Forces for Change

Forces for Change

High drug prices, a failing public image, generics-friendly legislation, and a dearth of innovation are forcing M&As, outsourcing, and radical thinking for Pharma.  PBMs are being called to the table for their drug pricing margins. And, get out your glow sticks, because SXSW is the new frontier for Pharma and Tech match-making.

That innovative industry that played a huge role in lengthening our life spans has become the one everyone loves to hate.  According to a recent Gallup poll, pharma and healthcare are at the bottom of the barrel when it comes to public opinion.  Rounding out the bottom three is the Federal Government, which has joined in on the Pharma finger pointing.  Our health care systems are losing money and insurance is becoming unaffordable.  Both are in part due to the high cost of pharmaceuticals.

In some ways, we are the victims of our own life spans.  More of us are living longer. The percentage of people over age 65 is 8.5% and projected to grow to 17% by 2050. With age come chronic and expensive health problems. That dynamic, in concert with the pharmaceutical industry’s struggles and a broken drug pricing system have created the perfect storm. Effective strategies for decreasing health care and pharmaceutical costs while the population ages will require more than cost shifting.  It will require careful examination of the causes of escalating prices, targeted solutions, and innovation that requires pharma to think differently.

Too Many Expenses, Too Little Innovation

A recent analysis of 13 historically big pharma companies found that R & D expenses that are not off-set by sales of new products; an over reliance on off-patent drugs, price increases and marketing strategy; and a lack of focus on innovation from leadership on down. In short, there is too much focus on the status quo, too little risk-taking without the promise of a quick pay-off, and too few bold thinkers (trouble-makers).

‘Thus, the conundrum of big pharma is as follows: most companies are not innovative enough to live solely from their innovation. Eight (out of 13) depend upon off-patent drugs for one-third to two-third of their revenues. That in turn has slanted their leadership toward processed-focused leaders, who are deft at offsetting their innovation deficit with legacy sales, but not so good at boosting innovation to sustainable levels. It’s a vicious circle that has been tough to break.’ Bernard Munos, Forbes.com

American Consumers and Politicians are Angry

Some in the U.S. Congress are counting on the free-market as the best solution to spur innovation and bring drug prices down. They paint pharma as an industry in fear of being out-innovated and desperate to maintain control over drug markets. Recent testimony to the House Oversight Committee on Health Care, Benefits, and Administrative Rules pointed to pharma abuses of the regulatory process and other acts to maintain monopolistic prices. Ted Cruz (R-Texas) recently introduced a bill to permit drug importation as a means of forcing pharma to price competitively.  Mike Lee (R – Utah) will soon introduce the CREATES Act, which will make it easier for generic drug manufacturers to get the formulae for off-patent drugs.

Historically Huge Price Increases in the U.S are NOT from All Pharmaceutical Companies

Several companies have voluntarily signed a pledge to limit price hikes including: AbbVie, Merck, Novo Nordisk, Takeda, Johnson and Johnson, and Allergan. Chicago-based pharmaceutical company AbbVie joined the price hike pledge at the J.P. Morgan Healthcare conference. Apparently, there was quite a bit of pricing talk at the conference with some mocking the 10% limit as still above the rate of inflation.  Others are just not fans at all. Notably, Mylan CEO Heather Bresch said that a 10% increase is not the answer.

Also at JP Morgan, then head of Novo Nordisk’s North American operations, Jakob Riis called out the drug supply chain that routes drug purchases through pharmacy benefit managers, other payers, wholesalers, and pharmacies for their roles in higher drug prices.

Pharmacy Benefit Managers Role in Price Hikes

While drug makers are the most often blamed for escalating drug costs in America, the middle men, the Pharmacy Benefit Managers (PBM) are increasingly in the cross hairs of investigators for their role in excessively high drug prices. An analysis of drug expenditures in 2015 commissioned by PhRMA found that non-manufacturing stakeholders, which includes PBMs took in 31% of the total, approximately $142.8 billion dollars. PBMs negotiate discounts with manufacturers, contract with pharmacies, and process prescription drug claims.   Over time, many believe that PBMs have morphed from a focus on cost containment to operations that harm American pharmacies, payers and consumers. Competition has decreased over the years and there are currently just 3 PBMs that control approximately 80 – 85% of the American market.

