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SA L P M E R E R O P S E G A TP 2013 U.S. Rx COMPANY PLANNING OVERVIEW Industry Trends To 2020 SAMPLE REPORT PAGES Edmund L. Valentine Copyright © 2012 by Edmund L. Valentine All rights reserved Printed in the United States of America 10 09 08 07 06 5 4 3 2 1 No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photo-copying, recording, or otherwise), without the prior permission of the publisher. Requests for permission should be directed to permissions@mmcint.com or mailed to Permissions, MMC Publishing, Six Landmark Square, 4th Floor, Stamford, CT 06901. Please purchase only authorized electronic editions, and do not participate or encourage electronic piracy of copyrighted materials. Your support of the author’s rights is appreciated. Library of Congress Cataloging-in-Publication Data: Valentine, Edmund L., 1946 2013 U.S. Rx Company Planning Overview, Industry Trends To 2020; Edmund L. Valentine p. cm. Includes Index ISBN 0984047859 (paper) ISBN-978-0-9840478-5-7 (paper) 1. Pharmaceuticals. 2. Biotechnology. 3. Generics. 4. Personalized Medicine. 5. Pharmaceutical Industry Strategy. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering professional investment advice or services. Neither the author nor the publisher assumes any responsibility for errors or omissions or for changes that may occur subsequent to the preparation of this publication. If professional advice or other expert assistance is required, the services of a competent professional person should be sought. ISBN: 0984047859 ISBN-13: 978-0-9840478-5-7 DEDICATION This environment overview is dedicated to all our customers without whose support this book would never have been possible. Table Of Contents Introduction............................................................................ 11 U.S. Healthcare Cost Containment Is A Huge Opportunity .......... 11 Transformational Themes ..................................................................... 11 U.S. Healthcare Industry ....................................................................... 12 Interconnected Healthcare .................................................................... 13 The Rule Of Unintended Consequences ............................................ 14 Observation ............................................................................................. 15 Industry Lifecycle ................................................................................... 15 Legislative Drivers .................................................................................. 15 Anticipated Legislation Precipitates Change ...................................... 16 The U.S. Has To Contain Healthcare Costs .......................... 19 Destruction Of The Middle Class........................................................ 20 An Economic Burden ............................................................................ 20 Legislative Drivers .................................................................. 21 High Healthcare Expenditures ............................................................. 21 Unhealthy Lifestyles ............................................................................... 21 Lack Of Preventative Care .................................................................... 21 Utilization Of Costly Technologies ..................................................... 22 Lagging In Health Technology Assessments (HTAs) ...................... 22 Low Relative Out-Of-Pocket Expenditures....................................... 22 Lack Of Universal Coverage................................................................. 23 Rising Healthcare Insurance Premiums .............................................. 23 Aging Population .................................................................................... 23 Chronic Conditions ................................................................................ 23 Fragmented Delivery Of Care .............................................................. 24 Slow IT Adoption................................................................................... 24 International Information Exchange ................................................... 25 Market Transformation Prerequisites.................................................. 25 Patient Protection And Affordable Care Act (PPACA)................... 25 1 2013 U.S. RX COMPANY PLANNING OVERVIEW - INDUSTRY TRENDS TO 2020 Demographics ........................................................................ 27 Growing ≥65 Aging U.S. Population .................................................. 27 More Diverse Population ...................................................................... 27 Sedentary Lifestyle/Increasing Obesity .............................................. 27 Longer Lifespans/Increasing Chronic Conditions ........................... 28 High Healthcare Utilization .................................................................. 29 Wealthier, More Diverse, Better Educated, More Mobile, More Active, and In Better Shape ............................................................... 29 Technology ............................................................................. 31 Enabling Healthcare Transformation.................................................. 31 Five Technologies................................................................................... 31 Electronic Health Records .................................................................... 32 National Health Information Network (NHIN) ............................... 32 Genomics ................................................................................................. 32 Pharmacogenomics ................................................................................ 32 Biomarkers ............................................................................................... 33 Cybernetics .............................................................................................. 33 Medical APPS.......................................................................................... 34 Innovations ............................................................................. 35 ICD-10 ..................................................................................................... 35 Accountable Care Organizations ......................................................... 35 Patient-centered Medical Home Initiatives ........................................ 