For years, the pharmaceutical industry has benefited from a favorable patent protection system and the backstop of a U.S. market that has valued innovation and faced comparatively little pressure to control or reduce drug costs. From statins and SGLT2s to chemotherapies and cell therapies, pharma has responded with successive waves of innovation that have turned scientific understanding into cornerstone treatments—and thus blockbuster drugs—that have contributed to improvements in quality and length of life and driven pharma’s growth for decades.
But the relatively innovation-friendly policies supporting the industry’s growth are being systematically eroded.
While pharma, enabled by advancements in biological science, continues to push the boundaries of medicine, economic incentives increasingly drive the industry’s development efforts toward rare diseases and smaller launches that, by definition, benefit fewer patients. At the same time, momentum is growing for value-based care and other movements to assure health systems, payers, taxpayers and patients receive the value they’ve been promised in exchange for the money they spend.
At a time when blockbusters are increasingly rare and innovation quickly met with near or direct substitutes, the Inflation Reduction Act and various European reforms such as the EU’s proposed new pharma legislation and AMNOG 2.0 promise to further upend pharma’s long-standing business model. Today, pharma finds itself fighting harder for smaller niches while facing increasingly strident questions from patients, payers and providers about the real-world value of its products.
Meanwhile, consumers and providers point to systemic healthcare problems they say are being neglected:
- Physicians across six major economies say they’re overwhelmed by data and that it affects how much time they can spend with their patients.
- Large numbers of patients from all six economies we’ve surveyed say they don’t feel “cared for,” which helps explain why so many skip routine health screenings.
- In all regions of the world, countries are facing unprecedented levels of healthcare worker burnout, contributing to crisis-level shortages of frontline staff.
Pharma, with its relationships across the healthcare ecosystem and deep scientific expertise, is well placed to help solve these systemic challenges. Right now, however, there’s a growing mismatch between the value pharma ascribes to its products and what customers recognize and are willing to pay for them. If this status quo holds, the industry risks sharing the fate of retail banking, industrial chemicals, semiconductors and others, where the market views its products as basic commodity inputs—interchangeable products that contribute only indirectly to the real outcomes patients, providers and payers care about.
But there’s another, more optimistic way to view this moment: Healthcare needs heroes, and this could be pharma’s moment. The industry can secure its central position in the future of health, but only if takes a more expansive view of its core mission—from being developers and purveyors of medicine that deliver clinical outcomes in controlled trials to being enablers of holistic health outcomes in the real world.
Other industries have responded to commoditization pressures by offering value-additive services around their products that create competitive differentiation and allow them to demonstrate, and hopefully capture, their products’ true real-world value and impact.
This is how GE and other manufacturers of aircraft engines adapted to evolving demands from airline customers, who aren’t interested in aeronautics hardware so much as what they enable: flight. This is how the industry evolved from selling jet engines and maintenance contracts separately to selling hours in the air. These “hours of flight” deals provide what customers actually value and enable suppliers to ensure maintenance is optimized to deliver maximum real-world value from engines. In the prior model, carriers tended to extract savings from maintenance contracts, incentivizing them to embrace a “penny-wise, pound-foolish” approach that diminished the value delivered by their huge capital investments in engines.
Nearer to pharma’s realm, manufacturers of imaging equipment such as MRI and CT scanners have successfully evolved from selling capital equipment to selling holistic imaging solutions that include training and maintenance to state-of-the art AI-enabled analytics and workflow management solutions.
Pharma has readily adopted aspects of this formula by creating constellations of services around its pills, injections and infusions. These include everything from patient support solutions that assist with reimbursement, onboarding and disease management to smart devices for insulin injections and asthma inhalers.
In theory, these efforts represent a healthy evolution for an industry that’s historically focused primarily on developing safe and efficacious medicine, with a belief that these attributes would be sufficient to drive uptake and, thus, patient impact. However, many of these “around the pill” solutions fail to gain traction at scale with patients, providers and health systems. But why?
