Blog, Pricing

Hey Pharma, Disruption is Here

By Israel Rodrigo
November 30, 2017

Everyone was outraged when Martin Shkreli, now former chief executive of Turing Pharmaceuticals and “the most hated man on the Internet” increased the price of a rare infection drug by 5,000%. It could, among other things, be considered an incremental innovation in price gouging. Before that, we had the case of Makena and their drug that was used to prevent pre-term birth. It was launched in 2011 at a price of $1,500 when a similar drug was previously available from compounding pharmacies for $20. The strategy basically worked: AMAG Pharmaceuticals, which now owns Makena, booked sales of $93 million in the third quarter of last year.

These examples are extreme but can we all agree we still haven’t seen the most significant disruptive episode in the pharma industry?

The reality is pharma has lagged behind other verticals when it comes to embracing the big data revolution. A highly profitable and regulated industry, it has been watching from a distance how other industries were disrupted and reshaped to their core by improved data. Rampant M&A activity, consolidation of key players and regulatory mandates have traditionally ruled the market dynamics as opposed to the unstoppable speed of increase of big data and advancements in data science seen in other industries.

Amazon takes on Pharma

We can’t help but look at Amazon as a disrupting example of leveraging technology. It’s indisputable that the company has changed the way consumers expect to buy things. We expect immediate price comparison abilities; we want to order anything from furniture to clothes to books to groceries in a matter of seconds from a single website. We are confident they will handle our credit card information securely and often, we get it all delivered with two-day shipping or less. Commercial excellence at its best.

But how does that efficiency translate to other industries? Especially those as complex as health care and more specifically to pharma?

For starters, the stability, protectionism and stagnancy in the pharma sector has been driven by the numerous players that intervene across the value chain from manufacturers to patients and including government agencies, distributors, hospitals, pharmacies, insurers, physicians and payers. To a high degree, this complex and crowded supply chain directly impacts prices and profits and has found on strict regulation, scale, data protection, tradition, and more its best allies.

It’s time for these walls to be leveled and have the market auto regulate itself. If many patients are already filling their prescriptions in Canada to enjoy cheaper pricing, how long would it take for a retailer such as Amazon to fill that gap and establish their lowest price? Recently, Amazon hosted the healthcare conference, IDN Insights West in Seattle. They used that platform to announce their plans to enter the health care supply market.

Big data is a game-changer

The pharmaceuticals industry has seen an explosion in the amount of available data beyond that collected from traditional, tightly controlled clinical trial environments, but it has yet to uncover all the potential they can leverage and benefit from tying their value proposition with fair and transparent pricing.

It’s also important not to overlook the obvious: Pharma is more complicated than just a third-party logistics play but nevertheless, a big player like Amazon will eventually shake the industry to its core.  Added smarter competition in the supply chain is good for the industry. It will inspire innovation among all of us, it will bring transparency and most importantly, it will drive down overall costs for providers and patients.

The emergence of big data, as well as advancements in data science approaches and technology, provides pharmaceutical companies with an opportunity to gain greater insights that can enhance and accelerate drug development and commercialization. For Amazon, what matters most to its customers are lower prices, broader choices, and convenience. In health care, patients care most about lower costs, better outcomes, and a positive experience. Those expectations aren’t that far off.

While these advances generate great opportunities, they can also pose resourcing and capability development challenges. One of the biggest is how to make the transition from legacy technology and analytical competence to more-powerful and sophisticated analytical tools and analysis methodologies.

Biotech firm, Genentech, which is owned by F. Hoffmann-La Roche, has been building such capability for two years. In addition to investing in data partnerships and analytics tools, it has built a big-data infrastructure — a platform that can analyze billions of patient records in seconds. It has been aggressively recruiting and developing people with the requisite skills, partnering with universities and firms such as The Data Incubator to recruit and train data scientists, and it now has an entrepreneurial global team of more than 80 people.

The potential to use that data to improve drug discovery and get the right treatments to the right patients at the right time is enormous.

This disruption and innovation will come most likely at the end of the industry value chain: manufacturers and consumers. But it may come at the expense of those in the middle. Only those that embrace and leverage technology, digitize to provide a best in class customer experience and excel at executing on commercial excellence will survive.

It’s time for pharma players to be what Jeff Bezos calls a “Day 1” company. “Being a Day 1 company means approaching every day as if the company has just launched, it’s your first day on the job,” he said in 2016 Amazon shareholder’s letter. “This is a hard discipline but it makes sure you don’t get trapped in your own success.”

Bezos believes “Day 2” companies make high-quality decisions but they make them slowly. There’s not much time left.

  • Amazon , pharma , pharmaceuticals , pricing

    Israel Rodrigo

    Israel is a Business Consultant at Vendavo with more than 15 years of extensive international experience in logistics, wholesale distribution and software industries. Prior to Vendavo, he worked at Deutsche Post DHL and McKesson in several strategic positions, such as controlling, customer finance, sales development, and leading profit optimization and pricing transformation. He holds a BS degree in Statistics and Economics from Universidad Carlos III de Madrid (Spain) and lives in Seattle, Washington.