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Will Pharma's Global Customers Redefine Maslow’s Hierarchy of Needs? January 27, 2014
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What do Maslow's hierarchy of needs and pharma have in common? On the surface, it might seem they have nothing in common. However, there are many points of connection in today's global economic landscape, where the world has not only flattened but also shrunk.
To some extent, the global customer base and its values have reconfigured Maslow's hierarchy. People are doing things that were unimaginable even 25 years ago. Suppliers are meeting their needs through innovation and lower costs, and they have profited. Following are some examples from outside pharma that should be harbingers of what to expect.
Until very recently, mobile phones were considered too luxurious for people in China, India, and other developing countries. Who knew that, in a few short years, China and India alone would have more cellphone users than the entire developed world? China and India have about 31% of the mobile phones used worldwide and more than six times the number used in the United States. Mobile phones have become a household staple; there's almost one phone for every person on the planet. These numbers suggest that the population is crossing the old boundaries of Maslow's need-based hierarchy.
Similar things are happening in other areas, including clothing, conveyance, food storage, and medical devices. Sonographs, though needed worldwide, once were expensive and could be used only in hospitals. The need for more ultrasound access was recognized, and portable sonographs were commercialized in the late 1990s. Though they were used for many applications, OB/GYN use was predominant and remains a key use now that strict controls have prevented its shocking misuse in promoting female feticide. Pulse oximeters, once considered only for elite hospitals, have become a necessary device and have improved healthcare.
Many in the developed countries take refrigerators for granted. With changing global economics, a significant percentage of the global population needs a food preservation device (cooler/refrigerator) but still cannot afford one. To address to issue of disrupted electrical supply in India, Godrej is exercising disruptive innovation. The company is marketing a cooler that works with 12-volt DC current or an external battery and is priced at one-tenth the price of a plug-in refrigerator. These coolers are also helpful in preserving medicines and injectables to serve a larger population.
Apple, once considered a failure, changed the world by creating devices and services the world thought it did not need. Amazon, digital imaging, and Google are disruptions. The world is changing, and companies are adapting to create products that were never considered a need. Companies that have hesitated are disappearing. We can see that multinational corporations (MNCs), in effort to increase their customer base, are creating conveniences for people in developing countries. They are achieving this through product innovation to meet local demands of product functionality and price. Even the local customer base has assisted in the development of needed products. MNCs have retained their profitability.
All these examples reinforce the idea that what used to be considered the need normal has changed. People are looking for reasonably priced products that facilitate their lives. This also applies to life extension therapies, drugs, and devices. Companies in developing countries are using innovation and creative practices (such as cataract surgeries) to fulfill health needs.
In the last 50 years, big pharma has done an excellent job of discovering much-needed drugs and therapies. However, its emphasis has been on patients who can afford them through their healthcare programs or who can pay for them from their own funds. This has limited the customer base to (my best estimate) less than 50% of the global population. The reason and rationale for the limited customer base is more likely to be high drug prices, rather than lack of qualified physicians in developing countries.
Pharma would like to have access to the growing market on its price and availability terms, but the world does not want to let that happen. If pharma would like to expand its customer base, it will have to make drugs affordable and available. It will have to come out of its cocoon (if it is there) and acknowledge the growing need for quality drugs at reasonable prices. High prices and small customer bases remind me of the myopic thinking many MNCs had for the developing countries in the mid-20th century. These countries were called underdeveloped, because much of the population could not afford many items the developed world took for granted.
Generic pharma producers have capitalized on the opportunities available in the developed world and expanded their customer base. They have caused a perturbation in the big pharma model. As the world economies improve, opportunities exist for ethical (brand) and generic producers to fulfill an ever-increasing need for medicine.
It seems that, by its actions, big pharma has not considered these expanding opportunities. Instead of having less than 50% of the world population, pharma could have 70% or more of the population as its customers. For that to happen, pharma has to review and improve its methods and costs related to other components of its business -- manufacturing technologies and methods, supply chain, regulatory compliance, product quality, etc. If properly developed and executed, economies of scale will significantly boost big pharma's revenue and profits. It has steadfastly neglected these opportunities; the focus has been on discovering new drugs, selling them during a short patent life, and moving on.
