Healthcare Forecast Planning Models 2.0: How Can Pharma Successfully Harness New Strategic Models?

Healthcare Forecasting 2.0:
How Can Pharma Successfully Harness
New Strategic Planning Models?

1 | Healthcare Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models? Copyright © 2012 IHS

Contents

The New Pharmaceutical Business Landscape: Uncertainty is a New Certainty.....................................................3

Five Painful Truths That Pharma Now Needs to Face. ...........................................................................................4
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Survival in the New Landscape Requires a New Approach to Strategic Planning ..................................................5

What It Takes to Make Successful Healthcare Market Forecasts in the New Landscape........................................6

Healthcare Forecasting: A Model Approach...........................................................................................................7

The Model in Action - Obamacare Amidst a Cooling Economy..............................................................................8

The Model in Action - China: Health insurance Expansion Vs Drug Price Cuts.......................................................9

Conclusions.......................................................................................................................................................10

About Us............................................................................................................................................................11

IHS World Markets Healthcare Forecasting Service.............................................................................................12


The New Pharmaceutical Business Landscape:
Uncertainty Is a New Certainty

Lost patents. Risky, expensive R&D. The end of the The Gold to Platinum Analogy
traditional blockbuster drug era. It’s a familiar tale. If pharma’s ‘golden age’ is coming to a close, then
Let’s face it: when it comes to sustainable, long-term perhaps we’re moving into a ‘platinum age.’ The value
growth, the odds seem stacked against pharma. of gold as a precious metal has typically – like health-
care – existed outside normal economic cycles.
The End of the Golden Age Associating the industry with platinum reflects an
As pharma’s ‘golden age’ comes to a close, the new important new reality: healthcare is no longer immune
reality is startlingly clear: discovering new molecules from wider, global economic downturns. But
that prove to have an effect on complicated, ever- we should also keep in mind that platinum can
evolving diseases — with minimum side effects — be more valuable than gold.
is a phenomenally expensive, risky business.
Pharma Needs to Adapt Our Top Ten Predictions for
At the heart of the problem is the basic sustainability In the past, the pharmaceutical industry has been
of the business model – few industries face such a lauded for its nimbleness and dynamism. Now more
Healthcare and Pharma 2012
daunting prospect as pharma companies when they than ever, it needs to reclaim that reputation. Pharma » View the Slidecast
lose patent protection for their best-selling innovations. companies must change in order to take advantage of
Add a troubled global economy to the equation, and the opportunities within this new business landscape.
it’s clear to see why pharma faces such an uphill
battle. Health expenditure growth rates in developed “There is no point dreaming
markets are nearing an all-time low, whilst emerging about being in a different world.
markets generally provide a complex, variable We have to change.”
opportunity.
GSK CEO Andrew Witty,
Forbes Magazine, January 17, 2011

formation s to allow
efficient, intecision making.”
3 | Healthcare Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models? Copyright © 2012 IHS Share this eBook:

Five Painful Truths that Pharma Now Needs to Face

Austerity Measures Proof: the New Currency of Reimbursement
In an age of international reference pricing, events in While companies are developing innovative new Consequently, companies are often targeting a
one market can have knock-on implications in another. compounds, regulators want more “real world data” fraction of the population they were some years ago.
With some economies suffering more than others, the and information on relative effectiveness. This leads According to traditional market dynamics, a smaller
measures being taken in low-growth countries are to more certainty in predicting which patients will patient population should also mean higher price: but
having a spillover effect on pharmaceutical prices and respond to the drug – or perhaps more importantly, payers are again standing in the way. Why pay 50%
policies in more critical markets. who will not respond to it. more for a drug that may only be 20% better than
an older, less differentiated drug?
The bodies which pay for healthcare – e.g. govern-
Patent Cliff ments and insurance companies – are placing an
In 2012, drugs worth over USD 30 billion in annual
ever-higher burden of evidence on pharmaceutical
sales are going off-patent – more than double the
companies to prove their new drugs work, leading
normal annual figure. The impact? The commercial
to higher development costs for pharma.
value of some of the most well-known branded assets
over the last 15 years will be decimated.
Diminishing Patient Populations…and Returns
To make matters worse, one of the great benefits of
The 4th Hurdle biotech science is also an enemy of the underlying
Drugs are useless unless they reach the patient, and
business model: as we refine our ability to dissect
approvals are meaningless unless they’re backed up
diseases and predict which sub-patient categories
with reimbursement: a nasty truism, but a truism
are likely to respond to particular drugs, the potential
nonetheless in the most regulated industry in the Relative Efficacy and Effectiveness:
patient population is significantly reduced.
world. This is all the more pertinent when budgetary The Next Pharmaceutical Market
concerns are increasingly causing governments to Access Barriers?
place barriers between patients and new drugs.
» Read the blog post


