Digital Transformation in the Pharmaceutical Industry

Technische Universität München Fakultät für Wirtschaftswissenschaften

School of Management & Detecon International GmbH

Digital Transformation in the Pharmaceutical Industry From Products to Services ‘Beyond the Pill’ Bachelor’s Thesis

Chair:

Prof. Dr. Joachim Henkel Dr. Theo Schöller-Stiftungslehrstuhl für Technologie- und Innovationsmanagement Arcisstr. 21 80333 München

Author:

Konstantin Lukas Landwehr Technologie- und Managementorientierte Betriebswirtschaftslehre / Management & Technology (B.Sc.)

Advisor (TUM): Advisor (Detecon):

Robert Lüttke Dr. Andreas Amann

Acknowledgement

Acknowledgement I would like to express my gratitude to all those who supported me in the process of writing this bachelor’s thesis. My gratitude goes to my advisor at Detecon International GmbH, Dr. Andreas Amann, who provided continuous feedback and valuable guidance. He always encouraged me to ask questions and answered them with great passion. The experts interviewed for the empirical research shall not be left out in this expression of gratitude. Without their generous contribution of time and knowledge, this thesis would not have been possible. I namely thank Dr. Andreas Amann, Uwe Diegel, Dr. Tobias Gantner, Dr. Lutz Groh, Hamidreza Hosseini, Prof. Dr. Günter Huhle, Volker Latz as well as the interviewed experts who wished to remain anonymous. I sincerely appreciate the time they invested to take part in this research. Finally, I wish to express my gratitude to my friends Henri Eskelinen and Chiara Secules for proofreading the thesis.

II

Abstract

Abstract Digital transformation has revolutionized business models in a variety of industries. The adoption of digital services in the pharmaceutical industry, however, has progressed at a relatively slow pace. Product-centricity has remained at the core of the pharmaceutical business model. Pharmaceutical companies are still in an experimental phase when it comes to offering digital services beyond traditional products. Despite significant motion in the industry, the role that digital services ‘beyond the pill’ will adopt in the pharmaceutical business model has been largely ignored in the scientific literature. The thesis at hand addresses this issue by means of an empirical study in the form of nine expert interviews. The results reveal the business imperative of shifting the traditional value proposition from offering products to providing outcomes, i.e., measurable improvements in the health status of individuals. Long-term viable pharmaceutical business models must include extensive collaboration and incorporate patient-centric services ‘beyond the pill’ in terms of a ‘new digital business’. Partnerships with ICT companies and healthcare payers can compensate for lacking digital capabilities and can leverage the potential of improving patient outcomes. In contrast to the widespread belief that the blockbuster business model is ‘dead’, the results show that blockbuster drugs will continue to be an essential component in future business models. I propose a three-level model that depicts possible roles of services ‘beyond the pill’. Based on this model, I advise pharmaceutical companies to pursue an evolutionary approach to already capitalize on digital services in the short-term while ensuring long-term competitiveness at the same time.

Zusammenfassung Die digitale Transformation hat Geschäftsmodelle in einer Vielzahl von Industrien revolutioniert. Allerdings verzeichnet der Einsatz von digitalen Services in der pharmazeutischen Industrie eine relativ langsame Entwicklung. Das pharmazeutische Geschäftsmodell ist nach wie vor produktzentriert. Pharmazeutische Unternehmen befinden sich noch in einer Phase des Experimentierens mit digitalen Services, die über das traditionelle Produkt hinausgehen. Trotz erheblicher Bewegung in der Industrie findet die Rolle, die digitale Services „beyond the pill“ im pharmazeutischen Geschäftsmodell einnehmen werden, wenig Beachtung in der wissenschaftlichen Literatur. Die vorliegende Arbeit untersucht dieses Thema mittels einer empirischen

III

Abstract Studie in Form von neun Experteninterviews. Die Ergebnisse weisen auf die Notwendigkeit einer Änderung des traditionellen Nutzenversprechens hin. Das Anbieten von Produkten muss dem Sicherstellen von Verbesserungen

des

Gesundheitszustandes weichen. Umfangreiche Kollaborationen und patientenzentrierte Services „beyond the pill“ in der Form eines „new digital business“ sind entscheidend für das langfristige Überleben pharmazeutischer Geschäftsmodelle. Hierfür können Partnerschaften mit ICT Unternehmen und Kostenträgern die fehlenden digitalen Fähigkeiten ausgleichen und das Potential für bessere Behandlungsergebnisse ausschöpfen. Im Unterschied zu der weitläufigen Meinung, dass das Blockbuster Geschäftsmodell „tot“ sei, zeigen die Ergebnisse, dass Blockbuster-Medikamente weiterhin einen essentiellen Bestandteil zukünftiger Geschäftsmodelle darstellen. Ich schlage ein Modell vor, welches anhand von drei Levels mögliche Rollen von Services „beyond the pill“ darlegt. Anhand dieses Modells empfehle ich pharmazeutischen Unternehmen eine evolutionäre Vorgehensweise zu verfolgen, um bereits kurzfristig Profit

aus

digitalen

Services

zu

ziehen

Wettbewerbsfähigkeit sicherzustellen.

IV

und

gleichzeitig

langfristige

Table of Contents

Table of Contents Acknowledgement .......................................................................................................... II Abstract ......................................................................................................................... III Table of Contents ........................................................................................................... V Index of Appendices .................................................................................................... VII List of Figures ............................................................................................................ VIII List of Tables ................................................................................................................ IX List of Abbreviations ..................................................................................................... X 1

2

Introduction .............................................................................................................. 1 1.1

Background .................................................................................................... 1

1.2

Objective and Method .................................................................................... 2

1.3

Structure ......................................................................................................... 2

Theoretical Framework ........................................................................................... 3 2.1

Digitization of Healthcare.............................................................................. 3

2.2

Pharmaceutical Industry ................................................................................ 5

2.3

Digital Transformation in the Pharmaceutical Industry ................................ 8 2.3.1

Transforming Business Models: Services ‘Beyond the Pill’ .......... 9 2.3.1.1 New Value Proposition: From Products to Outcomes ... 10 2.3.1.2 New Revenue Streams .................................................... 13 2.3.1.3 New Partners .................................................................. 14 2.3.1.4 New Customers .............................................................. 15

2.4 3

4

Guiding Questions for the Empirical Research ........................................... 15

Methodology of Qualitative Research .................................................................. 16 3.1

Method: Expert Interview ............................................................................ 16

3.2

Sample of Experts ........................................................................................ 16

3.3

Topic Guide ................................................................................................. 17

3.4

Data Collection and Analysis ...................................................................... 18

Results ...................................................................................................................... 19

V

Table of Contents 4.1

Current Product-Oriented Business Model .................................................. 19

4.2

New Business Models.................................................................................. 20

4.3

5

Focus on Services ‘Beyond the Pill’ ............................................. 21

4.2.2

Focus on Health Outcomes ........................................................... 22

4.2.3

Customer- and Patient-Centricity.................................................. 24

4.2.4

Examples of New Business Models .............................................. 25

4.2.5

Status Quo ..................................................................................... 26

4.2.6

Hurdles .......................................................................................... 27

New Competition and Collaboration ........................................................... 28 4.3.1

Healthcare Payers .......................................................................... 28

4.3.2

ICT Companies as Non-Traditional Healthcare Players ............... 29

Discussion ................................................................................................................ 31 5.1

6

4.2.1

Implications for Practice .............................................................................. 31 5.1.1

Three-Level Model........................................................................ 32

5.1.2

Evaluation of Potential Roles ........................................................ 32

5.1.3

Recommendations for Action ....................................................... 34

5.2

Implications for Research ............................................................................ 36

5.3

Limitations ................................................................................................... 37

Conclusion ............................................................................................................... 38

List of References .......................................................................................................... 39 List of Interviews ........................................................................................................... 52 Appendix ........................................................................................................................ 53

VI

Index of Appendices

Index of Appendices Appendix I: Interviewed Experts ................................................................................ 53 Appendix II: Interview Topic Guides ......................................................................... 54 Appendix III: Coding of Interviews ............................................................................ 58

VII

List of Figures

List of Figures Figure 1: Building blocks of the digital transformation .................................................... 8 Figure 2: Three-level model of potential roles of services ............................................. 32

VIII

List of Tables

List of Tables Table 1 (Appendix): Interviewed experts ....................................................................... 53 Table 2 (Appendix): Topic guide #1: main – English .................................................... 54 Table 3 (Appendix): Topic guide #2: main – German .................................................... 55 Table 4 (Appendix): Topic guide #3: healthcare insurance – German ........................... 56 Table 5 (Appendix): Topic guide #4: lifestyle & medical device company – English ... 57 Table 6 (Appendix): Coding – general headlines ........................................................... 58

IX

List of Abbreviations

List of Abbreviations ADL

Arthur D. Little

AMNOG

Arzneimittelmarkt-Neuordnungsgesetz / The Act on the Reform of the Market for Medical Products

CEO

Chief Executive Officer

CNCD

chronic non-communicable disease

FDA

Food and Drug Administration

HIT

health information technology

HTA

health technology assessment

ICT

information communication technology

IQWiG

Institut für Qualität und Wirtschaftlichkeit im Gesundheitswesen / Institute for Quality and Efficiency in Health Care

KIT

Karlsruher Institute of Technology

MIT

Massachusetts Institute of Technology

NICE

National Institute for Health and Care Excellence

OECD

Organisation for Economic Co-operation and Development

PBRSA

performance-based risk-sharing arrangement

QALY

quality-adjusted life-year

RAND Cooperation Research and Development Cooperation RWE

real-world evidence

R&D

Research and Development

UK

United Kingdom

USA

United States of America

VFA

Verband Forschender Arzneimittelhersteller e.V. / Association of Research-Based Pharmaceutical Companies

WHO

World Health Organization

X

Introduction

1 Introduction 1.1 Background The pharmaceutical industry is experiencing a set of far-reaching changes. Patent expirations, increased competition and mounting pricing pressures are shaking the foundation of the traditional product-oriented business model. Digital transformation is shaping the industry as digital services beyond the product itself are being integrated into the range of offerings. Unlike in other industries, healthcare players have been lagging behind in offering digital tools to end-consumers (McKinsey & Company et al. 2014, 1). Digitization is now changing the face of healthcare and ‘connected health’ shows great potential to benefit all stakeholders by achieving the ‘triple aim’ delivering a better care experience, improving health outcomes and reducing per capita costs (Iglehart 2014, 190). Acknowledging the importance of providing services beyond pharmaceutical products, Novartis CEO Joseph Jimenez claimed that “[beyond]-the-pill is a logical and inevitable path forward for all” (Bloomberg 2014). The financial sustainability of healthcare systems is, however, becoming questionable in the meantime. Healthcare spending in most OECD countries has exceeded economic growth over the last twenty years. In 2015, it accounted for 6% of gross domestic product and is on course to reach almost 14% by 2060. Major drivers behind this growth are new technologies, rising incomes and ageing populations which give rise to more costly chronic conditions with multiple morbidities. In order to keep these unsustainably high costs under control, governments push for cost-containment policies and major reforms (OECD 2015, 19-32). Healthcare systems begin to change the principles of reimbursement from paying for products to rewarding positive changes in the health status of patients (A.T. Kearney et al. 2013, 2). Digital transformation is indeed changing the way pharmaceutical companies have been doing business for decades. But what role will digital services ‘beyond the pill’ play in future business models of pharmaceutical companies? While the industry is currently experimenting with such services, products are still at the undisputed centre of the business model (Baines cited in Wenzel et al. 2014, 91). The question remains to what extent services will shift the direction of the business model. This is an exciting and transformative period of time for the entire pharmaceutical industry where the foundation for future business models will be laid. Despite the pressing issues, only limited literature, mostly authored by private consultancies, exists on this topic.

1

Introduction

1.2 Objective and Method The aim of this paper is to assess to what extent digital transformation, and in particular, digital services ‘beyond the pill’ will shape the business model of pharmaceutical companies. The results should reveal the purpose that services ‘beyond the pill’ will serve and give insight into the interplay between services and products. Ultimately, this study should provide recommendations to pharmaceutical companies who seek to integrate services ‘beyond the pill’ into their business model. The scope is global and the focus lies on brand name pharmaceutical companies. Qualitative empirical research was conducted to gain insight into service-oriented business models of pharmaceutical companies in times of digital transformation. A total of nine experts from multiple industries with strong ties to the pharmaceutical industry were interviewed.

1.3 Structure This paper is divided into six chapters. The first chapter provides an introduction to the subject matter and illustrates the objective and structure of this study. The second chapter contains four parts and serves as a theoretical framework. Firstly, it examines the adoption of digital technologies in healthcare systems. Secondly, it provides an overview of the pharmaceutical industry as well as the traditional business model and outlines changing regulatory environments. Thirdly, it deals with digital transformation in the pharmaceutical industry and explores the transformation of business models. Lastly, it raises guiding questions for the empirical research. The subsequent chapter describes the empirical research method used in this study (chapter three). In the fourth chapter, the results of the empirical research are presented. These results and the findings of the literature research are then discussed in chapter five and implications for research and practice are discussed. Chapter six concludes with a summary of the key findings.

2

Theoretical Framework

2 Theoretical Framework 2.1 Digitization of Healthcare The healthcare industry is undergoing a major transformation due to the adoption of digital technologies. The following chapter provides an overview of these developments that pave the way for the digital transformation in the pharmaceutical industry. Digital Patient: Quantified Self-Tracking Contemporary medical practice is driven by empirically proven methods for the treatment of diseases. In this evidence-based medicine approach, healthcare professionals use expert judgment and current best evidence to determine the correct diagnosis and best course of action for their patients (Sackett et al. 1996, 71). Diagnostic imaging devices, laboratory testing and further data sources provide them with valid information about the patient to make an informed decision possible. Whereas the patient himself traditionally participates in neither collection nor interpretation of this information, digitization is now enabling ‘patient-driven health care’ (Swan 2009). The role of the patient starts changing to that of a partner and active responsibility-taker who manages his own healthcare data (ibid., 513-514). Wearable devices, in particular, allow him to collect “biological, physical, behavioral or environmental information” about himself, an activity called ‘quantified self-tracking’ (ibid., 509). Over 10 million wearable healthcare devices estimated to be sold globally in 2015 (Juniper Research 2014, 32) and 603 million healthcare apps downloaded in the Google Play App Store in 2013 (IMS Health et al. 2013, 29) further prove this transformation of patients to service-oriented healthcare consumers. Digital Healthcare Landscape: Connecting Providers and Patients Alongside the patients’ growing involvement in healthcare delivery, digital technology increasingly shapes the entire healthcare landscape and the nature of interaction between all stakeholders. Relevant components of healthcare information technology (HIT) driving these developments are: 

Electronic health records, digital substitutes for traditional medical records.



Personal health records, patients’ self-maintained health records.



Telemedicine applications, systems that allow physicians to practice healthcare remotely.



Decision-support tools, supporting clinicians and patients in the care process (Goldschmidt 2005, 71).