The citizens of the world would like pharma companies to discover new therapies that are affordable. Many humanitarians want to equalize the world's healthcare and make it affordable through their foundations and deeds. At times, even they are challenged. It is up to pharma to rationalize its business model to capitalize on a unique opportunity. Except for mobile phones28, no global business has this level of opportunity.
Innovation in drug discovery, therapies, manufacturing technologies, and business processes are needed to move placement of drugs from the upper half of Maslow's need triangle to the lower half.
Do you think people power will force a change?
Recent buzz advancing the "You are with us or against us" concept could change the playing field very quickly with some very drastic steps (including government edicts). I hope they are not used, because they will be anti-capitalism. I don't think anyone wants to see that happen. What do you think needs to be done?
Reading the Tea Leaves: Predictions for Pharma's Future January 15, 2014
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The human race has one significant weakness. We all want to know what the future holds for us, and we want to know now -- hence the popularity of fortune-telling and such "fields" as astrology. In our desire to predict tomorrow, however, we often forget simple cause and effect. What we do today helps determine what happens tomorrow. For instance, every new developed and approved drug, in efficacy and in price, directly impacts company and industry profits.
Despite ongoing product-quality issues, drug companies have been profitable. However, this picture is about to change. Some say that it has already begun to change. Clearly, what we do today will shape pharma's future.
Here are my predictions for the industry over the next five to fifteen years. How do they compare with yours? As you'll note, I see the status quo prevailing in some cases, forcing change to come from unexpected places, such as regulatory agencies or outside forces. But what do you think?
- Pharma companies will have to figure out how to reach the world's masses, rather than small patient populations, if they are to succeed in the long term.
- On average, the industry's success rate of development and commercialization, for both small molecule and biotech drugs, will not change much from its current level. “Eroom’s Law” still limits pharma's destiny.
- High drug pricing soon will be frowned upon and discouraged by PBMs (pharmacy benefit managers) and hospitals.
- Instead of becoming “process-centric,” pharma will stay “regulation-centric.” Process-centricity, if adopted, would allow companies to exceed regulatory requirements, which could also avoid many issues that have created public relations and financial headaches. Current regulatory guidelines and requirements discourage change. Since changing an existing process requires approval, it is still perceived to be a long and expensive step, and something to be avoided.
- Industry will hedge in adopting many of the internal changes (manufacturing methods, technology, and supply-chain improvements) that could improve profitability and move from the current quality by analysis/aggravation to a quality by design approach. Again, this is due to regulatory constraints. Short patent lives for the ethical (brand) drugs will impede innovation in manufacturing technologies. At the same time, most generics manufacturers have been in business too short a time for their managers to grasp the value of better technologies and methods.
- Since current or higher level of profits can be achieved with the current inefficient practices, industry leadership does not see any value in improving its product development, business, and technology practices. External forces will drive change.
- With not much forthcoming from the industry to improve its manufacturing and business practices, regulatory bodies will enact regulations that will force the industry to adopt better practices. This tug of war will continue, unless the industry takes the lead.
- Continuous formulation processes could be a reality in the next five years for new drugs.
- Continuous API manufacturing is possible, but it will require a different economic and manufacturing model.
A shift is taking place in the global pharmaceutical businesses, whether we like it or not, and is being brought on by generics manufacturers based in developing countries. Pharmaceutical companies will have to take radical measures to retain or increase their revenue streams and profits.
A shift to a new model from the current model in new drug discovery, development, manufacturing technologies, supply chain, conservation, and sustainability requires an “unreasonable man” as described by George Bernard Shaw. ("The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.")
Significant innovation is feasible in manufacturing and its support functions. For it to happen, though, the pharmaceutical industry will have to move its focus from “regulation-centricity” to “process-centricity.” The industry still appears unwilling to take the steps required for change.
