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Value Creation through Business Innovation in the Pharmaceutical and Medical Technology Sector

Fred NijlandAnnemarie van HoogstratenNanning de Jong

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The Dutch market for the pharmaceutical and medical technology sector is in

great flux. Throughout modern history the pharmaceutical and medical tech-

nology sector has been innovating in the area of product development. Yet,

from a business innovation perspective, even more opportunities for “value

creation” are now available. Fueled by health care trends such as the use

of social media, new openings exist for innovative solutions. This brochure

provides insight into the opportunities for value creation, as well as how they

may be mobilized locally in the Dutch market.

This brochure is written primarily for general, commercial, marketing and

corporate affairs managers in the pharmaceutical and medical technology

sector. It may also serve to inspire innovative health care industry entrepre-

neurs to create new value in the health care supply chain.

Summary

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The need for innovation as a priority in the pharmaceutical and medical

technology sector remains consistently high. The Bridge business innova-

tors researched the market most recently in 2010: in nearly 81% of the com-

panies, the subject of innovation was given high or highest priority.

The pharmaceutical and medical technology sector is in a complete state

of flux: hospital-at-home care, the effects of the preference policy, the di-

minishing influence of medical sales representatives, and the rise of new

revenue models in health care are all examples of the changes currently

taking place in the market.

The sector realizes that the changes are creating opportunities for growth.

As a result, the sector is embracing the changes, which are leading to busi-

ness innovations within the industries. By business innovation we mean

“the creation and profitable use of the new.” It is a skill and an art to trans-

form change into growth for the business.

In this publication we will describe several significant trends and devel-

opments. These trends create opportunities. The opportunities are filter-

ed through a business innovation “lens”. This business innovation lens in-

cludes twelve ways to innovate and create new value.

Fred Nijland

Annemarie van Hoogstraten

Nanning de Jong

The Bridge business innovators

NeedSummary

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The sector in the Netherlands is made up of over 120 pharmaceutical compa-

nies (some 30 of which are members of the trade association Nefarma), tens

of wholesale businesses (four of which are major players), over 1,900 phar-

macies (the great majority of which are joined into five retail franchises and

chains), and about a hundred companies that supply medical technology, in-

cluding a dozen major players. Mainly through a wholesaler, pharmaceutical

companies supply their products and services to pharmacies (which dispense

them) and to general practitioners (who prescribe them) and to health care in-

surers (who pay for them). The latter three parties together organize the care

for the end user: patients. This complex triangular relationship is illustrated in

the figure below. Medical technology companies supply health care institu-

tions and specialists, and in this way contributing to organizing patient care.

In this publication we will focus solely on the businesses shown in blue in

Figure 1: pharmaceutical companies, wholesalers, pharmacies and medical

technology companies.

Figure 1. Players in the health care industry,

with the focus on the pharmaceu-

tical and medical technology sector

Landscape

Focus

Pharmaceutical company

Wholesaler Pharmacy

Doctor

Insurer Medical technology companies

Health care institutions (management and DMU)

Medical specialist

End user/patient

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The pharmaceutical players (pharmaceutical companies, wholesalers and

pharmacies) are the largest suppliers to the health care sector: in 2008 they

realized sales of approximately € 2.8 billion. The second largest supplier

is the building sector. And in seventh place are the suppliers of medical

technology.

Pharmaceutical

Wholesalers

Pharmacy chains / franchises

Medical technologies

GlaxoSmithKline

Abbott

Astellas Pharma

AstraZeneca

Bayer

Boehringer Ingelheim

Janssen Cilag

Lilly Nederland

MSD

Pfizer

Roche Nederland

Sanofi-Aventis

and various others

Mediq

Brocacef

Alliance Healthcare

Mosadex

and various others

Mediq

Kring

Escura

and various others

Philips Healthcare

Siemens Healthcare

GE Healthcare

Toshiba Medical Systems

Johnson & Johnson

and various others

Table 1. Company names

in the pharmaceu-

tical and medical

technology sector

The summary below lists a random sampling of some of these businesses.

Landscape

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Local opportunities are often created from market trends and develop-

ments. Several significant market shifts are listed below.

Health care services are becoming more long-term

The key to the huge advances made in cures over the past twenty years,

such as those in the field of cardiovascular disease, has been innovation–

not only in medication but in the treatment approach and in patient lifestyle

changes. Long-term care requires a close interplay between medications,

therapeutic treatment, and the patient’s behavior and environment. Medi-

cations give way to care solutions, with the “chemical” component being

just one part.

Geriatric diseases require a combination of solutions

Aging is social gain, but it is also a challenge for the future. For example,

the demand in health care is shifting towards more chronic diseases and

maladies of aging, which often come in combinations. This requires inte-

grated combinations of therapies, diet, lifestyle and medications. That, in

turn, makes health care products complex propositions. To an increasing ex-

tent, the power that can be realized by the supply sector depends on these

propositions, rather than on the products.

