The pharmaceutical industry has enjoyed exceptional returns over the past twenty years, employing a relatively straightforward and robust business model. Although it is difficult to frame it in terms of a timeline, the pharmaceutical landscape is changing in a number of ways. For example, payers and providers are increasingly concerned about the explosion in health-care costs. Consumers are also concerned about the quality of their healthcare, and are becoming more actively involved. At the same time, advances in biology and information technology point to more sophisticated drugs and focused customer communication.
This exhaustive study conducted by Mike Piper of the Andersen Pharmaceutical, Biomedical and Health Services Practice, Leonard Lerer, INSEAD Affiliate Professor At Large, and Michael Harrison, INSEAD Post-MBA Fellow, explores a component of the pharmaceutical value chain that has been largely ignored – the interface with the customer. The report examines the benefits of placing the customer at the core of the pharmaceutical company’s existence.
The pharmaceutical industry is deploying considerable resources to become more customer focused. The study talks of the value and status of customer focus in the industry. At the same time there is an attempt to initiate valuable partnerships out of customer relationships. Clinical trials, for example, have evolved from being a drug development tool to building a network of physicians loyal to the company and its products.
The report highlights that trends in the pharmaceutical industry are likely to lead to some significant challenges in the next 15 years. Moving from being simply, a provider of cures it will be subjected to an ever-increasing level of scrutiny. It may even be perceived, as the tobacco industry is – manipulative, untrustworthy, and willing to use its financial muscle to get its own way.
The dynamics between R&D and marketing are explored, leading to the conclusion that the link connecting the two will undergo a process of evolution. We will see increasing segmentation of customers into smaller groups with varied capacity to pay. Pharmaceutical companies will have to find answers to the demands or needs of such customers. These solutions will be accompanied by new opportunities to communicate with customer as well as “incentivized” customers who are willing to participate in the healthcare process.
Business as usual is no longer enough to meet neither customer nor shareholder expectations. A perfectly customer-focused pharmaceutical company will have a nimble and responsive R&D capacity able to create high-value drugs developed in response to demand. It will be attractive to biotechnology companies that seek a partner to license or co-market innovative products accompanied by advanced flexible manufacturing capacity.
Reshaping the business however is a dangerous game. The authors suggest that pharmaceutical companies will have to use existing competencies to deal with the changes in the market place. With a drive to attain true customer focus, pharmaceutical companies will have to become more closely networked with their various customers – payers, physicians, patients, insurers, and governments. This will also lead to more calculated risks being taken in terms of guaranteeing outcomes, sharing development risks, and nurturing sustainable partnerships.
The report concludes by saying that in the long term the industry will have to go “at risk,” meaning it must take and share the risk along the value chain with a range of partners, in order to grow. The challenge lays in hardwiring this entrepreneurial approach into the soul of a pharmaceutical company.
INSEAD
