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Planning Biotech Development Requires Knowing Payers’ Needs

MANAGED CARE April 2013. © MediMedia USA
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Planning Biotech Development Requires Knowing Payers’ Needs

That is just one of the considerations that a biotech developer must consider when creating a new product

Partha Anbil
Jay Anbil

With market capitalizations down and staff reductions up during the last five years, biotechs must determine innovative ways to introduce new products. Interestingly, many biotech companies do not have a formal product-planning function or personnel. Even among companies with these elements in place, many have not identified specific objectives for their product-development approaches.

Biotechs frequently lack the fundamentals necessary to support successful product development. Research and development (R&D) managers are frustrated by the absence of a rigorous product-development process, are hampered by ineffective tools for gauging the market, and struggle with insufficient budgets. What’s more, downsizings have affected employee engagement, creating environments where staff members are more concerned about self-preservation than product development.

Partha Anbil

Jay Anbil

A company’s priorities should determine the approach a project team employs for new-product development. Such approaches include phased product development, integrated product development, the Ideo (a consulting firm) innovation process, probe and learn, and TRIZ (Theory of Inventive Problem Solving). Each approach lends itself to achieving different objectives. These objectives include enabling discontinuous, or radical, innovation; facilitating incremental innovation; increasing speed to market, aligning R&D with market needs; and promoting development standardization.

Each involves tradeoffs. To make informed trade-off decisions, biotech executives should examine how a product-development methodology fits with their corporate goals. Does a company’s current or planned process help to fulfill these priorities? Does the process anticipate the needs of the market — physicians, commercial and government payers, and employer purchasers?

To answer these questions, R&D executives should understand the benefits and limitations of each product-development approach (see table on the next page).

Development methodology profiles
Methodology Defining characteristics Key benefits Key challenges Instance of greatest applicability
Phased product development Disciplined process with 4–10 development phases running from idea screening to post-launch review
Gate at entrance of each phase serves as a “go/kill” decision point for project
Process standardization: New-product development is consistent across business and product lines Discontinuous innovation: Adherence to standard processes may stifle discontinuous innovation, as technologies with uncertain market or cost projections may fail to meet gate-review criteria Low-margin sectors where cost containment and risk mitigation is essential
Capital-intensive sectors where the high cost of failures makes process standardization necessary
Integrated product development Flexible process that blurs structured phases of development
Core team members are dedicated full time to the project and are led by a project manager with authority to make decisions
Speed to market: Pulling traditional downstream activities upstream facilitates early decisions and speeds time to market Process standardization: Under a project-management approach, in which members spend most of their time on relatively autonomous project teams, standardization and depth of functional knowledge are at risk Fast-cycle sectors with intense time-to-market competition
Companies with strong organizational capabilities in project leadership
IDEO Equal emphasis on design and engineering to produce aesthetically pleasing, technically advanced products
Constant brainstorming and frequent prototyping enable project teams to identify and quickly fill gaps
Speed to market: Rapid prototyping enables project teams to move quickly from concept to development
Alignment with market needs: High product-success rate results from constant attention to changing customer demands
Process standardization: No aspect of product-development process is formalized Sectors in which form and function are equally important
Instances in which small changes often result in unforeseeable ripple effects
Probe and learn Vehicle for gaining insight into target markets to pursue, technologies to use, and features to incorporate Discontinuous innovation: Enables project teams to obtain information needed about the technology, the market, and the timing of the delivery Speed to market: Iterative approach results in longer R&D cycles
Process standardization: Information needed for continuous product development evolves slowly, meaning product- and project-management activities cannot be defined within predetermined development phases
Companies pursuing “white space” growth opportunities that are central to the business
Product offerings for which the penalty associated with initial quality problems is not severe
TRIZ Based on idea that universal principles of invention across industries can resolve technical contradictions without a compromise in product features Discontinuous innovation: Principles of invention can be used for breakthrough product-and-service improvements Alignment with market needs: Systematic approach to problem solving works from a technology-push perspective irrespective of customer demand Companies that face standard technical difficulties with prototypes or with scaling up to production

The PRIDE Methodology

Creative leaders will recognize which of these product-development approaches meld with their company’s goals and will customize them in ways that can help them attain their commercial objectives.

Through research and discussions with product-planning directors, we have made several intriguing insights and have developed a unified product-development methodology, PRIDE, which incorporates many of the features of the approaches listed in the table. The PRIDE framework has five components: Process, Research, Integration, Discipline, and Efficiency.

Process: Establish rigor

Many corporate functions are involved at each stage of product development. For example, the late preclinical stage needs input from research, medical, regulatory, manufacturing, and other departments. Most of these groups have different priorities, and frequently, they do not have a reporting structure that ultimately leads to a planning manager. Therefore, establishing a rigorous product-development process is very important.

A successful process should align expectations, define roles and responsibilities, and create an explicit pathway for resolving conflict.

Forecasting illustrates the importance of aligning expectations. At various stages of development, a product-planning manager is asked to provide a revenue forecast for the product. Senior management frequently relies on these forecasts to select priorities and allocate resources.

