New business models are the medicine needed to save pharma from the disease of disruption

Don’t get comfy. Big pharma is ripe for disruption, and if pharma wants to thrive in the future, it needs to radically transform from within: by changing pharma business models. Pharma are akin to majestic eagles that are tethered to the business model arm of their handler. They could thrive and soar free, able to rise above the limitations of existing business models. A sustainable future requires seismic business model shifts for pharma, and sitting behind these changes will be artificial intelligence. Like tamed eagles, pharma businesses are reluctant to adapt. Their existing models have been successful for a long time – so why should they? And, if they really should change, how can they?

In spring 2022, we released our whitepaper Pharma’s tough pill to swallow: the pressing need for next-gen business models and transformation using AI. Here, we presented the background case as to why pharma giants need a rethink. Our previous whitepaper opens up the question: how can pharma use AI as the springboard to sustainable success in the future? Our next whitepaper, due to be launched in early 2023, will look more closely at how pharma business model shifts are the new pill to swallow, following the tough pill of knowledge.

The tough pill to swallow: the truth of now

No one likes criticism, and no one likes change. However, pharma needs to change as pharma business models aren’t just stagnating; they aren’t future-proof. This would pose a tricky problem on its own, but the industry is ripe for disruption. And if pharma businesses are the tethered eagles that are slow to change, the tech industry players are the adaptable and free peregrines, able to adapt and fly their way to success. And this creates a combination of factors that makes existing pharma businesses exceptionally vulnerable.

Add together the fear of change and the arrogance of believing you don’t need to, and there is a train wreckage of missed opportunities, lost profit and reputational weakening lying ahead.

So, let’s give a reminder of why pharma needs to change:

• Cutting-edge medical breakthroughs alone don’t make the future
Breakthrough medicines are wonderful. But these don’t solve all challenges like they used to. The medical breakthroughs of today are for smaller patient populations, unlike the blockbuster of old.  And medical breakthroughs are harder to achieve and these days they are more easily diluted by other players through things such as faster patent life reduction with generic/ biosimilar competition, and adjacent competition (such as DTx).

The future is made at the other end of the scale: reducing the need for the pill in the first place through earlier diagnosis and prevention.

• The shift towards patient outcomes

Healthcare has seen a sizeable movement towards meeting the expectation of measurable patient outcomes. It’s enticing because it’s measurable and it’s meaningful to patients. Pharma serves healthcare, so they, too, must shift towards delivering improved patient outcomes, and that’s difficult in an arena of factors including poor patient adherence. The current pay-per-pill model doesn’t serve pharma well currently in this regard.

• Artificial intelligence is powerful, and we have big data to use with it now

It seems odd to be labouring a point we appreciated 15-20 years ago! However, the difference we have today is that we have so much more big data to use with it to use it effectively. On top of that we have synthetic data from GAN (Generative Adversarial Networks) – first created in 2014 – which allows us to create synthetic data that is real that we can use for areas such as rare disease effectively and not compromise patient confidentiality because the data is synthetic.

• Tech firms are disruptive, and healthcare entices them

Healthcare is big business. As such, the industry attracts FutureTech problem solvers. There is plenty of low-hanging fruit but also extensive structural opportunities too. If pharma doesn’t drive and create intelligent solutions from within, tech companies will come along and sweep up the winnings. Indeed they already are, as we can see with examples like some of Amazon and Google’s work in this space, and now Apple starting to take the lead in healthcare. Pharma companies aren’t alone in the space anymore. Both big tech players and start-up tech players are entering the field in significant ways.

• Demographics have changed, so pharma must too

The compliant and unquestioning patient doesn’t exist anymore. With an ageing population, the biggest pharma drivers are lifestyle drivers. The customers have changed too. The generations who make up the future customers have already merged lifestyle and wellness, embracing autonomy in their wellbeing and are actively using tech, such as wearables, to do so. Central to that change is the drive for personalization. Pharma is trying, in the form of things like personalized gene therapy. But it’s not enough. It’s not the depth of personalization that the customers expect.

• The old methods aren’t working anymore

Pharma business models did work. Of course they did – we wouldn’t have a raft of successful businesses operating as giants if they didn’t. And on the boards of these companies are CEOs who historically have believed that it’s new products that will lead to growth, ploughing money into new drug R&D and expensive mergers and acquisitions to buy pipeline. But we see just a handful of new drug approvals now compared to previous times, and of those which are approved, 93% fail in the first three years according to Nielsen BASES. Until now, various strategies ranging from M&As to soaring prices, have held the tide back, but these strategies will run out.

Change might be daunting for pharma, but there are enticing incentives to change. Furthermore, it’s not whether the change will happen – it will – it’s whether pharma wants to be in the driving seat or a passenger (who potentially gets dropped off at an out-of-the-way bus depot somewhere).

So, what does change mean in this context? It’s all about business model shifts.

How to create a sustainable future through changing pharma business models

The Harvard Business Review gives us a powerful heads-up:

“One secret to maintaining a thriving business is recognizing when it needs a fundamental change.”

The first step is acknowledging the need for change; let’s show those tethered eagles that there’s a world of opportunity out there.

Next, we need to help them break free of the tethers and soar high.

An Invincible Company is described as an organization that constantly reinvents itself before it becomes obsolete. These companies explore the future while excelling at exploiting the present. They cultivate an innovation and execution culture that lives in harmony under the same roof. They compete on superior business models and transcend traditional industry boundaries.

Pharma business models must become superior through reinvention and innovation to transcend traditional industry boundaries.

Business model shifts are at the core of creating a sustainable future for pharma. Our forthcoming whitepaper, Why and how pharma business models need to change to ensure sustainable businesses, will give more structure to the ‘how’ of how to change business models. Reflection on current business models is critical, and not just in the broader concept of how to embrace AI.

However, more is needed. The change needs to be more radical. We need to change from the current business models characterized by the Blockbuster model pay-per-pill model and instead look to what makes a successful business model. Research shows that there are six keys that apply to transformative future-proofed businesses :
1. A personalized product or service
2. A closed-loop process
3. Asset sharing
4. Usage-based pricing
5. A more collaborative ecosystem
6. An agile and adaptive organization

The most successful companies possess at least three of these traits in the business model. Healx is a pharma company with four of these traits, proving that they apply as much to the future of pharma as they do other businesses.

There are various business models that could offer potential; we will discuss these more in our coming whitepaper. Some which are very interesting for the future of pharma are Subscription (e.g. Forward), Survive-to-Thrive models, and Ecosystem models (e.g. Apple wearables and Cue Health), From-Drugs-to-Solutions models.