Dr RB Smarta, Chairman and MD, Interlink Marketing Consultancy, give an insight on how Innovation will drive healthcare and pharma in 2020 and beyond
“It is this absence of functioning industrial society, able to integrate our industrial reality that underlines the crises of our times.” How aptly it has been said by Professor Peter Drucker long Dear during World War II. Should the economic dimension of industrial society takeover or submerge in the political and other dimensions of the country or focus on essential issues?…
Looks to me this is an issue today when as a country our industry outlook is undergoing a lot of transformation.
As the industry is going through transformations due to a number of disruptions and reforming itself continuously since the last two to three years, there is a lot which we must learn from these years. In fact, since 1971, the industry is incidentally getting disrupted after every 8th year. Let us look for a major disruption in 2021- 2024. The industry has been always finding out its path during all disruptions.
Now that speed and rigour are high, regulatory reforms are coming almost regularly and the industry is gearing up to deal with them. Besides, lots of disruptions have come from economic, social and political fronts. Hence, I always call the pharmaceutical industry as a socio-politico-economic venture as it needs to deal with the life of society!!
The pharma industry is a disruptive industry like music, films, etc. The beauty of disruptions always provides a way of innovation.
Innovation – a key for the next 3 years
For any organisation, innovation is a distinctive capability which yields competitive advantage and helps performance. Many organisations do not take the leap forward due to constraints of mind, cost and other related matter of uncertainties which affect risk-taking abilities. In fact, all those disrupted industries have created varied capabilities and innovation with commercial gain.
Can our industry innovate at this moment? Is it the right time to redefine and repurpose our industry? In fact, it is a matter of necessity now. Let’s look at a little historic perspective from the last 3 years and gather some insight so that it is important to identify which factors are driving pharma industry growth. Is there a possibility of innovation and has this possibility of being explored and exploited?
Seven engaging insights:
Seven insights on the basis of deep analysis of industry have come on the floor which can aid innovation in each factor arrived from insight. These insights are synthesised from the immediate past and future possibilities. These insights can be fully utilised for a variety of innovations. Depending on the strengths of a company, it can be further customised to provide leveraging growth factors for 2020-21 as well as for the remaining next two years.
These seven engaging insights are focussed on creating better health outcome with specific leveraging growth factors which are in-built in each factor. For example, in case of marketing opportunities, leveraging can be done by identifying health-conscious patient groups and it can be matched with individual product/service portfolio. This is more so for speciality therapies or even for specific product areas such as vitamins and minerals, etc.
Those who are industry stalwarts having experience and expertise to gather insights would find out many such possible action areas or leveraging factors for growth. Obviously, this is a challenging task of identifying leveraging factors and innovative on the same through practices or products or people.
Fig. 1: Seven engaging insights
Source: Interlink knowledge cell
Various factors such as demographics, psychographic and economic factors present themselves as opportunities for the current pharma market. With an increasing literacy rate and quality of education, the consumers of today are more aware and take efforts into ensuring their well being. The recent trends suggest an increasing consciousness of health and the move towards preventive therapy. This reflects in the massive growth of nutraceutical segments of nearly 15 per cent even while the pharma segment is struggling to achieve double-digit growth. This shift in the attitude of consumers is an opportunity for various stakeholders to engage patients and base their strategies keeping them at the centre. With the increase in the occurrence of lifestyle diseases and the demographic profile shifting towards an older population, there is a great opportunity to be tapped. The impetus on the demand side of the spectrum is aided by rising affordability of treatments with an increase in the per capita income, thus the purchasing power of Indians by nearly 10 per cent.
The government initiatives are focussed on reducing the out-of-pocket expenses of the patients by increasing the insurance coverage and ensuring the availability of quality medicines at an affordable cost. In the wake of this goal, the government has launched various schemes such as Ayushman Bharat, Rashtriya Swasthya Bima Yojana (RSBY), National Health Protection Scheme. The Pradhan Mantri Jan ArogyaYojna provides cashless health insurance cover up to Rs 5 lakh per family per year, covering 500 million poor citizens. The Jan Aushadhi Pariyojana aims to provide quality medicines at an affordable cost. Considering the robust growth rate of 24 per cent in the health insurance sector and the expected increase in healthcare spending from the current meagre 1.15 per cent of the GDP to 2.5 per cent of the GDP in the upcoming years, the government is moving towards empowerment of patients.
