Patients, Not Patents, Will Shape Life Science

3 min read

A pencil and watercolor drawing of a patient that runs away from a stressed posh doctor with a syringe in his hand

Why M&A strategy focusing on selling low-margin business inhibits innovation, lowers entry barriers, dilutes expertise, and weakens patient ties

In the last years, Mergers and Acquisitions strategies in life science have reflected the desire of large organizations to adapt to changing market conditions and to focus on areas with a higher potential for size and profit growth.

To increase shareholder value, pharmaceutical companies have expanded into precision medicine, oncology, cell and gene therapies, and other high-potential fields.

Generally speaking, they adopted a well-oiled two-step approach

A divestment of their over-the-counter (OTC) and generic divisions, which are typically lower-margin and less innovative than precision medicine or oncology, to make a sizeable cash, and purchasing smaller companies to gain access to new intellectual property and rapidly increase their presence in new more promising fields.

Furthermore, by divesting non-core businesses, these companies have implemented aggressive laying off plans to streamline operations, decrease costs, and relocate production to less expensive areas.

Did it pay off?

While this makes financial sense and has produced consensus among analysts, it has slowed the innovation process, removed barriers, diluted expertise, and opened the door to new competitors.

Enabling these new domains necessitates a strong patient relationship, which most pharma lacks.

In recent years, the perception of health and wealth has shifted significantly with the effect of undermining the traditional healthcare business models and further damaging the tenuous ties of Life Science organizations with their patients. (See The Birth of WellCare for more on this shift).

In addition, the episode of care drives the drugs and services purchasing. A patient is not a customer in the traditional sense as obliged to consume these products and, while demanding an outstanding customer experience, she will never wish to repeat it.

Individual variables such as genes, environment, lifestyle, and preferences are becoming crucial to therapeutic customization. The need for these unique data calls for a switch in their commercial focus from doctors to patients. 

Organizations need to abandon the one-size-fits-all strategy that has been key to clinical trials for decades.

Putting the patients at the center of the care process and considering their wants and preferences necessitates active participation.

Doctors and governments cannot impose the donation of genetic samples; nor the adherence to a specified treatment regimen. Also, good communication and education to help them understand and make informed decisions about their care require active engagement.

The picture becomes sharper when considering that the aging of the western population has generated an increase in healthcare costs (in the US, 60% of the adult population has at least one chronic health condition. With chronic diseases, patients frequently entail many treatment options, and centering the paradigm on them can facilitate collaborative decision-making and choose the optimal course of action.

In summary, buying patents will not be sufficient to shift the R&D focus on innovative treatments.

At this juncture, a company with a robust generic or over-the-counter business can benefit from being closer to patients by integrating digital technology and creating new categories.

Digital technologies in these areas can accelerate the paradigm shift by utilizing five competitive advantages over traditional life science businesses:

Strong client ties: OTC and generic businesses have built a solid customer base through word-of-mouth advertising of their products and earned the trust and loyalty of their customers. That might make it easier for them to introduce cutting-edge digital products and services that enrich relationships and foster a virtuous cycle.

Grasp of consumer demands: Due to severe competitiveness, these departments are highly responsive to patient feedback, which is a pivotal aspect of the sales process. When it comes to producing new digital products and services, this experience remains crucial.

Diverse Customer base: Companies in the life sciences that perform well in the generic and OTC marketplaces may draw clients from larger age groups and socioeconomic backgrounds. This diversity can help develop new digital products and services that appeal to a varied patient base and break free from the episode of care.

Distribution channels: Life science companies with generic and OTC divisions have established distribution channels, such as pharmacies and other retail outlets, facilitating the go-to-market of new digital products and services to a big audience.

Easier Accessibility: OTC and generic products are frequently more readily available and less expensive than other medications. For those who do not have easy access to healthcare providers or cannot afford more costly therapies, this accessibility is crucial. Digital technologies have the potential to optimize distribution while also erecting barriers to entry.

Conclusions

Pharmaceutical firms have expanded their presence in precision medicine, oncology, cell and gene therapies, and other high-potential areas to create financial value for shareholders. Mostly they followed a well-oiled pattern: a divestment of their OTC or generic businesses to cash out a significant amount of money to acquire smaller companies.

Although this strategy makes financial sense and has analyst consensus, it has hindered innovation, reduced obstacles, diluted knowledge, and allowed new competitors.

From prevention treatments to precision medicine, the new frontier of Life science research requires a strong patient relationship that most pharma has only in OTC and generics divisions.

These two have traditionally had it more difficult than other pharma segments with higher price competition and lower entry barriers.

However, their survival effort has resulted in tighter ties with patients, a deeper understanding of their needs, a large patient base, established distribution channels, and easier accessibility. They all reflect competitive benefits for putting patients at the core of the life science business model. Organizations with a strong presence in these domains will find it easier to build new categories with digital technologies that will help the evolving industry evolve toward a Wellcare ecosystem.

Flavio Aliberti Flavio Aliberti brings with him a 22-year track record in consulting around business intelligence, change management, strategy, M&A transformation, IT and SOX auditing for high regulated domains, like Insurance, Airlines, Trade Associations, Automotive, and Pharma. He holds an MSc in Space Aeronautic Engineering from the University of Naples and an MSc in Advanced Information Technology and Business Management from the University of Wales.

Schedule a DDIChat with Flavio Aliberti

app.ddichat.com/experts/flavio-aliberti

Leave a Reply

Your email address will not be published. Required fields are marked *