Value Creation through Business Innovation in the Pharmaceutical and Medical Technology Sector Fred Nijland Annemarie van Hoogstraten Nanning de Jong 1
Summary The Dutch market for the pharmaceutical and medical technology sector is in great flux. Throughout modern history the pharmaceutical and medical technology sector has been innovating in the area of product development. Yet, from a business innovation perspective, even more opportunities for value creation are now available. Fueled by health care trends such as the use of social media, new openings exist for innovative solutions. This brochure provides insight into the opportunities for value creation, as well as how they may be mobilized locally in the Dutch market. This brochure is written primarily for general, commercial, marketing and corporate affairs managers in the pharmaceutical and medical technology sector. It may also serve to inspire innovative health care industry entrepreneurs to create new value in the health care supply chain. 2
Need The need for innovation as a priority in the pharmaceutical and medical technology sector remains consistently high. The Bridge business innovators researched the market most recently in 2010: in nearly 81% of the companies, the subject of innovation was given high or highest priority. The pharmaceutical and medical technology sector is in a complete state of flux: hospital-at-home care, the effects of the preference policy, the diminishing influence of medical sales representatives, and the rise of new revenue models in health care are all examples of the changes currently taking place in the market. The sector realizes that the changes are creating opportunities for growth. As a result, the sector is embracing the changes, which are leading to business innovations within the industries. By business innovation we mean the creation and profitable use of the new. It is a skill and an art to transform change into growth for the business. In this publication we will describe several significant trends and developments. These trends create opportunities. The opportunities are filtered through a business innovation lens. This business innovation lens includes twelve ways to innovate and create new value. Fred Nijland Annemarie van Hoogstraten Nanning de Jong The Bridge business innovators 3
Landscape The sector in the Netherlands is made up of over 120 pharmaceutical companies (some 30 of which are members of the trade association Nefarma), tens of wholesale businesses (four of which are major players), over 1,900 pharmacies (the great majority of which are joined into five retail franchises and chains), and about a hundred companies that supply medical technology, including a dozen major players. Mainly through a wholesaler, pharmaceutical companies supply their products and services to pharmacies (which dispense them) and to general practitioners (who prescribe them) and to health care insurers (who pay for them). The latter three parties together organize the care for the end user: patients. This complex triangular relationship is illustrated in the figure below. Medical technology companies supply health care institutions and specialists, and in this way contributing to organizing patient care. Focus Pharmaceutical company Insurer Medical technology companies Health care institutions (management and DMU) Medical specialist Wholesaler Pharmacy End user/patient Doctor Figure 1. Players in the health care industry, with the focus on the pharmaceutical and medical technology sector In this publication we will focus solely on the businesses shown in blue in Figure 1: pharmaceutical companies, wholesalers, pharmacies and medical technology companies. 4
The summary below lists a random sampling of some of these businesses. Pharmaceutical Wholesalers Pharmacy chains / franchises Medical technologies GlaxoSmithKline Abbott Astellas Pharma AstraZeneca Bayer Boehringer Ingelheim Janssen Cilag Lilly Nederland MSD Pfizer Roche Nederland Sanofi-Aventis and various others Mediq Brocacef Alliance Healthcare Mosadex and various others Mediq Kring Escura and various others Philips Healthcare Siemens Healthcare GE Healthcare Toshiba Medical Systems Johnson & Johnson and various others The pharmaceutical players (pharmaceutical companies, wholesalers and pharmacies) are the largest suppliers to the health care sector: in 2008 they realized sales of approximately 2.8 billion. The second largest supplier is the building sector. And in seventh place are the suppliers of medical technology. Table 1. Company names in the pharmaceutical and medical technology sector 5
Trends and developments Local opportunities are often created from market trends and developments. Several significant market shifts are listed below. Health care services are becoming more long-term The key to the huge advances made in cures over the past twenty years, such as those in the field of cardiovascular disease, has been innovation not only in medication but in the treatment approach and in patient lifestyle changes. Long-term care requires a close interplay between medications, therapeutic treatment, and the patient s behavior and environment. Medications give way to care solutions, with the chemical component being just one part. Geriatric diseases require a combination of solutions Aging is social gain, but it is also a challenge for the future. For example, the demand in health care is shifting towards more chronic diseases and maladies of aging, which often come in combinations. This requires integrated combinations of therapies, diet, lifestyle and medications. That, in turn, makes health care products complex propositions. To an increasing extent, the power that can be realized by the supply sector depends on these propositions, rather than on the products. Health care solutions and cost reduction are the driving forces behind