The life sciences industry finds itself at a critical crossroads. In one respect, never before have there been so many powerful forces driving increased demand for healthcare. These include aging populations, rising expectations for increased access and better quality healthcare (particularly among the middle classes in emerging markets), and an increase in the prevalence of chronic lifestyle-driven diseases.
However, life sciences companies are also facing an unprecedented range and intensity of challenges. In Europe especially, the global economic downturn has hurt many pharmaceutical companies who have struggled to be reimbursed for their medicines. Reforms introduced by healthcare systems in desperate need of restructuring have contributed to persistent downward pricing pressures worldwide that have unfortunately coincided with a period during which patent expirations continue to wipe billions of dollars off balance sheets.
“There is considerable opportunity to improve margins for pharmaceutical companies that can capitalize on the changing healthcare landscape.”
KPMG’s Global Head of Life Sciences
The industry still finds itself in the press for all the wrong reasons as historical sales and marketing indiscretions are exposed and multi-million dollar fines levied. There has clearly been a cultural shift across the industry but we are at the start of a long process of rehabilitation.
However, our contention is that the industry has not yet properly addressed one of the most pressing global challenges – the rapidly changing healthcare landscape. This is partly understandable given the need to manage patent expirations and retool research and development (R&D) but it is now time to start to consider this important issue. The new healthcare ecosystems focus on value, and reward better outcomes at the same or lower costs. Accordingly, the interests of the life sciences industry could converge with those of healthcare providers and payers in increasingly integrated delivery and financing models, provided the products and services are of sufficient merit.
How should the industry approach this new healthcare landscape? There are broadly two options. First, business as usual but this is an untenable strategy. The historic adversarial supplier model is only going to get tougher.
However, there is an alternative approach for the industry: be part of the solution, positioned as a partner in the system, rather than a supplier to it. Medicines constitute just 10 percent of the total healthcare bill in the US (Figure 1) and 9 percent in the UK. If healthcare systems need to achieve better patient outcomes for less money, significant savings could be achieved from the other 90 percent of the budget, in particular, on the amount of money spent treating people in hospitals. The industry is ideally placed to work with providers and payers to achieve this, not least because better medicines keep people out of
We see three crucial strategies that the industry must consider in the new healthcare environment:
In Part 1 of this report, we first analyze in more detail what is driving the trend towards healthcare ‘convergence’. Next, we outline our vision for more successful partnerships between different stakeholders in the healthcare ecosystem. In Part 2, we expand on the three strategies for future industry success given the new healthcare reality.
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