Pharmaceutical companies need to stop simply paying lip-service to patients and radically alter their business models if they are to meet increasing global demand while improving patient outcomes, says leading advisory firm KPMG.
Research from KPMG indicates that the return on R&D expenditure within the pharmaceutical industry has fallen, from an industry average of approximately 20 percent 20 years ago, to 10 percent now. This, coupled with data which shows that price-earnings ratios across the industry have fallen dramatically, explains why investors are attributing less value to companies’ product pipelines.
Chris Stirling, global head of KPMG’s life sciences practice, commented: “The business model that has powered the pharma industry over the last few decades is showing signs of fatigue. Costs are skyrocketing. Breakthrough innovation is ebbing. Competition is intense and sales growth is flattening."
“In short, and despite testaments to the contrary, the fact remains that the current industry model does not put the patient at the heart of its decision-making. Judgements are instead driven by developments that create blockbuster products, which in turn are expected to drive blockbuster returns for shareholders. Such an approach demands an all-consuming focus on products, and all too often leaves the patient as an afterthought.”
A recent study published in the New England Journal of Medicine found that more than half of all drug approvals over the last 10 years have received approval without demonstrating any tangible benefit to the patient, while KPMG’s own research indicates that the return on R&D expenditure has halved to 10 percent over the last 20 years. Germany has subsequently introduced regulations which stipulate that treatments are only approved and paid for if they can demonstrate improved health outcomes, with other governments expected to follow.
Chris Stirling said: “It’s fast becoming evident that the industry needs to switch from a product push to a much more service-orientated model where the needs of the patient are at the very epicentre. Not only will this lead to new revenue streams, satisfying the demands of corporate shareholders, but will also help create better understanding of medical conditions, allowing us to develop more innovative patient-centred treatments.”
Chris Stirling continued: “Ultimately, we need to change our perception of the pharmaceutical ‘value chain’ to a new ‘value ecosystem’ which puts the patient and the customer at its centre, with other business services wrapped around their needs. Some companies have already started to grasp the nettle and are moving in the right direction. For instance, one life sciences company we spoke to is currently working on an innovative approach to diabetes.”
This company engaged with diabetic patients directly seeking to understand how the disease affects them across the disease cycle, and then involved the patients in designing their own treatment model. The resulting pilot provided a suite of treatments that went beyond simple doses of insulin, delivering services such as a text alert service reminding patients to take their medication and providing treatments for other aspects of the disease such as eye tests.
Chris Stirling explained: “Such a model truly addresses the full spectrum of patient needs, and not just the symptom of high blood sugar. Ultimately, the approach has led to better patient outcomes through improved compliance and glycaemic control.”
KPMG suggests that collaboration between pharmaceutical firms is also imperative if the industry is to change successfully. Initiatives such as clinical trial ‘data sharing’ between organisations, where an independent third-party asks as a gatekeeper to access requests, are already starting to gain momentum, while open-source R&D is being pioneered in India to speed up discoveries in treatments for diseases such as tuberculosis, malaria and HIV.
Chris Stirling concluded: “Although healthcare demands are higher than ever before, we’re also in a golden age of discovery. If the pharmaceutical industry is to capitalise upon this potential, it must innovate to develop new business models and find better ways to collaborate across the healthcare ecosystem – all the while putting the patient at the heart of everything it does.”
- ENDS -
Katy Broomhead, KPMG Corporate Communications - Transactions & Restructuring
T: 0161 246 4623
KPMG Press Office: +44 (0) 207 694 8773
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with approximately 11,500 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.