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Sanofi’s flirtation with services: A sure sign of desperation

Posted Apr 30 2009 10:11pm

If any additional confirmation were needed of big pharma’s poor prospects, Sanofi-Aventis CEO Chris Viehbacher has provided it. From the Wall Street Journal ( Sanofi-Aventis CEO: Exploring Health-Care Services Market )

“We are actually experimenting around with different services offerings… I don’t see any reason we should limit our business opportunity to selling pills,” [Viehbacher said.]

Viehbacher cited education programs that could aid patient compliance with prescriptions as an example of a service…

He noted that in the 1990s, drug makers dipped their toes in the so-called “disease-management” field, in which they got more involved in patient care than merely supplying pills. Viehbacher said disease management got off to a “rocky start,” but he could envision the industry taking a fresh look at the field.

Here’s what’s really happening at Sanofi-Aventis and elsewhere in big pharma:

  • Pipelines are dry. New blockbuster drugs have become scarce and that’s not about to change.
  • Existing products are losing patent protection.
  • The tools big pharma has used to prop up sales and profitability since new product introductions slowed a decade or so ago have run their course:
  1. Big price increases are no longer tenable
  2. Line extensions (e.g., extended release and combination products) are being received less favorably, especially by payers
  3. Expansion of indications and the development of new concepts to increase the addressable patient population (e.g., pre-hypertension, pre-diabetes) are harder to pull off
  4. Medicare Part D, which extended drug benefits to senior citizens, was a short-term boost. Longer term there will be an emphasis on cost containment, which won’t be quite as nice
  5. It’s getting harder to craft pacts with generic manufacturers to delay the introduction of generic products

The reference to pharma-sponsored disease management in the 1990s is an interesting one. At that time, big pharma was irritating newly-empowered managed care companies with aggressive marketing of me-too drugs that drove up costs. In order to boost utilization and curry favor with managed care, pharma companies twisted the emerging “disease management” concept into a way to market drugs. To them, DM basically meant increasing the use of brand name drugs for chronic conditions. Turned out, managed care didn’t actually want this kind of “value added service” and it was dropped.

Sanofi-Aventis and its ilk have a much bigger problem now. Their portfolio of patent protected drugs will continue to decline, as new product introductions fail to make up for expirations. It’s no longer acceptable to lose 90+ percent of revenue when a product goes off patent, so Viehbacher is probably contemplating how to surround on-patent and off-patent drugs with services that make them more valuable to the buyers. Adherence (compliance + persistency) is a natural fit. In fact it may be the only real fit. The idea is that a payer should be willing to pay Sanofi-Aventis based on the value of the medical outcome that can only be achieved when someone takes their medication appropriately and engages in other medical and non-medical activities that improve their health status.

I don’t see how a big pharma company is going to assemble the capabilities to do this. They certainly don’t have the skills or infrastructure today. If they acquire service companies (such as disease management firms) they will actually destroy value since the customers will be leery of having the fox –even an old, toothless one– guard the henhouse. Adherence and disease management models will flourish in the future, but they’ll be decoupled from the drug makers.

Johnson & Johnson is likely the main exception. They are already a consumer marketing company and have a trusted brand.

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