Signage outside the Biogen Inc. office in the Kendall Square neighborhood of Cambridge, … [+] Massachusetts, US, on Tuesday, Sept. 6, 2022. Photographer: Adam Glanzman/Bloomberg
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More than 115 biotech companies have announced layoffs this year, on track to easily surpass 2022’s numbers. While this is not a new trend, the current trajectory is concerning, as it portends more difficult times ahead for the pharmaceutical industry–already in the midst of a major upheaval. It should also be another wake-up call to pharma executives: the old way of doing business needs to change–and urgently.
For the past two decades, the biopharma sector has witnessed the shedding of hundreds of thousands of jobs, and all signs point toward an acceleration of these losses. Noteworthy among the recent layoffs is Biogen, which plans to release around 1,000 employees–or 11% of its workforce–over the next few years as part of its “Fit for Growth” program. “Biogen’s business is in transition,” said its President & CEO Christopher A. Viehbacher, adding, “we have taken a bottom-up view to shift our resources to the areas of greatest value creation.”
Biogen’s challenges are not unique. Other leading pharma companies are beginning to take similar steps to rethink their business strategy, cut costs and boost savings. These changes are largely a result of continued downward economic pressures, compounded by sweeping industry-wide changes in competition, market expectations and the regulatory environment. Together, these disruptions are forcing organizations to step back and challenge long-held assumptions about their current business model.
In our Numerof & Associates 2023 Global Pharma Outlook, critical pressure points confronting pharmaceutical manufacturers are highlighted. These challenges are exacerbated by the aftermath of the Covid-19 pandemic. For instance, healthcare systems are increasingly centralizing drug purchasing decisions due to the need to manage costs amid dwindling reimbursements. As I explained in this column, as these systems consolidate, drug purchasing decision-making has moved to a more centralized administrative body. While doctors still have a say, their voice is now one of many in the room. In turn, the old “feet on the street” commercial sales playbook, upon which manufacturers successfully relied for years, has been upended for good. And as a result of increased work demands, healthcare professionals (HCPs) have less time today to spend with sales representatives. Even physicians who do have the time are looking for representatives with technical expertise to answer in-depth, scientifically complex questions about the drugs coming to market today. In turn, these changing job requirements have led to a significant reduction in the pharma sales force.
Simultaneously, government-mandated price controls, exemplified by the Inflation Reduction Act (IRA) signed into law by President Biden a year ago this month, are causing seismic shifts. Among other measures, it directs the Department of Health and Human Services (HHS) to “negotiate” the price of some prescription drugs for seniors. As I opined, the IRA was thirty years in the making. And, for an industry that (incorrectly) assumed they could weather the public outcry over the high cost of drugs and perceptions of corporate greed while trying to stave off overzealous legislators and regulators, the law was also a stunning defeat. IRA’s provisions will have profound implications for the industry’s future by reducing investments in life-saving drug R&D, slowing economic growth and diminishing overall health care quality for U.S. patients. Unfortunately, the worst may still be to come.
If the pharmaceutical industry has learned one important lesson from all of this outside disruption in recent years, it’s that the old commercial model, which has been in trouble for a very long time, needs a course correction.
My book, Bringing Value to Healthcare, covers the perversions with the old sales playbook at length. Many of these issues stem from a product-driven, blockbuster approach which invests heavily in the development of drugs that address large populations and appeals to a broader prescriber base. This approach is then supported by aggressive and expensive promotion geared towards physicians and patients. This process is expensive, rife with legal liabilities and prone to severe consumer backlash. It also fails to answer some key questions being asked by all stakeholders who are also under duress.
Is there evidence that the product is better than what’s currently on the market today? Will payers and physicians be interested without evidence of superior clinical outcomes at the same price? Will providers buy the product (at a premium) if it is only as good as current products? What evidence of improved outcomes or lower treatment costs will payers want in order to accept the product?
To answer all of these questions, the industry must undergo a fundamental shift to a new patient-centric model that takes a continuum of care, rather than an episodic, approach. This requires a focus on prevention, diagnosis and treatment of a range of conditions within a therapeutic area. It also means considering a product’s economic and clinical value much earlier in the investment and development cycle and being able to demonstrate this value to payers, regulators, physicians, providers and patients.
When the drug price negotiation legislation hit a snag early last year, I explained how reworking the price structure of key medicines independently of direct federal involvement could have mitigated issues associated with drug price negotiation legislation, preserving competition and incentivizing lawmakers to explore alternate savings avenues.
In response to a question about rising drug prices during a 2016 Wall Street Journal interview, Merck’s then-CEO, Ken Frazier, said, “we have to have a sustainable model.” But he was also honest about the challenge going forward, adding “we’re going to have to find new and better ways to link what we charge for the drug to the value that it actually creates in the marketplace,” such as “charging people a price commensurate with the actual outcomes that drugs produce.” It was an acknowledgement that companies need to not only conceptualize but actually do things differently.
If there is a silver lining here, it’s that for an industry where old habits die hard, executives are slowly waking up to what we concluded in our Numerof & Associates 2022 Commercial Model Report: a new, fundamentally different commercial approach is necessary going forward. In speaking with a Chief Commercial Officer of a large biotech company for the report, he said bluntly: “Coming out of the pandemic, there’s now a very compelling argument that the commercial model of the past is dead.”
As the Biden Administration prepares to reveal the first set of drugs subject to price negotiations under the IRA, manufacturers and the industry at large face more uncertainty. Legal challenges have been mounted, but the regulation’s impact remains undeniable.
At some point, every company and industry goes through a period of transition where they have to make difficult choices, including organizational fat-trimming. But a leaner organization doesn’t always mean that what’s left is strong enough to fix the root problems. Right now, the process of getting to a new patient-centric commercial model continues to be incredibly painstaking. Until that speeds up, we can expect more layoffs in the days and months ahead. And, as Big Pharma struggles to regain its footing, the great test is whether their decision makers can weather fiercer storms yet to come.
