Pharmaceutical companies are experiencing numerous challenges such as increasing cost pressures, declining autonomy or protocol-driven care. The reaction has to go beyond traditional instruments such as consolidation. In this new era, pharma has to become more proactive with wide communities of patients and meet the needs of different consumer groups. The industry also has to deliver positive results for society: health, well-being and optimal management of illness.

Some experts call it the New Health Economy. What they mean is the fact that pharmaceutical and life sciences companies are experiencing a wave of competing challenges. As the strategy and consultant firm PWC reports in its 2017 Pharmaceuticals and Life Sciences Trends, these challenges include consolidation among providers, especially hospitals, intended to produce efficiency gains; changing demands and expectations of patients, who seek a greater role in their own care; increasing cost pressures from payers; and the declining autonomy of the individual physician as rule-based, protocol-driven care becomes ascendant.

For the pharma and life sciences industry this means finding new and correct answers in order to further achieve profitable and sustainable growth. As the accounting firm Deloitte points out in its 2017 Global Life Sciences Outlook such growth won’t come easy. “Looking across a landscape of challenges, the mismatch between increasing Research & Development (R&D) expenses and the payer and public demand for lower-cost treatments is a game-changing issue because it will likely affect both the direction and speed of the sector’s future development.”

In the past mergers and acquisitions (M&A) has been one of the most effective tools for pharma executives to face the challenges of the industry. M&A as well as divestiture activities play a significant role in life sciences companies’ strategies to gain scale and to add new markets, new drugs, and novel technologies, states Deloitte. The financial online portal Seeking Alpha adds, because of organic growth slowing, pricing pressures and blockbuster drugs going off-patent, a number of key players will need to “buy” their way into growth and stave off growing competition.

In 2017 Johnson & Johnson’s $30 billion acquisition of Actelion has set the tone. The latest prominent example is Gilead Sciences’ intention to buy Kite Pharma and its CAR-T cancer-killing technology for $11.9 billion. The acquisition is the answer to the question investors have been asking Gilead management for more than two years: “What will you buy to deliver new growth to the company in the wake of declining hepatitis C sales?”

In the view of Seeking Alpha one of the key ingredients supporting M&A activity is cheap debt financing. On this background John Rountree, managing partner at the pharma consultancy Novasecta, mentioned in an interview with CNBC that there would be more consolidation in the industry. “I think consolidation is more likely driven by people wanting to have access to innovation rather then particularly cost-cutting.”

Deloitte specifies that one area to watch is deals that combine life sciences with technology. Companies could benefit greatly from analytics and digital investments, especially as these capabilities are not generally developed in-house. Also, if life sciences organizations don’t use M&A and strategic partnering to join this community, they risk being leapfrogged by the technology companies.

But there are also some concerns regarding the M&A activities of pharma as Joanna Shepherd, professor at Emory University School of Law in Atlanta, says: “As pharmaceutical M&A has soared, so too has concern over the impacts of consolidation on the drug industry. These concerns are premised on the idea that merging competitors into one firm will reduce incentives to develop new drugs.”

However, she explains, this view is largely based on an outdated understanding of the innovation ecosystem in the pharmaceutical industry. In the current system, where little drug innovation originates internally, a merger’s influence on internal R&D expenditures or development projects is often immaterial to aggregate drug innovation.

Attention on Continuous R&D Innovation

In any case M&A activities mostly are only one element of pharma companies to maintain or strengthen their position in the changing markets. According to Deloitte’s 2017 pharma report, given the number of changes and challenges life sciences companies must also pay close attention to continuous R&D innovation. Driving and sustaining clinical innovation persists as a life sciences sector priority. There are not only soaring R&D costs, increasing pricing pressures, growing market share for generic pharmaceuticals and biosimilars, and heightened scrutiny by regulators that are having a dampening effect on clinical innovation; there is also the demand for new, innovative treatments.

Continuous R&D innovation also has a direct positive effect for the pharma companies itself, says Deloitte. It can help improve the operational effectiveness of research organizations. Furthermore reducing development complexity should materially improve returns.

Collaborative Product Development

For better results in R&D, collaborative product development can also be essential. This can span the spectrum of openness, and potential partners may be found in government, academia, traditional biopharma and new industry entrants. As Deloitte reports, life sciences thus can fill in-house capability gaps and overcome R&D and marketplace challenges by externally sourcing innovative ideas, knowledge, skills and technologies.

Another major industry trend is the rapidly increasing importance of analytics, PWC explains. Pharma companies have begun to realize real benefits from the evolving data ecosystem, using new methods for rapid acquisition, curation, analysis and visualization of large, diverse data sets in cloud-based storage and distributed computing power platforms.

Changes in Pharma Supply Chains

Beyond this Allen Jacques, vice president of pharma supply chain at FusionOps, also sees the pharmaceutical supply chain as a trigger for market success. Although one of the most complex supply chains in the world, it has historically been resistant to transformation.

“In many ways, 2016 was a turning point,” Jacques said. “Today there’s more pressure than ever before on the supply chain to be redesigned. The remit for supply chains of 2017 and beyond will be to start actually driving real revenue for businesses instead of just passively supporting revenue-generating operations.”

Deloitte adds that forward-thinking life sciences companies are transforming their traditional, linear supply chain into a dynamic, interconnected system that can more readily incorporate ecosystem partners and evolve to a more optimal state over time.

Connecting with Customers and Consumers

Beyond this, today payers and consumers are the most important stakeholders for pharma companies. Increasingly engaged and empowered health-care consumers are demanding services and solutions that are coordinated, convenient and customized. According to findings from the Deloitte 2016 Survey of US Health Care Consumers, there is also a growing consumer appetite for using technology-enabled care. Social networks have become powerful customer engagement tools and offer a more personal and open dialogue than traditional marketing channels like commercials or advertisements.

Deloitte points out that large pharmaceutical companies focused on traditional markets have often lagged in responding to the industry’s changing focus toward holistic patient management. Now many companies have only a small window of time to frame their strategies for operating in a new, customer-centered, digital ecosystem or risk being disintermediated by fast-moving entrants that are developing digitally enabled products and programs to cater to changing patient expectations.

One of the most interesting consumer engagement challenges facing life sciences companies is how to increase consumer trust and improve the overall reputational perception of the sector. More and more companies are increasingly seeking to help patients navigate the complexities involved in receiving a diagnosis, deciding on treatment, securing financial assistance, connecting with other patients and community experts, and supplementing clinical education.

End-To-End Evidence

In the end the question of pricing is also essential for pharma companies. “Every pharma executive knows there is intense interest these days in what a drug is really worth,” PWC explains. Pharma companies need to find new ways to define value that resonate with stakeholders. Thanks in part to social media and advocacy groups, patients are becoming much more active in making their voice heard. “The resulting health-care system will focus increasingly on paying for the value rather than the volume of medical care; in other words, it will be a more consumer-facing industry,” PWC argues.

In this new era, pharma companies will have to become more proactive with large communities of patients and go beyond lip service in meeting the needs of a wide swath of consumers. In the New Health Economy, pharma companies should not only focus on sales but also have to concentrate on delivering positive results: health, well-being and optimal management of illness among targeted populations.