3


HIT promises substantial benefits in terms of quality, efficiency and delivery of care (Chaudhry et al. 2006, 748). Health data can be accessed, shared and analyzed across healthcare systems with the use of HIT, an approach called ‘connected health’ (Accenture 2012, 5). As a result of healthcare data becoming digitally manageable, new ways of collaboration and communication are opened up. Not only is the patient-doctor interaction elevated to new heights (Weiner 2012), but patients and healthcare providers amongst each other are connected and empowered to exchange data, experience and advice. Health social networks such as ‘PatientsLikeMe’ (Swan 2009, 495) and Sweden’s advanced e-health infrastructure exemplify this progress (Eftimovska n.d., 5). Predictive, Preventive and Personalized Medicine Shah and Tenenbaum (2012) explain that the emergence of massive amounts of healthcare data opens up new ways for diagnostics and therapy. The analysis of this big data will initiate the age of data-driven medicine. A study conducted by McKinsey & Company et al. (2013a, 1) predicts that big-data strategies could generate additional revenues of up to US$100 billion annually in the US healthcare system alone. Advances in genomics and technology pave the way for personalized medicine that “aims to identify the ‘right’ drug (…) for a patient based upon the genetic profile of their disease” (Malik and Khan 2010, 882). Critical to the correct identification is a socalled ‘companion diagnostics’, “a pre-treatment test performed in order to determine whether or not a patient is likely to respond to a given therapy” (Jørgensen 2012, 391). In Germany, more than thirty drugs accompanied by such tests are currently on the market (VFA 2015). Moreover, the full promise of personalized medicine extends beyond improving diagnostic and treatment procedures for sick patients. It incorporates the preservation of health and prediction of sickness before conditions have emerged (Dzau et al. 2015, 1). Thus, ‘predictive health’ which is the detection of “warning signs of ‘unhealth’” becomes a central task (Brigham 2010, 298). Companies like Human Longevity Inc. conduct sequencing of large amounts of human genomes to gain insights about genetic dispositions towards the development of certain diseases (Human Longevity Inc. n.d.).

4


2.2 Pharmaceutical Industry Profile of the Pharmaceutical Industry With almost US$1 trillion in worldwide drug sales in 2013, and reaching nearly US$1.3 trillion by 2018, the pharmaceutical industry is one of the biggest industries in the world (IMS Health et al. 2014, 5). At its core is the “[research], [development], manufacturing and marketing [of] drugs and biologicals for human or veterinary use” (ITA 2010, 1). The pharmaceutical industry is characterized by high profit margins, high risk, strict regulations, long and investment-intensive R&D periods and substantial marketing costs (Scherer 2000, 1298). Patent protection assumes a role of unusual importance in this R&D-heavy industry and often gives rise to monopoly positions. Companies that obtain the exclusive right to produce and sell self-developed pharmaceuticals are called ‘brand name companies’. Once patents expire, ‘generic companies’ begin to recreate and sell drugs with the same chemical ingredients (ibid., 1316-1321). As R&D periods last on average fifteen years upon completion, brand name drugs typically only have a short window of five to ten years to recoup the high R&D investments before patents expire and market share is lost to generic companies offering lower-priced products (Fischer and Breitenbach 2013, 37-43/240). In 2012, the overall market share in terms of global pharmaceutical spending was nearly two-thirds for brand name products (IFPMA 2014, 52). Besides a strong competitive environment, pharmaceutical companies are situated in a system of interdependent players with physicians and healthcare payers controlling selection and reimbursement of drugs. ‘Prescription drugs’ require the intervention of a physician for consumers to conduct a legal purchase from licensed pharmacists. ‘Overthe-counter’ (OTC) drugs are exempt from this rule and can be obtained in various locations other than pharmacies without a prescription (Scherer 2000, 1300). Healthcare payers are defined as “entities other than the patient that finance or reimburse the cost of health services” (Stedman cited in Farlex Inc. n.d.). Especially insurances play an important role in reimbursing the paid amount for prescription drugs (Scherer 2000, 1300-1301). Business Models of Pharmaceutical Companies At the core of the traditional business model of the pharmaceutical industry are highperforming pharmaceutical drugs that yield an annual global turnover of over US$1 billion. These so-called ‘blockbuster drugs’ ensure the high profitability of pharmaceutical companies (European Commission DG Competition 2009, 16/27-28). As the R&D process requires a substantial expenditure of time and money, but has high

5


failure rates at the same time (Fischer and Breitenbach 2013, 64/119-120), the blockbuster business model is a risky endeavor. The viability of the classic model was questioned numerous times. After the blockbuster business model had already been pronounced “irreparably broken” in 2003 due to a collapse in R&D productivity and return on investment (Gilbert et al. 2003, 3), the beginning of the ‘patent cliff’ presented another major challenge a few years ago. Patent expirations of top prescription blockbuster drugs caused US$120 billion of sales to be lost between 2009 and 2014 (Evaluate 2015, 9). As R&D productivity (Paul et al. 2010, 203) and efficiency (Munos 2009, 959) were still plummeting, the growing investment in the development of new drugs showed little potential to replace the lost revenue. ‘Eroom’s law’ seemed to correctly depict the decreasing productivity, as “the number of FDA-approved drugs per billion US dollars of R&D spending has halved approximately every 9 years” (Scannell et al. 2012, 191). The model was “broken” (The Lancet 2011, 1976) and many pharmaceutical companies adopted diversification strategies. OTC drugs, branded generics, consumer products and vaccines were added to the portfolio and research was focused on specialized therapeutics. Furthermore, outsourcing to contract research organizations and contract manufacturing organizations as well as partnering with biotechnology firms increased (Ernst & Young 2010, ii). In 2014, the industry defied ‘Eroom’s law’ with a record amount of fifty approved drugs by the FDA (Evaluate 2015, 27). Eleven high potential drugs that are estimated to achieve blockbuster status five years post-launch will enter the market in 2015 (Thomson Reuters and Jago 2015, 4). A period of sustained growth is predicted and the R&D pipeline is currently valued at US$493 billion (Evaluate 2015, 7). Nevertheless, many research-based companies will still suffer decreases in revenue since US$99 billion of worldwide drug sales are expected to be lost due to patent expiries between 2015 and 2020 (ibid., 9). Thus, the role of the product-oriented model remains questionable. As Jean-Pierre Garnier, former CEO of GlaxoSmithKline explained in 2007: “This is a business model where you are guaranteed to lose your entire book of business every 10 to 12 years. The first reflex of companies is to merge and that buys them a little time to deal with patent expiries, but fundamental changes will ultimately be necessary” (Jean-Pierre Garnier, as quoted by Carroll 2009, 681). Cost-Containment and Value-Based Pricing As mentioned in chapter one, healthcare systems in OECD countries face the imperative of stabilizing costs to ensure financial sustainability (OECD 2015, 19). Consequential

6


measures like cost-containment policies intensify the competitive environment in the pharmaceutical industry and increase pricing pressures. To take an example, mandates for generic drug substitution caused a decline in pharmaceutical spending in various countries (Andersson et al. cited in OECD 2015, 144). Porter and Teisberg (2004) argue that especially in the USA, where healthcare expenditure is highest, the solution to the cost-issue could be achieved by a shift in the nature of competition. Healthcare stakeholders competing on the basis of the created value for the patient would generate quality gains and cost reductions. Many others also promote the growing importance of value-based pricing, which is “an approach by which the pricing strategy is determined by therapeutic value, economic value and cost-effectiveness” (Hulshof 2014, A452). Multiple healthcare systems have started to link the pricing of pharmaceuticals to their assessed value. Scientific institutes like IQWiG in Germany and NICE in the UK play an important role in this in Europe (EC DG ECFIN et al. 2012, 20-23) and the USA (Sullivan et al. 2009, S39-S40). These health technology assessment (HTA) agencies provide guidance for pricing and reimbursement based on the assessment of a medicine’s value and cost-effectiveness (EC DG ECFIN et al. 2012, 22-23). In 2011, the German AMNOG law dictated a reassessment of prices within one year post-launch dependent on a product’s value. Only if an increase in positive effects compared to drugs that are already on the market is proven, a higher price can be negotiated (GKVSpitzenverband 2015). Between January 2011 and June 2012, only 50% of twentyseven analyzed medicines passed by IQWiG’s assessment criteria (Ruof et al. 2014). Furthermore, clinical trials, the gold standard for demonstrating product safety and efficacy under ideal conditions, are increasingly challenged by payers and regulators. Instead, real-world evidence (RWE) of clinical effectiveness must be proven in uncontrolled settings. Varying from region to region, RWE affects pricing, market access and permitted use of products today (IMS Health et al. 2012, 2-3). While payers benefit from these measures, pharmaceutical companies experience an intensified hurdle to profit from innovation. The bar to launch new products is raised and existing products must constantly reaffirm their right for existence. Me-too-drugs, chemically innovative drugs that, however, lack much additional therapeutic benefits, could be suppressed in this system (2020 Selection n.d., 1-2). This presents a significant impediment to the pursuit of the blockbuster business model. As the focus gradually shifts from rewarding volume to rewarding value, pharmaceutical companies must provide high-quality products along with proof of their effectiveness.

7


2.3 Digital Transformation in the Pharmaceutical Industry Definition of Digital Transformation Digital transformation can be defined as “the use of technology to radically improve performance or reach of enterprises” (Capgemini Consulting/MIT 2011, 5). It has fundamentally changed a variety of industries by boosting efficiency and creating entirely new business models (ibid., 65). The model of digital transformation proposed in a study by Capgemini Consulting and the Massachusetts Institute of Technology (MIT) identifies three building blocks of the digital transformation: customer experience, operational processes and business model (ibid., 17). Figure 1: Building blocks of the digital transformation Customer Experience

Operational Processes

Business Model

Customer understanding

Process digitization

Digitally-modified business

• Analytics-based segmentation • Socially-inf ormed knowledge

• Perf ormance improvement • New f eatures

Top line growth • Digitally-enhanced selling • Predictive marketing • Streamlined customer processes

Worker enablement • Working anywhere anytime • Broader and f aster communication • Community knowledge sharing

Customer touch points • Customer service • Cross-channel coherence • Self service

Performance management • Operational transparency • Data-driven decision -making

• Unif ied Data & Processes • Analytics Capability

Digital Capabilities

• Product/service augmentation • Transitioning physical to digital • Digital wrappers

New digital business • Digital products • Reshaping organizational boundaries

Digital globalization • Enterprise Integration • Redistribution decision authority • Shared digital services

• Business & IT Integration • Solution Delivery

Source: Author’s own illustration (based on Capgemini Consulting/MIT 2011, 17)

Since this paper aims to reveal the role that services ‘beyond the pill’ will play in the pharmaceutical business model, only the third building block will be examined. Using services ‘beyond the pill’ as digital wrappers around traditional products while maintaining the traditional business model would be classified as a ‘digitally-modified business’. Digital offerings would be used to “augment physical with digital offerings” (ibid., 22). Companies that “[reshape] their boundaries through digital” or introduce “digital products that complement traditional products” would go further and create a ‘new digital business’ (ibid., 22-23). Definition of a Business Model According to Osterwalder and Pigneur (2009, 14), “a business model describes the rationale of how an organization creates, delivers, and captures value”. Of the proposed

8


nine elements, value proposition, revenue streams, customer segments and key partners are examined below (ibid., 16-17).

2.3.1 Transforming Business Models: Services ‘Beyond the Pill’ Product innovations are the centerpieces of the traditional product-oriented business model in the pharmaceutical industry (Harms et al. 2005, 865). As increasing payer pressure, stricter regulations, declining research opportunities and growing generics competition render profiting from these innovations more difficult, this model is being challenged (Rasmussen and Foss 2014, 24). Pharmaceutical companies are pushed into extending their offerings and focusing on creating value. As a response to the necessity of finding profitable innovation in a mature product market, companies must “find a way to marry their products to value-added services and define business models to turn the value into revenue” (RAND et al. 2012, 6). The following sections explore what role these services ‘beyond the pill’ will play in the pharmaceutical business model. Definition of Services ‘Beyond the Pill’ The analysis of services ‘beyond the pill’ calls for a distinct definition of the term. No broadly accepted definition exists, as they could be described as “complementary services and solutions to diversify revenue sources” (Jain 2015) or “services that add real value for healthcare stakeholders” (North 2013). As the objective of this paper is to evaluate the purpose of services ‘beyond the pill’, a broader definition is used. Henceforth they are defined as “a strategy for combining service offerings with a product or portfolio of products targeting stakeholder needs along the patient pathway” (Wenzel et al. 2014, 91). Examples of Services ‘Beyond the Pill’ Services ‘beyond the pill’ can take on many forms and serve multiple purposes. They can be grouped in categories such as coaching (education, information, motivation), disease management (tracking tools, reminders, remote monitoring tools, medication management), communication tools (e.g. doctor - patient) and online communities. These categories only describe the examples mentioned below and are not to be seen as exhaustive. At the core of these services lies the value that is delivered to the patient. In addition to the classification according to functions, services can be distinguished according to their correlation with products. This spectrum encompasses product-related services, adjacent services and stand-alone services (A.T. Kearney et al. 2013, 3-4). Using the definition of digital transformation above, the first could be classified as a

9

Theoretical Framework ‘digitally-modified business’ in most cases, while the last two would form ‘new digital businesses’. Product-related services directly evolved from the pharmaceutical product and leverage its impact. In particular, patient adherence programs fall into this category (ibid., 3). Novartis for example has invested into remote monitoring devices such as the ‘Proteus smart pill’. An ingestible sensor provides information about vital signs and medication adherence to the patient’s doctor (Hirschler 2014). Bayer’s SMS-reminder ‘BETATEXT’ (Bayer Vital 2015a) and smartphone app ‘myBETAapp’ (Bayer Vital 2015c) support patients suffering from multiple sclerosis in managing their drug injections. Adjacent services accompany the basic product and extend the original value proposition (A.T. Kearney et al. 2013, 3). For instance, the online forum ‘Bayer MSgateway’ connects patients with multiple sclerosis and allows them to share their experience and advice amongst each other (Bayer Vital 2015b). To take another example, Roche’s diagnostics device Urisys and its adjacent telemedicine project constitute a support package for patients with urinary tract infections (A.T. Kearney et al. 2013, 3). Stand-alone services are entirely independent of the basic product. For example, Pfizer’s online male health clinic offers confidential consultations to patients without involving any products (ibid., 4).