Express Scripts, recently purchased by CVS Health, has had several law suits filed by pharmacies alleging they were deprived of access to markets.  Recently there have been multiple allegations that Express Scripts, CVS Health, Optum RX and Prime Therapeutics have colluded to drive certain pharmacies out of business. More telling than the flurry of lawsuits are indications that drug prices are better for companies that don’t use the big PBMs. Ten years ago, Caterpiller moved away from Pharmacy Benefit Managers and has seen a decrease in drug costs while the rest of us have seen spiraling costs. Last year, Anthem sued Express Scripts when the payer realized that they were not getting competitive pricing. Leary of the big 3 PBMs, some companies are switching to smaller, more transparent companies that charge a flat fee.

While the big PBMs deny the allegations against them, when DIY and boutique PBMs outperform big companies, something is off. One thing seems clear; the American drug pricing system is broken and high prices cannot just be blamed on big pharma greed. A bi-partisan bill introduced by Congressman Doug Collins (R-GA) this month requires greater transparency from PBMs.

Pharma Evolving

Returns on R & D for the biggest companies have fallen to the lowest level in 6 years and are expected to fall further. To offset the cost of R & D and increase successful innovation many companies have opted for mergers, acquisitions and partnerships. Pharmaceutical M & A have focused on intellectual property, sales force efficiency, streamlining R & D, and reorganizing. Companies are expected to continue to downsize R & D and purchase rights to potential blockbuster drugs. Outsourcing partnerships, particularly for clinical trials which account for the largest chunk of R & D costs, are expected to grow to somewhere between 55% – 70% over the next ten years. Additional trends include increased and better use of analytics, data-centered tools to improve protocol design.

Some companies have begun to address what they have identified as internal obstacles to innovation including incentives to prolong dubious drug development programs. They are further shaking things up by recruiting scientists who rebel against bureaucracy, and placing nonscientists into drug development roles to come up with fresh ideas.

The Most Innovative Companies

According to a recent analysis of 2015 sales from newly approved drugs by Forbes Magazine Johnson & Johnson and Bristol-Myers Squibb are leading innovators. The overall picture though, is of an industry that is still struggling. Another analysis by IDEA Pharma noted that 7 of the 13 historically big pharma companies who received 14 FDA approvals in 2015, received none in 2016. Innovation, they note may be increasingly driven by smaller, more agile companies such as those that received 14 of the 22 FDA approvals in 2016.

Going Boldly Where No Pharma Has Gone Before.

Pharma’s next mission is to seek out new cost efficiencies and innovation so it’s not surprising that pharma companies are partnering with tech companies as another area for growth. Many companies partner with startups as well as large tech companies.

The Pharma ranks were a noticeable presence at this month.  Whether digiceuticals or beyond the pill tech to enhance the effectiveness of their products, partnership and investment opportunities at SXSW make the conference a good fit for pharma.

Collaboration was also evident in the speakers.  For example, representatives from the Dell Medical School at UT Austin, IBM Corp, and Johnson and Johnson were on a panel with the topic: Collaborative Innovation in the Digital Age.

Pharma stepping outside the box at conferences like SXSW will fuel innovation not just for their industry but for those they collaborate with.  People need to learn about each other and their businesses.  The silos need to come down but it will take work because this is real life.

A post by Janelle Starr at PharmExec.com illustrates this issue nicely. She was listening to an investor describe how he’d met with 100 start-ups and funded none of them because they had assumptions about the market forces that were false. So, it was a surprise to her when she realized that the investor himself demonstrated a knowledge of healthcare that was no better than those he was criticizing.

Going boldly can be embarrassing when you already think you know it all.


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Hoosier Healthcare Innovation Challenge and the Hoosier Code 4 Health

Lodestone Logic is excited to sponsor and support several exciting events focused on driving innovation in healthcare.

First, this year’s Hoosier Healthcare Innovation Challenge is being held on July 12th from 8 AM to 5 PM in Hine Hall on the campus of IUPUI.  This event is intended to bring together healthcare and technology professionals and organizations from around the state to identify and develop solutions to solve for some of today’s most challenging healthcare issues.