By healthcare providers
The time is ripe for redefining and repurposing of the pharma industry through the lens of the healthcare providers. The time for a product-focussed industry is giving way to a more holistic industry which keeps the patient at the centre of its activities. Effective patient engagement at each level of treatment, beginning from diagnostics and providing a continuum of care ensures the empowerment of their patients and becoming the provider of choice. Providers and other stakeholders are also taking into account consumer trends and prescribing nutritional supplements for various lifestyle disorders. As the healthcare industry is moving towards Health 5.0 which refers to personalisation and digital well-being, it recognises the core role of patients as customers.
Fig. 2: Evolution of health sector- Health 5.0
Source: PwC report 2017
Increasing distribution of medicines
Technological disruptions have marked their presence in the pharma retail industry. The emergence of e-pharmacies has been rapid and they already account for nearly two per cent of the retail market share. According to a report by Frost and Sullivan, the current e-pharmacy market of $512 million is set for a staggering growth rate of 63 per cent to reach $3657 million by 2022, accounting for 10 per cent share of the total retail market. The traditional brick and mortar stores are also on the rise with a CAGR of 15 per cent from the current value of around $25 billion. This also increases the rural penetration of the distribution of medicines.
Future product pipeline
The pharma industry has been relatively active in R&D and new product development from digital transformation point of view. In fact, in the last three years, R&D investment in our industry has grown to 8-13 per cent and nine new major products have been launched last year. In fact, having pricing at a generic level, value creation has been more so from exports and those who have taken advantage of exports to create better value for themselves could invest in a different way towards new product development as well as towards patents. Last three years perspective is witnessing this impressive way of looking at the industry by creating a pipeline of products as a patent cliff worth $250 billion lies ahead of us in the upcoming years.
A fresh opportunity has also presented itself for the product pipeline through biosimilars. As per a Morgan-Stanley report, as many as nine blockbuster biological products worth $62 billion are set to go off-patent in the next two to three years opening up a major opportunity for their respective biosimilars.
The fourth industrial revolution is disrupting the face of all industries, including pharma. Although slow on the uptake, major companies are now investing in technologies such as Artificial intelligence, machine learning and robotics in India. Various facets of the industry including drug discovery, manufacturing and R&D are being transformed by this cutting-edge technology to ensure quality while increasing output and reducing timelines for drug discovery and approvals.
The growth rate of technologies such as robotics in India is 12 per cent, nearly double the global average of 6.73 per cent. This growth also reflects an increase in the manufacturing quality of the Indian pharma industry, making the claims of the book A Bottle of Lies by Katherine Eban, a factsheet of the distant past.
Another factor for increasing affordability of drugs in the Indian market is through regulatory interventions of price-capping. The recent capping on the profit margin for 42 unscheduled cancer drugs at 30 per cent may cause a dent in the revenue of the companies. It is important to develop strategies keeping the regulatory framework into consideration.
In the rat race of achieving targets and budgets, those having a philosophy of getting results irrespective of process or method or protocol, fall prey to unethical practices to achieve the goals. It needs a structural solution with associations addressing the issue and starting a dialogue between companies. There is a need for developing a mechanism with the help of member companies, association teams and arbitrators inclusive of appointed legal experts.
Surely each engaging insight would give a variety of thoughts which need to be strategically fit with individual strength of the pharma company as a company can innovate on something which could be capitalised through commercial benefits and growth.
The real measure of growth
Considering the data on the growth of the last three years of the pharma industry, the industry seems to be poised to grow in a decent way in FY 2021 due to many reasons.
Fig 3. Indian Pharma market revenue (Domestic and Exports)
Source: IBEF report, 2019
It’s very clear from the graph that both domestic and international business have a salience of growth trajectory in FY2021. More granular insights provide major three factors which would give a real measure of growth in FY 2021 and the growth could touch between 12-15 per cent depending on areas of operations of therapy and price criteria.
As a result, three real measures of growth have emerged for FY2021. Growth can be leveraged by taking up a specific focus on any one of the three or all.
- Speciality therapy areas
With technological advancements increasing our competency to manage critical care, the speciality sector accounts for nearly 15 per cent of the total market. The recent trends suggest a double-digit growth rate of 12-15 per cent for most speciality segments. The growth in the otherwise turbulent pharma industry is predicted to be fuelled by this segment.