2.3.1.1 New Value Proposition: From Products to Outcomes In 2013, Arthur D. Little (ADL) and the Karlsruher Institute of Technology (KIT) conducted fifty-three interviews with pharmaceutical executives and senior managers to analyze the impact of digital health on pharmaceutical business models. The study showed that 77% of study participants considered digital health to generate new businesses by 2020. Almost all believed that the existing value proposition will be extended (37%) or a new value proposition (57%) will emerge (ADL et al. 2014, 6). This opinion is shared by many institutes and private consultancies who suggest a radical reconfiguration of the traditional model. The pharmaceutical industry is forced to change its value proposition from providing products to providing positive health outcomes (A.T. Kearney et al. 2013; RAND et al. 2012; Ernst & Young 2010; PWC 2009). The core of this business lies in providing value and “positive changes in the health status of individuals, groups or populations” (Ernst & Young 2010, ii). Thus,

10

Theoretical Framework pharmaceutical innovation would be “measured by cost per relevant outcome under real-world conditions rather than differential performance in a clinical trial” (RAND et al. 2012, 6). Since stand-alone products demonstrate clear limitations in terms of the therapeutic success they can deliver, patient-centric offerings beyond the product are required to fulfill the new value proposition (A.T. Kearny et al. 2013, 2). Among many alternatives, medication adherence services, chronic disease management tools and companion diagnostic tests are particularly suited for improving care and reducing overall healthcare costs as a result. Services Improving Medication Adherence According to a WHO study, approximately 50% of patients with chronic diseases do not take their medication as prescribed (Haynes cited in WHO and Sabaté 2003, 7). Since suboptimal medication adherence severely impairs the effectiveness of treatments, poor health outcomes and therefore high costs are the result (ibid., 20). By improving adherence, hospitalization risks can be reduced and a net economic return for healthcare systems can be generated, despite increases in drug spending (Sokol et al. 2005, 525528). IMS Health (2012, 16) estimates that optimizing the usage of medicine could reduce the burden on global healthcare expenditure by at least 5% or US$301 billion, of which US$157 billion are attributed to suboptimal medication adherence. In order to improve medication adherence, patients should be included in the treatment management process and receive health-related education (Brown and Bussell 2011, 307). For this, possible tools include phone call reminders, web-based tools (ibid., 311), smartphone applications (Dayer et al. 2013) and medication monitors (Liu et al. 2015). The pharmaceutical industry is aware of the potential that improvements in medication adherence can bring: 60% of US pharmaceutical executives rated adherence as a ‘high’ priority and 40% were ‘confident’ or ‘very confident’ that adherence could be improved (Capgemini Consulting et al. 2012, 11). RAND et al. (2012, 4) propose an outcome-focused commercial model for pharmaceutical companies that exploits the opportunities presented by suboptimal adherence. The combination of products and services could form effective treatment solutions, promoting adherence and consequently creating better health outcomes. This service-based model meets both payers’ and governments’ demands for reduced healthcare costs. Pharmaceutical companies could engage in partnerships with the aforementioned parties and base their profits on the delivery of health outcomes.

11


Services for Chronic Disease Management WHO and Alwan (2011, 1) estimate that 63% of all deaths are caused by chronic noncommunicable diseases (CNCD). In order to improve outcomes of patients with such diseases, self-care programs with self-monitoring devices, mobile phones, web-based tools and telemedicine approaches are suggested (ibid., 65-66). In the USA, the treatment of CNCDs alone accounts for about 78% of healthcare spending (Baker et al. 2011, 1689). However, a study about the financial benefits of an integrated telehealth and care management program showed substantial saving potentials. Quarterly spending for remotely monitored patients with CNCDs could be decreased by 7.7% to 13.3% (ibid.). The program encompassed daily questions about the health status of patients and thus improved communication with care managers (ibid., 1690). Another study by RAND et al. (2005, xxv-xxvi) further proved the association between successful lifestyle change programs and US healthcare cost savings. Disease management programs for patients with diabetes, chronic obstructive pulmonary disease, asthma and chronic heart failure could avoid costly hospitalizations and thus save approximately US$28.4 billion in US healthcare costs. Services for Prevention and Personalized Medicine There are many benefits that can be drawn from services based on personalized medicine. Companion diagnostics (see section 2.1), for instance, can reduce healthcare costs by avoiding ineffective treatments and adverse events (FDA 2013, 10). Pharmaceutical companies offering these services can tap into a market that is expected to increase from US$3.1 billion to US$8.7 billion by 2019 (Research and Markets 2014). The preventive layer of personalized medicine indicates further potential for value creation. Dzau et al. (2015, 1) show that preventive, personalized interventions can reduce heart disease incidents in high-risk patients and hence increase life expectancy. Assuming that the monetary equivalent to one quality-adjusted life-year (QALY) is US$100,000, US$607 billion in improved health over fifty years can be generated by reducing incidences by 50%. Although these measures appear beneficial for all, economic incentives are poorly aligned between healthcare stakeholders at the moment (ibid.). Weak incentives in many countries deter pharmaceutical companies from engaging in personalized

12


medicine projects. Whereas a broad spectrum of diagnostic tests is covered in France, reimbursement in Italy, the USA and the UK is much more restricted (McKinsey & Company et al. 2013b, 9). Payers prefer short payback periods and thus still reimburse based on costs rather than the long-term value that personalized medicine offers (Dzau et al. 2015, 2). The remuneration of preventive efforts also remains uncertain in light of the limited monetary benefits that they bring. Maciosek et al. (2010) found that increasing the participation rate for preventive services in the USA to 90% would only save 0.2% of annual healthcare spending.

2.3.1.2 New Revenue Streams According to a 2013 study, 46% of pharmaceutical executives believe that ‘beyond the pill’ strategies will yield financial returns within three years time (Robertson 2013). However, participants of the aforementioned study by ADL and KIT could not unanimously identify the party who will pay for digital services. It remained uncertain whether the patient, private insurances, statutory insurances, healthcare professionals or no party at all will be in charge of remuneration (ADL et al. 2014, 11). The examples in previous sections illustrate the growing implementation of services beyond the product, but remuneration for digital health services remains limited. Distinct revenue streams based on the service or the value it provides have yet to become standard (Bau 2015). Generally, three different revenue streams associated with services were identified. Product Sales Growth In addition to the benefits described in section 2.3.1.1, solving the issue of suboptimal adherence increases product uptake and thus boosts product sales. It is estimated that non-adherence to medications for CNCDs causes yearly losses in revenue of US$188 billion in the US pharmaceutical industry. As this accounts for 59% of actual total revenue, optimal adherence could have a profound effect on profits of pharmaceutical companies (Capgemini Consulting et al. 2012, 11). Distinct Revenue Stream Services ‘beyond the pill’ could generate a revenue stream of their own. For example, a holistic digital solution that creates value for multiple stakeholders could yield returns based on the provided service. In a patient engagement platform proposed by Strategy&, patient tools allow for self-management, data analytics components supply payers with RWE and physician tools improve diagnosis and the overall care process (Strategy& 2013, 7-12).

13


Pay-For-Performance The previous section presented the changing pharmaceutical value proposition and highlighted financial potentials of improving health outcomes. In recent years, performance-based

risk-sharing arrangements

(PBRSAs) between

payers and

pharmaceutical companies have garnered considerable attention. While it is typically the payer who bears the risk of ineffective treatments, a pharmaceutical company might guarantee certain outcomes and take responsibility in case of failure (Garrison et al. 2013, 704-705). Take for example the 2008 outcome-based agreement for the osteoporosis therapy Actonel between Proctor & Gamble, Sanofi-Aventis and Health Alliance. In case the pharmaceutical therapy did not succeed in preventing non-spinal fractures, Sanofi-Aventis would be obliged to reimburse the cost of the treatment (NEHI 2012, 3). While such arrangements are a hot topic in the USA, implementation remains poor. More PBRSAs have been employed in Europe, Canada and Australia (Garrison et al. 2015, 633-634). However, high implementation costs, measurement complexity and a lack of a suitable data infrastructure pose challenges to further adoption (Neumann et al. 2011, 2335).

2.3.1.3 New Partners The

service-oriented

and

outcome-focused

pharmaceutical

business

will

be

characterized by increased partnering for multiple reasons. Pharmaceutical companies could be part of a network of healthcare payers, healthcare providers, technology companies, nutrition and fitness companies and many other players (PWC 2009, 1-2). Firstly, the value creation of providers, payers and pharmaceutical companies is heavily interdependent. In light of the new common objective of delivering positive health outcomes, a combined effort can prove beneficial for all parties (ibid., 5). For instance, pharmaceutical companies could collaborate with providers and payers on the quest for optimal adherence (Frost & Sullivan n.d., 10). Secondly, while the pharmaceutical industry is highly proficient in drug R&D, manufacturing and marketing, it lacks expertise in data collection and analytics. Collecting and analyzing patient data is, however, crucial for creating services tailored to patient needs (Ernst & Young 2014, 5). Access to RWE could be established through partnerships with hospitals (PWC 2009, 4) and data-mining performed by technology companies. Hence, mobile health firms, technology companies, telecoms and other non-traditional players that are investing into the field of healthcare could play a major role (McKinsey & Company et al. 2012, 7).

14


To take an example, Philips introduced a telemedicine platform in combination with a remote monitoring device (A.T. Kearney 2013, 3).

2.3.1.4 New Customers Services ‘beyond the pill’ can be used to deliver value to old and new customer groups. Controlling the prescription of drugs, physicians have been the traditional main customer group of the pharmaceutical industry (Alt 2003, 527). Due to the evolving demands for digital services by patients (see section 2.1) and advances in value-based pricing led by payers and governments (see section 2.2), the focus on these stakeholders is now becoming stronger. Of particular note is the growth of the influence of wellinformed patients on policy-making and their own treatment (Ernst & Young 2014, 2). Thus, pharmaceutical companies are forced to realign their marketing efforts and offerings in order to target patients (Best Practices LLC 2015, 5). This proves to be difficult, as direct-to-consumer advertising of prescription drugs is only legal in the USA and New Zealand (Magrini and Font 2007). At the same time, access to physicians is being increasingly obstructed as regulations in Europe (EFPIA 2014) and in the USA (Patient Protection Affordable Care Act 2010 s. 6002) demand the disclosure of payments by pharmaceutical companies to physicians.

2.4 Guiding Questions for the Empirical Research The findings of the literature research presented in this chapter give reason to conduct further empirical research. Based on this theoretical framework, the following key questions were identified and will be addressed in the subsequent chapters: 1. What role will products play in the prospective pharmaceutical business model? While fundamental changes to the blockbuster business model are considered to be necessary, new blockbuster drugs are on the rise and services increasing product sales promise substantial revenue growth (see section 2.2 / 2.3.1.2). 2. What purpose will services ‘beyond the pill’ serve and which kinds of services will be offered? Depending on their purpose and correlation to products, either a ‘digitally-modified business’ or a ‘new digital business’ could emerge (see section 2.3). In light of the proposed new value proposition, services would be used to improve outcomes (see section 2.3.1.1), but developments in this area are slow and alternative means of making profits with services exist (see section 2.3.1.2). 3. What kinds of partners should pharmaceutical companies seek (see section 2.3.1.3)? 4. What challenges do pharmaceutical companies face in the adoption of new business models? 15

Methodology of Qualitative Research

3 Methodology of Qualitative Research The following chapter outlines the research methodology of this study. The first part includes a description of the method used, details about the development of the interview topic guide and information about the interviewed experts. The closing section then gives insight into the data analysis process.

3.1 Method: Expert Interview Expert interviews are a qualitative method of empirical social research. The aim of these interviews is to gain “access to exclusive knowledge possessed by the expert” (Bogner and Menz 2009, 46). They are characteristically not standardized, cannot be evaluated quantitatively and often follow a topic guide (Scheuch cited in Bogner and Menz 2002, 17). In these semi-structured interviews, the topic guide serves as a tool to steer the expert towards predetermined topics. Specific but open questions are asked in a flexible order without strictly limiting the range of answers (Atteslander 2010, 135). Bogner and Menz (2009, 46-47) describe three different types of expert interviews: exploratory, systematizing, and theory-generating. In this study I used a predetermined topic guide but left room for variations in response and spontaneous digressions. The goal of this approach was to gain access to “knowledge of action and experience which has been derived from practice” but it was not attempted to obtain complete information (ibid., 47). This accounts for a systematizing interview that incorporates elements of the exploratory type (ibid., 46-47).

3.2 Sample of Experts An individual can be considered an expert if he or she is “responsible for and has privileged access to the knowledge of specific groups of people or decision-making processes” (Meuser and Nagel cited in Littig 2009, 100). The guiding questions for identifying suitable candidates for this study were: Might the expert’s knowledge and experience help in understanding how digital transformation and services ‘beyond the pill’ will change the business model of brand name pharmaceutical companies? Does the expert have experience in working inside, as a partner of or in projects with the pharmaceutical industry? Is he or she responsible for devising or implementing new business solutions? A total of nine experts were interviewed for this study (see Table 1 (Appendix)). Dr. Amann acted as a gatekeeper and aided in the establishment of connections to some of

16


the experts (Mayer 2004, 45). The focus was placed on experts who have in-depth knowledge of the pharmaceutical industry and new business models with regard to digital transformation. Thus, most experts currently work inside the pharmaceutical industry (n=3) or in the ICT/ICT-consultancy industry (n=4). Some experts have a pharmaceutical background (n=2). Nevertheless, they all combine expertise in the previously mentioned areas of focus. Two additional interviews were conducted with experts working in the lifestyle and medical device industry (n=1) and the health insurance industry (n=1). The goal was to gain a better perspective of the context in which new pharmaceutical business models will develop. Payers as key players in this environment and connected health devices as tools for the collection of data and implementation of digital services were considered useful to examine. Two experts did not grant the permission to reveal their identity. All experts are anonymized in chapter four and their names were replaced with anonymous indicators such as ‘E1’ and ‘Expert 1’. All anonymized experts take on the masculine form and are referred to as ‘him’ and ‘he’ regardless of the actual gender.

3.3 Topic Guide The findings of the literature research and in particular the guiding questions in section 2.4 formed the basis for the development of the topic guide. A total of three steps proposed by Mayer (2004, 42-45) were involved in the development. Firstly, a sensitizing concept was created, drawing on the results of the literature research. Secondly, a dimensional analysis was used to identify main topic areas and corresponding sub-topics. Thirdly, a pretest was conducted in order to verify the suitability of the topic guide. The main topic guide encompasses six parts: ‘Introduction’, ‘Digitization in Healthcare and Blockbuster Business Model’, ‘New Business Models’, ‘Services ‘Beyond the Pill’’, ‘Digital Transformation & Changes in the Value Chain’ and ‘Ending’. It is composed of nine main questions and some with several sub questions (see Table 2 (Appendix)). The main topic guide was slightly altered for the interviews with Mr. Latz (see Table 4 (Appendix)) and Mr. Diegel (see Table 5 (Appendix)). They include questions that also focus on the respective type of company they represent.

17


3.4 Data Collection and Analysis The interviews lasted on average fifty-four minutes and were either conducted via phone or in a face-to-face context. Upon request, the topic guide was sent to three experts in advance. Some interviews were conducted in English but the majority was conducted in German. Seven interviews were recorded and completely transcribed thereafter, whereas two experts did not grant approval for the recording. A simple transcription method was used since elaborate transcription methods should be disregarded if only the content of the interviews is relevant (Meuser and Nagel 2002, 83). The transcription was made in the respective language and relevant quotes used in the chapter ‘results’ were translated if necessary. After the completion of the paper, the experts were asked for permission to use the quotes in an anonymized form and reveal their identity as participants of this study. The analysis of expert interviews does not aim at extracting individual characteristics but rather at identifying “passages with similar topics” across multiple interviews (Meuser and Nagel 2009, 35). A six-step analysis process proposed by Meuser and Nagel was used. It encompasses transcription, paraphrasing, coding, thematic comparison, sociological conceptualization and theoretical generalization (ibid., 35-36). In the third step, the previously created paraphrased sections were assigned to general headlines (see Table 6 (Appendix)). Closely related paraphrased sections were further grouped together and more specific headlines were developed. After the completion of the third step, the interviews were compared and related headlines were combined. The final results of the analysis process are shown in the following chapter. The topic of transforming internal processes was omitted in the ‘results’ due to thematic discrepancies with regard to the focus of this paper. It is important to note that due to the semi-structured nature of expert interviews emphasis was placed on different topic areas in different interviews. Thus, not mentioning the name of an expert in the results neither implies the expert’s disagreement nor the expert’s concordance with a statement. It could mean that the respective topic was not discussed in-depth.