During the daylong event, time will be dedicated to allow participants to discuss the challenges with the organizations that are hosted them.  Lodestone Logic is proud to sponsor and coordinate this year’s Match Up Lounge so that participants will be able to connect with each other to form teams to tackle the challenges.  The day will wrap up with several education and discussion sessions about topics like the potential impact of wearable devices and sensors to transforming healthcare.

Second, the first ever Hoosier Code 4 Health will be held on Saturday and Sunday, July 13th and 14th at Lilly’s COI Center in Indianapolis, Indiana.  This is a codeathon. So, the focus will be ‘mashing’ up data streams from different APIs and unlocking the potential of the data that has never been achieved previously. Codeathons typically are events that occur over the course of one or more days and bring together developers, designers, innovators and entrepreneurs. It is exciting to consider that this Hoosier Code 4 Health could potentially generate insights that could improve our understanding of co-morbid diseases OR surface tangible opportunities to create more efficient processes OR find out about human behavior factors that could be influenced to improve patient adherence and patient outcomes… the opportunities are endless!

The Launch Reception to kick off these events will be held on June 27th from 5 to 7 PM at The Speak Easy  and DeveloperTown. The challenges will be announced at this event.  Attendees with have an opportunity to learn more about the event, the Challenges as well as have the opportunity to network, form teams, and begin to discuss possible solutions.  Attendees will be able to enjoy Sun King beer while doing a quick dusty-boots tour of the future INFUSE Digital Health Accelerator. It’s going to be a great evening!

Participants may register for all of these events at http://www.hoosierchallenge.org/.

Attendees and those interested in watching the action from afar can use the Twitter hashtags #HHIC and #HC4H.

The Innovation Conundrum

Corporate America is searching for the single answer that will solve all of its woes with regards to innovation. Yet, there is an obvious internal blind spot when it comes to innovation.

Innovation and innovative assets already exist within these companies, but they are underutilized or untapped for their potential.  The asset is their own employees that are true intrapreneurs.

So, what is an intrapreneur? These are unique employees that have some of the following characteristics. They:

  1. Believe in the mission and cause of the company
  2. Make sense of complex things to develop strategic, yet very concrete ideas that will transform the way that the company is doing its business.
  3. Develop and nurture a robust network – both within the company and outside the company spanning to the direct competitors and other industries and sectors.
  4. Get things done.

There’s no doubt about it, based on these traits, intrapreneurs are management’s dream of the ideal employee. Yet, intrapreneurs are rarely leveraged to help transform the company.

Instead, intrapreneurs are usually recognized as the ‘problem children’ by management (and HR).

Why?

Typically intrapreneurs are the employees are difficult to manage because they have a bigger perspective about the business, which generates ideas, and suggestions about how to do things differently. They push their direct line management to initiate new projects and work that may be in direct conflict with the status quo. They are considered ‘cage rattlers’ and ‘boat rockers’ because sometimes they lack patience and tack. They like to be involved in ‘new’ things; if their direct line management denies their ideas and requests, they will still pursue them through other internal channels. Even though they are being recognized as delivering on the projects for other teams and functions, there are times when intrapreneurs struggle to do their ‘boring’ job responsibilities.

So, instead of intrapreneurs being recognized for their abilities, they are usually ‘coached’ to be like everyone else and do their written job description. If they continue to show their intrapreneur characteristics, the result is demotions, firings, or the decision to leave for another company where their intrapreneurial traits are encouraged and recognized in a positive manner (in many cases, it is to a direct competitor) .

It’s a serious conundrum. Intrapreneurs are the employees that are out on a ledge and are not accepting of the status quo. They are willing to take risks and initiate projects that they believe will create a more promising future for the company. But, because most organizations struggle with innovation and change, the intrapreneurs create internal friction. So, companies and organizations that want to be innovative NEED these employees to do what they do. The challenge is to identify these intrapreneurs, channel their energy, drive for tangible results, and recognize them for the contributions that they make.

As many people know, I wholeheartedly believe that intrapreneurs are the key to true transformation of the healthcare and pharmaceutical industries. As such, I am an advocated for intrapreneurs and have invested time researching and learning about this particular employee population.

