Roche is Ready to Rumble
As Big PBM Flails, the Drug Market Builds New Muscle
‘Everything in strategy is very simple’ — Clausewitz
Roche CEO Thomas Schinecker said yesterday that the price of drugs in the US could come down "quite quickly" if intermediaries were cut out and a direct-to-patient model was introduced. Schinecker indicated that Roche is in talks with the US government over the issue, following similar recent moves by Eli Lilly (LillyDirect), Novo Nordisk (NovoCare) and Pfizer (PfizerForAll).
On displacing an embedded economic system that controls nearly $600 billion in drug spend in the United States:
"Something has to be done here to take out these people that are just trying to make money," Schinecker said on his earnings call, a reference to not only the Big 3 PBMs Optum, Express Scripts and CVS Health, but also their first cousins, the Big EBCs (employee benefit consultants) Mercer, Aon Hewitt and Willis Towers Watson. "It can't be that 50% of profits go then to intermediaries that take zero risk."
By selling directly to consumers (or self-funded employers themselves), Roche would cut out intermediaries that take a significant chunk of the profitability that medicines generate and be able to lower prices without destroying innovation, Schinecker said. (Dig Deeper: How to Make Express Scripts Irrelevant in One Slide)
Roche is considering directly selling some of its medicines, including those for multiple sclerosis, eye disease and cancer, directly to patients, although Schinecker suggested that the model could work for all of its drugs. He cited the example of multiple sclerosis treatment Ocrevus, which had been hit with surcharges from PBMs that increased its cost even after Roche had priced it below competing therapies.
A Strategic Rotation
The first rule to an ecosystem-centered strategy: when it comes to big market innovation, a system that succeeds is the one that gains control over more and more parameters affecting its evolvability. (Dig deeper: Whatever Happened to Eisai’s “Dementia Ecosystem”?)
It's better to think in biological terms, where 'progressive integration’ of markets — e.g. a drug market + a diagnostic market + a nutrition market combining as actors in a screenplay, producing a storyline of system value — creates more opportunity, and has more ‘convening power’, than any one product operating alone and in isolation. These are strategic concepts around which to change the context for competition, to invent leverage in an organized and persistent way, to construct a new narrative layer from which to reshape the operating environment. (Dig Deeper: Why the Pharmaceutical Industry Needs to Think Like Quentin Tarantino)
The next cycle of business and economic innovation belongs to those superpowers — and make no mistake, Big Pharma is a superpower in its GDP-moving potential — that propagate the best and most responsive rulesets, build and operate the most inviting and empowering networks, and win new subscribers with integration schemes that deliver what citizens most desire: predictable and unhindered access to goods and services. (Dig Deeper: The Innovation Fallacy in Healthcare)
When it comes to the “transformation thing” in the drug market — the commercial model kind, the market access kind, the digital kind, the patient-centricity kind, the kind that answers ‘from what to what?’ — it’s about constructing a roadmap that ends in a new universe, one that rotates around the concepts of 'shared marketspace' and value alignment. (Dig Deeper: The Keystone Advantage for Pharma).
Healthcare is an N-sided market that has never followed the rules of conventional economic theory. It's not just one market that drives innovation and determines “value” but an infinite flow of them. The thing this moment needs is a new orbit for economic competition, a different physics, where 'gravitational pull' comes from new economic systems positioned on the production of affordable health and continuous health engagement, not efficient "utilization management".
The new program for management teams and executive MBA programs the world over is this: Conventional strategy plays the player. Strategy at a system level plays the board. (Dig Deeper: Modern Strategy Moves Like a Crab).
It’s the leadership margin that separates.
/ jgs
John G. Singer is Executive Director of Blue Spoon, the global leader in positioning strategy at a system level. Blue Spoon specializes in constructing new industry narratives.