18

Results

4 Results The following chapter presents the results of the interview analysis. For the most part, the structure is derived from the content of the interview topic guide. The first part depicts the experts’ evaluations of the product-focused blockbuster business model with regard to future business models. The second part examines the role of services ‘beyond the pill’, outcomes and patient-centricity. More detailed examples of service-focused business models are outlined and the current situation and challenges faced by the industry are provided. The last part illustrates collaboration opportunities and the adapting competitive environment.

4.1 Current Product-Oriented Business Model In the following section the traditional product-focused business model of the pharmaceutical industry is examined. The experts assess the long-term sustainability of the product-only approach and evaluate the role blockbuster products will play in prospective business models. E4, E7 and E9 stress that the industry is moving away from the blockbuster business model at the moment. Key contributing factors to the lower emergence of blockbusters are strict pricing regulations, particularly in Europe, higher competition from generics, and increasing patent losses. It is the general perception that the product-only approach will experience far-reaching changes and will not suffice on its own1. Pharmaceutical companies will reevaluate their focus on products and shift to a “focus on the service” (E3). Services will be a necessary means to cope with the changing business environment and to capitalize on new opportunities. E1 calls the traditional model “regressive”, E6 and E2 say that it “will not be enough” and E6 believes that if the product-only business model is held onto by all, some “companies will fall by the wayside”. Some2 state that companies would in that case lose a significant amount of market power by being degraded to a replaceable supplier of products. According to E8, two-thirds of pharmaceutical companies would cease to exist. This phenomenon represents a common theme in the process of digital transformation: “Because within the next four to five years or maybe ten years, providers of products will either vanish or be degraded to a supplier of resources. In the pharmaceutical ___________________________________ 1

Topic was not discussed with E5

2

E1, E2, E8

19

Results

industry those will be merely suppliers of pills, but in fact the business will be done elsewhere” (E8). However, the considerable importance of successful products is stressed by many3. It is explicitly stated that blockbusters will still play a critical role as a source of revenue. E4 does not believe that the blockbuster model is on the verge of being replaced by entirely different business models. He thinks that “it needs to grow and adapt”, but he does not believe “that the model is completely broken (…) [and] needs a complete 180 degree shift”. E6 also thinks that many companies will still make “the lion’s share of their revenue” with blockbusters. However, the opportunities to find new drugs are declining as the pharmaceutical industry has entered the “beginning of the second half-time of the blockbuster period” (E6). E3 states: “You may not have any other option than the blockbuster model. (…) It might be the only option you have. Because by the time you invest two billion, you've got to make that money back quickly. Otherwise your shareholders are going to punish you and your value will go down. So for the big investments, the blockbuster model, if it's a billion in a year, that might be the only option” (E3).

4.2 New Business Models Section 4.1 demonstrated that the traditional product-centered business model will be altered in a significant way. New business models that incorporate products but also extend ‘beyond the pill’ must emerge. According to E2, the pharmaceutical industry is now in an early phase of a transformative period. He states that the industry has long begun to scrutinize business models and is now building up capabilities. As the interviews reveal, precisely predicting future business models of pharmaceutical companies remains a difficult task (E9). Phrases like “still being figured out across the industry” (E3), “won’t change quickly” (E1) and “very very slow going” (E4) come up frequently. Nevertheless, fundamental building blocks can be identified. The following chapter contains the experts’ opinions on crucial aspects and components of these new business models. Subsections one, two and three deal with the increasing focus on services, health outcomes and patients’ needs. Subsection four presents exemplary business models, subsection five illustrates the status quo and subsection six depicts obstacles on the way. ___________________________________ 3

E2, E3, E4, E6

20

Results

4.2.1 Focus on Services ‘Beyond the Pill’ Most experts agree that digital transformation elevates the role of services ‘beyond the pill’ and embeds them into the core of the pharmaceutical business strategy4. E1 claims that “the service-oriented business model, where not the pill by itself but rather the entire customer experience takes center stage, will grow steadily”. E2 believes that pharmaceutical companies are on the path of becoming a trusted partner to their customers and E3 says that the focus will shift from “the quantity or the medicine” to “a focus on the service, on the outcome”. It becomes evident that services form an integral part of new business models. Several examples of consumer-directed services such as intelligent pill dispensers, patient self-management apps, tracking and remote monitoring tools are mentioned in the interviews. Also, stand-alone services that are decoupled from products, for example, relaxation music and improving hygiene, come up. However, in which stages and to what extent the patient pathway will be shaped by these services cannot be concluded. Answers to the question of what kinds of services will be most relevant were generally not detailed. As E3 said, “there is still a lot of experimentation in that place.” There is growing consensus that not only the deployment of services but the achieved health outcome will play a tremendous role in healthcare and the pharmaceutical industry. This is why a dedicated section explores this subject matter more closely (see section 4.2.2). Customer Loyalty and Trust Pharmaceutical companies experience strong distrust from the public5. According to E1 and E3, building up trust particularly in the pharmaceutical industry is a time and resource-consuming endeavor. The prevailing poor reputation is a strong inhibiting factor that prevents pharmaceutical companies from garnering customer loyalty. However, many experts6 believe that value-generating services offer a path to a stronger bond between pharmaceutical company and end-consumer. According to them, the resulting customer loyalty would prove valuable. E4 explains this phenomenon: “So if you have a product that is prescribed from a certain company, and that product enables you to take part in the service that you value very much, then I think ___________________________________ 4

E1, E2, E3, E4, E6, E7, E8

5

E1, E3, E6, E7

6

E1, E2, E4, E7, E8

21

Results

that the barrier to being switched to a different product, a comparable product, maybe a generic product, is higher” (E4). In contrast, E3 does not believe that consumer loyalty for brand name products is of great importance because they do not have a say in the purchase process: “If it's an OTC drug, yeah, perhaps. But brand loyalty doesn’t help too much for pharmaceuticals because it's not a consumer purchase decision” (E3). Sales Growth and Revenue Stream Three experts7 value the growth effect that services have on the sales of products. Especially services that improve compliance and adherence will drive sales and lead to “a gigantic win for [pharmaceutical companies] financially” (E4). E5 believes that increasing sales will always be the main goal of pharmaceutical companies. According to E1, E2 and E9, most pharmaceutical companies currently make use of services ‘beyond the pill’ with such a product-centered goal in mind. They believe that services serve as a tool to secure the position of pharmaceutical products rather than as a valuecreating tool to bring in revenue itself. E2 regards this as a possible short-term strategy, but believes that services can become a revenue source by themselves in the middleterm. Many8 agree with this idea and E1 criticizes the current shortsightedness of the pharmaceutical industry. E1 and E9 also consider the possibility of patients paying for these services.

4.2.2 Focus on Health Outcomes A common theme in the experts’ consideration of novel business models is the focus on guaranteeing positive therapy outcomes. Rather than merely delivering products or services, the pharmaceutical industry must prove their positive effects in real-world settings. As the “health-related benefit of the medicine is increasingly questioned” (E6) by payers it becomes important to “conduct longitudinal studies” (E4) and “invest into making sure that [pharmaceutical companies] can show that output” (E3). Several experts9 acknowledge this necessity to prove the value of pharmaceutical products as a result of the increasing demands by payers and governments. Six experts10 specifically express that the pharmaceutical business will be and already is being shaped by an ___________________________________ 7

E2, E4, E6

8

E1, E4, E7, E8

9

E1, E2, E3, E4, E6, E9

10

E1, E2, E3, E4, E6, E8

22

Results

outcome-based pricing paradigm. They consider the possibility of a pricing system that is predicated upon the outcome delivered. E1, E4 and E6 are convinced that outcomebased pricing systems will emerge and E8 believes that the current system is moving in that direction. E2 and E3 are fundamentally of the same opinion but express the uncertainty of this prediction by adding expressions like “maybe” and “might”. E3 explains how the US healthcare system has long been shifting in that direction by using hospital readmission measures to reimburse and incentivize better care. However, the pharmaceutical industry is currently not paid by the outcome of its activities: “The financial incentive for the pill plus is with the insurer or payer. By better coordinating care and adherence, the insurer or payer sees a direct benefit, and this is not yet passed along to the pharmaceutical innovator” (E3). According to him, the key to the progression of outcome-based pharmaceutical models are financial incentives: “Follow the money. If you change the financial incentive, you change pharmaceutical behavior” (E3). Exemplary scenarios for projects that would reward outcomes are risk-sharing agreements for lowering the amount of hospital stays of chronic obstructive pulmonary disease patients by providing a digital service (E4) or the reduction of 30-day all-cause heart failure readmission rates in the USA (E3). Platform business models could also incorporate the promise of services that “make sure that (…) adherence improves” or “sore throats get cured” (E8). In contrast, E9 thinks that current outcome-based approaches of pharmaceutical firms mostly serve marketing purposes. According to him, several aspects could prevent an outcome-based pricing system from working properly: Firstly, measuring health outcomes and allocating monetary values to them constitutes a complex challenge. Secondly, proving the existence of real outcomes is not feasible at the time of product launch. Long-term outcomes would also require an excessive amount of time to even render an evaluation possible. E5 elaborates on hurdles for the development of outcomebased pricing in different healthcare systems: He mentions the problem that healthcare providers could only partially control health outcomes, as the behavior of patients is the final determining factor.

23

Results

Improving Outcomes with Services In the context of an outcome-centered business model, value-added services provide an additional benefit to those described in section 4.2.1. The majority of the experts consider services as a valuable tool to improve outcomes11. Particularly services that boost patient compliance and adherence will be important. E1 believes that such services can generate competitive advantage: “Let’s look at the following scenario: (…) There is a new brand name drug and there is a generic drug plus service. If I was the insurer and I could get real-world evidence, and I could see that a new, more expensive drug, which certainly was more potent during the studies, (…) now can’t keep up with the combination of digital service plus generic drug, then (…) my decision would be obvious. Of course the combination of [service] and generic drug” (E1). Preserving Health “Today, (…) most of our healthcare system is a curative system” (E7). However, as predictive health improves, anticipating sickness and preserving health will become more feasible. Five experts believe that pharmaceutical companies should invest into prevention, while E8 doubts that preserving health will be a part of pharmaceutical business models. Advocates evaluate the idea on the basis of prospective financial benefits12, moral responsibilities (E3) or dictating regulations by governments (E4). Just like producing a positive treatment outcome, protecting the health of an individual might yield returns in the future. On the contrary, E8 scrutinizes the conflict of interest between increasing product sales on the one hand and preserving health on the other. Pursuing both strategies might not be reconcilable and could cannibalize each other’s profits.

4.2.3 Customer- and Patient-Centricity Although views on business model options might vary, there is almost unanimous approval on the growing power of patients as deciding customers and the necessity to assess their needs. Despite the absence of a dedicated interview question regarding this topic, the experts addressed it numerous times. E5 and E9 refer to better-informed patients and E7 points out that the constant exposure to health-related services and topics makes healthcare “[enter] into the unconscious of people”. Devices that enable ___________________________________ 11

E1, E2, E4, E6, E7, E8

12

E1, E2, E6

24

Results the quantification of the patients’ pathology and health status further promote their evolution to “actors of [their] own health”: “I mean the fact is that connected health renders the patient more intelligent – not more intelligent, but he has more data so he can judge for himself what is best for him and he can actually discuss what is the best solution for him” (E7). E1, E4 and E8 emphasize that customers are the actual drivers of digital transformation. E2 is of the same opinion and points out that the patient is an important driver that is often overlooked. According to E1, a “big topic for the pharmaceutical industry” will now be to convince the actual patient of the medicines’ value rather than only persuading doctors to prescribe it. He explains that the success of service-based business models will depend highly on the acceptance of the end-consumer. For these reasons, E1 and E6 stress the importance of fulfilling their needs and constantly reevaluating the companies’ value propositions. E1 says that in pharmaceutical R&D the “lifecycle management of digital services [will be] a really big topic” and one must constantly ask: “How can I further keep up the high level of customer experience?” Aligning the R&D process of products with the development of services at an early stage is highly important13. He describes a shift in the mindset of consumers and draws parallels to the digital transformation in other industries: “The core aspect of the digital transformation is that products become services. So the centerpiece today, and this happens across all industries, that’s not restricted to the pharma industry, is that the essential difference to today’s business model is that the customer increasingly demands customer experience. This means that the drilling machine is not important anymore, but rather the holes I drill with it. A car turns into ‘mobility’. Similarly, a pill turns into ‘health’” (E1).

4.2.4 Examples of New Business Models Sections 4.2.1 to 4.2.3 demonstrated that patient-centric approaches with an orientation towards services and outcomes are crucial aspects of new business models. This section explores business model options that go slightly beyond the elements previously mentioned.

___________________________________ 13

E1, E8

25

Results

Business Platforms According to E8, pharmaceutical companies must align their business models with business platform strategies. Business platforms that are “emerging from the crowd (…) at the moment” account for an important trend in digital transformation across industries and will be key to maintaining a strong market position. On these platforms, “ecosystems on the basis of data and data transfer” are formed. “Consumers become producers and vice versa”, which transfers power and influence into the direction of the patient. As a result, “to some extent (…) the patients decide which features they would like to have”. As an exemplary application in the pharmaceutical area, E8 mentions a business platform where patients exchange recommendations for OTC products. If the pharmaceutical industry does not follow this trend, they will have “no chance at all of directly exerting influence, but rather the platform [would define] its own rules” (E8). Thus, pharmaceutical companies now find themselves at a crossroads and must decide: “Do I want to be the researcher? Do I want to be the supplier of medicines? Do I want to be the one who creates worlds of services” (E8)? Providing Healthcare Services As the pharmaceutical industry provides services beyond their products, the question arises to what extent they will enter into the field of healthcare. The experts who were asked14 whether pharmaceutical firms should consider taking on roles as healthcare providers and enter the field of hospital management mostly rejected the idea. A lack of expertise and trust would inhibit them from succeeding in this area. Digital Healthcare Corporations E6 predicts that within ten years’ time so-called ‘digital healthcare corporations’ will emerge. The pharmaceutical industry is a potential candidate but other companies like Apple also threaten to take this role. While still pursuing the traditional business of curing diseases, the “foundation of the business model” would lie in the “preservation of health”. “Healthcare packages” would incorporate personalized medicine as well as value-creating services that target all health-related areas of a patient’s life, for instance health management, sports or nutrition.

4.2.5 Status Quo In the first part of the results it was already mentioned that new business models form slowly in the pharmaceutical industry. According to E1, E4 and E6 there is currently ___________________________________ 14

E1, E3

26

Results “no burning platform” (E4) in the industry and companies are “still doing too well” (E6). The performance of the pharmaceutical industry is still at a high level15. E2 and E3 believe that the industry is aware of the importance of digital transformation and the occurring paradigm shifts. However, many projects in the area of value-added services are underfunded (E2). While E3 believes that the industry is actively experimenting in this area, he attributes the delay in adoption to the need for approval by regulators. E1 further claims that the pharmaceutical industry is in “a waiting position” because they are “not yet under enough pressure”.

