Biologic and pharmaceutical companies, along with their financial advisors or venture capital partners, have used mergers and acquisitions over the years to create value to keep their leading positions in a changing market. The era of pharmaceutical companies relying on blockbusters for their growth is over as more and more of these drugs have faced patent expiration, with no indication that new medicinal discoveries will emerge to take their place.
Santilli Biologic and pharmaceutical companies, along with their financial advisors or venture capital partners, have used mergers and acquisitions over the years to create value to keep their leading positions in a changing market. The era of pharmaceutical companies relying on blockbusters for their growth is over as more and more of these drugs have faced patent expiration, with no indication that new medicinal discoveries will emerge to take their place.
Pharmaceutical companies now operate in a market environment of increasing economic pressure. One obvious way to create value for stakeholders is through mergers and acquisitions. Pharmaceutical companies are realizing that to be successful in today’s market they need to develop a more focused business strategy. As they create businesses with more focus, they look to divest products or businesses that no longer fit with this new strategy. Similarly, pharmaceutical companies are positioning to purchase businesses and products to create sufficient scale in their market.
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Rockoff and Silverman of the Wall Street Journal identified earlier this week that “The recent trend by pharmaceutical companies to find growth by acquiring rival companies or their drugs is driven by the need to maximize the company’s value to shareholders.” 1
The historical business model of researching and developing new drugs has fallen by the wayside as this current wave takes over the industry. New players or funders of pharma and bio firms have emerged, and they are dictating the growth pace in the industry.
This is not what you would expect to see from an industry in which there is the need to establish a value proposition or drive further medical innovation-yet it’s a battle for economic survival among all healthcare stakeholders. Bio and pharmaceutical companies’ struggle to find their direction in an evolving industry, not realizing their historical customer and decision-making process has already changed. As they need to develop a successful strategy for growth, few pharma leaders have a strategy. Instead of investing their resources in declining research and development productivity, pharma companies have turned to the new trend of acquisition toward short-term gains.
To achieve that quick payback from their acquisitions in particular, those pharmaceutical companies are resorting to increasing the prices of newly acquired drugs while adding little benefit or value to patients. This has resulted in added pushback from payors and providers. As talk around value continues in the marketplace, bio and pharma firms struggle to demonstrate value, whether based on economics or clinical performance. Such a marketplace situation usually indicates a need for real strategy, not tactics, with customers.
As part of developing a more-focused business strategy for their recently acquired businesses, pharmaceutical companies need to develop a deeper understanding of current and future issues and trends, as well as the decision-making process of customers.
One example of an area where pharmaceutical companies need to develop a better understanding to create value for shareholders is the benefit-design decision-making of self-funded plans for employers. Health plan advisors, medical directors, pharmacy benefit managers, and employers all impact the purchasing of drugs in today’s market, but only employers or Centers for Medicare and Medicaid Services are purchasers that pay total care costs.
Another example lies in the delivery systems made up from consolidation of hospitals with physicians who are now taking on risk selectively but that ultimately will act and look like health plans of today. Already they are focused around population health while expanding their local footprints through a wide-reaching array of birth-to-death service offerings. Some of the typical pharmaceutical value propositions simply don’t exist as these systems increase their in-house capabilities around data management for determining care outcomes.
Pharmaceutical companies need to identify new or emerging relationships in the market to allow for more-effective identification and targeting, and the development of a value proposition and strategy to help market their products in the market.
Pharmaceutical companies operate in today’s market where universal healthcare coverage has been cemented, and the impact is being felt across the healthcare value chain. Recent advancements in healthcare payment reform are rapidly shaping behavior of how stakeholders will strive to improve quality, drive efficiencies in care delivery, and reduce total healthcare costs. Understanding those risk-based relationships has become increasingly important for local marketing success.
Through our work with multiple players in the healthcare industry, we’ve been engaged in many similar or related issues over the years. For pharmaceutical manufacturers to be successful into the future, innovative solutions must be brought to the table to raise quality and reduce costs. Access will be given to the companies that deliver quantifiable value.
1. Rockoff JD, Silverman E. Pharmaceutical companies buy rivals’ drugs, then jack up the prices. Wall Street Journal, April 26, 2015.
Dr. Vogenberg and Mr. Santilli are cofounders of Access Market Intelligence, Trumbull, Conn.