Health care solutions and cost reduction are the driving forces behind new

forms of cooperation

In a variety of ways, care is being brought closer to the consumer. New

partnerships and new care groups are being created, partly due to the “en-

forcement” of cost reduction. For the time being the emphasis is on cost

reduction, but the trend is towards value creation for the patient, health care

provider and payer. Innovation involving cooperation is becoming increas-

ingly important.

Pressure on margins and costs leads to new revenue models

The introduction of the preference policy and hospital-to-home care, among

other things, has led to a major decrease in margins. The search for new

revenue models and revenue streams has begun.

Value creation takes shape at the level of the medical condition

It is not the hospital that is relevant to the patient, but the quality of the en-

tire treatment approach, involving multidisciplinary chains of cooperation.

There are already intermediaries working on transparency to guide patients

Trends and developments

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to the best “chain.” There are health care alliances and innovative coopera-

tive relationships centered around a single medical condition. The winners

have a unique business model, which will be tough to copy.

Pharmaceutical and equipment innovation become life sciences innova-

tions

In (foreign) R&D centers, spectacular progress is being made in the fields

of nutrition, health and sustainability. In addition, fields such as diagnostics,

medicines and medical devices (such as stents in blood vessels) overlap

each other to an increasing extent. This leads to complex life sciences solu-

tions that need to be brought to the market in the Netherlands and be imple-

mented by the Dutch players in health care. Such product introductions are

consequently much more complicated than they used to be.

Price becomes “cost-for-the-insurer”

The price of medication is being replaced by the concept of “cost-for-the-

insurer”. The costs of the entire treatment over the full treatment period

(which can even be a lifetime, for chronic patients) are crucial. Together with

other players in the health care industry, the pharmaceutical and medical

technology sector will arrive at new costs and business models to make

this possible.

The consumer/patient is changing, taking more initiative

To an ever increasing extent, patients are becoming active in their use of

social media and the internet after receiving a doctor’s diagnosis. They

gather information, form opinions and express themselves. It is becoming

essential for health care providers, pharmaceutical companies and medical

technology providers to respond to this trend. This raises many problems in

terms of regulation, but also offers many possibilities.

The influence of medical sales representatives and account managers on

those who make health care decisions is decreasing

Medical sales representatives have an average of less than 15 minutes to

spend with doctors. Providing accurate information on medications has

never been so difficult. Contact with the people in institutions who for-

mulate policy on revenue models and health care strategies is limited.

And things are no better with regard to the dialog needed for co-creation

(between those making the decisions in an institution and the supplying

industries).

Trends and developments

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The industry trends can lead to countless business innovations. New value

will be created, allowing sales revenue to grow. Businesses can also grow

in their customer performance (towards the patients, the doctors, hospitals

and health care insurers). Plenty of opportunities!

The business innovation lens (Figure 2) is used for translating trends into

business innovation opportunities. Companies can innovate along several

axes, such as the “revenue models” axis. These innovations may be incre-

mental (the inner ring) or radical (the outermost ring). The ring between

them indicates that it entails a substantial innovation. Later in this publica-

tion we use this model to channel the opportunities described into a step-

by-step plan, which the companies in the sector can apply to turn the in-

novations into growth.

Figure 2. Business innovation oppor-

tunities for the sector

Health care products

3. Health care servicesHealth care knowledge

2. Health care marketing concepts

Health care alliances and partnerships

0. Health care customersHealth care channels

1. Health care experiencesCare supply chain

4. Health care revenue model

6. Health care organization

5. Commercial processes

Where

How

What

Who

Business innovation lens: opportunities for growth in the sector

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By looking along the different axes, we see various opportunities emerging.

The sector creates new sales opportunities by starting with patients’ and

doctors’ experience of care (1): how do they feel about the care? Both at the

level of deeds and on an emotional level? A “deep dive” into the life and

work of patients, doctors and hospitals reveals prospects for innovation,

which in turn lead to health care marketing concepts (2) and services (3).

Together these form the foundation for finding new revenue models (4),

new commercial processes (5) and improved organization of care and

partnerships (6). This connecting thread ensures new collaborations (with

health care insurers and various other parties) and channels.

Many companies in this sector are still working according to the “old mar-

keting” model, characterized by product-oriented thinking based on the four

P’s (product, place, price, promotion) as the marketing mix.

The old four P’s have now been replaced by the four C’s, in which every-

thing revolves around customer value:

1. The product becomes the customer solution - Where can you add val-

ue in the customer process?

2. The price becomes cost-for-the-insurer - It is not the price of the medi-

cation that is important, but the effect it has on the cure.

3. The place becomes convenience – ease and closeness to the patient

(as in hospital-at-home care)

4. The promotion becomes communication – interaction with customers,

doctors and the decision making units of health care institutions and

insurers.