4.2.6 Hurdles The pharmaceutical industry encounters multifaceted hurdles on the path from old to new business models. E1 believes that the development of services in the pharmaceutical industry requires too much time. According to him, pharmaceutical companies are “overwhelmed” because “they don’t have the knowledge, they don’t have the mentality (…) and they don’t have the tools to [develop services] fast.” E2 also mentions the lack of expertise but sees bigger shortcomings in the area of big data competencies. Related to this, the use of data in general is another inhibiting factor according to E8, as it is only legal to use anonymized patient data16. E4 describes an “additional time and expense factor” stemming from differences in European regulatory systems. Services cannot be developed for universal deployment but must be adapted to local regulations17. Similarly, E7 remarks that “every country has got its own data safety standard.” E9 sees a major problem in traditional thinking and idleness. E6 believes that fulfilling the customers’ needs and demands constitutes the biggest challenge. However, E4 adds that in Europe “direct-to-consumer communication is extremely restricted” which limits pharmaceutical companies greatly in the deployment of services.

___________________________________ 15

E4, E9

16

E1, E8

17

E1, E4

27

Results

4.3 New Competition and Collaboration Section 0 presented new opportunities, tasks and challenges in the pharmaceutical industry as traditional business models are being transformed. The following part deals with

the

changing

competitive

environment

and

the

relationship

between

pharmaceutical companies and other healthcare stakeholders. The majority of the experts consider collaborative measures as absolutely necessary18. Pharmaceutical companies will “never create (…) services on [their] own” (E1) and believing otherwise would be a “fallacy” (E6). Collaborations could for instance resolve issues concerning data privacy regulations that make it difficult for pharmaceutical companies to actively engage with end-consumers19. E4 and E7 have a network of technology companies, payers, providers and academic institutions in mind. One expert stresses, however, that the partner choice highly depends on strategy and diversification of the individual pharmaceutical firm. A thorough analysis of individual cases would therefore be necessary and naming the most suitable partners would not be possible (E8). As the focus of the interviews was on payers and non-traditional healthcare companies, the following sections deal with them as potential partners.

4.3.1 Healthcare Payers Many experts believe that collaboration between pharmaceutical companies and payers could be fruitful for both20. According to E4, a combined effort could increase the chances of improving health outcomes. In an outcome-based pricing system, this would lead to cost savings on the payer side and financial gains for pharmaceutical firms. Such programs could be aimed at improving patient management, according to E2. E1 adds that hurdles of data privacy and local regulations could be overcome with a third player like payers in the picture. It “would be more cost-efficient” if services were created by pharmaceutical companies with a global scale in mind and thereafter “adapted locally” by payers in their respective countries. Narrowing the focus to Germany, E6 thinks that it “could make sense”. E5, however, considers the notion of a collaboration between German statutory health insurances and pharmaceutical companies to be problematic:

___________________________________ 18

E1, E2, E4, E6, E7, E9

19

E1, E8

20

E1, E2, E6, E7, E9

28

Results “That’s difficult. At the end of the day, the pharmaceutical industry is – if we break it down to a pharmaceutical company – aimed at one thing: which is to secure sales, or increase sales, or for new drugs that enter the market to realize a certain sales volume. And we do perceive that it is problematic to bring these topics together in direct cooperation: The payer and the one who provides [healthcare] services, because in that case neutrality is a bit in short supply” (E5). According to him, health insurers in Germany have begun to “actively engage in the area of healthcare” by providing value-creating services and “[taking the patients] by the hand”. Despite mutual characteristics between this approach and new strategies of pharmaceutical companies, the conflict of interest between the two parties prevails. He believes that German statutory health insurances must “take care that the healthcare system remains financially feasible” while pharmaceutical companies are “profitoriented”.

4.3.2 ICT Companies as Non-Traditional Healthcare Players A frequently discussed topic was the entrance of non-traditional players into the healthcare market. There is a broad spectrum of opinions about their future role, but the experts almost unanimously agree on which companies are on the horizon. Most frequently, ICT companies, and in particular, Google and Apple are mentioned since “they are all investing heavily into healthcare” (E7). Google has even “become the worldwide leading force in diabetes research [overnight]” as a result of their expertise in “big data research” (E7). E1 and E8 perceive them as a serious threat to pharmaceutical companies. To the question, whether these non-traditional entrants had the power to take over the market independently from pharmaceutical companies, E8 answered: “They don’t just have the power. They are in the middle of exercising that power (…) and are making the classic pharmaceutical industry look bad” (E8). E1 would agree with this statement and explains that they could draw market power away from pharmaceutical companies and degrade them to “a replaceable supplier”. They could position themselves in between pharmaceutical companies and the customer. Also, big data analytics could be used to scrutinize the effects of pharmaceutical products21. E9 could envision companies like Google and Apple pre___________________________________ 21

E1, E2

29

Results

empting pharmaceutical companies in providing valuable services. According to E5 and E7, especially the wellness and lifestyle market will be dominated by these ICT companies. Big data analytics will allow them to create valuable services in the area of health22. Other experts agree that dangerous new competition is emerging but they consider potential collaborations at the same time23. E6 believes that pharmaceutical and technology companies “mutually need each other” and E2 reckons companies like IBM and Philips to be suitable partners. Reasons for that are their expertise in digital matters, the possibility to access RWE and their access to and understanding of end-consumers. E3 and E4 disagree with the notion of technology companies seizing power in the pharmaceutical industry. E4 believes that they could only work independently “on a consumer level” and E3 does not “see a threat (…) [since] nobody will be able to do what [pharmaceutical companies] do”. They do, however, represent potential partners and could serve as compliments that improve the pharmaceutical business through digital means24.

___________________________________ 22

E2, E6, E7

23

E2, E6

24

E3, E4

30

Discussion

5 Discussion The following chapter discusses the research question of this study on the basis of the literature research findings and the interview results. The first part depicts implications for practice. It includes an evaluation of the role that services ‘beyond the pill’ will play and gives recommendations for action. The second part depicts implications for research. Finally, the limitations of this study are discussed.

5.1 Implications for Practice In 2005, Harms et al. described that rising R&D costs, emancipation of customers and declining opportunities for product differentiation call for changes in the pharmaceutical industry. Overcoming these challenges by connecting with customers would ensure long-term success, whereas clinging to traditional models could only offer a chance of survival (Harms et al. 2005, 865). As the influence of well-informed patients on their treatment grows, value-added services would become a key success factor (ibid., 867). Patients would soon be able to distinguish between service-focused and product-focused companies (ibid., 867-868). Recent developments have intensified the urgency to extend the product-oriented approach. New profitable business models are required as R&D costs rise while opportunities for drug discovery decline, competition grows, patents expire and regulatory and payer pressures mount (Rasmussen and Foss 2014, 3/5/24). The market is requesting pharmaceutical companies to engage in digital health approaches (ADL et al. 2014, 12). In this context, services ‘beyond the pill’ present a possible strategy “to achieve profits similar to those of the traditional model” (RAND et al. 2012, 1). The interview results confirm the commercial non-viability of a product-only approach. In case of idleness, competitors could exploit new opportunities while the pharmaceutical business enters a phase of stagnation. The evolution to service strategies seems inevitable for the pharmaceutical business model to prosper. In light of the current successes and predicted growth in product R&D (see section 2.2) one could argue in favor of the blockbuster business model. In fact, the interviews show that the blockbuster model is not broken and products will remain at the core of future business models, albeit not exclusively.

31

Discussion

5.1.1 Three-Level Model To discuss the role that services ‘beyond the pill’ will play, a model depicting three potential purposes will be used. The three-level model was developed by drawing on insights from interviews and literature research. In particular, differences in impact on the value proposition and revenue streams determine the classification of a service. It is important to note that the proposed three levels may overlap partly and services could be classified into more than one of the three possible roles. Figure 2: Three-level model of potential roles of services Outcome-Enhancer

LEVEL3

Revenue-Creator

LEVEL2

LEVEL1

Sales-Booster Purpose of Service

Boost product sales volume

Business Model

Product-focused

Product & service-focused

Outcome-focused

Digital Transformation

Digitally-modified business

New digital business

New digital business

Revenue Streams

Product sales

Product sales & service revenue stream

Health outcomes

Type of Service

Product-related

Adjacent service

Particularly services improving medication adherence Fee-for-service (product)

E.g. chronic disease management services

Product-related; adjacent service; stand-alone service E.g. chronic disease management/adherence services

Fee-for-service (product & service)

Pay-for-performance (outcome)

Kinds of Services Payment

Provide additional value

Ensure positive outcomes

Volume

Value

Source: Author‘s own illustration

5.1.2 Evaluation of Potential Roles

–3 –

Sales-Booster Services ‘beyond the pill’ that aim at optimizing medication adherence can increase the sales volume and revenue of pharmaceutical products substantially, as presented in section 2.3.1.2. Several experts acknowledge this benefit, but pursuing level-1 services exclusively is not considered to be a viable long-term strategy (see section 4.2.1). In a level-1 context, the original product-centered value proposition is retained and services merely play a supporting role for the traditional core business. Companies deploying only ‘sales-boosters’ would create a ‘digitally-modified business’ and could suffer the same fate as those adopting a ‘wait-and-see’ approach. Increasing profits in the traditional business model will neither enable companies to harness the full potential of digital services nor allow them to cope with the changing circumstances. Indeed, these product-related services would inevitably provide additional value by improving outcomes in most cases (Sokol et al. 2005, 525-528). However, products are the driving force behind a level-1 strategy and ultimately bring in revenue.

32

Discussion

In the interviews, regulatory complexities were considered an inhibiting factor for pursuing services ‘beyond the pill’ (see section 4.2.5). Depending on the risks services pose to patients, regulatory approval might not be required. For instance, the FDA exercises enforcement discretion for mobile medical applications “that keep track of medications and provide user-configured reminders for improved medication adherence” (FDA 2015, 23-24). Thus, simple ‘sales-boosters’ could probably be implemented more easily than more complex level-2 and level-3 services. Revenue-Creator Literature and expert interviews alike demonstrate that services will be of great importance for pharmaceutical strategies. They could generate an independent revenue stream if additional value can be delivered to healthcare stakeholders. However, it is not certain who will pay for these services. As the interviews reveal, this constitutes a possible middle-term strategy (see sections 2.3.1.2 / 4.2.1). In creating a ‘new digital business’, ‘revenue-creators’ will enter into the core of the value proposition as adjacent services and extend into areas that products alone cannot reach. For example, chronic disease management programs could be offered and remunerated on a per-patient basis. Nevertheless, product sales will amount for a major part of overall turnover. In light of the growing importance of value-based pricing, focusing on value beyond the product seems like a necessary step for pharmaceutical companies. Payers increasingly seek to base pricing negotiations on assessments of HTAs (Eli Lilly & Company n.d.). Persson and Jönsson (2015, 6-8) argue that international reference pricing in Europe will come to an end and the demand for valuebased pricing will increase. Pharmaceutical companies seeking to establish an additional revenue stream will therefore be obliged to demonstrate the value of the service. This could be achieved via clinical trials or RWE. Outcome-Enhancer According to the experts, the long-term value proposition of pharmaceutical companies will focus on the generation of positive health outcomes (see section 4.2.2). Many analyzed reports and articles draw the same conclusion and predict outcome-based business models to emerge. Payers insist on assessments of a product’s value and show growing interest in PBRSAs. Services ‘beyond the pill’ are universally regarded as essential components in this new business model (see sections 2.3.1.1 / 2.3.1.2).

33

Discussion

In order to ensure the new value proposition, the therapeutic limitations of supplying stand-alone products must be exceeded by the use of ‘outcome-enhancers’. The explosion in patient data will create transparency and reveal tangible data about outcomes of healthcare services (IMS Health 2014, 1). Thus, the strategy of pharmaceutical companies must be aligned with the creation and verification of therapeutic value on the level of individual patients. In contrast to level 1 and level 2, the actual proven effect is the final determinant of remuneration rather than the tool itself. Value is equally important as in level-2 services but the measurement takes place on a different level. ‘Outcome-enhancers’ might boost sales and present substantial value, but they are embedded in a holistic strategy that includes products and services and aims at the result. These ‘new digital businesses’ could encompass adjacent services, stand-alone services as well as product-related services where the traditional business model would not be maintained. However, it is important to note that many challenges inhibit the progression of outcome-based pricing agreements. Services will not play the role of ‘outcomeenhancers’ until these problems have been resolved.

5.1.3 Recommendations for Action Based on the findings of this paper, pharmaceutical companies should adapt their traditional product-only business model by merging products with services ‘beyond the pill’. In the long-term, these services should play the role of ‘outcome-enhancers’ and contribute to a new outcome-focused value proposition. Currently, the pharmaceutical industry lacks the impetus to move ‘beyond the pill’. As explained in sections 4.2.2 and 4.2.5, the performance of the current business model is still at a high level and financial incentives for the pursuit of level-2 or level-3 services are scarce. However, it is essential to adopt a long-term perspective and shift the strategy now in order to mitigate the risk of being overwhelmed by an outcome-based pricing paradigm and strong competition in the future. Experts and literature agree that pharmaceutical companies must engage in various partnerships to ensure the successful development and implementation of services ‘beyond the pill’ (see sections 2.3.1.3 / 4.3). As passive patients turn into deciding customers, the importance of providing patient-centric offerings grows (see sections 2.3.1.4 / 4.2.3). However, inhibiting regulations and a lack of expertise make it difficult for pharmaceutical companies to create and deploy patient-centric services (see section

34

Discussion

4.2.6). For instance, many still struggle to make a significant impact in the field of mobile health applications (Jahns 2014). Collaborations with ICT companies should therefore be established in order to compensate for the missing capabilities and expertise in data collection and analysis. ICT companies could accelerate the development process and ensure that digital services meet customer needs. This process should be integrated into the R&D of pharmaceutical drugs to ensure the connection between product and service. As the value creation of pharmaceutical companies, payers and providers is interdependent, collaborating on the common goal of improving outcomes is advisable. According to the experts, payers and pharmaceutical companies would both benefit from a partnership (see section 4.3.1). However, there still exists “an inherent conflict of interest between the legitimate business goals of manufacturers and the social, medical and economic needs of providers and the public to select and use drugs in the most rational way” in contemporary healthcare systems (WHO n.d.). E5’s doubts about collaborations with German statutory insurances illustrate that traditional thinking and inertia of old systems might inhibit a conjoint effort from emerging. Pharmaceutical companies should therefore proactively seek partnerships and prove that their intentions are aligned with those of payers. In addition, solutions must be tailored to local environments since regulations differ from country to country (IMS Health 2009, 31). As mentioned in the interviews, payers could be in charge of adapting services to meet the local requirements. Pharmaceutical companies should establish access to RWE, allowing them to prove the outcome of their offerings to payers. Collaborations with ICT companies and providers can ensure that the necessary technology infrastructure to manage RWE is in place and access to patients is established. Since RWE influences drug prices already today (see section 2.2), providing this data can have an immediate positive effect on the negotiation of reimbursement prices even before an outcome-based pricing system emerges. Proving the value of offerings could also cause payers to delay the switch from drugs going off-patent to competitive generic products (McKinsey & Company et al. 2011, 5). Moreover, pharmaceutical companies face the threat of “losing control over the value communication around their own drugs” if RWE is only collected and evaluated by third parties (Strategy& et al. 2015, 5). Investing into accessing data from ‘real patients’ is therefore a prerequisite for successful marketing and communication (ibid.).

