Never more than five years behind the conventional wisdom, an expensive consultancy last week issued the results of a humdrum survey in which several pharma executives admitted that the industry's business model is broken (see here). Perhaps these savants will next announce that Elvis is dead and horses no longer dive from high platforms in Atlantic City.
Also during the week, Forbes' pharma columnist Matt Herper demonstrated the industry's enormous reliance on price increases over the past decade for maintaining profitability. Price cuts by national health systems outside the U.S. have already doomed this tactic globally and, eventually, price gouging at rates three times higher than cost-of-living increases will taper off here, too.
At the same time, attracting capital has become far more difficult for biotechs and specialty startups (see here). Two principal factors create the problem. First, the collapse of the IPO market prevents the venture capital funds that traditionally backed biotechs and startups from readily cashing out to secure their gains. Second, the trend by regulatory agencies to more rigorously review drug applications increases development time to the point where biopharma companies no longer fit into VCs' mid-stage funding strategy. While these developments cede the role of major funder to the Big pharmas, the biggies will only provide support at the later development stages, and then only on the basis of performance milestones.
As biotechs and startups continue to assume a larger share of the responsibility for fulfilling pharma's historic mission of developing better drugs, an obvious question then emerges. If the current business seems gloomy to the point where it's become tough to attract capital, and abusive price increases can't continue to drive profits, then what business can pharma pursue?
Without explicitly describing its current plan in diabetes as necessarily an industry-wide strategy, Sanofi has nevertheless been pursuing a clever approach that may offer pharma a useful holding pattern. As part of its effort to leverage a strong position in the insulin market and become a comprehensive diabetes company, Sanofi this month launched its iBGStar in the U.K.. The product is a blood glucose monitor that connects to the Apple iPhone, thereby providing real time, interactive linkage between patient users and other stakeholders, such as their diabetologist, nurse educator and primary physician. In an interview last week, the brand's manager described some of the strategic purposes that the iBGStar device serves for Sanofi's diabetes franchise (see here).
First, Sanofi accepts the reality of a payer-driven, health care environment. In that setting, absent a breakthrough therapy that can radically change outcomes and associated costs, Sanofi believes institutional customers want benefits rather than individual products. Benefits can involve matters of convenience, adherence, long-term cost savings, more efficient practice management or any of several other gains. Moreover, customers appear indifferent about whether such gains come from therapies, devices, programs or cosmic rays. If the benefits address their needs and the relation to cost is favorable, they'll go for it.
Secondly, Sanofi believes that benefits generally accrue from packages that combine these separate elements. Such effectiveness applies both to customer use and to Sanofi's own marketing.
Third, Sanofi believes that making the popular iPhone a front piece for its diabetes portfolio gives them better, direct access to individual user-patients, especially outside the U.S., where direct-to-consumer promotion is prohibited.
Finally, for individual health care professionals, Sanofi feels the iBGStar supplies the classic pharma tactic of bundling with a tangible gain. The device facilitates communication among stakeholders by providing a ready-made EMR that reduces providers' support time and effort.
No, the iBGStar won't cure cancer or diabetes but it will help generate some loyalty to Sanofi's diabetes products. In the process it may well burnish the company's image for advancing diabetes management until a slam-bang cure does arrive. At the least, the program represents an easily discernible effort to do well by doing good, and that's not a bad approach for pharma to take.
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