Healthcare is currently out of balance and so therefore is the pharmaceutical industry, as its fortunes are driven by healthcare systems, virtually all of which are now restructuring, says a new report.

There is a danger that the current pharmaceutical model may become irrelevant in the context of twenty-first-century global health needs, warns the report, from experts at management consultants AT Kearney, who believe that the industry has now reached not one but three interconnected tipping points, concerning what it sells, to whom and how it must be organised.

The first tipping point relates to the move from therapies to service models. The pharmaceutical sales model has always assumed that prescribing doctors are the primary decision-makers, and that prescribing decisions are based solely on their perception of patient need, say the report’s authors, Jonathan Anscombe and Michael Thomas. But now, increasingly, the doctor is being constrained or influenced by formularies, guidelines, IT systems and financial mechanisms, driven by payers and regulators or by provider organisations responding to payer costs and political pressures.

Payers’ priorities vary considerably, but their growing influence is changing the traditional assumption that volume is not elastic to price. Bodies such as the National Institute for Health and Clinical Excellence (NICE) define where a drug is used in the care pathway based on clinical cost-effectiveness, and often relegate expensive drugs to second-, third- or even fourth-line treatments even if they have high efficacy as a first-line treatment. Also, more and more, drugs’ usage moves from treatment to prevention as they decline in cost.

For payers, the availability of marginally more effective but much more expensive treatments is far from compelling, especially given that with many drugs, patients simply fail to take them as directed. What would, however, be compelling for payers is a service model that enables therapies to be administered with high compliance and can be proven to result in fewer admissions, the authors suggest. It would be even more compelling if this could be demonstrated in the payer’s specific care system and target population - positioning a therapy in this context dramatically increases its value, they say.

The second tipping point concerns the US market which, although still dominating the industry, is failing and will continue to do so - whatever the outcome of President Barack Obama’s health reform plans – as mechanisms to limit access to medicines based on cost-effectiveness inevitably spread.

At the same time, healthcare demand is shifting rapidly towards the developing world. The incidence of developed-world diseases is increasing dramatically in emerging markets, and most of them are moving towards some form of comprehensively funded healthcare system, as soon as they can afford it. However, they will not be prepared to pay western-style prices.

The industry must view emerging markets in a new light, not just as an opportunity for lowering R&D costs or demonstrating market commitment but as a source of low-price, breakthrough innovation, the authors advise. If the global pharmaceutical industry does not respond to these challenges, then local companies surely will, they warn.

The third tipping point relates to the fact that the traditional model of a globally integrated pharmaceutical industry is becoming too large, unwieldy and unfocused. Successful drugmakers of the future will shift from being R&D- to market-driven, and their challenge will be to decide on which therapy areas they should focus.

The shift towards mass-market solutions also introduces a dramatically different dynamic to the supply chain, where costs become a key profit driver, and there will be further emergence and consolidation of highly-efficient outsource manufacturers, the authors predict. Managing contractual relationships with these providers will become a core competence for pharma, and a major driver of profitability, they add.

Shifts in distribution strategies will also accelerate, and the current move from wholesale distribution towards direct-to-pharmacy will shift again to direct-to-patient, they forecast.

The authors conclude that several different types of pharmaceutical companies, all with different competencies, will operate in the space currently occupied by integrated firms. For example, value-delivery companies will focus on specific therapies in certain countries and gear value propositions in response to local market needs, while health innovatorss will develop and leverage technologies in as many applications as possible to gain a return on investment at a reasonable cost, and supply-chain firms will focus on optimising operating efficiencies. The truly connected pharmaceutical company will have to decide which of these functions it wishes to deliver, and which firms it needs to partner with to deliver other services, they say.