Survival in the New Landscape Requires
a New Approach to Strategic Planning

Amid all this uncertainty, pharmaceutical companies
need to wade through the noise and steer themselves Global shifts demand a new approach
towards a steady, more foreseeable future. As pharma companies increasingly look towards “Expenditures on healthcare
Perhaps more importantly: in today’s climate, pharma
emerging markets and niche patient populations, the are driven by demand, which
need for better data and modeling is becoming more is spurred by income and by
– like so many other sectors – needs to better equip
apparent. In particular, pharma needs to quantify the
itself to anticipate impending obstacles and reforms advances in biotechnology…”
impact of cost containment measures among payors
that require nimble maneuvers.
around the world, whilst understanding the underlying
socioeconomic trends.
Historically, little need for macro forecasting Robert Fogel,
In the past, pharmaceutical companies have not It is equally as critical to understand how the Forecasting the Cost of U.S. Health-
typically had access to sophisticated healthcare shifting dynamics of individual diseases affect the care, The American Magazine,
forecast models. This is primarily because there way in which we forecast market sizes, disease September 3, 2009
was very little demand for them: the pharma business populations, and treatment patterns.
model was a successful one, based on launching
new blockbuster drugs to mass populations in A greater need for data clarity
developed markets. In today’s drastically changing landscape, as the drive
for commercial innovation and survival intensifies
There wasn’t an underlying need for a more robust
among major pharmaceutical players, access to data
macro-based forecasting model in strategic
on the complex, variable growth trend of healthcare
planning, and, hence, the industry generally relied
expenditure is becoming increasingly sought after. At
on fairly simple – yet effective – models.
the core of the emerging healthcare expenditure model
lie global macro forecasts, which are key drivers of
health spending.


What It Takes to Make Successful Healthcare
Market Forecasts in the New Landscape

The simplest model for forecasting health expenditure Fusing quantitative and qualitative is critical
is to assume that the rate of growth this year will be the While quantitative data provides a solid foundation,
same as last year — aptly labeled the “naive” model. the pharma landscape is prone to rapid change, “
Qualitative Analysis
But simple models won’t cut it in the new pharma through scientific innovation and shifts in policy.
business landscape. A successful model requires an A truly successful strategic model needs to factor Needs to Feed
in both quantitative and qualitative factors.
amalgam of reliable data, proven econometric
models, and expert analysis.
Intelligently into
It is precisely in the area of qualitative analysis
that forecasts so frequently fall short. If these
the Quantititave
Quantitative data needs to take centre stage
While year-on-year historical data has been used developments are ignored, there are huge gaps Forecast”
for short-term (one-year) forecasting, it isn’t effective in the forecasts that don’t reflect the critical
for medium-to-long term forecasts, as it doesn’t drivers impacting the industry – just think of healthcare
capture the impacts of macroeconomic factors insurance expansion in China, major price cuts
on health spending. in Southern Europe, and the expansion of health
technology assessments across almost all markets.
To accurately forecast growth trends in healthcare
and pharma markets, macro values need to take a By integrating quantitative and qualitative information,
more central role in the modeling process. A rigorous pharmaceutical companies are better equipped to
econometric approach provides a far sharper analysis anticipate how complex, inter-relating factors may
of the true market opportunity. impact their businesses.


Healthcare Forecasting: A Model Approach

Top Level Data and Information

Quantitative Qualitative Analysis

Use of robust Event specific Real-time
Macro Data regression series alterations and analytical input
and advanced process variation from industry
modelling experts

Modeling

Example outputs:
A granular-level forecast integrates data with
- Healthcare expenditure
real-time analysis providing more effective,
- Pharmaceutical sales
actionable forecasts
- Strategic scenarios


The Model in Action
Obamacare Amidst a Cooling Economy

The spending growth trend projection results from the model incorporating both quantitative and qualitative factors, Our Forecast
with the net outcome reflecting the impact of the qualitative factor (boost to health spending by the “Obamacare”) • The domestic evidence has remained upbeat
overriding that of the quantitative factor (slow GDP growth). in early 2012—with a much better than ex-
US Health Spending Growth (%)
pected employment report for January.
US GDP Growth (%)
10

