Drawing inspiration from Quentin Tarantino’s directorial breakthrough in the early 1990s, Blue Spoon Consulting’s John Singer explores the pharma sector’s urgent need for a strategic overhaul to ensure success and sustain growth amidst looming patent expirations.
Lex is the flagship investment column of the Financial Times. Its commentaries, currently written by a team of eleven investment writers in five times zones, has been published daily in the newspaper since 1945. “We believe it is the most influential column of its kind” in the world, says the paper. Early in February, the commentary was about market strategy in the pharmaceutical industry: ‘Big Pharma still needs trial success to overcome looming patent panic’:
“It is a tale as old as time. Pharmaceutical companies must replenish their drugs pipeline before exclusivity rights on top-selling products expire. But even though Big Pharma knows what the ending should be, the companies don’t always get the plot right.
Risks from patent expiries have been relatively low since 2020. But the percentage of prescription drug sales at patent risk industry-wide in 2027-2028 will reach the highest level since 2015, reckons Evaluate. In theory, it should be slightly different this time — compared with the patent panics of the past. The move towards harder-to-copy biologic drugs means drugmakers do not face such a steep drop-off in sales after exclusivity expires. Companies have become more adept at protecting key drugs, both through litigation and by seeking approvals in new diseases…..
….This time, as in the past, only innovation and trial success will lead to greater conviction that this classic story has a happy ending.”
The problem is the plotline, the story itself.
That there’s still “panic” at the patent cliff at all is mind-blowing, when you think about it. What happens at LOE should surprise no one.
Model Collapse
Here’s two charts that show what happened when the industry as a whole was facing another big cycle of patent expirations. What these show is the success rate – that elusive “happy ending” — of the conventional plotline to stop, or at least divert, the Thunderbird before it drives off the cliff for about 40 different drug brands, across all manufacturers, collectively generating hundreds of billions in revenue.
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Not one brand was able to stop itself from going over the cliff. Not one.
You could ask, Is 2010-2012 data still relevant today?
Think about it this way:
Each of these 40 drug brands was managed by brand teams of hundreds, if not thousands of very smart people with deep knowledge of their markets, who in turn relied on tens of thousands of equally knowledge people working across an entire economic system — marketing services vendors (agencies like WPP, Omnicom and Interpublic Goup, all also searching for commercial model innovation in the face of AI-driven dislocation), as well as the ‘thinking partners’ used by executive leadership teams and boards (strategy advisors like McKinsey and Boston Consulting Group, dealing with the same commercial-model innovation problems as the agencies) — to guide them, support them, and come up with “creative” ideas to help them grow their businesses.
The data suggests this: everyone is struggling with model collapse. Everyone.
An entire economic system (technically a ‘system-of-systems’) is stuck, trying to squeeze more juice out of a cognitive pattern that hasn’t changed since the Industrial Age. In other words, a frame for thinking and product marketing born when the “modern pharmaceutical industry” began around 1885.
And for evidence of this, look no further than Amgen “doubling down” on the Standard Model: a DTC campaign on the dangers of high cholesterol (Amgen markets and sells Repatha, a PCSK9 inhibitor that reduces LDL cholesterol — it was approved in December 2017. Amgen faced initial backlash over its $14,000 per year price tag, and cut the price by 60% the next year. Its current list price is $6,738 per year.) Or touting safety risks of generics as part of a strategy to prevent switching — Bayer did this with aspirin in one of the first DTC advertising campaigns….in 1917.
So the question for pharmaceutical brand teams is this: are you really planning for $250 billion in revenue loss from the patent cliff in 2028 with concepts from the turn of the 19th century, when “horseless carriage” was used to describe the first automobiles?
Time to Rewrite the “Classic Story” in Pharma
The Classic Story in pharma revolves around basic narrative plots, frameworks that are recycled again and again in the drug market, regardless of the brand telling them.
These stories may be populated by different settings, characters, and conflicts, but the dominant themes are the big miss (i.e., completely misreading the demand environment); promotional tonnage (i.e., the push model); the quest (i.e., squeeze the push model even harder); death by a thousand reorgs (i.e., rearrange the deck chairs); and ultimately The Big Panic (i.e., the patent cliff, but also now, having to negotiate price with the United States government as part of the Inflation Reduction Act).
The rough rollout for Eisai’s new Alzheimer’s drug Leqembi is, I would suggest, what happens sticking with a ‘drug promotion’ script first written around the time the Model T was rolling off the assembly line. From EndPoints coverage of Eisai’s earnings call yesterday (With subpar sales for Leqembi, Eisai delays Alzheimer’s patient goal deadline):
“Eisai said it could struggle to meet uptake targets for its Biogen-partnered Alzheimer’s drug Leqembi by the end of March as it detailed disappointing fiscal third quarter sales for the intravenous therapy.
Leqembi won US accelerated approval in January 2023 with full approval following in July. Eisai has high hopes for the treatment, projecting it could reach $7 billion in global sales by 2030.
But Leqembi sales of almost $7 million in the three months leading up to December 2023 fell short of Visible Alpha consensus estimates of $9.3 million. The drug has been administered to around 2,000 patients in the US, with four times that number on wait lists, Eisai’s global Alzheimer’s officer Keisuke Naito said on its earnings call Tuesday. Eisai anticipates a one to three month delay to reach the 10,000-patient goal, but Jefferies analysts said it could take longer seeing as “launch dynamics have been slow to begin with.” The Japanese pharma spent roughly $505 million to promote Leqembi in the fiscal year to date.
