Leavitt Partners Future Frame Series: The Value Imperative For The Pharmaceutical Industry

On July 16, Leavitt Partners’ CEO Andrew Croshaw moderated a discussion between Jeremy Bahr, Principal at Leavitt Partners, and Prem Kumar, Senior Advisor to Leavitt Partners, focused on trends in U.S. healthcare that affect the pharmaceutical industry, and how pharmaceutical companies may need to evolve to succeed in a value-driven healthcare environment. 

Andrew opened the discussion with a reflection that this conversation is happening at an interesting time, with the recent FDA approval of a Aduhelm, a new Alzheimer’s drug. Adulhelm’s approval raises many issues that are critical to understanding the dynamics of the pharmaceutical industry. This example was mentioned throughout the discussion to highlight the salience of key trends in the context of policy and market pressure on new product development.  

Key Trends that Impact the Pharmaceutical Industry

As health outcomes have improved and the demographics of society have changed, so has the healthcare landscape. Many of the trends in healthcare, like better outcomes and  longer life expectancy, are positive changes that have important implications in the broader market. Other developments, such as new technologies, better data and analytics and an aging population, create opportunities for pharmaceutical companies to improve their offerings and solutions. 

In the shifting healthcare landscape, three key trends must be considered when setting a pharmaceutical strategy: increased costs of care, an increase in government payments, and the industry’s focus on high-cost specialty pharmaceuticals.  

Key trends that impact 8.2.21

Impending Collision

These trends point to an impending collision between high-cost drugs and value. Aduhelm is just one example of this impending collision—there are more drugs like Aduhelm in the pipeline. The industry has shifted from focusing on primary care to specialty care, and from developing small molecule drugs to large molecule drugs. And with the rise of genomics, cell and gene therapy, we will continue to see medicines that cost more to produce and target smaller, more niche patient populations. The companies that create these expensive drugs face challenges—they will need to solve the cost (and access) versus value (outcomes) dilemma. 

Implications for the Pharmaceutical Industry

What does this mean for the Pharmaceutical Industry? We looked at it in two ways: 

  • Broadly, we considered how these trends affect the concepts and principles driving the pharmaceutical industry, such as innovation, value, equity, and access. For example: 
    • The definition of innovation in the pharmaceutical industry is changing. A new drug with a marginal increase in efficacy is no longer enough; we now expect new drugs to treat diseases and symptoms more effectively and deliver improved outcomes in the real world, with lower costs.  
    • Healthcare stakeholders and pharmaceutical companies have historically defined value in different ways. Risk-sharing arrangements have typically left drug costs out of the value equation. With drug costs carved out, risk-bearing providers have demonstrated they can improve outcomes and lower costs. When drug costs are included in risk-sharing arrangements, these providers sometimes lose money—expensive drugs can turn risk-sharing arrangements upside down. Until recently, it seems the pharmaceutical industry has been content to sit on the sidelines in value-based payment and risk-sharing arrangements. In the future, industry leaders will not sit on the sidelines; with products that deliver value in real-world settings, they’ll become key players that drive value-based arrangements.  
  • The second way to think about the implications for the pharmaceutical industry is by looking more narrowly at the functions and teams (such as manufacturing, strategy, marketing, analytics, etc.) within the industry and consider how the move towards value affects their work. For example: 
    • R&D teams will need to design clinical trials that help demonstrate value in real-world settings; and 
    • Strategy teams will need to include insights from policy, access and health equity in their brand and operating plans. 

In short, insights and intelligence from the value landscape will be increasingly important for every function in the industry. 

What Should Pharmaceutical Companies be Doing?

The shift to value-based care is happening in healthcare. Leavitt Partners’ Founder, Governor Mike Leavitt, has said, “How we deal with change matters. We have 3 options when dealing with change: Fight it and die, accept it and survive, or lead it and prosper.” 

The pharmaceutical industry has shown that it has the capacity and willingness to respond to changes in the larger healthcare landscape; at times, the industry has been able to lead these changes. The movement to value presents another opportunity to lead. It also presents a great opportunity for the industry to identify which patients, physicians and other stakeholders will benefit most from their products.  Pharmaceutical companies must understand which payers, hospitals, health systems and physicians are moving to value more quickly and start exploring value-based pricing, contracting and promotion.  Companies that do this, and can clearly demonstrate that their products offer better outcomes at lower costs, will become part of the solution—they will be able to help bend the cost curve and deliver more value in healthcare.   

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At Leavitt Partners (LP), our experts spend a lot of time tracking and understanding the value movement and believe that value-based care can improve outcomes and cost.  

Leavitt Partners has used research, data, analytics, surveys, interviews and proprietary approaches on many projects to help clients better understand their customers.  LPs’ work on customer segmentation, strategic positioning and messaging has helped: 

  • Market Access teams at pharmaceutical companies better understand and segment payers, PBMs, hospitals and health systems, with an aim to improve contracting and account management. 
  • Brand and product teams at pharmaceutical, medical device, med tech and software companies segment and prioritize their customers, which led to more targeted and more effective sales and marketing campaigns. 

Leavitt Partners has done this work in many therapeutic areas, including respiratory, cardiovascular, oncology and immunology.  The following example is from a company (renamed Company X) with a respiratory product line.  

Introduction Pharma 8.2.21

Quantitative Research Findings Pharma 8.2.21

Segmentation Pharma 8.2.21

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Our mission at Leavitt Partners is to advance value to make health care more affordable, sustainable, and effective. We invite community members and industry experts to join us in future dialogue on the healthcare climate. View our archive of Future Frame discussions hereand follow us to be notified of our next LinkedIn Live.