35

Discussion While maintaining focus on ‘outcome-enhancers’, pharmaceutical companies should pursue an evolutionary approach using the presented three-level model. Level-1 and level-2 services can bring in substantial profits before outcome-based pricing becomes standard. ‘Sales-boosters’ can yield immediate profit in the current reimbursement system while at the same time improving outcomes and reducing healthcare costs. They will not guarantee long-term success but can initiate a lucrative transitional phase on the path to providing more value. Services that demonstrably provide substantial value could first become ‘revenue-creators’ and establish new revenue streams. As presented in section 2.3.1.1, services in areas like adherence, chronic disease management and personalized medicine are potential candidates. The resulting customer loyalty would present an additional benefit. Subsequently, these ‘revenue-creators’ could turn into ‘outcome-enhancers’ once reimbursement is only based on outcomes. The interviews demonstrate that a strong connection between products and services should be maintained. Thus, the focus should not be placed on stand-alone services. However, it remains questionable how far pharmaceutical companies should enter into the healthcare management space. Section 2.3.1 provides only a non-exhaustive excerpt of possible service categories and the interviews do not provide enough information to conclude what kinds of services will be offered. The interviews suggest that pharmaceutical companies should not enter the field of hospital management. Whether services aiming at nutrition and fitness should be incorporated cannot be concluded. Prevention seems to be a field that pharmaceutical companies should pursue, but opposite views exist.

5.2 Implications for Research This paper demonstrates the impact of digital transformation on the business model of brand name pharmaceutical companies. It depicts three possible roles that services ‘beyond the pill’ can play and evaluates their applicability based on literature and empirical research. The findings contribute to existing literature with regard to the need for collaborative, patient-centric, service-focused and outcome-based business models. In contrast to most analyzed literature where the only recommendation revolves around providing improved outcomes, a practical evolutionary approach encompassing three levels is suggested. Also, this paper puts the apparent death of the blockbuster business model into perspective and demonstrates that pharmaceutical companies will not lose their strong focus on products.

36

Discussion

Further research is needed to understand the exact business model of pharmaceutical companies because the industry is currently in an experimental phase. It needs to be identified what kinds of services pharmaceutical companies will offer, how different healthcare players can act in concert and how outcome-based pricing models can become standard. Also, the interviews showed a spectrum of opinions on ICT companies posing a threat to the pharmaceutical industry. Their role should be investigated more closely.

5.3 Limitations The empirical research method used presents various limitations. Firstly, experts do not provide objective information according to Bogner and Menz (2002, 16). Secondly, expert interviews cannot be evaluated quantitatively and ensuring representativeness is therefore a difficult task (Mayer 2004, 40). All interviewed experts in this study have profound knowledge of pharmaceutical business models and changes induced by digital transformation. However, full representativeness might not be guaranteed due to the limited sample size and differences in position and industry. Bigger samples with equal amounts of representatives from each industry could both illustrate varying perspectives from different players and ensure representativeness. The scope of this study is global and it presents universal trends amongst multiple markets. It is demonstrated that internationally active pharmaceutical companies face the challenge of meeting local regulations. In order to conclude how services can be deployed in specific markets, however, it is necessary to conduct an in-depth analysis of individual markets. Moreover, this study focuses on services ‘beyond the pill’ with a strong focus on patients. However, services targeted at other stakeholders like payers or physicians are equally important and should not be disregarded. Also, goals and opinions of other stakeholders have to be assessed more closely, like strategies of nontraditional players, physicians’ reluctance to adopt digital technologies and payers’ ambitions to become a partner for their customers. Furthermore, only the third layer of digital transformation was investigated. Transformation in the areas of customer experience and internal processes were disregarded but also play a significant role in the digital transformation in the pharmaceutical industry. Finally, this study focused on four of a total of nine building blocks that constitute business models according to Osterwalder and Pigneur (2009).

37

Conclusion

6 Conclusion Pharmaceutical companies are facing increasing pressure from governments, payers, patients and new competitors to adapt the product-only business. This paper demonstrates that ‘new digital businesses’ in the form of digital services ‘beyond the pill’ constitute the cornerstones of viable new business models. The strong focus on products will, however, not be abandoned and blockbuster drugs will remain an essential part of the strategy. I propose a model with three different levels of integration of services ‘beyond the pill’ into the business model. Given these findings, companies should capitalize on the potential that ‘sales-boosters’ offer in the current reimbursement apparatus without losing focus on the long-term goal of evolving to an outcome-focused value proposition. Despite the lacking impetus to move ‘beyond the pill’, the pharmaceutical industry must proactively incorporate digital services and prepare now for a paradigm shift to outcome-based pricing systems. To stay competitive in a changing market, companies should develop and deploy services that become ‘revenue-creators’ and ultimately turn into ‘outcome-enhancers’. The key to success lies in rebranding oneself as a trusted partner for patients and providing value for all healthcare stakeholders. At the same time, companies must be wary of non-traditional players entering the field of healthcare whose role is yet unclear. In this context, a concerted effort with ICT companies, payers and providers will ensure access to RWE and foster the success of digital services. Despite the prevailing business imperative to offer digital services, digital transformation also presents major opportunities. The pharmaceutical industry should embrace the oncoming wave of digital change and seek concrete means of further developing business models ‘beyond the pill’. Further research is required to inspect exactly what kinds of pharmaceutical services will move the industry ‘beyond the pill’ and to shed light on how pharmaceutical companies can splice digital into their DNA.

38

List of References

List of References Accenture (2012): Connected Health: The Drive to Integrated Healthcare Delivery. Available at: http://www.himss.eu/sites/default/files/Accenture-Connected-HealthGlobal-Report-Final-Web.pdf [Accessed 5 Aug. 2015] ADL, Arthur D. Little; Kaltenbach, T.; Herzig, S.; Görlitz, R. (2014): Impact of Digital Health on the Pharmaceutical Industry: Will Business Models be Reshaped by Digital Health?, Arthur D. Little. Available at: http://www.adlittle.de/uploads/tx_extthoughtleadership/ADL_HC_2013_DigitalHealth_final_01.pdf [Accessed 15 Aug. 2015] Alt, R. (2003): Transformation in the Pharmaceutical Industry – Developing Customer Orientation at Pharma Corp, Conference Paper BLED 2003 Proceedings, 9-11 June, 2003. Available at: http://aisel.aisnet.org/cgi/viewcontent.cgi?article=1128&context=bled2003 [Accessed 14 Sept. 2015] Atteslander, P. (2010): Methoden der empirischen Sozialforschung, 13th Edition, Berlin, Erich Schmidt Verlag. A.T. Kearney; Anscombe, J.; de Bres-Riemslag, E.; Erhard, A.; Ortolani, G.; Wintermantel, T. (2013): Pharma in Europe: New Medicine for a New World: Building Value-Based Healthcare Business Models. Available at: https://www.atkearney.com/documents/10192/2719243/Building+Value-Based+He althcare+Business+Models.pdf/6b3065e1-a1e3-4e82-8477-0903bcdc68af [Accessed 15 Aug. 2015] Baker, L.C.; Johnson, S.J.; Macaulay, D.; Birnbaum, H. (2011): Integrated Telehealth And Care Management Program For Medicare Beneficiaries With Chronic Disease Linked To Savings, Health Affairs, 30(9), 1689-1697. Bau, T. (2015): Health apps reimbursement: the beginning of a long road, Mobile Health Global, 9 July. Available at: http://www.mobilehealthglobal.com/in-thenews/news/187/health-apps-reimbursement-the-beginning-of-a-long-road [Accessed 3 Oct. 2015] Bayer Vital (2015a): BETATEXT, 7 July. Available at: https://www.msgateway.de/fuer-anwender/betatext-16.htm [Accessed 15 Aug. 2015]

39

List of References

Bayer Vital (2015b): MS-Gateway Community, 29 August. Available at: https://www.ms-gateway.de/community/ [Accessed 15 Aug. 2015] Bayer Vital (2015c): myBETAapp, 16 October. Available at: https://www.msgateway.de/fuer-anwender/mybetaapp-15.htm [Accessed 15 Aug. 2015] Best Practices LLC (2015): Consumers Forcing Pharmaceutical Industry to Shift its Marketing Focus from Products to Patients, PR Newswire, 31 July. Available at: http://www.prnewswire.com/news-releases/consumers-forcing-pharmaceuticalindustry-to-shift-its-marketing-focus-from-products-to-patients-300122018.html [Accessed 3 Oct. 2015] Bloomberg, J. (2014): Digital Transformation Moves Pharma 'Beyond the Pill', Forbes, 15 August. Available at: http://www.forbes.com/sites/jasonbloomberg/2014/08/15/digital-transformationmoves-pharma-beyond-the-pill/ [Accessed 15 July 2015] Bogner, A.; Menz, W. (2002): Expertenwissen und Forschungspraxis: die modernisierungstheoretische und die methodische Debatte um die Experten. Zur Einführung in ein unübersichtliches Problemfeld in: Bogner, A.; Littig, B.; Menz, W. (issuer): Das Experteninterview: Theorie, Methode, Anwendung, Wiesbaden, 2002, 7-30. Bogner, A.; Menz, W. (2009): The Theory-Generating Expert Interview Epistemological Interest, Forms of Knowledge, Interaction in: Bogner, A.; Littig, B.; Menz, W.: Interviewing Experts, Basingstoke, 2009, 43-81. Brigham, K.L. (2010): Predictive Health: The Imminent Revolution in Health Care, Journal of the American Geriatrics Society, 58, 298-302. Brown, M.T.; Bussell, J.K. (2011): Medication Adherence: WHO Cares?, Mayo Clinic Proceedings, 86(4), 304-314. Capgemini Consulting; HealthPrize; Forissier, T.; Firlik, K. (2012): Estimated Annual Pharmaceutical Revenue Loss Due to Medication Non-Adherence. Available at: https://www.capgemini.com/resources/estimated-annual-pharmaceutical-revenueloss-due-to-medication-nonadherence [Accessed 14 Sept. 2015] Capgemini Consulting; MIT Center for Digital Business (2011): Digital Transformation: A Roadmap for Billion-Dollar Organizations. Available at:

40

List of References

https://www.capgemini.com/resources/digital-transformation-a-roadmap-forbilliondollar-organizations[Accessed 23 July 2015] Carroll, S. (2009): Goodbye blockbuster medicines; hello new pharmaceutical business models, The Pharmaceutical Journal, 282, 681-682. Chaudhry, B.; Wang, J.; Wu, S.; Maglione, M.; Mojica, W.; Roth, E.; Morton, S.C.; Shekelle, P.G. (2006): Systematic Review: Impact of Health Information Technology on Quality, Efficiency, and Costs of Medical Care, Annals of Internal Medicine, 144(10), 742-752. Dayer, L.; Heldenbrand, S.; Anderson, P.; Gubbins, P.O.; Martin, B.C. (2013): Smartphone medication adherence apps: Potential benefits to patients and providers, Journal of American Pharmacists Association, 53(2), 172-182. Dzau, V.J.; Ginsburg, G.S.; Van Nuys, K.; Agus, D.; Goldman, D. (2015): Aligning incentives to fulfill the promise of personalised medicine, The Lancet, May 2015, 1-2. EFPIA, European Federation of Pharmaceutical Industries and Associations (2014): EFPIA HCP/HCO Disclosure Code: EFPIA Code on Disclosure of Transfers of Value from Pharmaceutical Companies to Healthcare Professionals and Healthcare Organisations, 11 July. Available at: http://transparency.efpia.eu/uploads/Modules/Documents/efpia-disclosure-code2014.pdf [Accessed 20 Sept. 2015] Eftimovska, E. (n.d.); The Swedish e-Health Landscape Surrounding the SRQ Registry, Stockholm, Karolinska-Institutet. Available at: http://srq.nu/srqny/wp-content/uploads/2014/10/Appendix-1.1-Swedish-e-healthLandscape-4-30-14-FINAL-1.pdf [Accessed 2 Aug. 2015] Eli Lilly & Company (n.d.): Value-Based Pricing. Available at: http://www.lilly.com/about/key-issues/Pages/value-based-pricing.aspx [Accessed 4 Oct. 2015] Ernst & Young (2010): Progressions Pharma 3.0: Global pharmaceutical industry report 2010. Available at: http://www.ey.com/Publication/vwLUAssets/GPI_report_2010_Progressions_Phar

41

List of References

ma_3/$FILE/GPI_report_2010_Progressions_Pharma_3.pdf [Accessed 18 Aug. 2015] Ernst & Young (2014): Commercial excellence in Pharma 3.0. Available at: http://www.ey.com/Publication/vwLUAssets/EY__Commercial_excellence_in_pharma_3.0/$FILE/EY-commercial-excellence-inpharma-3-0.pdf [Accessed 1 Aug. 2015] European Commission DG Competition (2009): Pharmaceutical Sector Inquiry Final Report. Available at: http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/staff_working_pap er_part1.pdf [Accessed 5 Aug. 2015] EC DG ECFIN, European Commission DG Economic and Financial Affairs; Carone, G.; Schwierz, C.; Xavier, A. (2012): Cost-containment policies in public pharmaceutical spending in the EU, Economic Papers 461, Brussels, European Commission DG Economic and Financial Affairs. Available at: http://ec.europa.eu/economy_finance/publications/economic_paper/2012/pdf/ecp_4 61_en.pdf [Accessed 16 Aug. 2015] Evaluate (2015): EvaluatePharma World Preview 2015, Outlook to 2020, 8th Edition. Available at: http://info.evaluategroup.com/rs/607-YGS-364/images/wp15.pdf [Accessed 4 Aug. 2015] Farlex Inc. (n.d.): Payer Definition, The Free Dictionary, n.d.. Available at: http://medical-dictionary.thefreedictionary.com/payer [Accessed 10 Oct. 2015] FDA, Food and Drug Administration (2013): Paving the Way for Personalized Medicine. Available at: http://www.fda.gov/downloads/ScienceResearch/SpecialTopics/PersonalizedMedici ne/UCM372421.pdf [Accessed 30 Sept. 2015] FDA, Food and Drug Administration (2015): Mobile Medical Applications: Guidance for Industry and Food and Drug Administration Staff, 9 February. Available at: http://www.fda.gov/downloads/MedicalDevices/DeviceRegulationandGuidance/Gu idanceDocuments/UCM263366.pdf [Accessed 4 Oct. 2015] Fischer, D.; Breitenbach, J. (2013): Die Pharmaindustrie Einblick - Durchblick Perspektiven, 4th Edition, Berlin, Springer.

