Creative Alliances with Nontraditional Players Increasingly Essential for Survival in Pharmaceutical Industry, Says Ernst & Youn

Creative Alliances with Nontraditional Players Increasingly Essential for Survival in Pharmaceutical Industry, Says Ernst & Young

Mumbai, India, April 01, 2010 --( Information technology (IT) companies, large retailers, and telecommunication firms are strategically poised to capitalize on rapid changes taking place in health care, and pharmaceutical companies are increasingly looking for innovative ways to collaborate with these new players to reach and improve outcomes for patients. These findings and other insights were released today in Progressions, Pharma 3.0 Ernst & Young's annual global pharmaceutical report.

The Progressions report identifies several industry trends driving nontraditional companies into the sector, including health reform, health IT, comparative effectiveness, and the rising confidence in consumer power. These factors amongst others are prompting pharmaceutical companies to broaden their focus from producing new medicines to delivering healthy outcomes - a shift that will be driven through creative partnerships and business model innovation.

According to Hitesh Sharma, Partner & National Leader, Life Sciences Practice, Ernst & Young, "Companies realize that the road ahead will become more complex with the entry of new players, which are being lured to the sector in increasing numbers. The global pharmaceutical companies are increasingly exploring alliances with nontraditional partners as a way to pursue opportunities in emerging markets. Emerging markets, such as India, will play a crucial role in promoting these opportunities and adoption of Pharma 3.0. Also the focus on emerging markets like India will increase opportunities in these markets - these include opportunities arising out of meeting the local healthcare needs, developing new supply chain distribution models to tap the rural markets and an opportunity to migrate some of the new models to the rest of world to help meet their needs. Also it is possible that the generic story may become stronger with Governments focus on cost of healthcare especially in the developed world."

The Progressions report shows that even as pharmaceutical companies continue to implement strategies to prosper in the earlier version Pharma 2.0, these efforts may be overtaken by a Pharma 3.0 ecosystem comprised of established industry members, nontraditional companies and an informed data-empowered consumer. Historically, there has been a rapid transition from the industry's long-standing vertically integrated blockbuster-driven model, defined in the study as Pharma 1.0, to today's Pharma 2.0 business model where companies focused on adopting a number of changes to improve productivity and financial performance, from pursuing more targeted therapies, broadening their portfolio of products and capabilities, to establishing more independent and flexible R&D units, to boosting partnerships with biotech firms, and universities and outsourcing many non-core functions.

The entrance of many non-traditional players in Pharma 3.0 will heighten the need for further business model innovation by traditional pharmaceutical companies, making development of innovative new commercial models a critical counterpart to the development of innovative new medicines. Managing and optimizing an increasingly complex network of partners will pose new tests for industry leaders, whose success will come increasingly from adapting their company's unique assets and attributes to fit someone another company's business model. Early industry attempts to adapt to the Pharma 3.0 environment highlight some of the challenges ahead, according to the report. For example:

- As pharmaceutical companies expand into emerging markets, they are increasingly considering alliances with non-traditional partners - from micro-lenders who could bridge the affordability gap to food companies with existing distribution and infrastructure networks to help manage supply chains. The unprecedented nature of these new partnerships pose new challenges in determining how deals are structured and how each partner's contribution is valued.

- As patients play an increasingly active role in managing their health care enabled by personal health records, smart phone applications, and other technologies, pharmaceutical companies remain largely on the sidelines of this revolution, hampered by a regulatory framework governing patient interactions which has been slow to evolve.

- As leading hospitals and payers mine electronic health records for correlations between prescribing patterns and patient outcomes, pharmaceutical companies have lost the exclusive control they once had over outcomes data, posing reimbursement risks and forcing strategic decisions to be made about whether to build new proficiencies in data analysis.


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Ernst & Young India Pvt. Ltd.
Amber Sironzkar
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