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Chess anyone? Life Sciences Industry Trends in 2021 and Beyond

by: Alejandra Garitonandia | January 21, 2021

Now that the new year is upon us, I’m looking ahead and trying to imagine what new opportunities and challenges we’ll face in Life Sciences. At times like this, when there are so many unknowns, it can seem like the “perfect storm,” but I think this situation will act as an innovative pricing incubator, and I’d like to share with you some potential life science industry trends for 2021 and beyond.

To better predict what will happen in the years to come, we need to understand the current situation and also analyze how this industry has reacted under similar circumstances in the past.

The pandemic effect

Nobody doubts that the worldwide pandemic and subsequent economic crisis will increase pricing pressures in the pharmaceutical industry. Similar to what happened during the 2018 economic crisis, we can expect an increase in pricing controls. Health authorities are always trying to reduce healthcare expenses, and one effective way to do that is through pricing controls. We saw this in 2018 and the same can be expected now, with a key difference that healthcare expenses are gradually shifting from therapeutics to prevention.

The current pandemic also brought other changes, like an increase in digitization that will accelerate access to patient data. This will impact health economics and outcomes research, supply chain and product availability, as well as budgets. During the pandemic, we have all seen the impact of having suppliers a world away from where you are. I’m pretty sure that having local suppliers will be among the bidding award criteria for tenders in the near future. In response, we’ll see new innovative pricing models arise in the market.

M&As lead to bigger GPOs

We will also see an increase in mergers and acquisitions, where some pharmaceutical companies try to position themselves as the predominant provider in a certain area like consumer healthcare, animal healthcare, oncology, etc. If they are successful, they will have a significant competitive advantage which will impact the market—especially pricing. On the other hand, health authorities will also try to increase their negotiation power and seek to create larger group purchasing organizations. We have seen this in the trend toward multi-country tenders. For example, in 2020, Denmark, Norway, and Iceland combined forces in a joint tender for the first time.

Let the game begin

This situation reminds me of a chess game. We have the white pieces (which play first). This is the mergers and acquisitions in which companies are positioning themselves as the main player in a certain area. Then we have the black pieces—the health authorities—seeking to form larger group purchasing organizations to gain negotiation power in a kind of risk pooling association. The situation reminds me of the well-known show, The Queen’s Gambit.

What are the next moves? If you are familiar with chess you know that the player who gains control of the middle of the chessboard is the one with the best chance of winning. This is what pharmaceutical companies will try to do with all these mergers and acquisitions; however, health authorities will be defending and attacking through pricing policies. The pharmaceutical companies will have no other option than to innovate with pricing models to battle the health authorities’ defenses. Which options will they choose? There are several possibilities, including:

  • flexibility in outcome-based agreements
  • new ways to bundle products and services in a subscription model
  • payment models similar to a mortgage for more expensive products with little demonstrated efficacy (e.g., new gene therapies)
  • indication-based prices for products like monoclonal antibodies

But these are not all the possible moves. There are others, such as an increase in outsourcing the production of traditional drugs to contract manufacturing organizations (CMOs). This shift enables major pharmaceutical companies to scale more effectively and allows them to focus on innovative drugs while the CMO platforms help them optimize cost and increase their margin.

Enough chess for now! Look for my next blog, in which I will talk about trends in controlling product and development costs.