- They worsen the existing data deluge. Let’s say a pharma company launches a new drug into a crowded chronic disease category that demonstrates similar safety and efficacy as the existing standard of care but boasts a slightly lower risk of a serious side effect. To make this drug slightly more attractive to doctors and patients, its manufacturer creates an app that monitors patients for signs of this dangerous side effect.
This service isn’t without merit. But the average patient on this medication suffers multiple comorbidities, each treated with another drug with its own around-the-pill services. Pan out to the doctor treating hundreds of such patients, or the health system managing thousands, and the net effect is an overwhelming din of apps and technologies that overwhelm the doctor and make her job more difficult—while failing to solve the doctor’s, let alone health system’s, first-order problems.
The takeaway: When designing digital solutions, don’t needlessly add to the cacophony.
- They overlook the customer’s true problems. Providers need help lowering the incidence of all adverse events across thousands of patients in this disease area, while the health system needs help lowering the total burden of care. Unfortunately for the drug manufacturer, the side effect against which its drug offers modest protection is relatively rare with today’s standard of care—making it an afterthought for doctors and systems trying to solve the bigger healthcare challenge. The drugmaker is solving a problem the doctor and health system aren’t even asking to be solved.
The takeaway: Digital solutions should address a meaningful customer problem.
Imagine the benefits a hypothetical pharma company would experience if it helped a national health system meaningfully lower its systemwide burden of a prevalent chronic disease such as Type 2 diabetes or chronic obstructive pulmonary disease. Most pharma companies aspire to solve this kind of grand healthcare challenge; however, there’s often a gulf between the size of their ambitions and the scale of their solutions.
Developing wraparound solutions for existing therapies starts with defining the customer problem to be solved. We see pharma companies follow a common path:
Stage 1: Articulate a big, bold ambition. Many companies say they aspire to solve big healthcare challenges, such as lowering the current and future burden of Type 2 diabetes. That’s great. However, solving diabetes can’t be done with medicine alone. Any serious attempt would require a host of interventions from outside pharma’s traditional bailiwick—things like improving access to healthy food and educating children about the importance of diet and exercise. Embarking on programs like these requires a leap of faith that many drugmakers are leery to take, so they proceed to the next stage.
Stage 2: Downsize ambitions. Targeting a problem on the scale of Type 2 diabetes is so daunting it’s only natural for pharma to default to interventions from within its traditional comfort zone. This might involve building around-the-pill (or around-the-injection) solutions aimed at maximizing outcomes for patients who use their drugs through digital tools to aid doctor decision-making or improve patient medication adherence. There’s nothing inherently wrong with these services, and they do create value for those patients who use them. But they won’t magically reduce the population-level burden of Type 2 diabetes—especially if they’re only designed for on-brand patients and, therefore, only get into the hands of some patients.
Many efforts stop here, but we recommend pharma proceeds a step further.
Stage 3 (recommended): Build a bridge linking today’s solution with tomorrow’s ambition. Solving a problem as big as Type 2 diabetes may be too much for one single company, no matter how large its ambitions or noble its intentions. But pharma can work to ensure everything it does in a disease area aligns with, and contributes to, solving the big, bold ambition. How? It will look different depending on the problem being solved, but holistic solutions that contribute to solving the larger problem will:
- Be brand agnostic, broadening the universe of patients who can benefit
- Plug seamlessly into clinical workflows and patient routines, encouraging maximum adoption and adherence
- Form a holistic solution set by pairing the manufacturer’s therapy with other offerings, such as generic drugs and digital tools, to maximize therapeutic outcomes
While companies may be reluctant to offer solutions that deliver an indirect benefit to their competitors, tailoring offerings to a specific patient group or care journey can meaningfully contribute to solving the big problem—even if the company stops there and never expands its ambitions to include larger, nonpharmacological interventions. Additionally, delivering high-impact solutions at scale can open new revenue opportunities.
Historically, pharma brings new drugs to market by working with academicians and other key opinion leaders to design products and conduct randomized clinical trials. These yield efficacy and safety data, which pharma uses to convince physicians—and others—of the clinical value of its treatments. Success is measured by how often a product is prescribed.
