategic challenges for life sciences companies as a result of the Patient Protection and Affordable Care Act (PPACA)?
A: I believe one of the biggest strategic challenges will be portfolio management. In short, how will companies determine where to invest in innovation in a world that will increasingly search out lower cost therapies? With the coverage of the donut hole and the expansion of Medicaid, the total number of prescriptions is set to increase. The question will be - what is the mix of branded versus generics? And, the answer will likely be a continued trend toward generic use.
Other portfolio considerations will include: What will be the uptake of new innovative drugs that come out of research? Will the populations that benefit from the new drugs be smaller? What clinical and health economics outcomes research (HEOR) data will be needed to support higher priced drugs? How can companies adopt a ‘fail fast’ mentality to drug development?
Q: Do you expect health reform challenges to vary across the life sciences sub-sectors – pharma, biotech and medical device?
A: I am not sure that the challenges vary much at all. Biotech has a looming biosimilar strategy whose uptake in the wake of comparative effectiveness will likely be rapid. Medical device companies, I believe, will be subject to new taxes which will put pressure on margins. So, we may see some consolidation in the medical device sector.
Q: How should life sciences companies approach their pricing strategies in light of the changes projected by the PPACA and the realities of today’s market, such as increased insurance coverage, changing reimbursement rates for pharmaceuticals covered by Medicare and Medicaid, and the number of branded products that are about to go off patent?
A: I think the question is bigger than pricing. In a world with perfect information, pricing becomes important. But, we are a long way from perfect information. In the mean time, I think it is really the company’s clinical and HEOR strategies that become important.
The lexicon of drug marketing has been on efficacy and to a lesser extent on side effects. That lexicon and its supporting strategies need to turn toward clinical effectiveness, and clinical effectiveness is a concept that incorporates far more than a drug to drug comparison. Companies need to think more about adherence and patient services. They need to get more precise with the profiles of likely candidates for their drugs. They need to get closer to the providers and the decision frameworks that will guide providers in their choices of treatment.
The notion of value will become more front-and-center, especially to the patients, and the patients will have an increasing voice on how they are treated. For the collective health care system including patients, providers, payors and manufacturers to make better decisions, they need better information. Part of that information will be some notion of “value in use” or “comparative effectiveness.” The real challenge will lie in those definitions and the definitions of the subsequent comparative analyses. At face value, a drug that costs $20 is less expensive than a drug that costs $120. But, what if the $120 drug has fewer side-effects and results in fewer lost days of work? What if the $120 drug reduces the possibility of a hospital admission by 40%?
These and the millions of similar issues will be at the heart of sorting out the best answer. The short answer, however, will be increased pressure on the size of the addressable population for a drug and the sticker price because, even though it may not be the right question or the right answer, it is easy to see.
Q: In what ways might the PPACA impact how life sciences companies think about commercializing their products?
A: In short, some companies may choose not to commercialize some assets. It stands to reason that drugs will only be truly clinically differentiated in smaller populations and, therefore, smarter segmentation schemes will emerge as well as a need for a “right sized” investment in promotion. I think the very notion of what defines a customer will change. Although physicians will remain important, we can already see the emergence of significant influencers that will need to be thought of as customers. To be successful, companies will need to retool their CRM capabilities and many of their customer facing capabilities to provide increasingly customized solutions to increasingly smaller customer segments.
Q: How might the biosimilars provisions impact the strategies of biotech companies?
A: Biosimilars will be a challenge for the biotechs. They will have increased competition for very high margin products and this will put pressure on earnings, investments, governance and decision making. I do not believe their fundamental research-based strategies will need to change initially. Finally, biotech companies should reconsider their life-cycle planning with a new, more competitive lens.