Scenario 3: The Politics & Public Health

Scenario Three reveals how a global flu outbreak causes public outrage about the lack of investment into new antibiotics and vaccines. Governments assume a more active role in directing R&D priorities first for acute and then for chronic diseases. Over time elements of a Social Business Compact become clear, including government commitment to expand access; sophisticated purchasers who negotiate price on value-for-money calculations; higher rewards for innovation in exchange for more secure IPT agreements; patient agreement to a healthy living package as part of insurance and pension plans; pharmaceutical company agreement to less aggressive pricing in exchange for volumes and reward for true innovation. The story ends with a section on the implications of the Scenario for institutional investors, pharmaceutical companies and governments.

Implications of Scenario Three: The Politics and Public Health Scenario

Possible Implications for Institutional Investors:

  1. Investors accept that the traditional industry will continue to under-perform, but build up weighting again as prospects for R&D agreements between industry and government become apparent.
  2. Investors place greater emphasis on generic firms with FDA approved quality standards and necessary standing in lucrative OECD countries, and on those companies successfully playing the volume-price trade off.
  3. 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.
  4. Innovative financing mechanisms for new drug discovery offer new investment opportunities to first-movers.
  5. Institutional investors encourage a drug- development friendly regulatory environment.

Possible Implications for Pharmaceutical Companies:

  1. Firms focus on fewer programmes and fewer products.
  2. More consolidation, at first, to ensure pipeline competence in priority diseases. However, market symbiosis also enables smaller companies to have an edge.
  3. Pharmaceutical companies enter into agreements with governments to structure appropriate incentives and transactions in response to health emergencies and potential health emergencies.
  4. Leadership ability to manage complex multi-stakeholder relationships and develop and defend new stances on price and marketing on the basis of pharma-economics becomes increasingly critical for corporate success.

Possible implications for governments:

  1. The balance of power between government and pharmaceutical industry shifts to government in order to meet public health needs but with this comes greater pressure on governments to demonstrate that they are able to create market incentives to align industry with government priorities. This includes:
    • Governments become more competent in evaluating a drug on the basis of whether it lowers overall health spend and whether it maintains or improves overall health.
    • In return for high volume sales, government negotiation of industry commitment to affordable pricing, increased and faster availability of cost-effective medicines and greater investment in real innovation.
    • Streamlining regulatory processes to bring new products to market in safe and appropriate way.
  2. Governments learn to manage the implications of the cost burden being shifted to consumers. Part of the solution is greater public investment in health prevention, disease management, basic science and stronger incentives for R&D to meet health goals.


Download PharmaFutures 1


I have watched the industry suffer the loss of public trust, struggle with bringing new products to market and lose the ability to grow its top line. This perfect storm is reflected in the current share price and as a long term investor I hope to hear and perhaps help find the early signs of a path to recovery.

John Schaetzl, Independent