After the morning’s presentations, attendees met in three groups to drill down and discuss critical next steps in the three focused topics identified as necessary for successful level 2 or 3 solutions: overcoming barriers, identifying the right organizational structure, and designing the right profit model. Overall, the groups felt the need for leveraging the Mack Institute’s expertise and venue for continuing this dialogue.
Group A
What are the conditions for successful level 2 or 3 customer solutions? How will the barriers to success be overcome? How will technology advances, such as personalized medicines, impact the ability of pharma companies to offer solutions?
From the pharmaceutical manufacturers’ perspective, the public’s lack of trust in the industry and the current business culture of “that’s the way we’ve always done it” are the two biggest barriers to creating game-changing level 3 customer solutions. The current model of selling new medicines to doctors has been in place for decades, and because that model works, it has become ingrained in corporate- and industry-wide culture. Another barrier is resistance to working in a co-creation environment or ecosystem. It will take industry-wide cooperation to transform the current “burning platform” model to interactive and impactful customer solutions. “The pharmaceutical ecosystem is very complex and involves people’s emotions. You need to get rid of the idea that by collaborating you’d just be ‘helping the other guy,’” said Mack Institute Senior Fellow Daniel Zweidler.
The pharma industry has deep knowledge of the current regulatory process of getting a drug to market, and vast experience designing logistics around these regulations. These strengths make the pharma industry an ideal contributor to a customer-centric solution. However, as the day’s moderator, Mack Institute Co-director George Day observed that there is a mindset difference between delivering a solution and enabling a solution. “Enabling a solution means you are much more collaborative, whereas when you are delivering a solution, you are more in control. I’d say that the pharma industry is good at delivery. They create value by getting a drug to market.” However, to win in the customer solution space, pharma companies will need to let go of some of the control and become solution enablers, he added. “Manufacturers have to learn how to implement and test new models in order to develop a level 3 solution.”
Above all, the process of designing such a solution must be mandated from the CEO, and it cannot be done with a team that is working in the “business as usual” space. Start small and then scale up after learning what does and doesn’t work, Zweidler said. Don’t confine a level 3 solution to one portfolio; instead, focus on a broader perspective that takes in the entire healthcare spectrum.
Another new condition necessary for successful level 3 solutions will be incentivizing employees to develop a solution. How do you compensate someone who provides a solution?
In conclusion, the group agreed that everyone knows what the goal is, only a very few companies have begun to take steps to get to a successful level 3 solution. The group reiterated the need to start with a small but important area where the lessons learned can easily be expanded to other, larger therapeutic areas. “You need a success story, but remember that you do not need to solve the entire problem at the first attempt. You must do something that adds value, and so be able to delineate the value you are adding for the customer, the patient,” Zweidler said.
Group B
How can pharma companies meet the organizational requirements of level 2 and 3 solutions (what capabilities, incentives and structures)? What is the role of leadership?
To keep up with current levels of research production in the future, one group member shared that the industry will need to increase its R&D efforts by an estimated five-fold, a simply impossible task. Thus, new models of business are desperately needed, and, to ensure creation of new business models, such efforts must be directed from the top down. The CEO must lead organizational efforts to build new customer-centered level 3 solutions. But at many companies, the CEO is often far removed from the customer. Closing this distance between the CEO and the customer is essential, by measures such as creating a strategy officer or other position that can liaise with customers and their issues and the top executive. As noted in Group A’s discussion, those officers and employees tasked with creating level 3 solutions must be given the space to do so. If they are also watching the P&L statement, innovation will be sacrificed. Furthermore, pharma companies must become comfortable with new and different types of margins as they create these level 3 solutions. Acquiring skills in segmentation is another organizational requirement.
Beyond segmentation, there is a need for senior-level vision and commitment to integrate this new thinking throughout the business units and throughout the functions. Communicating the shift to such level 3 customer solutions must be made across the firm so that all parts of the organization can align around it.
The pharma industry has huge resources, yet it has not used them to help identify customers’ needs, the group noted. One possible strategy for creating level 3 solutions is somehow repurposing these resources. Understanding that a company’s core competency today may not be its core competency in five or 25 years is essential. While many companies understand that they need to continually reinvent themselves and to take a longer-term view, pharma has not done this as much. Shifting to a long-term view takes an incredible amount of management and leadership; this change in thinking will not be easy. Companies need to make deliberate choices around their core competencies, adjacencies, and a diversification strategy; most important will be integrating this new thinking with the current core business.
Adopting a start-up mentality and a portfolio mindset are other capabilities that the established pharma industry needs to adopt. Along with this new view, companies must also reward employees who run level 3 pilot solutions—and allow them to fail as long as lessons are learned, communicated, and the knowledge is applied to the next level 3 pilot.
One discussant noted that, currently, patients are given the full focus of pharma companies only if they have a disease that many other people have as well. That is, diseases with fewer patients do not get the attention of the R&D departments at large pharma companies. This thinking is not customer-centric and must be addressed.
Battling Wall Street’s short-term vision of pharma—which sees a deteriorating pipeline—is another important capability companies will need. George Day noted that for the most part, Big Pharma has not given Wall Street any confidence that the pipeline decline can be stopped or reversed. “In that sense, revenue from a level 3 solution is insignificant compared to whether or not you can revitalize your pipeline with sub-targeting knowledge from the in-market data you can collect. That is the forward-thinking part of the solution and it is going to take a long time to achieve, to build up that data.”
Group C
What is the profit motive? When and how will pharmaceutical companies make money from customer solutions? Are there intermediate benefits (customer satisfaction, loyalty, etc.) that can be monetized?
Five basic profit models were identified: simple collaborations, the two-sided business model, risk-sharing contracts, product-based innovation, and ancillary services and products. Whichever model is selected, the group emphasized, it is important to remember that innovation takes time. A model developed today may not be the right model next year; it may take several years before failure or success can be identified. Even multiple models may be used, depending on the state of the world and individual customer needs. And no matter what model is ultimately selected, the group stressed, the patient is always the customer, whether a pharma company is selling to hospitals or formularies or individual health plans. Any successful profit model must better engage the customer by drilling down to the patients’ needs and wants, and the benefits must be mutual.
Currently, simple collaborations, such as between retail pharmacies and pharma companies, provide quick hits that are mutually beneficial but provide only a limited number of opportunities. The two-sided business model (i.e., collaborations with other partners) revolves around the question of who pays—the user or someone else. Citing the example of low-cost airlines, one participant noted that airports and their related service providers actually support the low ticket prices. Whether pharma will adopt this model and find such untapped funding, thus encouraging more and better interactions with patients, remains to be seen. However, leadership teams at most large pharma companies are acutely aware of the need to improve customer collaboration. As noted by one participant in the discussion, the thinking is present but the execution capability is not. The third model discussed was risk-sharing contracts. These contracts are difficult to implement and expensive to monitor, and many customers push back by just asking for a discount. Nevertheless, the current models of incremental product innovation and ancillary services (such as programs with retail pharmacies) clearly are not going to be sustainable going forward, the group stated.