A funny thing happened on the way to pharma’s future: it’s no longer on its way. It’s here, it’s arrived thanks (to a significant degree) to the contract services industry. But what is (or was) pharma’s future in the first place?
At one point the future was more about the drug — finding the compounds and molecules that stopped the pain, killed the infection or immunized humans from history’s great diseases. For most of the 20th Century the industry followed the “Pharma 1.0” business model of massive R&D efforts designed to deliver the exalted “blockbuster” to ready markets of millions of patients, while earning billions in the process. The industry pursued this strategy to great success, but over time, the inertia of Pharma 1.0 slowed, weighed down by (among other things) the methodology’s waning ability to find primary care drugs with a large enough patient base to justify and deliver an adequate return on the nearly $2.6 billion, according to Tufts Center for the Study of Drug Development, it currently takes to create a category-defining drug.1
During the Pharma 1.0 era, regulators were also experiencing change and adaptation. The international cadre of pharmaceutical regulators, FDA chief among them, began to question whether or not their methodologies and directives were actually contributing to “drug safety,” as opposed to drug efficacy, and its Hippocratic ethic of “first, do no harm.” Regulators, instituting cGMP guidance (now 40+ years in the making), began to focus on quality issues associated with drug manufacture as a root-cause source for many drug quality and safety issues post approval; this meant increased scrutiny of drug-making operations.
For the industry, speed-to-market is a critical measure of most compounds’ commercial success, regardless of category. In a recent white paper on “Accelerating the Development of New Pharmaceutical Therapies,” the FDA said it has drastically reduced its review time and worked with the industry to reduce overall drug development time by engaging earlier to discuss flexible approaches to developing data needed for approval.2 “Rapid developments in technology and scientific discovery are creating increasingly complex products,” said FDA authors. “To keep pace with these developments, over the past several years the FDA has been striving to further develop regulatory science: the knowledge, methods, standards and tools needed to increase the certainty and consistency of regulatory decisions and improve the translation of basic discoveries to viable medical products.”
According to a 2014 Ernst & Young white paper, “Commercial Excellence in Pharma 3.0,” the traditional Pharma 1.0 model has made way for a more diversified “Pharma 2.0” model, describing it as “the quest to bring broader, more diversified product offerings to a more market.”3
Ernst & Young’s analysts explain that during the past decade, pharma’s leaders have been following a strategy of diversifying into the Pharma 2.0 model, exploring product lines that are less exposed to R&D and market vagaries, including generics, vaccines, over-the-counter medicines and medical technologies. “While this approach is helpful in the mid-term, long-term sustainability will require shifting to a new business model, one that will address the real needs of the industry’s customers — the patients, payers and physicians — and contribute significantly to the ultimate goal: improving patient health.”
How to get there? Ernst & Young said this requires shifting away from pharma’s traditional arm’s-length approach, one centered on just delivering drugs to the healthcare system. According to the FDA, companies are evolving past Pharma 2.0, and moving forward to the next phase of development, “Pharma 3.0.” At the center of this model are service components that enable companies to deliver health outcomes — defined as (clinical and economic) health benefits per dollar spent. This shift represents a prime opportunity for the pharmaceutical industry to explore a variety of new business models focused on health outcomes, ranging from improving the performance of their current products on the market to tapping into new revenue streams associated with healthcare delivery. The pace at which this change has occurred presents a pathway for CDMOs looking to explore new venues.
Innovation Generation
In a North Carolina State University case study, “Bringing the Customers Back Into the plant: The Strategic Transformation of Patheon,” school alumni and Patheon affiliated authors noted “Outsourcing has for many years been an essential component of the pharmaceutical industry as companies confront R&D productivity challenges, increased regulatory hurdles, global pricing pressures and the need to compete in rapidly growing, emerging markets.”4 In other words, to attain the innovation and operational excellence required to operate in the Pharma 3.0 universe, drug owners and sponsors will continue to turn to the contract services sector to sustain financial success and patient-centric development strategies. The Patheon case study posits that as pharmaceutical and biotechnology companies seek to invest and focus on their core strengths, these companies are turning to outsourcing manufacturing and other supply chain and R&D collaborators. That key partnerships with CDMOs have become an integral part of manufacturing, research and development is apparent. This reliance on outsourcing, and thus partner models, is reflected in the 2016 Nice Insight CDMO Outsourcing Survey; 95% of respondents to the survey are either interested, or very interested, in a strategic partnership with a CDMO. These numbers reflect the interest of those seeking a strong collaboration within the next 12-18 month time frame.
The type of partnership these firms are looking for is largely dependent on the drug product pipeline of each company type. Big pharma’s future pipeline is overwhelmingly geared towards New Biological Entities (NBEs) at 67%, compared to just 33% for Over the Counter Medications (OTC). Both mid and small pharma/biotech are still strongly focused on generics (56% each), while mid-size pharma hovers around that rate for biosimilars (54%). Small pharma is only planning for the “new generics” (biosimilars) at 47%, most likely due to lack of capital. Emerging pharma, which is experimental across the board, has a pipeline 71% concentrated on New Chemical Entities (NCEs). This divergent range of molecules for future pipelines will lead to a heightened need for, and an increased role of, contracting organizations.
The industry’s trajectory and its swift transition to the Pharma 3.0 business model can be attributed to the contract service industry’s business and technological leadership. Every player has a role in this narrative. Pharma is delivering, or rather collaborating, with the healthcare industry in new and effective ways to produce better patient and social outcomes. New supplier / partner models are supporting this effort. Advancements in effective drug delivery, API formulation and manufacture, unique delivery and next-gen therapies are key Pharma 3.0 development themes where contract service companies are having great impact. Nice Insight took an in-depth look at these segments and what follows reveals how contract service providers and drug owners are integrating their operations to achieve the patient-centric goals of the Pharma 3.0 business model.
References
- DiMasi, Joseph A., Henry G. Grabowski, and Ronald W. Hansen. “Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs.” Journal of Health Economics 47 (2016): 20-33. Web.
- Hubbard, William. FDA and Accelerating the Development of the New Pharmaceutical Therapies. Rep. U.S. Food and Drug Administration. 23 Mar. 2015. Web.
- Commercial Excellence in Pharma 3.0. Rep. Ernst & Young. Web.
- McGurrin, Daniel P., Rebecca Holland New, and Jennifer Almond. Bringing the Customers Back into the Plant: The Strategic Transformation of Patheon (A). Patheon. 8 Aug. 2014. Web.