42

List of References

Frost & Sullivan (n.d.): The Evolution of Patient Adherence Programs: Moving from Mass Market Relationships to a Personal Approach. Available at: https://www.frost.com/prod/servlet/cpo/115071626.pdf [Accessed 28 Sept. 2015] Garrison Jr., L.P.; Carlson, J.J.; Bajaj, P.S.; Towse, A.; Neumann, P.J.; Sullivan, S.D.; Westrich, K.; Dubois, R.W. (2015): Private Sector Risk-Sharing Agreements in the United States: Trends, Barriers, and Prospects, American Journal of Managed Care, 21(9), 632-640. Garrison Jr., L.P.; Towse, A.; Briggs, A.; de Pouvourville, G.; Grueger, J.; Mohr, P.E.; Severens, J.L.H.; Siviero, P.; Sleeper, M. (2013): Performance-Based Risk-Sharing Arrangements – Good Practices for Design, Implementation, and Evaluation: Report of the ISPOR Good Practices for Performance-Based Risk-Sharing Arrangements Task Force, Value in Health, 16(5), 703-719. Gilbert, J.; Henske, P.; Singh, A. (2003): Rebuilding Big Parma’s Business Model, In Vivo: The Business & Medicine Report, 21(10), 1-10. GKV-Spitzenverband (2015): AMNOG - evaluation of new pharmaceutical, 11 June. Available at: https://www.gkvspitzenverband.de/english/statutory_health_insurance/amnog___evaluation_of_new _pharmaceutical/amnog___evaluation_of_new_pharmaceutical_1.jsp [Accessed 12 Aug. 2015] Goldschmidt, P.G. (2005): HIT and MIS: Implications of Health Information Technology and Medical Information Systems, Communications of the ACM , 48(10), 69-74. Harms, F.; Gänshirt, D.; Lonsert, M. (2005): Zukunftsperspektiven für pharmazeutisches Marketing, Pharm. Ind., 67(8), 865−870. Hirschler, B. (2014): 'Smart pill' firm Proteus raises $172 million, Reuters, 29 July. Available at: http://www.reuters.com/article/2014/07/29/us-proteus-fundingidUSKBN0FY1II20140729 [Accessed 7 Sept. 2015] Hulshof, J.A.M. (2014): PHP289 Sustainable Health Care Systems: The Role of Therapeutic Value and Value Based Pricing, Value in Health, 17(7), A452.

43

List of References

Human Longevity Inc. (n.d.): Genomic Analysis, Personalized Vaccines and Cell Therapies. Available at: http://www.humanlongevity.com/sciencetechnology/products/ [Accessed 27 July 2015] IFPMA, International Federation of Pharmaceutical Manufacturers (2014): The Pharmaceutical Industry and Global Health: Facts and Figures 2014. Available at: http://www.ifpma.org/fileadmin/content/Publication/2014/IFPMA__Facts_And_Figures_2014.pdf [Accessed 6 Aug. 2015] Iglehart, J.K. (2014): Connected Health: Emerging Disruptive Technologies, Health Affairs, 33(2), 190. IMS Health (2009): Understanding New Commercial Models in the Pharmaceutical Industry: Change is a Requirement, Not an Option. Available at: http://www.imshealth.com/deployedfiles/imshealth/Global/Content/StaticFile/Unde rstanding_New_Commercial_Models.pdf [Accessed 10 Aug. 2015] IMS Health (2012): Advancing the responsible use of medicines: Applying levers for change. Available at: https://www.imshealth.com/ims/Global/Content/Insights/IMS%20Institute%20for %20Healthcare%20Informatics/Responsible%20Use%20of%20Medicines/IHII_Ad vancing_Responsible_Use_of_Meds_Report.pdf [Accessed 14 Sept. 2015] IMS Health (2014): Real-world evidence defined: insights from anonymous patientlevel data using sound commercial and scientific analytics. Available at: https://www.imshealth.com/deployedfiles/imshealth/Global/Content/Healthcare/Dri ving%20Healthcare%20Performance/RealWorld%20Evidence/IMSH_RWE_Defined.pdf [Accessed 14 Sept. 2015] IMS Health; Aitken M.; Gauntlett C. (2013): Patient Apps for Improved Healthcare: From Novelty to Mainstream. Available at: https://www.imshealth.com/deployedfiles/imshealth/Global/Content/Corporate/IMS %20Health%20Institute/Reports/Patient_Apps/IIHI_Patient_Apps_Report.pdf [Accessed 25 July 2015] IMS Health; Aitken, M.; Kleinrock, M.; Lyle, J.; Nass, D.; Caskey, L. (2014): Global Outlook for Medicines Through 2018. Available at: http://www.imshealth.com/portal/site/imshealth/menuitem.762a961826aad98f53c7

44

List of References

53c71ad8c22a/?vgnextoid=266e05267aea9410VgnVCM10000076192ca2RCRD [Accessed 8 Aug. 2015] IMS Health; Resnik, J.; Keja, J. (2012): Preparing for a lifecycle of real-world evidence, Accesspoint, 2(4), 1-6. Available at: https://www.imshealth.com/deployedfiles/imshealth/Global/Content/Information/In formation%20Types/Diagnosis/AccessPoint2_May2012.pdf [Accessed 14 Sept. 2015] ITA, International Trade Administration (2010): Pharmaceutical Industry Profile. Available at: http://ita.doc.gov/td/health/PharmaceuticalIndustryProfile2010.pdf [Accessed 10 Sept. 2015] Jahns, R.-G. (2014): Why Pharma companies have no substantial impact on the mHealth app economy, research2guidance, 24 October. Available at: http://research2guidance.com/why-pharma-companies-have-no-substantial-impacton-the-mhealth-app-economy/ [Accessed 24 Oct. 2015] Jain, S.H. (2015): How Pharma Can Offer More than Pills, Harvard Business Review, 23 July. Available at: https://hbr.org/2015/07/how-pharma-can-offer-more-thanpills [Accessed 30 July 2015] Jørgensen, J.T. (2012): Companion Diagnostics and the Drug–Diagnostic Codevelopment Model, Drug Development Research, 73, 390–397. Juniper Research; Moar, J. (2014): Smart Health & Fitness Wearables: Device Strategies, Trends & Forecasts 2014-2019, Basingstoke, Juniper Research. The Lancet (2011): Lessons from Lipitor and the broken blockbuster drug model (Editorial), 378 (9808), 1976. Littig, B. (2009): Interviewing the Elite – Interviewing Experts: Is There a Difference? in: Bogner, A.; Littig, B.; Menz, W.: Interviewing Experts, Basingstoke, 2009, 98116. Liu, X.; Lewis, J.J.; Zhang, H.; Lu, W.; Zhang, S.; Zheng, G.; Bai, L.; Li, J.; Li, X.; Chen, H.; Liu, M.; Chen, R.; Chi, J.; Lu, J.; Huan, S.; Cheng, S.; Wang, L.; Jiang, S.; Chin, D.P.; Fielding, K.L. (2015): Effectiveness of Electronic Reminders to Improve Medication Adherence in Tuberculosis Patients: A Cluster-Randomised Trial, PLOS Medicine, 12(9), 1-18.

45

List of References

Maciosek, M.V.; Coffield, A.B.; Flottemesch, T.J.; Edwards, N.M.; Solberg, L.I. (2010): Greater Use Of Preventive Services In U.S. Health Care Could Save Lives At Little Or No Cost, Health Affairs, 29(9), 1656-1660. McKinsey & Company; Cattell, J.; Chilukuri, S.; Knott, D. (2012): Beyond the pill: Creating medical value through technology enablement. Available at: http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/pharma%20an d%20medical%20products/pmp%20new/pdfs/beyond_the_pill_creating_medical_v alue_through_technology_enablement.ashx [Accessed 14 Sept. 2015] McKinsey & Company; Cattell, J.; Chilukuri, S.; Levy, M. (2013a): How big data can revolutionize pharmaceutical R&D. Available at: http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/public%20sect or/regulatory%20excellence/how_big_data_can_revolutionize_pharmaceutical_rese arch.ashx [Accessed 1 Aug. 2015] McKinsey & Company; Cattell, J.; Groves, P.; Hughes, B.; Savas, S. (2011): How can pharmacos take advantage of the real-world data opportunity in healthcare?. Available at: https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/Pharma%20a nd%20Medical%20Products/PMP%20NEW/PDFs/Pharma%20%20RWD%20oppo rtunity%20October%202011.ashx [Accessed 28 Sept. 2015] McKinsey & Company; Chilukuri, S.; Rosenberg, R.; van Kuiken, S. (2014): A digital prescription for pharma companies. Available at: http://www.mckinsey.com/insights/health_systems_and_services/a_digital_prescrip tion_for_pharma_companies [Accessed 1 Aug. 2015] McKinsey & Company; Kulkarni, S.; Ma, P. (2013b): Personalized Medicine: The Path Forward. Available at: http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/pharma%20an d%20medical%20products/pmp%20new/pdfs/mckinsey%20on%20personalized%2 0medicine%20march%202013.ashx [Accessed 10 Sept. 2015] Magrini, N.; Font, M. (2007): Direct to consumer advertising of drugs in Europe, British Medical Journal, 335(7619), 526. Malik, N.N.; Khan, Y. (2010): Personalized medicine: potential impact on the biopharmaceutical industry, Drug Discovery Today, 15(21/22), 881-883.

46

List of References

Mayer, H.O. (2004): Interview und schriftliche Befragung, 2nd Edition, München, Oldenbourg Wissenschaftsverlag. Meuser, M.; Nagel, U. (2002): ExpertInneninterviews – vielfach erprobt, wenig bedacht in: Bogner, A.; Littig, B.; Menz, W. (issuer): Das Experteninterview: Theorie, Methode, Anwendung, Wiesbaden, 2002, 71-94. Meuser, M.; Nagel, U. (2009): The Expert Interview and Changes in Knowledge Production in: Bogner, A.; Littig, B.; Menz, W.: Interviewing Experts, Basingstoke, 2009, 17-42. Munos, B. (2009): Lessons from 60 years of pharmaceutical innovation, Nature Reviews Drug Discovery, 8, 959-968. NEHI, Network for Excellence in Health Innovation (2012): Paying for Value: Exploring Innovative Pricing Arrangements for Biopharmaceuticals. Available at: http://www.nehi.net/writable/publication_files/file/innovative_pricing_issue_brief_ and_roundtable_final.pdf [Accessed 10 Sept. 2015] Neumann, P.J.; Chambers, J.D.; Simon, F.; Meckley, L.M. (2011): Risk-Sharing Arrangements That Link Payment For Drugs To Health Outcomes Are Proving Hard To Implement, Health Affairs, 30(12), 2329-2337. North, C. (2013): Delivering 'beyond the pill', PMLive, 19 September. Available at: http://www.pmlive.com/pharma_news/delivering_beyond_the_pill_503823 [Accessed 1 Oct. 2015] OECD (2015): Fiscal Sustainability of Health Systems: Bridging Health and Finance Perspectives, Paris, OECD Publishing. Available at: http://www.oecd.org/publications/fiscal-sustainability-of-health-systems9789264233386-en.htm [Accessed 5 Aug. 2015] Osterwalder, A.; Pigneur, Y. (2009): Business Model Generation, Self-Publishing. Available at: http://www.businessmodelgeneration.com/downloads/businessmodelgeneration_pre view.pdf [Accessed 23 Sept. 2015] Patient Protection and Affordable Care Act 2010, US Government Publishing Office. Available at: http://www.gpo.gov/fdsys/pkg/PLAW-111publ148/pdf/PLAW111publ148.pdf [Accessed 30 Sept. 2015]

47

List of References

Paul, S.M.; Mytelka, D.S.; Dunwiddie, C.T.; Persinger, C.C.; Munos, B.H.; Lindborg, S.R.; Schacht, A.L. (2010): How to improve R&D productivity: the pharmaceutical industry's grand challenge, Nature Reviews Drug Discovery, 9, 203-214. Persson, U.; Jönsson, B. (2015): The End of the International Reference Pricing System?, Applied Health Economics and Health Policy, Switzerland, Adis Publishing, Springer International Publishing. Porter, M.E.; Teisberg, E. (2004): Redefining Competition in Health Care, Harvard Business Review, June. Available at: https://hbr.org/2004/06/redefiningcompetition-in-health-care [Accessed 20 July 2015] PWC, PricewaterhouseCoopers (2009): Pharma 2020: Challenging business models: Which path will you take?. Available at: http://www.pwc.com/gx/en/pharma-lifesciences/pdf/challenge.pdf [Accessed 18 July 2015] RAND; Bigelow, J.H.; Fonkych, K.; Fung, C.; Wang, J. (2005): Analysis of Healthcare Interventions That Change Patient Trajectories, Monograph Series. Available at: http://www.rand.org/content/dam/rand/pubs/monographs/2005/RAND_MG408.pdf [Accessed 1 Oct. 2015] RAND; Mattke, S.; Klautzer, L.; Mengist, T. (2012): Medicines as a Service: A New Commercial Model for Big Pharma in the Postblockbuster World, Occasional Paper. Available at: http://www.rand.org/content/dam/rand/pubs/occasional_papers/2012/RAND_OP38 1.pdf [Accessed 29 July 2015] Rasmussen, K.A.; Foss, N.J. (2014): Business Model Innovation in the Pharmaceutical Industry: The Supporting Role of Organizational Design. Available at: http://ssrn.com/abstract=2400982 [Accessed 30 July 2015] Research and Markets (2014): Companion Diagnostics Market by Technology, Application , & by End-user - Global Trends & Forecasts to 2019, September. Available at: http://www.researchandmarkets.com/research/rcg9gj/companion [Accessed 11 Sept. 2015] Robertson, A. (2013): 46% of Pharma Execs Believe ‘Beyond the Pill’ Will Show a Financial Return in Three Years, eyeforpharma, 25 September. Available at:

48

List of References

http://social.eyeforpharma.com/content/46-pharma-execs-believe-beyond-pill-willshow-financial-return-three-years [Accessed 2 Oct. 2015] Ruof J.; Schwartz, F.W.; Schulenburg, J.-M.; Dintsios, C.-M. (2014): Early benefit assessment (EBA) in Germany: analysing decisions 18 months after introducing the new AMNOG legislation, The European Journal of Health Economics, 15(6), 577589, Berlin, Heidelberg, Springer. Sackett, D.L.; Rosenberg, W.M.C.; Muir Gray, J.A.; Haynes, R.B., Richardson, W.S. (1996): Evidence based medicine: what it is and what it isn't, British Medical journal, 312(7023), 71-72. Scannell, J.; Blanckley, A.; Boldon, H.; Warrington, B. (2012): Diagnosing the decline in pharmaceutical R&D efficiency, Nature Reviews Drug Discovery, 11, 191-200. Scherer, F.M. (2000): The Pharmaceutical Industry in: Culyer, A.J.; Newhouse, J.P.: Handbook of Health Economics Volume 1, 2000, 1297-1336, Elsevier B.V.. Available at: http://down.cenet.org.cn/upfile/40/200572205231166.pdf [Accessed 17 Aug. 2015] 2020 Selection (n.d.): Value Based Pricing - How the NHS will purchase drugs. Available at: http://www.2020selection.co.uk/images/pdfs/value-based-pricing.pdf [Accessed 12 Oct. 2015] Shah, N.H.; Tenenbaum, J.D. (2012): The coming age of data-driven medicine: translational bioinformatics’ next frontier, Journal of the American Medical Informatics Association, 19(1), e2-e4. Sokol, M.C.; McGuigan, K.A; Verbrugge, R.R.; Epstein, R.S. (2005): Impact of Medication Adherence on Hospitalization Risk and Healthcare Cost, Medical Care, 43(6), 521-530. Strategy& (2013): Digital Health: A way for pharma companies to be more relevant in healthcare, PricewaterhouseCoopers (originally published by Booz & Company 2013). Available at: http://www.strategyand.pwc.com/media/file/Strategyand_Digital-Health.pdf [Accessed 17 July 2015]