new forms of cooperation In a variety of ways, care is being brought closer to the consumer. New partnerships and new care groups are being created, partly due to the enforcement of cost reduction. For the time being the emphasis is on cost reduction, but the trend is towards value creation for the patient, health care provider and payer. Innovation involving cooperation is becoming increasingly important. Pressure on margins and costs leads to new revenue models The introduction of the preference policy and hospital-to-home care, among other things, has led to a major decrease in margins. The search for new revenue models and revenue streams has begun. Value creation takes shape at the level of the medical condition It is not the hospital that is relevant to the patient, but the quality of the entire treatment approach, involving multidisciplinary chains of cooperation. There are already intermediaries working on transparency to guide patients 6
to the best chain. There are health care alliances and innovative cooperative relationships centered around a single medical condition. The winners have a unique business model, which will be tough to copy. Pharmaceutical and equipment innovation become life sciences innovations In (foreign) R&D centers, spectacular progress is being made in the fields of nutrition, health and sustainability. In addition, fields such as diagnostics, medicines and medical devices (such as stents in blood vessels) overlap each other to an increasing extent. This leads to complex life sciences solutions that need to be brought to the market in the Netherlands and be implemented by the Dutch players in health care. Such product introductions are consequently much more complicated than they used to be. Price becomes cost-for-the-insurer The price of medication is being replaced by the concept of cost-for-theinsurer. The costs of the entire treatment over the full treatment period (which can even be a lifetime, for chronic patients) are crucial. Together with other players in the health care industry, the pharmaceutical and medical technology sector will arrive at new costs and business models to make this possible. The consumer/patient is changing, taking more initiative To an ever increasing extent, patients are becoming active in their use of social media and the internet after receiving a doctor s diagnosis. They gather information, form opinions and express themselves. It is becoming essential for health care providers, pharmaceutical companies and medical technology providers to respond to this trend. This raises many problems in terms of regulation, but also offers many possibilities. The influence of medical sales representatives and account managers on those who make health care decisions is decreasing Medical sales representatives have an average of less than 15 minutes to spend with doctors. Providing accurate information on medications has never been so difficult. Contact with the people in institutions who formulate policy on revenue models and health care strategies is limited. And things are no better with regard to the dialog needed for co-creation (between those making the decisions in an institution and the supplying industries). 7
Business innovation lens: opportunities for growth in the sector The industry trends can lead to countless business innovations. New value will be created, allowing sales revenue to grow. Businesses can also grow in their customer performance (towards the patients, the doctors, hospitals and health care insurers). Plenty of opportunities! The business innovation lens (Figure 2) is used for translating trends into business innovation opportunities. Companies can innovate along several axes, such as the revenue models axis. These innovations may be incremental (the inner ring) or radical (the outermost ring). The ring between them indicates that it entails a substantial innovation. Later in this publication we use this model to channel the opportunities described into a stepby-step plan, which the companies in the sector can apply to turn the innovations into growth. Health care knowledge Health care products 3. Health care services Health care alliances and partnerships 2. Health care marketing concepts What Health care channels Where Who 0. Health care customers How Care supply chain 1. Health care experiences 6. Health care organization 5. Commercial processes 4. Health care revenue model Figure 2. Business innovation opportunities for the sector 8
By looking along the different axes, we see various opportunities emerging. The sector creates new sales opportunities by starting with patients and doctors experience of care (1): how do they feel about the care? Both at the level of deeds and on an emotional level? A deep dive into the life and work of patients, doctors and hospitals reveals prospects for innovation, which in turn lead to health care marketing concepts (2) and services (3). Together these form the foundation for finding new revenue models (4), new commercial processes (5) and improved organization of care and partnerships (6). This connecting thread ensures new collaborations (with health care insurers and various other parties) and channels. Many companies in this sector are still working according to the old marketing model, characterized by product-oriented thinking based on the four P s (product, place, price, promotion) as the marketing mix. The old four P s have now been replaced by the four C s, in which everything revolves around customer value: 1. The product becomes the customer solution - Where can you add value in the customer process? 2. The price becomes cost-for-the-insurer - It is not the price of the medication that is important, but the effect it has on the cure. 3. The place becomes convenience ease and closeness to the patient (as in hospital-at-home care) 4. The promotion becomes communication interaction with customers, doctors and the decision making units of health care institutions and insurers. Many companies in the sector are lacking a consistent strategy and plan for serving this new market reality effectively. The emphasis is still on medications, and it needs to shift to value creation through treatment channels. Gearing the value creation to health insurers is cumbersome. There are plenty of ideas in the sector, but few successful implementations. 9
