Still holding true to the pill... (Part 3/3)

As the follow-up and conclusion to part 1 and part 2 of my essay and after focusing on the leadership challenges that Pharma is faced with when trying to successfully launch "beyond the pill" initiatives, I'll now focus on the two other pain points: regulatory environment and access to capital. 

These can be somewhat overlooked when one considers all potential pitfalls "beyond the pill" initiatives are faced with, as they're mostly related to internal factors. But, as we'll see, it is exactly that nature of internal conflict that makes them so hard to overcome.

After exploring these two factors, I'll wrap-up the discussion with the main conclusions.

Regulatory Environment

Pharma companies around the world are subject to strict regulatory constraints on subjects such as market authorization, pharmacovigilance, pricing, transparency and fraud. Of these, the latter is the one that gives rise to more challenges in "beyond the pill" initiatives, mostly because any direct support to purchasers, providers or patients brings about the risk of being interpreted as a form of kick-back. Even interactions with these stakeholders are usually subject to draconian controls and have to be made public in a constant full disclosure attitude. 

This is often seen as a major constraint to business diversification, even more so recently, as we see a plethora of new players from outside the sector (namely tech companies) come into the playing field with no such restrictions.

But research on the subject concludes that, more than the legal problem, the culture these legal frameworks originate, is what really hampers "beyond the pill" initiatives. And mostly because of the changing landscape in business model.

Increasingly complex regulatory policies in Europe and the U.S. mean drug approval applications require extensive testing before a market authorization is granted, which implies extra documentation has to be produced to meet clinical trial and pharmacovigilance standards.

As a result of these policies, most new drugs are researched and investigated for more than 10 years, and are only brought to market after they undergo human trials intended to discover potential side effects and treatment efficacy. Considering the patents granted to new drugs last for 20 years from the date of filing, Pharma companies now known they’ll have less than 10 years before generic companies swoop in with bioequivalent products, terminating the (very) profitable phase of a pharmaceutical product's life-cycle.

This creates a tremendous pressure in the whole company, as it brings about a pressing need to maximize returns during the exclusivity phase of the product. And, like in so many other industries, this pressure can lead to “short-cuts” being taken… these can occur at all stages of product development and launch:

• Clinical trial results can get embellished, or their dissemination can be biased, in order to ascertain superiority against competing alternatives, or even to improve the molecule’s value, as perceived by the purchaser;
• Unreasonable amounts of pressure can be exerted on regulator agencies, in order to speed up approvals or entries into formulary; 
• Illicit incentives can be given to physicians, in order to increase prescription of the molecule, many times, regardless of the patient’s actual need.

All of these unethical situations (along with price gouging practices) are what brings Pharma such a bad reputation, enough so that even companies well-known for developing life-saving medicines score very low on consumer survey reports. 

Top Pharma management is very aware of this situation, and goes to great measures to avoid any reputation issues by creating very strong compliance departments. In fact, it’s not just compliance departments: the whole industry and its different elements are currently built on a philosophy of separation and balance of powers. For example, manufacturing and quality assurance or marketing/sales and compliance. This reflects externally, and even pharmaceutical companies and regulatory agencies operate on a mostly adversarial premise. 

What this means is that most organizational structures in the industry have been designed in a way that creates groups and departments with overlapping and duplicate responsibilities. This constant “cross-auditing” greatly reduces the probability of ill conduct, but the downside is that turf wars and “dropped balls” are common occurrences, that sometimes create serious issues within the organizations and in dealings with regulatory agencies, business partners, and the patient, often with catastrophic results. 

This focus on avoidance of ill practices even goes as far as to influence individual behavior - instead of creating a strong ethical culture, companies have grown to rely on the use of on-business processes, standard operating procedures, standards, guidelines, and many other rules of engagement, hoping these will act as effective orientations for staff. Sadly though, these standards and processes also have the tendency to limit any "outside the box" thinking.

Under this working environment, achieving the type of collaborative effort that can bring about significant changes to the business model is a very challenging endeavor. It requires departments, divisions and even teams that are not used to collaborate in order to solve common problems, to suddenly set aside individual agendas in pursuit of a shared and larger goal. And even when this cooperative posture is achieved, there's a serious chance that internal regulations may limit initiatives that imply taking some risks, or that exist in a more "grey area". 