Eisai is focused on supporting US medics to establish early Alzheimer’s diagnosis and treatment pathways covering “treatment policies, SOPs and other processes that differ from one medical institution to another,” per a company presentation.”
You don’t need to read the company’s PowerPoint to predict where this is going.
And in the United States:
Biogen fell the most in two years as its latest foray into Alzheimer’s disease got off to a slow start, suggesting a long road to growth for the biotechnology giant, reported Bloomberg in its coverage of the company’s earnings read-out on February 13 (see Biogen Plunges as Alzheimer Drug’s Slow Uptake Signals Reset). “There’s plenty of demand from patients for the drug,” Biogen CEO Chris Viehbacher told analysts on the call. “It really is a question of the system being able to accommodate this new flow of patients.”
Which is exactly the point: it’s the story at a system level that needs a rewrite.
Scientific achievement — technical potential of a drug — is no guarantee of financial success in the pharmaceutical industry. If anything, it’s almost incidental, table stakes in an operating environment that is marked by mushrooming complexity and chaos and fragmentation. It’s a painful, and expensive, lesson in commercial model innovation that often comes too late for many product marketing teams at drug manufacturers, including the vendors advising them on product marketing.
To wit gene therapy pioneer BioMarin, which has only one patient (emphasis added) on its “miracle cure” — via Bloomberg’s Gerry Smith.
BioMarin Pharmaceutical Inc.’s new treatment for an inherited bleeding disorder was supposed to be a triumph. Aimed at a larger group of patients than the biotech company usually targets, Roctavian was its first foray into gene therapy, a promising field of medicine that fixes genetic flaws to potentially cure diseases.
So far, Roctavian has failed to gain traction in treatment of hemophilia A—just one paying patient in the US was treated with the therapy from the time it won approval last June through the end of 2023, Chief Executive Officer Alexander Hardy said in January at the JPMorgan Healthcare Conference. For a product that was once expected to deliver more than $100 million in 2023 revenue, it’s a grave disappointment.
When Reservoir Dogs hit theaters, it rocketed Quentin Tarantino from obscurity into one of the most influential directors in film history. His groundbreaking tale of crime and betrayal reinvented independent film. Tarantino’s approach is to focus on characters, not actors. In an interview with SPIN (Quentin Tarantino: Our 1992 Interview):
Commenting on his wrecking crew, Tarantino notes: “You have a collection of acting styles. You have Harvey, who is Method; Steve Buscemi, who comes from an underground theater background; Michael Madsen — a very naturalistic, unaffected, un-actor-y sort of actor. Lawrence Tierney has his Lawrence Tierney thing. You have all these personalities working together and that’s what creates the tension — and creates the fun about it.”
“It’s all about my characters. I actually think my characters are going to be one of my biggest legacies after I’m gone. So I have no obligation whatsoever other than to just cast it right.”
Regardless the industry, and the economic subsystem of vendors and advisors an industry uses to create and innovate and figure out where to go for growth, ‘commercial model innovation’ ultimately comes down to telling and selling a new strategy story. It is cast with unique characters in different combinations and collaborations that create space for tension and fresh dialogue.
It’s something that looks and feels more like Quentin Tarantino than old-school NBCUniversal (on that score, see NBCUniversal Ad and Studio Revenues Tumble).
“China is one of the fastest-aging countries in the world and is one of the most important countries in the area of Alzheimer’s disease for Eisai,” the company told Reuters yesterday. “The potential growth for Leqembi in China is huge.”
When all else fails, ride the demographic dividend: many people = many people with an existing or emerging health problem = huge market opportunity.
Which is another classic story for Western companies seeking growth in China. And for the pharmaceutical industry, the value equation is almost a no-brainer to package and position in one slide for investors. But the reality is more complex, and certainly not linear (see here China’s “demographic dividend” appears to be a myth). And as pharmaceutical commercial teams are realizing, competing in China means giving “mega-discounts” to get market access. From Bloomberg (How China Is Getting Drug Companies to Slash Prices):
“China has been overhauling its health-care system with the aim of providing broader access to quality drugs for its enormous population. The result: Drug prices are tumbling and the once-high profit margins of drugmakers, both local and foreign, are eroding. For manufacturers, the pressure is set to intensify as China hones its strategy of demanding mega-discounts in exchange for access to the world’s No. 2 pharmaceuticals market.”
Huge growth opportunity for Eisai and its Alzheimer’s drug in China? Or Biogen in the United States? We’ll see.
When it comes to commercial model innovation in the drug market, you can either hope for the best from “the system” already out there somewhere, or you can simply chop the knot and construct your own channel, become the visible hand in the design of a new system of markets, where the markets themselves become characters in a new screenplay, a unique and original story.
Something that, like Tarantino’s Reservoir Dogs, delivers an ‘innovation shock’ to the audience .
More to the hundred-billion-dolllar point:
If the Leqembi brand teams at Biogen and Eisai stick with the Classic Story, following the same script, using the same cast of characters that has framed the industry’s narrative for the past 138 years, my over/under betting is with the under.
/ jgs
John G. Singer is Executive Director of Blue Spoon Consulting. Blue Spoon is the global leader in positioning strategy at a system level.
