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


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As the drive for commercial innovation and survival intensifies, pharma needs to integrate more accurate data and models into their strategic planning processes.

Successful healthcare forecasts require a fusion of quantitative and qualitative factors, as well as a stronger focus on macroeconomic drivers.

We explore this topic in our complimentary eBook Healthcare Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models?

Topics include:

— The state of the industry and its key challenges
— What it takes to make successful healthcare market forecasts
— A summary forecast for US health spending growth to 2015: Obamacare Amidst a Cooling Economy
— A summary forecast for China health spending growth to 2015: Health insurance Expansion Vs Drug Price Cuts

Published in: Health & Medicine, Business
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Healthcare Forecast Planning Models 2.0: How Can Pharma Successfully Harness New Strategic Models?

  1. 1. 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
  2. 2. ContentsThe New Pharmaceutical Business Landscape: Uncertainty is a New Certainty.....................................................3Five Painful Truths That Pharma Now Needs to Face. ...........................................................................................4 Share this eBook:Survival in the New Landscape Requires a New Approach to Strategic Planning ..................................................5What It Takes to Make Successful Healthcare Market Forecasts in the New Landscape........................................6Healthcare Forecasting: A Model Approach...........................................................................................................7The Model in Action - Obamacare Amidst a Cooling Economy..............................................................................8The Model in Action - China: Health insurance Expansion Vs Drug Price Cuts.......................................................9Conclusions.......................................................................................................................................................10About Us............................................................................................................................................................11IHS World Markets Healthcare Forecasting Service.............................................................................................122 | Healthcare Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models? Copyright © 2012 IHS
  3. 3. The New Pharmaceutical Business Landscape:Uncertainty Is a New CertaintyLost patents. Risky, expensive R&D. The end of the The Gold to Platinum Analogytraditional blockbuster drug era. It’s a familiar tale. If pharma’s ‘golden age’ is coming to a close, thenLet’s face it: when it comes to sustainable, long-term perhaps we’re moving into a ‘platinum age.’ The valuegrowth, 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 anAs pharma’s ‘golden age’ comes to a close, the new important new reality: healthcare is no longer immunereality is startlingly clear: discovering new molecules from wider, global economic downturns. Butthat prove to have an effect on complicated, ever- we should also keep in mind that platinum canevolving diseases — with minimum side effects — be more valuable than a phenomenally expensive, risky business. Pharma Needs to Adapt Our Top Ten Predictions forAt the heart of the problem is the basic sustainability In the past, the pharmaceutical industry has beenof the business model – few industries face such a lauded for its nimbleness and dynamism. Now more Healthcare and Pharma 2012daunting prospect as pharma companies when they than ever, it needs to reclaim that reputation. Pharma » View the Slidecastlose patent protection for their best-selling innovations. companies must change in order to take advantage ofAdd a troubled global economy to the equation, and the opportunities within this new business’s clear to see why pharma faces such an uphillbattle. Health expenditure growth rates in developed “There is no point dreamingmarkets are nearing an all-time low, whilst emerging about being in a different 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:
  4. 4. Five Painful Truths that Pharma Now Needs to FaceAusterity Measures Proof: the New Currency of ReimbursementIn an age of international reference pricing, events in While companies are developing innovative new Consequently, companies are often targeting aone 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 smallermeasures being taken in low-growth countries are to more certainty in predicting which patients will patient population should also mean higher price: buthaving 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 anIn 2012, drugs worth over USD 30 billion in annual ever-higher burden of evidence on pharmaceuticalsales are going off-patent – more than double the companies to prove their new drugs work, leadingnormal annual figure. The impact? The commercial to higher development costs for pharma.value of some of the most well-known branded assetsover the last 15 years will be decimated. Diminishing Patient Populations…and Returns To make matters worse, one of the great benefits ofThe 4th Hurdle biotech science is also an enemy of the underlyingDrugs are useless unless they reach the patient, and business model: as we refine our ability to dissectapprovals are meaningless unless they’re backed up diseases and predict which sub-patient categorieswith reimbursement: a nasty truism, but a truism are likely to respond to particular drugs, the potentialnonetheless in the most regulated industry in the Relative Efficacy and Effectiveness: patient population is significantly This is all the more pertinent when budgetary The Next Pharmaceutical Marketconcerns are increasingly causing governments to Access Barriers?place barriers between patients and new drugs. » Read the blog post4 | Healthcare Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models? Copyright © 2012 IHS Share this eBook:
