The pharmaceutical giants look remarkably similar to the IBM of the late 80′s and early 90′s. For those of us who remember the IBM of that era, this is bad news. They can continue the path of the railroad industry early in the 20th century. Alternatively, they can look to the path IBM took when its future prospects were grim. Remarkably, IBM demonstrated how it’s possible for a large company to shift from a product-centric culture to a customer and service centered company. The handwriting is on the wall for pharma companies: They will succeed or fail based not on how many drugs they sell, but on how well their offerings improve health outcomes.
The marketing myopia of the railroad industry is well documented in the world of business yet most organizations makes the same mistake. Railroad businesses assumed they were in the “railroad” business, rather than the “transportation” business. Consequently, they missed out on countless opportunities to pursue growth in the auto industry. In contrast, IBM was able to use their near extinction to reinvent themselves over a 10 year period. The result has put Lou Gerstner in the pantheon of turnaround CEOs: A 10x increase in IBM’s stock value. In contrast, most pharmaceutical companies aren’t spending enough time thinking like IBM. Looking at the 10-year stock charts of these organizations you see flat or declining stock prices. It’s quite clear that reinvention has yet to happen for virtually all of the Life Science companies. Pharma’s Thrive or Survive Questions
Do pharmaceutical companies see themselves in the drug business or the disease management business? Or, where possible, in the disease prevention business? These are the key questions that will determine whether they will survive and thrive. Many of these diseases lend themselves to the use applications (mobile & web) or biometric devices. This is going to drive a greatly expanded focus on non-traditional partnerships.
An example of how a pharmaceutical company could transition from being product centric to being customer centric is doing something like the company, Ambucor. Ambucor provides Ambulatory Electrocardiographic and Remote Device Monitoring services for cardiologists. Pharma companies already have deep relationships with cardiologists. Imagine them buying or partnering with a company like Ambucor to sell that service. This would provide a more complete offering where their heart-related drugs may or may not play a role, just as IBM products may or may not play a role in their services. [See video below for examples directly related to pharma's current business.]
Most pharma companies are where computer makers were in the late 80′s: the handwriting on the wall is clear but pharma is still mainly focused on milking the cash cows just as DEC, Data General, Wang were in the 80′s. We know how that turned out. It was only when IBM brought in Lou Gerstner having recognized the threat, were they able to drive wrenching changes. During the subsequent 10 years, the stock price of this mature company grew nearly 10x — a stark contrast to the flat or declining stock prices of most pharma companies over the last 10 years.
While IBM’s transition looks smart, and without pain in hindsight, that was far from the case. At the time it was extremely controversial. Most business magazines characterized IBM as a soon-to-be-extinct dinosaur. At the same time, conventional wisdom was that Gerstner needed to break up IBM to drive shareholder value, not a massive transformation. Turning over half of their workforce added additional pressure on Gerstner. However, in the end, IBM came away much stronger in contrast to their competitors such as DEC.
Once pharma companies redefine themselves in the disease management/prevention business, they will recognize that they are way behind the market leaders. While they wait for the future to be defined by others, non-traditional competitors are taking action. Just look at Aetna. They have aggressively bought an array of companies including mobile startups such as iTriage. Pharma may wake up and realize they are late to the party and the most interesting companies already have found their dance partner.
Pharma Strengths Can Create Complete Solution
As IBM had a number of strengths it could leverage into its reinvention process, Pharma too has strengths such as:
Provider Relationships: Through its Sales and Medical Affairs organizations, Pharma has many relationships and a keen understanding of the healthcare landscape (though provider access has been dramatically curtailed). They know proper ways to work with healthcare professionals for research as well as the reimbursement environment for particular conditions.
Clinical Trials Management: Pharma has a critical competence in managing clinical trials with an array of patients and the necessary requirements to have research findings that can pass muster with the FDA and/or health plans. These skills could be scaled down to simpler studies on mobile apps, for example.
Long-term view: Pharma hasn’t been afraid to make long-term bets utilizing its deep pockets. Fortunately, most technology bets require dramatically less resource than what they are used to.
With ever-increasing requirements to run healthcare more efficiently and providers who often don’t possess the skills to address new reimbursement outcomes requirements, technology-enabled services are going to become more common. Purveyors of technology-enabled services don’t sell technology. Instead, they are selling an outcome. A straightforward example is ZocDoc — they sell a fuller docket of patient appointments for doctors (not technology). An example from the clinical side (Ambucor) was mentioned above. The cardiologist maintains their patient relationship while expanding the services they can offer through this turnkey service. There are other out-of-the-box ideas that can reap rewards, but I expect most will be services provided directly to healthcare providers.
The list below contains examples of technology-enabled services pharma can provide if they were to focus on disease management or prevention. One of the non-obvious benefits of operating a multi-tenant SaaS business is the insights that can be gleaned through the broad dataset from many customers hosted in one place. For example, ZocDoc will have supply and demand insights no one else has for healthcare services by helping consumers find open appointment slots. It’s not hard to imagine the insights that could be learned from the examples below.
Population Management: Patient-centered Medical Homes and Accountable Care Organizations place demands on providers that many are ill-prepared to address. Keeping track of the portion of their patient population that is up-to-date on vaccines, health checks, etc. and scheduling them for appropriate services is a big challenge. Already pharma pay doctors a significant amount of money to get patients to complete registries. Massively expanding this can not only provide a service to providers but also provide necessary data input for pharma’s research needs.
Family Medical History: Related to the previous item, Medicare announced its first wellness oriented reimbursement for an annual wellness visit. Relatively few healthcare providers have taken advantage of this. Not only could pharma help them with this proactive new revenue stream, the insights that could be gained would be phenomenal for pharma.
Rx for apps: Before long, rather than being prescribed a pill, people will be prescribed apps that have established an evidence-base that proves they are effective. Vendors such as Happtique will provide what amounts to an “app formulary” for providers. Not only enabling the prescription of an app but the accompanying app adherence could be a valuable service.
Telehealth: Related to the previous example, more and more services can be provided remotely. Providing the tools and services to manage conditions remotely that aren’t device related is very possible. One of the first areas this is being done in is behavioral health. It will expand.
Remote monitoring: Ambucor is one example. There is a wide range of remote monitoring devices. These span devices, disease and health management. While it can be used for serious diseases, it’s not hard to imagine that health coaches could provide a service to manage wellness programs as personal biometric devices become more pervasive.
Some of the skills necessary to succeed on the above items can be gained by focusing on items that are also near-term issues. Patient engagement is a big focus for most Life Sciences companies. For example, there is an overlap of the need that providers have for patient education materials with Stage 2 Meaningful Use requirements that pharma could be pivotal in helping them address. In addition, pharma has long had various scales given to patients such as those focused on pain or depression. A key step on the path to a broader disease management program would be to have scales that are highly interactive between the patient and their providers. The insights gleaned from enabling are critical to enabling that future scenario.