Pharmaceutical Industry Outlook 2030 at the Crossroads: From Evolution to Revolution (1)

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The Pharma outlook 2030: From evolution to revolution recently issued by KPMG points out that the pharmaceutical industry is at a crossroads. In the heavily disrupted marketplace today, pharmaceutical product purchasers’ attitudes and patients’ empowerment are shifting. Neither incremental adjustments nor steady evolution are likely to change the decline of the traditional pharmaceutical business model. The report looks ahead to a 2030 scenario to judge the trends revolutionizing the pharmaceutical industry and trends expected to have dramatic impacts.

Two drastic changes that are now disrupting the pharmaceutical industry:

Change 1: Downward pressure on pharmaceutical product prices.

With the balance of power across the medical industry value chain, governments and insurers tend to take center stage, pressuring pharmaceutical enterprises to reduce prices and demonstrate greater value from their therapies. With rising demand for medical service and falling budgets, governments and pharmaceutical product purchasers are exerting pressure on pharmaceutical enterprises to drive down drug prices. Take Netherlands for instance: not content with striking volume deals with the major pharmaceutical enterprises, it is looking to utilize the power of the EU to create even greater economies of scale. Several member states are constituting a single procurement entity to obtain greater bargaining power. This initiative is in its early stages, however, it is also being researched by other states seeking to cut their pharmaceutical product expenditure.

In addition, governments, insurers and patients are requiring greater transparency of pricing of pharmaceutical enterprises. The long principle of fee-for-service in the medical industry is also under attack. Pharmaceutical product purchasers, insurers and hospitals are no longer willing to pay simply for products; they want fees to be dependent upon the success of the products and measurable outcomes of medical procedures. The U.S. health insurer Cigna announced a value-based contract signed with Sanofi and Amgen on cholesterol lowering drugs in May 2016. Cigna will receive discounts if cholesterol levels are not sufficiently reduced following the therapy. Harvard Pilgrim Health Care has signed a value-based contract with Lilly on the diabetes drug Trulicity, and an incentive program 3 on exceeding patient targets; Harvard Pilgrim Health Care will receive discounts if the efficacy is unsatisfactory.

Meanwhile, New York State’s Delivery System Reform Incentive Payment has proposed an ambitious aim: moving 80%-90% of managed medical payments to value-based methodologies by 2020. This policy will have a significant chain effect on pharmaceutical enterprises. The U.S. Health Care Transformation Task Force made up of providers, insurers and employers has committed to shift 75% of its members’ business into contracts with incentives for efficacy, quality and cost management by January 2020.

One of the challenges faced by pharmaceutical product manufacturers is to build closer relationships with patients. This brings many benefits, including better understanding of patients' medical history and improved compliance. Value-based pricing has its risks and challenges (as evidenced by Novartis’ Entresto drug), but there is a greater likelihood of creating a win-win situation for medical industry stakeholders if such pricing is properly made and implemented.

Change 2: From treatment to prevention and beyond.

Driven by the 3 basic changes that promote consumerization of health: breakthrough therapies, advances in technology, and increased access to data by patients, there is increasingly a swing from treatment to prevention, diagnostics and cure, the pharmaceutical industry needs to rethink its future. By 2030, the society should not simply expect more targeted therapies, doctors will also be able to predict the likelihood of a patient being diagnosed with a disease or health condition, and shift from treatment of symptoms to preventive measures and complete cures, rather than providing temporary alleviation of disease. Some diseases may well become a thing of the past in this fast-changing world. For example, 180 million people worldwide are afflicted by hepatitis C which was previously regarded as incurable, but the present medical technology is possible to cure it. This has created a paradigm shift unexpected by medical professionals, patients and pharmaceutical product purchasers.

News source: KPMG China

The two changes: downward pressure on pharmaceutical product prices and from treatment to prevention and beyond are upsetting the established order, opening the door to new competition, and forcing enterprises to rethink their competitive fields and competitors, which requires enterprises to put more emphasis on cooperation and partnership. In addition to this, three new "competitive fields" are emerging in response to disruption: pharmaceutical technology, genetics and immunotherapy.

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