Specific approaches for the Dutch market The business innovation opportunities above will inspire the companies in the sector to take steps. We see the following steps clearly before us: STEP 1. Get a sense of how patients and doctors experience health care, through patient & doctor journeys that answer the question of how care is experienced. A deep dive into the life and work of the patient, doctor and hospital reveals prospects for innovation, which in turn lead to health care marketing concepts and services. STEP 2. Health care concept development Based on patients and doctors experiences of health care, we can formulate concepts and an appropriate business model in which the basis for an approach to care that creates new value is made up of not only medications, but of services, processes, ICT care protocols, etc. The lead time of pharmaceutical innovation projects is often long. Accelerating time-to-market is necessary. 10
STEP 3. The innovation growth strategy Many pharmaceutical companies struggle with falling margins, and sometimes also with falling sales revenue. In the Netherlands, the new developments must be anchored locally in a coherent growth and organizational strategy covering the four C s (customer value through Customer solutions, Cost-for-theinsurer, Convenience and Communication). Figure 3. Business Model Generation, by Osterwalder & Pigneur STEP 4. The development of revenue models A revenue model describes the way a business earns money and incurs expenses, and how it thus creates value for its owners and stakeholders. Boundaries must be set up to facilitate investments and streamline decisions on licensing and partnerships. With a revenue model approach, concepts are developed into commercially attainable initiatives. 11
STEP 5. Commercial innovation services will ensure that businesses can pass on the value of new services to the doctors, care groups and insurers, as well. Without this step, the creation of the new would not become profitable use of the new. Medical sales representatives will be retrained as health care innovators who must actualize the new value in the health care spectrum (in the form of higher sales/margin). STEP 6. The execution and realization with project management in the health care organizations ensure that the new developments are aligned with people s roles and jobs and with the processes. Market introduction methods and commercial processes must be changed significantly to meet the new reality, to be geared more towards the personnel, the processes and the technology. Effective change management is a necessity. 12
STEP 7. ICT-based innovations and supply chain realization: The new approach and organization lead to an integrated use of new technologies such as social media and mobile apps for the ipad. These become innovative applications for doctors and patients, supporting the treatment methods. In logistics, consider technological developments such as central filling. STEP 8. Innovating through collaboration: In the future health care innovations will take place solely in the multidisciplinary health care supply chain, requiring collaboration. Collaboration is a skill and an attitude, which has not been developed evenly throughout the health care sector and still presents plenty of opportunities! 13
Who are we? The Bridge business innovators help industries like the pharmaceutical and medical technology sector to innovate and achieve new sales revenue. As advisor and manager, The Bridge creates bridges between existing and new business, between technology and marketing, and achieves results. We are a subsidiary of Twynstra Gudde and a partner in Highland Worldwide. We have worked for many organizations internationally, including those listed on the following page. Highland Worldwide is a strategic alliance between consultancy firms in Europe, USA, China, Japan, Singapore, Australia, Brazil and United Arab Emirates (51 offices in total). The expertise of over 2,200 consultants and managers gives us a solid basis to assist you with local support. 14
In the pharmaceutical and medical technology sector, we focus on the following areas: 1. Creating road maps of patients and doctors health care experience: The Bridge provides patient & doctor journeys. 2. Developing concepts and accelerating project innovation: The Bridge provides health care concept development and project management. 3. Anchoring new developments in growth and organizational strategies for pharmaceutical companies: The Bridge provides consulting services for innovation and revenue growth strategies. 4. Developing scenarios and new revenue models: The Bridge offers workshops on revenue models in the medical sector. 5. Producing commercial success: The Bridge gives your management commercial impact, and achieves product launch goals. 6. Aligning new developments with the roles, jobs and processes: The Bridge provides innovation delivery and change management. 7. Using new technologies (such as social media and ipad technology): The Bridge provides Healthcare E-business support. 8. Innovating through working together in the health care supply chain: The Bridge provides venture team programs. 15
The Bridge business innovators Address: Phone: E-mail: Website: Stationsplein 1 P. O. Box 907 3800 AX Amersfoort The Netherlands +31 33 4677470 frednijland@thebridge.nl www.thebridge.nl/en 16 2780