The Industry's Score on Five Key Performance Measures

FIVE YEARS AGO, IN MY FIRST COLUMN AS EDITOR, I offered up a prediction: that the future of the biopharmaceutical business depended on how managers fared on five key measures of performance. At the start of a new year that also ranks "high on the five," it's appropriate to assess industry's progress. Here, in no assigned order, is our update on the five criteria and whether the industry deserves a check or a minus in moving forward on each.

William Looney

√ Replenishing the drug pipeline. Innovation is back in the form of novel treatments that build on the underlying scientific advance from small molecule chemistry to complex protein biologics. Some 42 new drugs, vaccines, and diagnostics were approved by the FDA in 2014, up sharply from 27 in 2013; it's also a significant improvement against the per-year average of 22.9 new drugs that passed FDA muster during the first decade of the millennium. Of the 42, 15 were classified as drugs for rare diseases-a record high-while 16 earned FDA status as "first in class" for their strong clinical profile and therapeutic impact. More important, as an indicator of future industry pipeline productivity, CDER applications for new drug approvals are surging, with 123 filed in 2014. That's almost four times higher than the 36 filed with CDER in 2013. Yes, great science is on the rise, lifted by the prevailing thermal of partnership-collaborative, cross-functional and institutionally diverse.

√ Building value throughout the product life cycle. Generic IP challenges and branded competition within therapeutic classes make achieving this metric harder than ever. But internal process changes to de-risk clinical development, combined with incentives like coupon offsets to reposition products for post-patent growth, are bolstering launch performance while earning a reprieve against that once inevitable 80% loss of market share within six months of patent expiry. Pharm Exec Editorial Advisory Board members Stan Bernard and Mason Tenaglia have documented how cost-effectiveness research, war game simulations, longitudinal patient data, and advanced IT analytics are transforming commercial operations, with standard performance metrics moving from volume to margin, quantity to quality, and from national to local. Another boost is regulatory incentives that lengthen periods of market exclusivity in the most promising therapy areas, led by biologics. Prioritization of the value agenda is reflected in Pharm Exec's latest Industry Audit of 27 big players in biopharma, where we see a higher average return on invested capital (ROIC). This is a critical differentiator of success now that the payer focus on value is constraining drugmakers' ability to price at will.

√ Securing market access. Recalibration of the tired formulaics of P&R into the outward-facing, inclusive, and integrated story map of market access is underway. Yet the function itself remains a work in progress, especially in securing organization-wide visibility and the eye of top management. This month's cover profile on Sanofi's effort to build a new commercial culture focused on the primacy of the patient as client and customer raises an additional read-between-the-lines question: will providers and payers adjust their expectations to the company narrative on what it thinks patients really want?

√ Achieving global operational efficiencies. Industry consolidation, an expanded footprint in international markets, regulatory compliance pressures, and product integrity and safety issues are all nudging progress here. Another is the complexity of manufacturing a new generation of drugs requiring scalable and cost-effective replication of living biologic organisms. As noted in this month's feature from Ernst & Young (EY) on supply chain analytics, Sales and Operations Planning (S&OP) has finally emerged as a strategic priority for big Pharma. The plus factor is the ability to achieve real competitive differentiation; conversely, failure to exploit supply chain synergies can be a huge drain on internal productivity. EY estimates that, among the 10 biggest pharma companies, as much as $43 billion is unnecessarily tied up in working capital each year rather than being released to more productive uses.

– Improving industry's societal reputation. Despite efforts aimed at the right places-establishing transparency as an ingrained business practice; recasting drug promotion as a measure of good science; addressing patient expectations; and expanding stakeholder networks-public skepticism about the industry hasn't changed much in five years. And some powerful new forces are emerging, led by an aggressive PBM community willing to take a page from activists in building coalitions to force concessions on high drug prices. Reputation enhancement has been tagged by PhRMA as a priority for 2015. Still, complacency remains central to the industry DNA: is it feasible long-term to simply rely on a GOP majority in Congress to forestall pricing Armageddon?

William Looney Editor-in-Chiefwlooney@advanstar.com Follow Bill on Twitter: @BillPharmExec