• There are hints that a virtuous circle may be
8
1. We first observe health building where employment, incomes, and
spending and real GDP 6
consumer spending move up together.
move in similar growth trends
in several periods, suggesting 4 • It will still take a few years before the economy
macro forecasts as a key driver fully recovers, considering its debt to GDP ratio.
2
of health spending.
• Meanwhile, the healthcare cost-cutting mea-
0
sures will hurt health spending growth.
-2
• However, the headwind of slow recovery and
-4 cost containment will not be enough to offset
1998 2000 2002 2004 2006 2008 2010 2012 2014 the spending growth momentum unleashed by
the “Obamacare” push.
2. However, we also note periods when the two 3. From 2010 onward, the economy is projected to
indicators take different growth trends. have a “U-shaped” recovery, dragged by sovereign Against such backdrop, we expect
debt problems in the US and in Europe, while health
health spending to grow at a solid
spending growth is projected to have only a
single digit pace this year and next.
modest dip in 2011, before rebounding steadily
during the period.


The Model in Action
China: Health Insurance Expansion Vs Drug Price Cuts

China’s Health Spending Growth (%) Our Forecast
China’s GDP Growth (%) • The economy is being hurt by a recessionary
22
Europe through trade linkage.
20
1. We first observe health • Despite this negative externality, the govern-
18
spending and real GDP in ment seems committed to correct its policy
similar growth trends over a 16 errors and fix the housing market all the way
long period, suggesting macro through this time around, before loosening
forecast being a key driver of 14
credit lending.
health spending.
12
• Meanwhile, significant drug price reductions
10
are hurting growth in health spending.
8
• However, the headwind of slower economy
6
and lower drug prices will be more than offset
1998 2000 2002 2004 2006 2008 2010 2012 2014
by the health spending growth momentum
unleashed by China’s massive health insurance
2. The projected health spending growth 3. In addition, the projected lower spending growth expansion.
peaking in 2011 reflects the impact of health beyond 2011 is driven by a combination of quan-
insurance expansion—ending by the end of titative and qualitative factors (slower GDP growth
2011—outweighing a cooling economy. and deep drug price cuts). Still, sustained by the Against such backdrop, we expect
massive healthcare insurance expansion, health health spending to continue growing at
spending growth will maintain a double-digit pace a double digit pace this year and next.
during the period.


Conclusions

Quantifying the Impact So how can successful forecasts
By quantifying the impact of ongoing, fast-paced To help major pharmaceutical companies gauge health soothe pharma’s pain points?
developments in the industry, and funneling them into spending growth trends and plan strategies accordingly,
your forecasts, simple information is given actionable health spending forecasts that reflect macroeconomic
values as the key drivers of healthcare markets are • Patent cliffs become manageable – because
meaning.
critical. they are adequately quantified and understood
On the one hand, we are in a time of great political and in the context of specific geographies and
economic turmoil. But on the other hand, it’s also a time In achieving this, pharmaceutical companies are therapeutic areas.
of dramatically shifting scientific developments. If these more readily prepared to deal with the vagaries of
two forces are successfully harnessed into a strategic drug development, regulatory hurdles, and the • Austerity measures become manageable –
business model, the “platinum age” of pharma really unique market dynamics of our industry. because they become predictable and
can become a time of high growth. understood in the context of the global
presence of the company.

• The 4th Hurdle becomes predictable –
because the overall likely market size of key
assets becomes knowable.

• RD Productivity is enhanced – because the
attractive areas for therapeutic investment
become visible based on scientific advances.

• Segmented Populations can be maximised –
because the underlying patient dynamics,
epidemiology and demographics are under-
stood within the context of asset valuation.


More Information

Gustav Ando
Director of Healthcare Practice, IHS
Gustav Ando leads the Healthcare Practice at IHS. Formerly a Visit the IHS Healthcare and Pharma blog
healthcare analyst, he has extensive experience in the fields of
market access, therapeutic development, drug safety, emerging Here you’ll find regular insights from our team of
markets, and health outcomes. experts covering the global healthcare and pharma-
» onnect with Gus on LinkedIn
C ceutical industries.
» ead Gus’s latest blog posts
R
Join us as we look at issues in Healthcare Policy,
Jing Zhang
Market Access, Pricing and Reimbursement and
Healthcare Economist, IHS RD.
Jing Zhang is responsible for healthcare and pharma forecasts
and analysis. He holds a Ph. D degree in economics from Temple Uni-
versity. Before joining IHS, Jing worked as an economist in the federal Comments are welcome!
government at FDIC, National Credit Union Administration, and IRS.
» w ww.ihs.com/healthcareblog

» ead Jing’s latest blog posts
R

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Healthcare Forecast Planning Models 2.0: How Can Pharma Successfully Harness New Strategic Models?

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Healthcare Forecast Planning Models 2.0: How Can Pharma Successfully Harness New Strategic Models?