If you want to learn more about the intrapreneur research, findings, and detailed profiles, then check out the e-book, The Business Intrapreneur: Unsung Heroes of Corporate America (http://www.ebookit.com/books/0000001789/The-Business-Intrapreneur-Profiles-of-Unsung-Heroes-of-Corporate-America.html?LLblogpost ), add a comment to this blog post, or send me an email: keilenberg@lodestonelogic.com.

Disruptive Sparks of Innovation

Today, the en vogue and sexy term in pharma, healthcare, and technology is “disrupt”. Being “disruptive” will definitely help us move from the status quo of inefficient processes, expensive systems, under utilization of analytics to improve the quality of care and ultimately deliver patient outcomes.

But, the reality is that being disruptive means that there is something (eg a project or initiative) pushing against a pre-existing system and causing friction. And, friction causes heat. Heat causes fires. Fires, when uncontrolled, burn down houses and institutions. Just think of the video coverage of wild fires and it is easy to comprehend why most organizations enable and reward their employees to say ‘no’ to disruption, rather than ‘yes’.

To avoid wild fires organizations do a very good job creating sub-zero conditions that inhibit any kind of molecular reactions that may trigger a spark.  If you have ever tried to get support from your leadership or an organization to do something that is not the status quo, then you’ve probably felt the chill of a sub-zero environment: paperwork, committees, paperwork, 1:1 meetings, return on investment  (ROI) thresholds, review boards, etc… all are organizational tactics built to protect the organization and inhibit the creation of a spark.

Do not lose hope. Ideas are a dime a dozen, but when you know that you have one that will really make a difference, do something about it. And, this is what you need to do to create a warm pocket within your organization that will not only allow for a controlled spark of innovation, but also support a small flame to show people the possibilities of your ‘big idea’.

1. Earn the right to create the spark

Perform above expectations. No one is going to support someone who is unable to successful execute on their existing job and responsibilities. You have to figure out how to deliver 150% in your current role. Organizations and leaders are more likely to support zany and out-of-the-box ideas when it comes from an employee that has a solid performance track record.

2. Find an executive sponsor

You need someone to create a protective shield, also known as “cover”, for you and your idea. The sponsor needs to have sufficient power and credibility within your organization to be granted the freedom to support and advocate for ‘special projects.’ Just realize that, by supporting you, this person is extending their professional brand to you. If you succeed, they succeed. If you fail, then their reputation may be tarnished or negatively effected. Respect what this relationship means to you both.

3. Build an extended team of resources that include domain experts that advocate for the idea

Check the ego at the door. Know your limitations and seek out and befriend the people that will be able to help you tackle the toughest bits and pieces of the project. Your idea will only be executed if you get support from peers that are the domain experts. In most cases, you will not be able to secure them as full time resources, but you need to be able to call on them and tap their expertise. Make sure that you have access to true experts in public policy, privacy, legal (eg intellectual property), and regulatory. If you project goes wonky on any one of these items, your small flame could quickly turn into a wild fire and your ‘big idea’ turns into a career limiting opportunity.

4. Be honest and transparent

Communicate. Communicate. Communicate. There will be days where you will not want to type another email or speak to another person. When you are working on projects and initiatives that ‘no one has ever done before’, you need to make sure that you are staying connected with the real world – your sponsor and your extended network of resources. Plus, it is in your idea’s best interest for you to invest in building the bridges to the organization and continue to generate support and advocacy. Adhere to your company’s communications policies, but get the word out internally and externally … the more that you share, the more likely your project will attract others that are interested in helping you make it succeed.

5. Take care of yourself

You’ve worked for months on the ‘big idea’ and you’ve hit umpteen walls and hurdles. The pressure is almost unbearable. You are burnt out and want to call it quits… but you are so close…. So, TAKE A BREAK. You need to get away from the mayhem. Go off the grid. Shut down the electronics. Or, at least don’t check work email. Do something that you love to do. Even if it is just for a half day, you need time to clear the brain. This mini-mental vacation will help you recharge your batteries, focus, and get back on task.

Navigating organization dynamics is always a challenge, especially when you want to change the status quo. However, following these five steps will not only help you to initiate a spark and small flame, in time you will generate a larger and more sustainable fire that is welcomed and encouraged by the organization.

You can do it!