- Vitamins and minerals
As it has been observed through Interlink’s study that a majority of the physicians are prescribing nutritional supplements inclusive of vitamins and minerals for curative and corrective measures. In fact, a majority of prescriptions are flowing from lifestyle and also non-communicable diseases.
As these patients are increasing, the bulk has been clearly seen growing even in FY19-20
Currently valued at around $0.7 billion, this segment is set to grow at 15 per cent with contributions from prescription and OTC markets.
Always as an industry, we have been able to successfully tap the opportunity of patent expiries resulting in new revenue areas quickly. The same situation is arising in the horizon for biosimilars. With the $62 billion patent cliff advantage and strong backing of R&D activities, the Indian biosimilar market is poised for the rapid growth of 22 per cent from the current $4 billion to $12 billion by 2025 according to the BIRAC report.
Building marketing assets
Besides three measures of growth, the additional possibility of added growth is through the creation of marketing assets. Marketing assets mostly focus on heritage brands, patents, quality image of the company, ethics of the company and obviously the valuation factor of EBITA.
These factors can be further improved by working on each one of these focused areas once again depending on the strength of the company which can add towards the growth of the organisation.
Four possible business models for pharma
There has been a lot of debate in different industries that demand is existing but perhaps old business models are not working. Example of Uber, Ola are cited as there is a need of travellers to have comfort and travel. This is possible in your own car, however, having a chauffeur-driven car like Ola and Uber would be sufficient for those who need cars.
Well, logical but maybe not almost convincing for every customer as there are many emotional aspects of the brand, prestige are involved in car buying.
Look at this, this is also an example of disruption and innovation.
Similarly, pharma being a disruptive industry, new few business models have started working. Considering the need of changing business models, I feel they could be centred around engagements ad hospital infrastructure as well as technology.
The need for innovation in the disrupted state of the industry has given rise to different business models being adopted by pharma players.
1. Doctor/ healthcare professional engagement model remains the standard traditional model and is expected to boost the growth of Micro, small and medium-sized enterprises (MSMEs).
2. Patient-engagement model: For other players such as big pharma, it is time to innovate by adapting patient engagement models. This could be done in the form of:
a. Subscription model: Non-pharma players such as Google are entering the global healthcare market. Google’s start-up ‘Forward’ operates a wellness clinic like a high-end gym. Users pay $149 a month and get unlimited genetic and blood testing, weight loss planning, doctor visits and more.
b. Ecosystem model: Ecosystem model fits well with the ‘beyond the pill’ concept and is now possible due to the emergence of wearables, ingestibles and implantables.
3. Hospital engagement model: There will be new ways of hospital-patient engagement. For example, through better use of social media and technology such as mobile application and wearable gadgets communicating health parameters of a patient with his doctor through online patient portals, without direct patient-doctor contact, can be a norm.
4. Insurance engagement model: An increased healthcare spending by the government would result in more volume-wise sales for the hospitals and would allow more population to access private healthcare. Insurance companies need to engage with the government to make the best use of this. Eventually, this will also bring down overall healthcare costs. There is also a need from the insurance companies about better engagement with the public for increased awareness.
As pharma industry in India comprises start-ups, SMEs and MSMEs, Big Pharma and MNCs along with Niche players, each one may have to really look at their strengths and use one of the above business models. In the case of start-ups, they would quickly get through digitisation in wearables and ingestible and also patient engagement. For SMEs & MSMEs, the traditional engagement model with doctors, health care providers, hospitals and government and also innovation in reskilling of teams would prove most useful. Big Pharma can work on any engaging insight and mix different engagement models. MNCs will definitely move towards BI and AI and niche players can further strengthen their patient engagement.
How innovation in the pharma industry and business models would assist industry to grow
Looking at the national-international environment, the focus of each country on health, reducing healthcare cost, reducing country health burden and providing better health solutions, the industry needs to find out its way towards a growth trajectory.
India is poised in different dimensions with the help of innovation and applying business models to grow at a faster rate than the last three years.
Obviously, another wave of pathy agnostic healthcare which is taking root in India as we are rich with Ayurveda, Modern medicine, Homeopathy, etc. So health industry in India is poised to a bigger growth in all these dimensions and being a centre of health, pharma industry in my opinion would definitely grow on an average by 12-15 per cent. This can be substantiated through innovative actions taken by industry, three measures of growth and also use of new business models.