This model is based on the false premise that pharma’s work ends when a doctor writes a prescription and a patient fills it. In reality, drug manufacturers help both themselves and their customers—doctors, health systems, payers and, of course, patients—when they take a more expansive view of their role, a view that includes collaborating with customers to develop solutions around their drugs and then working alongside these same customers to ensure solutions work in the messy, unpredictable, all-important real world.
To be clear: This doesn’t mean just collecting real-world evidence to demonstrate a product’s value in a clinical trial translates to the real word. It means partnering with healthcare providers and health systems to understand and, in many cases, shape how their products are used. This requires developing a nitty-gritty understanding of clinical workflows and system constraints, designing solutions that plug into them and then working with care teams to adjust protocols and behaviors to ensure products and solutions deliver maximum value.
This allows pharma to widen its remit over time to include disease prevention and avoidance in pursuit of helping customers solve their big, ambitious challenges.
So how does pharma do this?
- Solve product-problem fit. After defining the important customer problem to be solved, companies must articulate how their products contribute to the solution. Too often, companies do the opposite, attempting to reengineer the customer problem to match the manufacturer solution. Ask: What customer problem am I solving and for whom does it create value?
- Don’t assume value. Assure it. It’s not enough to assume that if customers use a product as indicated, value will magically flow. Instead, make it easy for them to apply solutions to the right patients, at the right place in the patient journey, to guarantee outcomes. Ask: How easy is it for customers to prescribe and use our solutions in the context of their daily routines? How do they know our solutions are working over time?
- Think systems level. The patient care journey features a complex set of interactions among stakeholders with diverse motivations. Ensuring products and solutions are implemented so that value is guaranteed requires understanding all the parts that make up the whole. Ask: How do we overcome the myriad barriers that keep customers from using our product and recognizing its value in use?
- Embrace a continuous development mindset. Today, the product is the product—even when it’s a digital product. Companies are content to launch a drug or around-the-pill solution and then generate additional clinical data over time to demonstrate if, and to what degree, it delivers the desired outcomes. In the future, customer feedback and clinical results will be fed back into developers so that around-the-medicine solutions undergo a continuous process of refinement to ensure maximum value to patients and systems. Ask: How can we change our development process so that solution development resembles that of a tech company rather than a traditional life sciences one?
To do all this, pharma must become much more adept at assembling partnerships of multilateral stakeholders sharing aligned incentives and objectives. It’s such a radical change from business as usual that some may struggle to envision what it would look like in the real world.
Imagine this: A leading pharma company assembles a consortium of players spanning medical devices, consumer technology, behavioral sciences and early childhood education to partner with a health system on lowering the burden of Type 2 diabetes. The group starts by collecting and analyzing all available data to understand the unique journeys of thousands of patients, which allows them to identify common drivers—clinical and otherwise—of good and bad outcomes. Using this, they design and test a series of pilot interventions combining efforts from each consortium member. The ones that fail are discarded; the ones that work are quickly scaled to larger and larger patient populations.
The combined efforts yield the measurable health outcomes the system is targeting, while partners experience increased revenue, market share and consulting and service fees. While the scenario is hypothetical, it represents a realistic portrait of a multilateral health partnership where all parties share aligned objectives, incentives and risks.
To successfully defend against encroaching commoditization, it’s time for pharma to make good on its promise of addressing each component of healthcare’s Quadruple Aim. “But we already are,” some may respond. From our vantage, however, pharma’s contribution is sometimes more conceptual than actual. The logic goes something like this: If everyone takes our products as prescribed, fewer people will suffer bad outcomes that require hospitalization. Fewer hospitalizations will mean improved patient experience, reduced provider burnout and lower health system costs.
But this logic contains a sprinkling of magical thinking. Reality is never so tidy. Pharma must work alongside health systems to ensure its therapies are being optimally used, that healthcare workers feel supported and therefore have time to spend with patients to make them feel cared for, and that this enables health systems to experience the full benefits of pharma’s solutions. Only then can pharma breathe easy knowing the healthcare system will fairly value—and reward—its full contribution to building a healthier future of all of us.
For more on this topic, please see ZS’s Impact Webinar “Practical strategies for life sciences to solve our biggest healthcare challenges.”