Scenario 2: The Patients

Scenario Two tells the story of how the genotyping of disease propensity advances, but there are no commensurate drug breakthroughs. Individuals assume greater responsibility for their health. Health spending shifts away from drugs and towards diagnosis/prognosis and early treatment intervention.

Pharmaceutical companies seek non-conventional sources of medicine, opportunities in emerging markets and revisit the existing library for novel indications. Investors signal a willingness to accept greater risks and benefits of therapies and successfully call for increased transparency in clinical trials and post marketing surveillance. The story ends with a section on the implications of the Scenario for institutional investors, pharmaceutical companies and governments.

Implications of Scenario Two: The Patients Scenario

Possible Implications for Institutional Investors:

  1. Investors accept that the traditional industry will continue to under-perform as investments, but the increase in overall healthcare expenditure provides investors with new opportunities, e.g. diagnostics, bio-markers and new health promotion ventures.
  2. Fund managers seek alternative investments such as emerging market pharmaceuticals and higher risk new product ideas from academia/biotech.
  3. Fund managers develop new financial saving products that allow customers access to a pension/life assurance pot to pay for catastrophic healthcare.
  4. Investors actively provide incentives to pharmaceutical executives
    to make a smooth transition by re-structuring remuneration packages to focus less on maintaining EPS growth per se but rather on R&D productivity and appropriate partnerships. Investors also engage proactively with company boards on CEO succession planning to ensure senior management is “fit for purpose” given this new environment.
  5. Investors become increasingly alert to political risk associated with growing societal tensions about inequality of access and price this risk into their valuations.

Possible implications for pharmaceutical companies:

  1. Size becomes less important than the firm’s negotiation capabilities and ability to target niche markets.
  2. As patients become more sophisticated about the economics of pharmaceuticals and become more demanding of value for money, companies shift marketing practice away from ‘share of voice’ strategies to a focus on better contact with patients.
  3. Executives explore business in related healthcare areas, including diagnostics, telemedicine, disease management, surrogate bio markers and devices.
  4. A greater proportion of research money is directed into academia with opportunistic ideas and exploration of traditional medicines.
  5. Successful pharmaceutical companies go out of their way to show they are not exacerbating inequality of access issues and seek to divert public disquiet on to governments.

Possible implications for governments

  1. Governments struggle to manage the societal impact of new knowledge about disease propensity whilst treatments may not be available or affordable.
  2. Healthcare comes to dominate the domestic political agenda, exacerbated by the growing inequality of access to new treatments. In particular, the unequal distribution of personalised medicines across economic and racial/ethnic groups in the US and other heavily privatised markets is a source of growing tension.
  3. Governments shift resources to diagnostics and prognostic monitoring of disease, through diagnostic imaging and screening.
  4. Governments change their focus to much earlier interventions in disease management, with surgery, irradiation and device use.
  5. Governments deliver sustainable sources of low-cost supply. This may have implications for trade negotiations and current IPR agreements, but equally could depend upon low-cost domestic suppliers.
  6. Governments undertake campaigns to promote healthy life style changes.

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Comments

In the face of environmental, business and societal changes, pharmaceutical companies must adapt their business models to new markets with commercial potential – even if it conflicts with decades of practice – or risk getting left behind.

Stewart Adkins, Stewart Adkins Advisors Limited