Strategy resets to patient outcomes: the state of the life sciences industry

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The state of the life sciences industryThe life sciences industry has switched its focus to proving value. Why the change? Concerns have grown about drug pricing, overall health care costs, budgetary limits, inefficient spending and the efficacy of expensive treatments. Life sciences companies will prove value by showing that their products save not only lives, but also money.

While blockbuster drugs may still be released, there’s more interest in improving patient outcomes and demonstrating value. “New, innovative products, even at a high cost, can be a great deal for society and the health care system if they cure a chronic disease,” explained Lee Taurman, Grant Thornton LLP’s Life Sciences practice advisory leader. “Expensive and effective are a societal good if overall health care costs are reduced.”

Resetting strategies The new focus requires new strategies. Life sciences companies may consolidate to build scale or buy smaller competitors to get access to promising drugs and devices. At the same time, they’re responding to the demand for more-personalized medicine, which uses genetic analysis, data analytics and technology to predict whether patients will benefit from a treatment.

Consolidations offer access to value It’s tougher for life sciences companies to grow, so many have turned to a combination of strategic acquisitions, corporate consolidation and divestitures. Through consolidations over the past five years, the four largest branded pharma players account for roughly 42% of industry revenue. The generics sector and retail channels have experienced significant consolidation, too. CVS Health’s acquisition of Target’s pharmacies has contributed to how generic manufacturers price, supply and contract for their products.

The Affordable Care Act is prodding hospitals and other providers to quickly gain scale. The Wall Street Journal reported that there were more deals in 2015 than there had been since 1999, as hospitals aimed to grow because of pressures from the health care law. This provider consolidation has empowered these key players to set value-driven goals for life sciences companies.

In late 2015, for example, biopharmaceutical firm Amgen struck a deal with Harvard Pilgrim Health Systems tying improved patient outcomes to future payments for a cholesterol inhibitor drug. This arrangement, which focuses on value, could become a model for future agreements.

Technology delivers wraparound services Demand for value-based pricing and other creative approaches is growing. Life sciences companies are adding wraparound services — monitoring, measurement and follow-up — to treatments. These new services give doctors and patients more information and insights. Lisa Walkush, Grant Thornton’s national leader of Life Sciences, noted: “Medicine is getting smarter, and life sciences companies are seeing themselves as health care businesses instead of product manufacturers.”

Technology opens a wider view of how the body works and responds to treatments. This improves efficacy, which life sciences companies rate as their top pressure point in treatment and drug discovery.

The key is not only to develop a better product but also to show that it’s worth the price. This isn’t necessarily factored into decisions by drug safety regulators and has only recently become a focus for life sciences firms.

Tracking can create care value Life sciences companies are developing apps to help patients manage health care-related activities, such as drug adherence and exercise. This information can help track how patients are complying with doctor’s instructions, giving insights into the value of a drug or device.

This kind of information can help support growth and pricing power, but it goes beyond the bottom line. Life sciences companies have to demonstrate they’re focused on treating complex illnesses, improving patient lives and serving society more holistically.

Prescribing transformation Life sciences companies will need to transform themselves to be part of health care decisions and outcomes even after their products are prescribed. This way, they can position themselves to advance in innovative and practical ways to meet changing needs.