Access to Capital

This is perhaps the most straightforward of the three challenges to "beyond the pill initiatives", and it is essentially linked with the strength of Pharma’s current business model, better known as the “blockbuster” model. 

A blockbuster is a molecule that, once approved for commercialization, will lead to annual sales of, at least 0.5 billion $US (though lately, this bar has been set at the 1 billion or more mark). One product, one customer, one price – and the full weight of the company resources, all set on maximizing returns.

The problem is that almost every pharma company has been following this same strategy, and now, most of the low hanging fruit has been picked – the fact that costs to develop new drugs have more than quadrupled in the last decade clearly confirms it. 

To make matters worse, the search for blockbusters consumes so many resources, it keeps companies from pursuing alternative projects, especially those that have uncertain outcomes. It even keeps companies from addressing unmet medical needs of smaller patient populations (smaller markets have little potential for blockbusters), whilst leading them into launching numerous “me-too drugs” (such as the various patented molecules currently on the market for treating high cholesterol, a large and attractive market). 

So, despite this blatant need for change in innovation processes, Pharma seems set on sticking with what has been a winning recipe (granted, with a couple of new twists here and there), and that defines the sector as whole - it's what shareholders and investment analysts expect to hear in the Quarter's conference call. And this makes it very hard to deviate towards new business areas or business models, because the numbers are just not there.

Proposing to divert resources from a true-and-tested business, with historically high margins, towards an unfamiliar sector, where margins will quite likely be shorter and the uncertainty will be higher, is a hard case to defend. Thus, companies may even risk limited resources in pilots and initial stages, but projects ultimately fail to scale up, as competition for significant capital allocation is just too fierce

Conclusions

Much has been written on how pharmaceutical companies need to change the way they do business, in order to remain profitable in an ever-changing competitive landscape. Most of this research on the industry challenges focuses on the business side rather than the people side. 

But when we address the many failed attempts made by Pharma to create "beyond-the-pill" strategies, the people aspect seems paramount. The failures have a variety of causes, but some common challenges seem to be present. The first, and foremost is leadership, which, oftentimes, is chosen from existing teams and lacks the relevant experience in building "beyond-the-pill" solutions.

Most discussions of leadership focus on top executives at organizations and work from the top down. Though certainly relevant, this narrow view of leadership, especially in this industry, is not only detached from reality but outright neglectful. Pharma is brimming with high potential middle managers, that need to be engaged and empowered, so they can be responsible for bringing about the change they feel is necessary for their organizations. 

To do this companies need to set up a nurturing environment where people can perform, grow and aspire to achieve, but, most of all, where they can feel psychologically safe to take risks. 

Also, since the talent and skill needed to build and market services and solutions is different from the talent required to market drugs, it seems logical that companies should consider bringing on board leaders from outside the industry, to be in charge of the new undertakings.

A second challenge is a regulatory environment, where anti-kickback legislation can limit pharma in marketing these services. This is often referred as a major constraint, especially because companies outside Pharma, including the many digital health start-ups, are not required to comply with such regulations. However, the legal constraints are just one side of the coin. The complex compliance norms that Pharma forces itself to, in replacement of a strong culture of ethics and proper conduit, can be even more of a disadvantage, as it severely limits enterprise wide cooperation, and pushes back on individuals acting outside the status quo.

Finally there is the challenge of securing capital for these initiatives. While the current business model of blockbusters is clearly a “dying species”, Pharma still lacks for a suitable replacement, so it will linger on and its inefficiency will absorb resources that should be directed to innovation.

A solution is focusing new services where there is a chance these can be supportive of the core pharmaceutical business and not compete with it for capital or management attention. So rather than trying to build "beyond-the-pill" solutions that are decoupled from their core pharmaceutical products, companies should strive to enhance the effectiveness of their own medicines with tightly linked complementary services, solutions, and tools that encourage patients to be more engaged in their own care and help them adhere to their prescribed therapies.