Thursday, February 24, 2011

Investing in Health Outcomes: Does Pharma Get It?

A new Ernst and Young report on what it calls Pharma 3.0 – the industry’s migration from its sole focus on selling medicines to the inclusion of improved health outcomes – reminds us of the tale of the Big Three. Yes, we mean Detroit.

We’ll get to that analogy in a minute.

“In Pharma 3.0,” the authors write, “companies will succeed or fail based not on how many units of a drug they sell, but on how well their market offerings improve health outcomes.” Considering that this report included roundtable discussions and more from numerous Big Pharma execs, it’s safe to say it has lots of industry buy-in.

The report says that some pharma members are investing in such programs. By the authors’ count, 220 programs were launched between 2006 and 2010, with the lion’s share, 44%, coming last year. The authors say nearly all the top pharma houses “are active in the Pharma 3.0 space” with a few, such as Pfizer, Novartis and Roche “leading the charge” with more programs. (Pharma 1.0 is how business was conducted; Pharma 2.0 is considered Pharma’s pursuit of blockbuster drugs and is now coming to an end.)

The report doesn’t talk about how big the programs are, or how much money industry has spent.

But it does mention how much money other companies – non-traditional organizations like Apple and IBM – are spending: $20 billion.

And counting. The writers aren't pleased with industry's skimpiness.

“Pharma is still focused on investing in drug innovation,” says a Johnson and Johnson exec. “We’re not making the kinds of investments in Pharma 3.0 that many non-traditional entrants are making.”

And now for that Big Three connection.

For those of us old enough to remember, do you recall when Toyota and other foreign automakers seriously started selling their cars on American soil? The Big Three ignored their fuel efficiency, their smaller size, their better performance – until it was nearly too late.

The article authors make a similar connection.

“It is important, however, for pharma companies to recognize that they may have a limited window of opportunity. Today’s non-traditional entrants, though unfamiliar with the health care business, could prove to be quick learners, and the advantages that the pharma companies have because of their domain knowledge could shrink in a few years.”

Tomorrow: what those non-traditional entrants are doing.

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