36 Retail Clinics ............................................................................................ 36 Social Networking .................................................................................. 37 Other Innovations .................................................................................. 37 Computer/Wi-Fi/Internet Enabled ........................................................ 38 Scientific/Device/Process Advancements .................................................. 38 Consumers .............................................................................. 41 Rising Healthcare Premiums................................................................. 41 Insurance Mandate ................................................................................. 41 Industry Image ........................................................................................ 42 Healthcare Coverage Gap ..................................................................... 42 3 2013 U.S. RX COMPANY PLANNING OVERVIEW - INDUSTRY TRENDS TO 2020 Aging Population .................................................................................... 42 Retail Clinics and High-Deductible Health Plans Acceptance ........ 42 Connected Consumers........................................................................... 42 Cyberchondriacs ..................................................................................... 43 Patient-Centered Blogs .......................................................................... 43 Medical Tourism ..................................................................................... 44 PPACA’s Major Provisions Are Popular ............................................ 44 Payers ..................................................................................... 45 Cost Extractions ..................................................................... 47 Prevention, Intervention And Treatment ............................... 49 Health Insurance .................................................................... 51 Health Insurance Is In The Growth Phase Of Its Lifecycle ........... 51 Providers ................................................................................. 53 Inefficiencies ........................................................................................... 53 Certificate Of Need (CON) .................................................................. 54 Reimbursement Changes Will Drive Restructuring .......................... 54 Consumerism Will Drive Quality Improvements ............................. 55 Healthcare.gov/compare – Driving Healthcare Provider Consumerism ....................................................................................... 55 Various Provider Models Will Materialize .......................................... 55 Physicians Migrating To Group And Hospital Practices ................. 56 Physician Compensation ....................................................................... 56 Cost Of Care ........................................................................................... 57 The Average Hospital Barely Breaks Even ........................................ 57 Patient Satisfaction Scores .................................................................... 58 Multiple Hospital Systems ..................................................................... 58 Some Hospitals Are Very Profitable ................................................... 58 Highly Integrated Healthcare Systems ................................................ 59 Non-Hospital Care ................................................................................. 60 Senior Living Providers Is A Growth Industry ................................. 60 5 2013 U.S. RX COMPANY PLANNING OVERVIEW - INDUSTRY TRENDS TO 2020 Nursing Homes Is A Mature Industry ................................................ 60 Home Healthcare Is A Growth Industry ........................................... 61 Assistance With Daily-Living Companies .......................................... 62 Home Healthcare Reimbursement ...................................................... 62 Intermediaries ........................................................................ 63 PBMs ........................................................................................................ 63 GPOs ........................................................................................................ 64 Drug Wholesalers ................................................................................... 64 Retail Clinics ............................................................................................ 65 In Vitro Diagnostics ............................................................... 67 Genomics Will Redefine In Vitro Diagnostics .................................. 68 The Value Of Companion Diagnostics Requires Pharmaceutical Companies To Access IVD Technologies ...................................... 68 Pharmaceutical And Diagnostics Deal Making Will Increase Between 2012 And 2020 .................................................................... 69 Medical Devices ..................................................................... 71 Consolidating Industry .......................................................................... 71 Technological Transformation ............................................................. 71 Top Companies Are Well Positioned.................................................. 71 Pharmaceuticals ..................................................................... 73 Pharmaceuticals Will Be Transformed By 2020 ................................ 73 Innovative Pharmaceuticals .................................................................. 73 Migration Toward Personalized Medicine and Biotechnology ....... 74 Generics ................................................................................................... 74 Fundamental Restructuring................................................................... 74 U.S. Pharmaceuticals Are A Maturing Industry That Will Be Revitalized Between 2012 And 2020 ............................................... 74 Small Molecule Chemicals Are Being Replace By BiotechnologyBased Therapies................................................................................... 75 Decreasing 199 To 2010 Approvals .................................................... 76 Rapid Emergence Of Competition...................................................... 76 7 2013 U.S. RX COMPANY PLANNING OVERVIEW - INDUSTRY TRENDS TO 2020 Major Drug Classes Adequately Served By Generics ....................... 