Key considerations on the complex series of processes utilized to bring a new drug to market
The average cost to launch a new drug has increased significantly in the last decade due to the rise in commercialization costs, more pressure from the payors, increased regulatory and compliance costs and shorter exclusivity periods. With returns on new investments down, pharmaceutical companies must deploy well-thought-out drug commercialization models that will ensure long-term success and profitability to maximize financial health and meet financial goals.
A company’s commercialization model is the means by which it makes a profit – how it addresses its marketplace, the offerings it develops and the business relationships it deploys to do so. In the pharmaceutical industry, there are two standard commercialization models, with few subtypes. The difference between these models is profit sharing. In the era of blockbusters, the most common model was a “Fully Diversified Model,” based on the provision of an internally integrated product-service mix. Under this model, a single parent company owned a network of entities with the business risk spread across different business units.
While this model is still used, an increasing number of pharma companies have started to incline towards the “Federated Model,” which draws on both in-house and external assets. This model is based on shared goals within an infrastructure and network of separate entities, combining size with flexibility. There are two subtypes or variants of a Federated Model, the so-called Virtual and Venture variants. The Virtual variant employs a network of contractors coordinated by one company acting as a hub, while the Venture variant is based on a portfolio of investments and sharing intellectual property or capital growth. Venture variants operate on a project-by-project basis and fee-for-service financial structure, stimulating entrepreneurialism and spreading the risk across the portfolio. The Federated Model has proved more resistant to market challenges and constant changes, and in joining forces with a wide range of organizations creates a network that offers higher expertise than any single company could offer alone.
The key element of each business model is the value proposition it offers to the customer. In the pharmaceutical industry, a direct approach to customers/patients is highly regulated. In some countries, like the United States, these restrictions are less rigid, meanwhile, the direct approach to the patient in Europe is for all practical purposes, fully restricted. The new trend in pharma is a transition from selling products (such as pills or tablets) to offering recurring services that encompass much more than just the medication – moving “beyond the pill.” With significantly less investment compared to new drug development, the lifetime value of the customer increases. Whether the regulatory changes in the rest of the world allow direct approach to the customer remains to be seen, but surely there is a growing trend of incorporating patient feedback into regulatory decision-making processes.
Regulatory compliance in drug commercialization remains one of the biggest challenges in the pharmaceutical industry. The regulatory environment, both global and local, is constantly changing and imposing more stringent regulations as health authorities seek to ensure the safety and efficacy of drugs. Consequently, pharmaceutical companies invest increasingly more time and resources to comply with new regulations, contributing significantly to the overall cost of a new drug/new market launch. On top of the direct costs associated with meeting stringent regulations, companies are faced with potential additional financial burdens and reputational risks resulting from non-compliance. However, navigating the regulatory landscape shouldn’t be considered merely an obligation. A more strategic approach should be applied, utilizing these challenges to nurture an agile culture, striving for innovation and success.
The impact of regulatory changes on commercialization models depends heavily on a company’s agility and capability to embrace and rapidly implement changes. Companies struggle to meet new regulatory requirements from a cost perspective, which includes not only direct cost but also the potential cost stemming from non-compliance. In some cases, companies can’t keep up with the new regulatory demands, which brings them into the non-compliance zone. Additional costs can arise also from delays in all stages of drug development and in the launch phase due to newly imposed regulatory obligations. The key to mitigating the risk of non-compliance in any business model is proactive engagement with regulatory bodies and an agile and lean approach to implementing required changes. This is particularly critical as the regulatory landscape will keep evolving due to continuous advances in science, public health needs, and societal expectations.
The arising challenges that pharmaceutical companies will face in the coming years are more focused on real-world-evidence and inclusion of patient feedback which will again require new guidelines and integration of such data into traditional regulatory processes. Expanding on technology utilization and innovations will certainly bring new regulations focused on patient safety and data integrity. Digital therapeutics, treatments based on software rather than chemical or biological compounds, are a novel category which don’t comply with medical device and pharmaceutical regulations. Agencies will need to develop new guidelines and regulations to ensure these new therapies are safe and effective. With advances in genomics and precision medicine, treatments are becoming tailored to individual patients which will require new regulations for personalized medicines.
The key to any strategy in mitigating the risk of non-compliance is ensuring timely adaptation of regulatory changes. Technology solutions which are tracking regulatory changes in real-life are available and can be utilized to automate and streamline internal processes to enhance faster adherence to new regulations and reduce human errors. Leveraging data analytics, artificial intelligence and machine learning are novel trends being adopted to ensure early alignment with regulatory requirements, speeding up approval processes. Platforms that facilitate real-time communication with regulatory agencies also ensure faster and more structured communication, further reducing timelines. The Integrated Regulatory Information System (IRIS), implemented by the European Medicines Agency (EMA) is a good example of such a system.
By employing collaborative, technologically innovative and proactive strategies, companies can not only align with the current regulatory requirements but also position themselves to adapt to future changes, benefiting both their return on investment and the patients they serve.
Mihaela Vuksic Munitic
Mihaela Vuksic Munitic serves as Vice President of Strategic Alliances at Erkim Pharmaceuticals. As a people-oriented and forward-thinking leader, she is instrumental in achieving sales and EBITDA targets by developing highly motivated teams of experts and implementing strategic plans.
Cem Zorlular
Cem Zorlular is Chief Executive Officer at Er-Kim Pharmaceutical who broadens and accelerates global patient access to innovative treatments by offering biopharmaceutical companies of all sizes flexible, sustainable, and compelling business models to commercialize their products in international markets.