  5. 5. Survival in the New Landscape Requiresa New Approach to Strategic PlanningAmid all this uncertainty, pharmaceutical companiesneed to wade through the noise and steer themselves Global shifts demand a new approachtowards a steady, more foreseeable future. As pharma companies increasingly look towards “Expenditures on healthcarePerhaps 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 theitself to anticipate impending obstacles and reforms advances in biotechnology…” impact of cost containment measures among payorsthat 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, 2009was very little demand for them: the pharma business populations, and treatment patterns.model was a successful one, based on launchingnew blockbuster drugs to mass populations in A greater need for data claritydeveloped markets. In today’s drastically changing landscape, as the drive for commercial innovation and survival intensifiesThere wasn’t an underlying need for a more robust among major pharmaceutical players, access to datamacro-based forecasting model in strategic on the complex, variable growth trend of healthcareplanning, and, hence, the industry generally relied expenditure is becoming increasingly sought after. Aton fairly simple – yet effective – models. the core of the emerging healthcare expenditure model lie global macro forecasts, which are key drivers of health spending.5 | Healthcare Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models? Copyright © 2012 IHS Share this eBook:
  6. 6. What It Takes to Make Successful HealthcareMarket Forecasts in the New LandscapeThe simplest model for forecasting health expenditure Fusing quantitative and qualitative is criticalis 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 AnalysisBut simple models won’t cut it in the new pharma through scientific innovation and shifts in 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 econometricmodels, and expert analysis. Intelligently into It is precisely in the area of qualitative analysis that forecasts so frequently fall short. If these the QuantititaveQuantitative data needs to take centre stageWhile 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 criticalfor medium-to-long term forecasts, as it doesn’t drivers impacting the industry – just think of healthcarecapture the impacts of macroeconomic factors insurance expansion in China, major price cutson health spending. in Southern Europe, and the expansion of health technology assessments across almost all markets.To accurately forecast growth trends in healthcareand 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 toeconometric approach provides a far sharper analysis anticipate how complex, inter-relating factors mayof the true market opportunity. impact their businesses.6 | Healthcare Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models? Copyright © 2012 IHS Share this eBook:
  7. 7. 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 scenarios7 | Healthcare Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models? Copyright © 2012 IHS Share this eBook:
  8. 8. The Model in ActionObamacare Amidst a Cooling EconomyThe spending growth trend projection results from the model incorporating both quantitative and qualitative factors, Our Forecastwith the net outcome reflecting the impact of the qualitative factor (boost to health spending by the “Obamacare”) • The domestic evidence has remained upbeatoverriding 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 81. We first observe health building where employment, incomes, andspending and real GDP 6 consumer spending move up together.move in similar growth trendsin several periods, suggesting 4 • It will still take a few years before the economymacro forecasts as a key driver fully recovers, considering its debt to GDP ratio. 2of 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 toindicators 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.8 | Healthcare Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models? Copyright © 2012 IHS Share this eBook:
  9. 9. The Model in ActionChina: 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. 201. We first observe health • Despite this negative externality, the govern- 18spending and real GDP in ment seems committed to correct its policysimilar growth trends over a 16 errors and fix the housing market all the waylong period, suggesting macro through this time around, before looseningforecast being a key driver of 14 credit 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 insurance2. 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 growth2011—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.9 | Healthcare Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models? Copyright © 2012 IHS Share this eBook:
  10. 10. ConclusionsQuantifying the Impact So how can successful forecastsBy 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 – becausemeaning. critical. they are adequately quantified and understoodOn the one hand, we are in a time of great political and in the context of specific geographies andeconomic 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 oftwo 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 andcan 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.10 | Healthcare Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models? Copyright © 2012 IHS Share this eBook:
  11. 11. 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 » ead Jing’s latest blog posts R Share this eBook:11 | Healthcare Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models? Copyright © 2012 IHS
  12. 12. IHS World Markets Healthcare Forecasting ServiceIHS World Markets Healthcare Forecasting Service Key features:In this environment of rising healthcare costs, post-reces- • Macroeconomic forecastssion strapped budgets, and complicated regulations, it’s Learn more about this Servicecritical to have a clear view of the true growth potential of • Quarterly updated database: at healthcare and pharmaceutical markets. • Ten-year healthcare expenditure forecasts for 36 countriesThe IHS World Markets Healthcare Forecasting Service • Pharmaceutical sales forecasts for 30 countries Use your smart phone to scansupports your strategic planning process by providing and 11 therapeutic areas the QR code:a comprehensive view of healthcare markets, their key • Same day analysis of major healthcare anddrivers, and the market impact of key events. This regulatory eventsservice helps you: • SWOT analysis tables providing a clear view of • Plan budgets and sales targets more effectively market conditions in each country • Identify and target new markets for growth • Hedge exposure to contracting markets • Understand how macroeconomic forces and industry events drive future healthcare spendingShare this eBook:12 | Healthcare Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models? Copyright © 2012 IHS
  13. 13. 13 | HealthcareCopyright © 2012 IHS Forecasting 2.0: How Can Pharma Successfully Harness New Strategic Planning Models? Copyright © 2012 IHS