76 Shift To Specialty Drugs........................................................................ 77 Patent/Exclusivity Expirations ............................................................ 77 Observation ................................................................................................. 77 New R&D Productivity Model Will Emerge ..................................... 77 The New Paradigm ................................................................................ 78 FDA Is Committed To Change ........................................................... 78 Focus On Persistence And Compliance ............................................. 79 Underdiagnosis ....................................................................................... 79 Comparative Effectiveness Research (CER)...................................... 79 Health Technology Assessments (HTAs) .......................................... 79 Reimbursement Will Dictate Industry Evolution/Change .............. 80 Pharmaceutical Companies Are The Best Positioned For Outcomes Reimbursement ................................................................ 80 Non-Traditional Partnering, A Differentiating Core Competency ......................................................................................... 81 Branded Companies Add Generics ..................................................... 81 Observation ................................................................................................. 81 U.S. Generics Is Not A Mature Market .............................................. 82 Moving Towards A Pharmaceutical Care Industry ........................... 82 Largest Companies Are The Best Positioned .................................... 82 About The Author .................................................................. 85 Contact Information ............................................................... 85 9 2013 U.S. RX COMPANY PLANNING OVERVIEW - INDUSTRY TRENDS TO 2020 INTRODUCTION U.S. Pharmaceuticals represents an industry undergoing redefinition and revitalization. The 13th Edition of the 2013 U.S. Rx Company Planning Overview – Industry Trends To 2020 presents the different trends shaping the myriad U.S. healthcare industry stakeholders that impact pharmaceutical industry strategy. This book provides insights how the respective transformations ongoing in the United States will redefine how drugs are identified, developed, reimbursed, launched, marketed, prescribed, dispensed, and taken by patients. The 2012 to 2020 period will be typified by industry discontinuities, innovation and change. What worked in the past will not work in the future. Pharmaceutical industry norms in 2020 will be radically different than they were at the end of 2011. Strategically managed companies will anticipate and capitalize on industry change, innovate and prosper, the remainder will be broken up, acquired, merged or driven out of business. U.S. Healthcare Cost Containment Is A Huge Opportunity The 2012 through 2020 timeframe represents a period of revolutionary change. All industry participants, and their 17 million employees, will be working to extract costs from the $2.7 Trillion (2011) U.S. healthcare system in order to share in the cost savings. The only certainties are that change will occur, a cultural shift of unprecedented size will have to take place, and some industry participants will prosper while others will be driven out of business. The U.S. healthcare system has gone through significant transformational change over the past 25 years, but more dramatic change lies ahead. Transformational Themes There are a number of U.S. healthcare transformational themes playing out over the next ten years. The implications are profound and will not leave any segment of healthcare untouched. The impact will be industry segment and company specific. 11 The implication for pharmaceutical 2013 U.S. RX COMPANY PLANNING OVERVIEW - INDUSTRY TRENDS TO 2020 THE U.S. HAS TO CONTAIN HEALTHCARE COSTS The growth in U.S. healthcare expenditures as a percent of U.S. GDP is unsustainable. U.S. healthcare represented 17.4 percent of GDP, $2.6 trillion in 2010. It is forecast to represent 19.3 percent, $4.8 trillion, by 2020. Containment of healthcare costs is critical to U.S. global competitiveness and to the sustainability of the quality of life for most Americans. The key is to eliminate inefficiencies and duplicative costs, i.e., waste. Over 40 percent of U.S. healthcare expenditures result from inefficiencies and inappropriate care. U.S. Healthcare inefficiencies, if not addressed, will cost the U.S. $12.1 trillion dollars between 2012 and 2020. That is equivalent to 80.7 percent of the 2011 $15 trillion U.S. GDP. Extraction of trillions of dollars in U.S. Healthcare inefficiencies by 2020 is an unprecedented opportunity. The U.S. healthcare system is very complex. Change will be incremental in all areas. Clinical efficiencies have to be extracted by individual disease or condition. If five percent of the inefficiencies are eliminated each year, on top of the changes that already have been made, the U.S. would save $3.8 Trillion between 2012 and 2020. An incremental five percent annual reduction in costs would maintain U.S. healthcare expenditures at or below the 17.4 percent of GDP that was spent in 2010. The government, the single largest payer of healthcare, can no longer afford not to take action. Despite efforts to control healthcare costs, U.S. per capita health expenditures are forecast to grow from $8,047 in 2009 to $14,101 in 2020, at 5.2 percent annually. 19 ABOUT THE AUTHOR Edmund L. Valentine is a healthcare industry strategy expert and an award winning author with over 27 years of global healthcare industry experience. He is the author of Multi-Trillion Dollar U.S. Healthcare To 2020 Gold Rush, multiple editions of MMC International’s Trends Shaping U.S. Pharmaceutical Industry Strategies reports, various therapeutic area reviews, and editor of the Rx Marketer’s Reference Guide, 2nd Edition. Valentine is Chairman and C.E.O. of MMC International, a strategy advisory firm specializing in strategy, general management, business development, marketing, technology assessment, and manufacturing - primarily focusing on the global healthcare industry. He is a recognized authority on the trends shaping healthcare. CONTACT INFORMATION MMC International Six Landmark Square, 4th Floor Stamford, CT 06901 203-961-9100 eFax: 203-547-6307 www.mmcint.com 83
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