Many companies in the sector are lacking a consistent strategy and plan for

serving this new market reality effectively.

The emphasis is still on medications, and it needs to shift to value creation

through “treatment channels”. Gearing the value creation to health insurers

is cumbersome. There are plenty of ideas in the sector, but few successful

implementations.

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Get a sense of how patients and doctors experience health care,

through “patient & doctor journeys” that answer the question

of how care is experienced. A “deep dive” into the life and work

of the patient, doctor and hospital reveals prospects for innova-

tion, which in turn lead to health care marketing concepts and

services.

Health care concept development

Based on patients’ and doctors’ experiences of health care, we

can formulate concepts and an appropriate business model in

which the basis for an approach to care that creates new value is

made up of not only medications, but of services, processes, ICT

care protocols, etc. The lead time of pharmaceutical innovation

projects is often long. Accelerating time-to-market is necessary.

The business innovation opportunities above will inspire the companies in the sector

to take steps. We see the following steps clearly before us:

Specific approaches for the Dutch market

STEP 1.

STEP 2.

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Figure 3. “Business Model Generation,”

by Osterwalder & Pigneur

The innovation growth strategy

Many pharmaceutical companies struggle with falling margins,

and sometimes also with falling sales revenue. In the Nether-

lands, the new developments must be anchored locally in a

coherent growth and organizational strategy covering the four

C’s (customer value through Customer solutions, Cost-for-the-

insurer, Convenience and Communication).

The development of revenue models

A revenue model describes the way a business earns money

and incurs expenses, and how it thus creates value for its own-

ers and stakeholders. Boundaries must be set up to facilitate

investments and streamline decisions on licensing and partner-

ships. With a revenue model approach, concepts are developed

into commercially attainable initiatives.

STEP 3.

STEP 4.

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Commercial innovation services will ensure that businesses can

pass on the value of new services to the doctors, care groups

and insurers, as well. Without this step, “the creation of the

new” would not become “profitable use of the new.” Medical

sales representatives will be retrained as health care innovators

who must actualize the new value in the health care spectrum

(in the form of higher sales/margin).

The execution and realization with project management in the

health care organizations ensure that the new developments

are aligned with people’s roles and jobs and with the processes.

Market introduction methods and commercial processes must

be changed significantly to meet the new reality, to be geared

more towards the personnel, the processes and the technology.

Effective change management is a necessity.

STEP 5.

STEP 6.

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ICT-based innovations and supply chain realization: The new

approach and organization lead to an integrated use of new

technologies such as social media and mobile apps for the iPad.

These become innovative applications for doctors and patients,

supporting the treatment methods. In logistics, consider techno-

logical developments such as central filling.

Innovating through collaboration: In the future health care inno-

vations will take place solely in the multidisciplinary health care

supply chain, requiring collaboration. Collaboration is a skill and

an attitude, which has not been developed evenly throughout

the health care sector and still presents plenty of opportunities!

STEP 7.

STEP 8.

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The Bridge business innovators help industries like the pharmaceutical and

medical technology sector to innovate and achieve new sales revenue. As

advisor and manager, The Bridge creates bridges between existing and new

business, between technology and marketing, and achieves results.

We are a subsidiary of Twynstra Gudde and a partner in Highland World-

wide. We have worked for many organizations internationally, including

those listed on the following page.

Highland Worldwide is a strategic alliance between consultancy firms in

Europe, USA, China, Japan, Singapore, Australia, Brazil and United Arab

Emirates (51 offices in total). The expertise of over 2,200 consultants and

managers gives us a solid basis to assist you with local support.

Who are we?

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In the pharmaceutical and medical technology sector, we focus on the fol-

lowing areas:

1. Creating road maps of patients’ and doctors’ health care experi-

ence: The Bridge provides “patient & doctor journeys.”

2. Developing concepts and accelerating project innovation: The

Bridge provides health care concept development and project

management.

3. Anchoring new developments in growth and organizational strate-

gies for pharmaceutical companies: The Bridge provides consult-

ing services for innovation and revenue growth strategies.

4. Developing scenarios and new revenue models: The Bridge offers

workshops on revenue models in the medical sector.

5. Producing commercial success: The Bridge gives your management

commercial impact, and achieves product launch goals.

6. Aligning new developments with the roles, jobs and processes:

The Bridge provides innovation delivery and change manage-

ment.

7. Using new technologies (such as social media and iPad technol-

ogy): The Bridge provides Healthcare E-business support.

8. Innovating through working together in the health care supply

chain: The Bridge provides venture team programs.

Who are we?

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The Bridge business innovators

Address:

Phone:

E-mail:

Website:

Stationsplein 1

P. O. Box 907

3800 AX Amersfoort

The Netherlands

+31 33 4677470

frednijland@thebridge.nl

www.thebridge.nl/en