The world and its inhabitants would clearly benefit from better and higher availability of lower cost drugs, while companies would be able to improve their profits from the current levels. I view this as a win-win situation. What do you think? Can Emerging Pharma's Leadership Move On to the Next Stage?
December 18, 2013
36 comments
This past summer, when news of regulatory noncompliance troubles in the region reached a high point, I asked Indian pharma CEOs in a post on this site whether they had lost their chance to innovate.
A recent article by John Jullens in Harvard Business Review, "How Emerging Giants Can Take on the World," discusses different strategies that can be used by companies from emerging countries to compete against the multinationals. Jullens writes:
Companies in emerging markets embody a contradiction: They are both first movers and latecomers. They're among the first to have made cars, appliances, or computers in their home countries, but they're way behind multinationals that have been honing their capabilities, technologies, and brands for decades... As first movers, they have typically pursued rapid top-line growth at all costs, acquired technologies by all means legal and sometimes illegal, and simply copied the products and processes of developed-market companies. They have mastered the local business landscape and learned to cater to customers who are just joining the consumer economy. Their speed and agility have served them well -- indeed, some scholars have argued that opportunism, tenacity, ingenuity, and connections with local power brokers are the only capabilities emerging giants need.
However, Jullens says, many leaders have not laid the kind of foundation required to be profitable in a more conservative market. Competing based on quality is one example he cites. Another is innovative branding.
As these companies grow, he notes, leaders lose control, and operational problems become evident -- such things as poor product quality, low employee satisfaction, and poor inventory control. Unfortunately, these problems can only get worse over time.
Copying established companies' products and processes is fine when a business is young and markets are growing by double digits, but companies outgrow this phase.
With Indian pharma, for instance, many emerging giants are still run by their founders who have powerful connections, but tend to make decisions based on their own experience. This experience may no longer be relevant when companies grow, he writes:
They fail to realize that their organizations have outgrown their management structures or are overextended, with too many employees, too many facilities, and too many commitments to volume levels. They don't notice until too late that a changing business climate poses challenges the company isn't prepared to face.
The following are most critical when it comes to pharmaceutical companies in India, China, and other emerging markets:
- The need to compete on quality
- Overdependence on founders, whose judgment may not be enough to sustain the company during years of rapid growth
The answers to these problems are technology fortification and its enhancement and delegating authority to professional business managers at the highest ranks of management similar, just as companies in developed nations do.
Unless more companies in "pharmerging" regions adopt these strategies, they may not be around in 30 years, even those that changed the playing field for the pharmaceutical industry over the last 10 to 20 years. What do you think? Please write in and share your opinions.
EPCOT International
Could the Google Books Decision Set a Precedent for Global Pharma Patents?
Girish Malhotra, President & Founder, Epcot International
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Recently, US Circuit Judge Denny Chin exempted Google from US Copyright infringement laws. (To access the actual November 14 judgment, click here).
The exemption was based on Google's meeting four conditions of the law.
To summarize, the conditions are:
- the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit, educational purposes
- the nature of the copyrighted work
- the amount and substantiality of the portion used in relation to the copyrighted work as a whole
- the effect of the use upon the potential market for or value of the copyrighted work
What would happen if patent laws, similar to copyright material laws, could be drafted and adopted by countries that find pharmaceuticals to be too expensive for the masses? In some countries, such overrides are called “compulsory licenses,” and many governments have adopted/supported such actions.
Increases in the number of “compulsory licenses” worldwide, or exemptions such as the one issued to Google books for patents, might benefit the masses but would be very controversial for many pharmaceutical companies and stakeholders.
On the positive side, such changes might force companies to become more efficient and to develop better processes. They would bring many of the costs for pharmaceuticals down as well. However, they would have a negative financial impact and increase the competitive pressure that drug companies must already deal with. What are your thoughts? Please write in and let us know what you think.
Girish Malhotra, PE
EPCOT International
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