49

List of References

Strategy&; Rönicke, V.; Ruhl, M.; Solbach, T. (2015): Revitalizing pharmaceutical R&D: The value of real world evidence, PricewaterhouseCoopers. Available at: http://www.strategyand.pwc.com/global/home/what-we-think/reports-whitepapers/article-display/revitalizing-pharmaceutical-rd [Accessed 18 July 2015] Sullivan, S.D.; Watkins, J.; Sweet, B.; Ramsey, S.D. (2009): Health Technology Assessment in Health-Care Decisions in the United States, Value in Health, 12, Supplement 2, S39-S44. Swan, M. (2009): Emerging Patient-Driven Health Care Models: An Examination of Health Social Networks, Consumer Personalized Medicine and Quantified SelfTracking, International Journal of Environmental Research and Public Health, 6(2), 492-525. Thomson Reuters; Jago, C. (2015): 2015 Drugs to Watch, Thomson Reuters Market Insight Report. Available at: http://images.info.science.thomsonreuters.biz/Web/ThomsonReutersScience/%7B7 e677448-1313-40ae-99786be1a8532a08%7D_A4_MarketInsight_Report_0213_012__edits_2.pdf [Accessed 10 Aug. 2015] VFA, Verband Forschender Arzneimittelhersteller (2015): In Deutschland zugelassene Arzneimittel für die personalisierte Medizin, 26 May. Available at: http://www.vfa.de/de/personalisiert [Accessed 3 Sept. 2015] Weiner, J.P. (2012): Doctor-patient communication in the e-health era, Israel Journal of Health Policy Research, 1(33), 1-7. Wenzel, M.; Henne, N.; Zöllner, Y. (2014): Beyond the pill: The move towards valueadded services in the pharmaceutical industry, Journal of Medical Marketing, 14(2– 3), 91–98. WHO, World Health Organization (n.d.): Pharmaceutical Industry, n.d.. Available at: http://www.who.int/trade/glossary/story073/en/ [Accessed 3 Aug. 2015] WHO, World Health Organization; Alwan, A. (2011): Global status report on noncommunicable diseases 2010, Geneva, WHO. Available at: http://www.who.int/nmh/publications/ncd_report_full_en.pdf [Accessed 25 Sept. 2015]

50

List of References

WHO, World Health Organization; Sabaté, E. (2003): Adherence to Long-Term Therapies: Evidence for Action, Geneva, WHO. Available at: http://apps.who.int/iris/bitstream/10665/42682/1/9241545992.pdf [Accessed 28 July 2015]

51

List of Interviews

List of Interviews Dr. Amann, Andreas; Partner & Sector Head Pharma and Healthcare at Detecon International GmbH, face-to-face, Cologne, 27 Aug. 2015. Diegel, Uwe; Chief Executive Officer at iHealth Lab Inc., face-to-face, Paris, 2 Sept. 2015. Dr. Gantner, Tobias, MBA, LL. M.; Chief Executive Officer at HealthCare Futurists GmbH, phone, 16 Sept. 2015. Dr. Groh, Lutz; formerly various positions in areas such as Change Management and New Business Development at Bayer AG & currently contributor to and creator of various digital health projects, face-to-face, Cologne, 27 Aug. 2015. Hosseini, Hamidreza; Senior Executive Advisor Digital Strategy at T-Systems International GmbH, phone, 4 Sept. 2015. Prof. Dr. Huhle, Günter, MSc; Vice President New Business Development EMEA at Janssen, Pharmaceutical Companies of Johnson & Johnson, phone, 31 Aug. 2015. Latz, Volker; Head of Department of Health at Pronova BKK, face-to-face, Leverkusen, 20 Aug. 2015. Expert (anonymized); Senior Market Manager at a leading healthcare-ICT company in Europe, phone, 3 Sept. 2015. Expert (anonymized); face-to-face, 20 Aug 2015.

52

Appendix

Appendix Appendix I: Interviewed Experts Table 1 (Appendix): Interviewed experts

Name

Industry

Institution / Position

Dr. Andreas Amann

ICT-management consultancy

Uwe Diegel

Lifestyle & medical device

Detecon International GmbH / Partner & Sector Head Pharma and Healthcare iHealth Lab Inc. / Chief Executive Officer

Dr. Tobias Gantner, MBA, LL. M.

ICT & pharmaceutical

HealthCare Futurists GmbH / Chief Executive Officer

Dr. Lutz Groh

Formerly pharmaceutical

Contributor of and collaborator to various digital health projects

Dur. (min.)

Topic Guide

60

#2

55

#4

30

#2

70

#2 sent in advance

60

#2

60

#2 sent in advance

60

#3

Hamidreza Hosseini

ICT

Prof. Dr. Günter Huhle, MSc

Pharmaceutical

Volker Latz

Statutory health insurance

T-Systems International GmbH / Senior Executive Advisor - Digital Strategy Janssen, Pharmaceutical Companies of Johnson & Johnson / Vice President New Business Development EMEA Pronova BKK / Head of Department of Health

Expert (anonymized)

ICT & formerly pharmaceutical

Leading healthcare-ICT company in Europe / Senior Market Manager

45

#1 sent in advance

Expert (anonymized)

Pharmaceutical

(anonymized)

45

#1

Source: Author's own illustration

53

Appendix

Appendix II: Interview Topic Guides Table 2 (Appendix): Topic guide #1: main – English  Self-presentation of interviewer (study at TUM, internship and bachelor’s thesis at Detecon) Introduction  Description of subject of bachelor’s thesis  Explanation of interview structure and request for approval for recording 1.

Digitization and digital transformation change many industries. Could you please give a brief overview of the most important developments in terms of digitization in the healthcare sector?

2.

Now let us focus on the pharmaceutical industry. In my research I found that pharma’s current business model isn’t sustainable in the long-term: being only product-oriented, focusing on blockbusters. Do you agree?

3.

In light of the digital transformation in the pharmaceutical industry, what business model options does pharma have? a. Is focusing only on products an option? b. Is moving ‘beyond the pill’ and offering value added services in addition to products a necessary step for pharma? c. Is becoming a healthcare company and including prevention and preserving health an option? d. Will guaranteeing positive health outcomes be the new value proposition? i. What must pharma do in order to survive and lead in an outcome-based pricing system?

4.

I would like to focus on services ‘beyond the pill’. What services are the most relevant for pharma?

5.

What are the benefits to be drawn from these services? a. How important is increasing loyalty and trust? b. How important are increased sales? c. How important are new revenue streams? d. How important is improving outcomes?

6.

Who will pharma collaborate with, regarding these services? a. To what extent will pharma collaborate with payers? b. To what extent will pharma collaborate with non-traditional healthcare companies? i. For example ICT companies? ii. Are non-traditional companies a threat to pharma? Do they need pharma or can they succeed on their own?

7.

What are the key hurdles pharma is experiencing in adopting these new business models? What should be done differently?

Digital Transformation & Changes in the Value Chain

8.

Taking a step back from services ‘beyond the pill’, what opportunities does digital transformation offer in the different areas of the value chain/internal processes? a. What opportunities do you see in the area of marketing? b. What opportunities do you see in R&D?

Ending

9.

Is there anything else you’d like to add that hasn’t been covered?

Overview of Current Developments and Business Model

New Business Models

Services ‘Beyond the Pill’


54

Appendix Table 3 (Appendix): Topic guide #2: main – German 

Introduction


  1.

Die Digitalisierung und die digitale Transformation verändern viele Industrien. Könnten Sie bitte einen kurzen Überblick über die wichtigsten Entwicklungen im Gesundheitssektor im Bezug auf die Digitalisierung geben?

2.

Lassen Sie uns jetzt die Pharmaindustrie näher beleuchten. In meinen Recherchen fand ich heraus, dass das derzeitige lediglich Produktorientierte Blockbuster Geschäftsmodell der Pharmaindustrie langfristig nicht nachhaltig ist. Stimmen Sie dem zu?

3.

Welche Geschäftsmodell-Optionen hat die Pharmaindustrie angesichts der digitalen Transformation? a. Ist es eine Option, nur Produkte anzubieten? b. Ist es ein notwendiger Schritt für Pharma Services „beyond the pill” zusätzlich zu Produkten anzubieten? c. Ist es eine Option eine, „Gesundheitsfirma“ zu werden und sich auf Prävention und Gesundheitserhaltung zu konzentrieren? d. Wird die neue value proposition sein, positive outcomes/Resultate zu garantieren? i. Was muss Pharma tun, um in einem outcome-basierten Pricing-System erfolgreich zu sein?

4.

Ich würde jetzt gerne die Fragen auf Services „beyond the pill” konzentrieren. Welche Services sind am relevantesten für Pharma?

5.

Was sind die Vorteile dieser Services, die Pharma sich erhofft? a. Wie wichtig ist es Loyalität und Vertrauen zu erhöhen? b. Wie wichtig ist die Erhöhung von Verkaufszahlen? c. Wie wichtig sind neue revenue streams? d. Wie wichtig ist es, outcomes/Resultate zu verbessern?

6.

Mit wem wird Pharma im Bezug auf diese Services kollaborieren? a. Inwieweit wird Pharma mit Kostenträgern kollaborieren? b. Inwieweit wird Pharma mit Unternehmen kollaborieren, die traditionellerweise nicht im Gesundheitsmarkt tätig sind? i. Zum Beispiel ICT Firmen? ii. Stellen nicht-traditionelle Unternehmen eine Gefahr für Pharma dar? Brauchen sie Pharma, um erfolgreich zu sein?

7.

Was sind die zentralen Herausforderungen, die die Pharmaindustrie im Wandel zu neuen Geschäftsmodellen wahrnimmt? Was müsste anders gemacht werden?

8.

Welche Chancen bietet die digitale Transformation in verschiedenen Bereichen der Wertschöpfungskette/internen Prozessen? a. Welche Chancen sehen Sie im Marketing? b. Welche Chancen sehen Sie im R&D?

9.

Gibt es etwas, was Sie noch hinzufügen möchten?

New Business Models


Digital Transformation & Changes in the Value Chain Ending

Self-presentation of interviewer (study at TUM, internship and bachelor’s thesis at Detecon) Description of subject of bachelor’s thesis Explanation of interview structure and request for approval for recording


55

Appendix Table 4 (Appendix): Topic guide #3: healthcare insurance – German 

Introduction


  1.

Die Digitalisierung und die digitale Transformation verändern viele Industrien. Könnten Sie bitte einen kurzen Überblick über die wichtigsten Entwicklungen im Gesundheitssektor im Bezug auf die Digitalisierung geben?

2.

Lassen Sie uns jetzt die Krankenkassen genauer beleuchten. Werden die Krankenkassen aufgrund dieser Entwicklungen ihr Geschäftsmodell ändern? Wird sich das jetzige Geschäftsmodell der Krankenkasse als „passiver Zahler“ ändern?

3.

Ich würde gerne mehr über die Krankenkasse als Gesundheitsunternehmen / aktiveren player sprechen. Eine Möglichkeit aktiver zu werden ist es Services rund um die Gesundheit anzubieten. Welche Services halten Sie besonders relevant für Krankenkassen? Was ist der Nutzen? a. Fokus auf Prävention zur Kostenreduktion: E-Prävention b. Reimbursement für gesundheitsbewusstes Verhalten

4.

Wo sehen Sie die Pharmaindustrie in der Zukunft: Lediglich als Zulieferer von pharmazeutischen Produkten oder als Anbieter von Services zusätzlich zu Produkten?

5.

Ich würde jetzt gerne die Fragen auf Services „beyond the pill” konzentrieren. Welche Services sind am relevantesten für Pharma und was sind die Vorteile?

6.

Mit wem wird Pharma im Bezug auf diese Services kollaborieren? a. Sehen Sie Pharma und Krankenkasse als Kollaborationspartner? b. Inwieweit wird Pharma mit Unternehmen kollaborieren, die traditionellerweise nicht im Gesundheitsmarkt tätig sind? i. Zum Beispiel ICT Firmen? ii. Stellen nicht-traditionelle Unternehmen eine Gefahr für Pharma dar? Brauchen sie Pharma, um erfolgreich zu sein?

7.

Was sind die zentralen Herausforderungen, die die Pharmaindustrie im Wandel zu neuen Geschäftsmodellen wahrnimmt? Welche Schwierigkeiten gibt es in der Zusammenarbeit zwischen Pharma und Krankenkasse?

8.

Was muss die Pharmaindustrie tun, um diese Kollaboration möglich zu machen?

9.

Was muss die Pharmaindustrie tun, damit ein Ziehen am gemeinsamen Strang im Sinne eines outcome-based pricing Realität wird?

New Business Models



10. Sehen sich die Krankenkassen als Treiber eines outcome-based pricing? Wie wollen Sie den Umschwung schaffen?

Ending

11. Gibt es etwas, was Sie noch hinzufügen möchten?

Source: Author’s own illustration

56

Appendix Table 5 (Appendix): Topic guide #4: lifestyle & medical device company – English 

Introduction

 


1.

Digitization and digital transformation change many industries. Could you please give a brief overview of the most important developments in terms of digitization in the healthcare sector?

2.

What role will lifestyle & medical device companies like iHealth play?

3.

Now let us focus on the pharmaceutical industry. In my research I found that pharma’s current business model isn’t sustainable in the long-term: being only product-oriented, focusing on blockbusters. Do you agree?

4.

In light of the digital transformation in the pharmaceutical industry, what business model options does pharma have? a. Is focusing only on products an option? b. Is moving ‘beyond the pill’ and offering value added services in addition to products a necessary step for pharma? c. Is becoming a healthcare company and including prevention and preserving health an option? d. Will guaranteeing positive health outcomes be the new value proposition? i. What must pharma do in order to survive and lead in an outcome-based pricing system?

5.

I would like to focus on services ‘beyond the pill’. What services are the most relevant for pharma?

6.

What are the benefits to be drawn from these services? a. How important is increasing loyalty and trust? b. How important are increased sales? c. How important are new revenue streams? d. How important is improving outcomes?

7.

Who will pharma collaborate with, regarding these services? a. To what extent will pharma collaborate with payers? b. To what extent will pharma collaborate with non-traditional healthcare companies? i. Technology companies like iHealth? ii. For example ICT companies? iii. Are non-traditional companies a threat to pharma? Do they need pharma or can they succeed on their own?

8.

What are the key hurdles pharma is experiencing in adopting these new business models? What should be done differently?

Digital Transformation & Changes in the Value Chain

9.

Taking a step back from services ‘beyond the pill’, what opportunities does digital transformation offer in the different areas of the value chain/internal processes? a. What opportunities do you see in the area of Marketing? b. What opportunities do you see in R&D?

Ending

10. Is there anything else you’d like to add that hasn’t been covered?


New Business Models


Source: Author’s own illustration

57

Appendix

Appendix III: Coding of Interviews Table 6 (Appendix): Coding – general headlines

1 Blockbuster Business Model

1.1 Sustainability of Blockbuster Model 1.2 Potential of Blockbuster Model

2 New Business Models

2.1.1 Current Status of Pharma 2.1 Services ‘Beyond the Pill’ 2.1.2 Benefits for Pharma 2.2.1 Drivers of Outcome Paradigm 2.2 Outcome 2.2.2 Challenges of Outcome Paradigm Paradigm 2.2.3 Pharma’s Role in Outcome Paradigm 2.3 Preserving Health/Prevention 2.4 Managing Hospitals 2.5 Further Options

3 Internal processes

3.1 Production 3.2 Marketing 3.3 R&D

4 Collaborations

4.1 New Entrants 4.2 Others

5 Progress (with regard to Digital Transformation) 6 Patients as Customers 7 Hurdles 8 Trust and Loyalty 9 Developments in Healthcare (with regard to Digitization) 10 Payers 11 Miscellaneous Source: Author’s own illustration

58