Some weeks it seems as if random events can inadvertently array themselves to reveal the pharmaceutical industry's fundamentals the way a stormy sea provides a glimpse of the ocean floor. This was just such a week.
In one story that appeared within the last few days, a large consultancy reinforced the point (see here) some of us have been making for a few years. Pharma companies must show customers how their products address total disease costs, not how their drugs compare to current standards and competitors. The consultants found that physicians and ACOs have little confidence pharmas will provide this kind of essential evidence.
Around the same time another industry supplier stated a point that's also been made here. Pharma no longer enjoys the advantage of an "information asymmetry" over its customers. In fact the industry does not even own the most data or superior knowledge about the drugs that it brings to market. Moreover, the clinical trial data that pharma does use as the principal content in its efforts to persuade customers, "will be an increasingly small portion of all the data that is being evaluated about medication choices for patients." That is because technology is making so much more new data available to customers in areas such as claims, clinical studies and use, and behavior. The large stakeholders such as payers and providers have incentives to use these other data sources to optimize their choices (see here).
As these stories were hitting the internet, news also appeared that Germany is weighing price cuts on some of pharma's top-selling brands. The affected companies and products include pain killers (Johnson & Johnson/Gruenenthal's Nucynta/tapentadol), osteoporosis therapies (Amgen's Prolia/denosumab), antidepressants, (Servier's Valdoxan/agomelatine and Eli Lilly's Cymbalta duloxetine) and other big brands for rheumatoid arthritis, diabetes, and atrial fibrillation. Pharmas can charge what they want in Germany during a product's first year on the market, but thereafter they are subject to a value-price review. Amidst the industry's refusal to offer these assessments, it appears that their customers are doing it on their own.
There also appeared last week (see here) the finding that pharma's digital promotion increased by 40% in 2012 over the previous year, while the industry's overall level of marketing expenditure was flat despite this large increase in online spending. Two factors accounted for this. First, online spending is becoming increasingly cheaper compared to other promotional media. At the same time, the patent cliff has left companies with less money to put into their traditional mainstay of promotion: sales forces. That created an industry-wide drop of 10% in pharma's US sales forces, while the reduction in Europe was even steeper. The top five markets there saw a 12% drop in sales force numbers. It was only in the emerging global markets where pharma's marketing spend grew, led by China where it increased 20%.
Adding to this mosaic from last week, publications in India revealed that the number of clinical trials pharma is conducting in that country has fallen "drastically" because the government there reduced permission for many of them to proceed. As a result the number of sponsoring pharma companies applying for approval to conduct trials in India has also fallen substantially.
An Indian Health Ministry director told the media, "The safety and well being of Indian subjects participating in clinical trials is foremost in our minds." As well it should be. During the past five years, more than 2,200 people in India died while participating in clinical trials. That led to a public outcry demanding pharmas meet stricter requirements if they wish to hold drug trials there. India's Supreme Court went so far as to chastise the Health Ministry for allowing Indians to be used as what it termed "guinea pigs" in drug trials.
So what does all of this say about pharma's fundamental operations?
First, pharma is unwilling to provide what its customers demand to guide their selection and use of drugs. At the same time, researchers increasingly see the information on clinical trial results that pharma is willing to supply as unreliable or even downright deceptive (see for example here and here). In any case, this clinical trial data is becoming an ever smaller portion of what customers are using to evaluate medication choices.
Second, while pharma refuses to supply the data on how their products can reduce overall costs, their customers in both the emerging nations and in large, wealthy countries such as Germany are generating that information themselves and using it to force price reductions on top-selling drugs.
Third, changing practice patterns (i.e., physicians possessing less time and willingness to see reps) and pharma's declining productivity at developing new drugs are forcing the industry to curtail its most persuasive promotional medium in favor of online communication. Although pharma devotes more promotional spending to online communication as an alternative, researchers consider the industry's efforts there as slanted and more promotional than helpful. For example, Canadian researchers conducted an extensive review of online communication, sites and management tools for diabetes and found that few of them meet "criteria for effectiveness, usefulness, sustainability, and usability." (See here)
And finally, while the clinical data that pharma transmits to customers holds less relevance, the industry counts on drastically lower costs and slipshod standards at "slumdog" sites in India and other emerging countries to generate it. Now even those assumptions about low costs and lax standards may no longer hold. That probably means it will cost pharma more money to produce data with declining persuasiveness.
While none of this is radically new, the fact that embellishments of these points all emerged within a single week point to some major breakdowns in pharma's fundamental operations. Whether and how the industry tries to remedy these dysfunctions by the end of the decade will determine Big Pharma's prospects as an ongoing business proposition.
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