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The pharmaceutical industry is at a tipping point, according to consulting firm AT Kearney. In fact, the group believes pharma faces three interconnected tipping points related to what it sells, to whom, and how it must be organized. “There is a danger that the current pharmaceutical model may become

irrelevant in the context of the 21st century’s global healthcare needs,” the group says in its new whitepaper, Pharmaceuticals Out of Balance. “Healthcare is out of balance and, therefore, so is the pharmaceutical industry.”

Kearney describes its three tipping points as transitions from therapies to service models, from rich niches to global mass markets, and from integration to connection. In this second of a three-part series on AT Kearney’s analysis, eyeforpharma looks at how the group thinks these tipping points will change the industry’s emerging market strategies.

The lure of emerging markets

Although the US currently dominates the pharmaceutical industry and prices are based largely on what the US market will bear, signs indicate this market is failing. Pushes to limit access to medicines based on their cost effectiveness are spreading around the world, and developed markets will inevitably see pharma revenues decline, AT Kearney says.

Healthcare demand is shifting rapidly toward the developing world, where 96% of global population growth is expected over the next 50 years. Emerging markets are acquiring Western-style healthcare needs and expectations as the incidence of diseases such as diabetes and hypertension, long common in developed countries, dramatically increase, the group says. And while emerging, state-funded systems will need to develop cost-effective solutions to these Western-style health problems, they will not be positioned to pay Western-style prices.

For pharmas faced with pricing pressures in developed markets, emerging markets will become too attractive to continue to ignore, while higher volumes at lower prices will become an increasingly appealing option. Pharmas, Kearney says, will need to establish prices in a way that maximizes revenue over a drug’s entire lifecycle and across global markets.

In emerging markets, market access will be dependent upon adoption of mass-market service models that encompass education, compliance and physical distribution, the group says. And these models also will have to address shortages of qualified personnel and a lack of hygienic facilities—all at price points well under those in the developed world.

Local trumps global

Local ingenuity can achieve radical improvements in cost and efficiency of care delivery, and there seems little reason such innovations cannot be exported to developed countries. “Our belief is that pharmaceutical companies need to view emerging markets in a new light—not just as an opportunity for lowering R&D costs or demonstrating market commitment, but as a source of low price, breakthrough innovation,” Kearney says. “If the global pharmaceutical industry does not respond to these challenges, then local companies surely will.”

And there are signs that low-cost, mass-market solutions are appearing in the pharma industry. The group points out that Indian and Chinese biotech companies, once focused on treatments for local diseases, are becoming significant innovators on a global scale.

The authors stress that in a world desperately short of funds, with governments caught between unprecedented debt and the need to provide better healthcare, it is naïve to believe that high prices can be maintained when far cheaper, clinically effective solutions are available elsewhere. In addition, much of pharma’s R&D efforts focus on therapy areas that are not particularly important to payers and are not targeted at mass-market solutions.

Kearney argues that the successful pharma will focus on real world health issues and will gain competitive advantage from its ability to deliver service models that create system value rather than marginal improvements in efficacy. And the group says the industry must move away from high-cost Western niche markets to serve global mass markets and lower cost.

But as they address these new markets, traditional, globally integrated pharmas will struggle to survive, Kearney predicts. The industry “will be too large, unwieldy and unfocused to connect with the payers, providers and potential partners in markets it seeks to serve,” the group says.

--By Liz Szabo, USA TODAY

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