This article looks into the key changes in pharmaceutical manufacturing and how these changes are bringing in newer business models into the industry. The ultimate goal of any business is to make money. Drug manufacturing businesses are no exception. Pharma companies have been making money by discovering and marketing medicines. Unlike any other industry, however, the onus of responsibility and care is extremely high in pharma business. One slight slip and the product could go completely wrong, and can end in serious damage to human life. Therefore, before reaching the market, these drugs need to go through and clear several stringent, lengthy, and costly clinical trials. The drugs are then launched and marketed only after they have been approved as being safe and have cleared all levels of tests. This entire process right from drug discovery to manufacturing, testing, marketing and dispatch is extremely expensive and daunting.
On top of this, pharma companies have been facing several challenges in the form of patent expiry, lack of new product innovations, and sky rocketing costs. As a result of this, traditional boundaries between innovative and generic drugs have been rapidly vanishing. Over the past few years we have seen several innovator drug manufacturers diversifying into the generic drug side and vice versa. Some of the key trends shaking the industry up are a decline in R&D output, rising importance of the pharma industry in emerging economies and tremendous pressure to improve profitability of the pharma businesses. Pharma industry’s current business model is slowly transforming into a lean and focused business model built in the form of small localized R&D clusters that is bringing in a growing stream of revenue flowing in from specialty products and emerging markets. On the contrary, earlier business models focused on much larger and diversified global R&D clusters. Moreover, back then revenue only came in from the developed economies with little, almost no activity in the emerging economies.
Nevertheless, there will be an ongoing demand for newer therapies which is a patronized trend for a long term. Top drug manufacturers have been changing their market strategies to stay ahead of competition in the industry. Major drug manufacturers can be classified into two main clusters – (1) drug manufacturers who have diversified their businesses to include innovative medicines, generics, medical equipment and others (2) dedicated drug manufacturers whose main focus is on developing innovative drugs. Within these two groups, drug manufacturers follow various strategies to continuously build their businesses. The current pharma business models will therefore continue to evolve over several years from now, while each of the key trends identified above will continue to shape the industry.
Affordability will be one of the key challenges in the coming years as the industry gears its way into several new and path breaking advancements in medical and technology. Despite these advancements, these treatments will continue to be heavily priced and affordability will continue being a key roadblock to adoption. This would especially be a grave area of concern for countries from emerging economies. All the stakeholders in the global pharma ecosystem including the government, investors and drug manufacturing companies will strive toward providing sustainable and affordable healthcare to all. It is interesting to note how drug manufacturers will be able to accommodate price revisions in their business models as emerging markets contribute to almost 75% of the total revenue that these drug manufacturers currently make.
All these changes will pave way for newer business models and related services, such as assistance for coverage, models based on performance, tier-based pricing, personalized medicines and so on. These areas will, however, require to be analysed in detail before these can be actually implemented. Several such models are already being tested in specific geographies and pretty soon companies will start adopting these into the realms of their businesses.
Above all it is the convergence of IT and OT environments and in this case it is the convergence of digitization with pharmaceutical manufacturing that would transform and disrupt traditional pharma business models in days to come. Big Data will be the single key driver behind this change. With the power of data, drug manufacturing companies will soon be able to bring in several transformations in healthcare and diagnostics. In fact several top IT firms are already acting as catalysts to this rapidly changing business scenario. Pharmaceutical drugs are often paired with diagnostic solutions. This strategy has been implemented by several firms such as Novartis and Roche as a front running strategy to gain significant portion of the global market share in the pharma industry.
Today, drug manufacturers are not only providing their end users with the prescribed medicine but are also enabling a more personalized experience. For instance, pharma companies are now starting to offer drugs along with wearable or related mobile applications. Thus, these companies are not only able to provide their end users with the prescriptive drugs but are also able to keep a tab on the end users’ health by continuously monitoring key parameters and keeping a check of any disease that a patient might undergo. It will be interesting to see how much of this has been actually implemented in the near future.
Last, countries from the emerging economies are finally coming to the forefront to challenge the traditional industry bigwigs from the developed nations. At least 50% of the top pharma companies are from the APAC region, which is a good figure in a traditionally dominated space by Europe and the United States. It will certainly take time for these companies from emerging economies to gain a strong foothold in the pharma industry, but the steps are already being taken.