Development of a revenue forecast is always a struggle; too much specificity may adversely affect the level of resources required to bring a product to market. We helped one biotech establish a forecasting process that also served to educate senior management so that the development team continued to receive sufficient resources to do its work effectively. At each stage of product development, specific revenue forecasts included robust documentation to support resource needs.

Because of the involvement of multiple functions in product development, it is easy to lose the decision makers’ original insights and vision. More often than not within biotech companies, business decisions tend to be based on consensus, arriving at consensus delays execution and tends to demotivate the true expert in the process.

Research: Gauge the market

To understand the market, customers, and competitors, a company should use the most appropriate research tools. Major pharmaceutical companies have developed tools to guide product planning. Out of ignorance of their importance, however, many biotechs have not adapted these tools. We found three tools to be specifically useful: small-scale qualitative market research, benchmarking data, and public information.

Qualitative market research: A successful biopharmaceutical product should address unmet medical needs. Obtaining direct feedback from customers is the most objective way to understand product potential. Internal development teams, naturally, are excited about their product, but quite often, physician and payer reactions are different. Scientists, for instance, are often enthusiastic about a new mechanism of action. Numerous studies, however, show that less than 20 percent of physicians care about mechanism of action. Payers tend to be most interested in outcomes, safety, and costs.

We have seen numerous forecasts that assume a 100 percent patient adherence rate. The industry benchmark for oral drugs, however, is rarely higher than 70 percent.

When budgets are tight, many companies are unable to conduct large-scale quantitative research. Often, however, quantitative research is neither necessary nor appropriate for early-stage product development. Interviewing 5 to 10 physicians is often sufficient for gaining valuable insights in a cost-efficient way.

Benchmarking data: Benchmarking is another tool for understanding the market and product potential. Benchmark data inject objectivity into a planning manager’s estimates. Take medication adherence, for instance. We have seen numerous forecasts that assume a 100 percent patient adherence rate. The industry benchmark for oral drugs, however, is rarely higher than 70 percent.

Public information: Conducting research does not necessarily mean having to purchase proprietary information. Many times, public resources can give us enough information to understand market size and competitors. PubMed and clinicaltrials.gov, for example, are useful.

Integration: Tap stakeholders’ knowledge

Over the course of a product’s development, the team collects information from different resources. Even in a small company, it is rare that a planning manager has to start from scratch; usually, somebody in the organization has done research relevant to the task. Preclinical scientists at one of our biotech clients frequently expressed ideas from thought leaders with whom they have interacted. Integrating this knowledge not only avoids duplication of effort but also yields business insights.

The biopharmaceutical industry has begun to place greater emphasis on early collaboration with payers. Such partnerships will be critical for the success of new drugs and devices.

For new therapies to meet the needs of all stakeholders, the biopharmaceutical industry has begun to place greater emphasis on early collaboration with payers. Increasingly, such partnerships will be critical for the success of new drugs and devices. With payers demanding proof of a new therapeutic product’s value as a condition for coverage or formulary status, it is in the biopharma’s best interest to engage payers at each stage of the drug-development process.

To remain competitive in an environment increasingly driven by outcomes, pharmaceutical companies must build a strong understanding of how payers perceive value — namely, a product’s population-health benefits, economic benefits, and breakthrough clinical benefits — and integrate this knowledge into the product-development process. Doing so presents numerous challenges (see “Integrating Payer Perspectives,” page 39) but is more and more important, considering that biologics now in early development are likely to face a greater payer scrutiny and access restrictions than those that are already on the market.

Discipline: Execute with purpose

Once processes are established, it is critical to execute tasks with discipline. A process without disciplined execution is of no use. To enforce discipline, a manager needs to know the difference between comfort and necessity, should have a tool for regular review, and should have access to detailed documentation.

Throughout the drug-development process, there is uncertainty. A manager is always asked to make decisions on the basis of existing information, even though that information may be incomplete. That’s where the difference between comfort and necessity becomes important. For example, interviews with 100 physicians will give the manager a comfort level, but it is certainly unnecessary. Adding such “nice-to-have” analyses increases development costs and prolongs the time line.

A project review is an effective tool for enforcing disciplined execution. For the biotech industry specifically, we recommend the target product profile (TPP).

The Department of Health and Human Services defines a TTP as a “format for a summary of a drug-development program, described in terms of labeling concepts.” A typical TPP consists of some or all of these components: description, clinical pharmacology, indications and usage, contraindications, warnings, precautions, adverse reactions, drug abuse and dependence, overdosage, dosage and administration, how supplied, animal pharmacology and/or animal toxicology, and clinical studies. A TPP can help the team identify the most important development goals for the product.

One of the most important components for maintaining discipline is documentation. In most biotech companies, however, it is the most neglected component because of limited resources and high turnover.

Like many entrepreneurial companies, biotechs tend to have high employee-attrition rates. Even those who stay with the company are frequently moved to new positions — never leaving behind a paper trail of their discoveries, observations, and obstacles. Detailed documentation can institutionalize knowledge, avoid duplication of effort, and challenge assumptions. One of our biotech clients has a running joke: “We can never kill a project.” Even with numerous analyses, topics come back to the product-development team again and again because of personnel changes.

One of the underestimated benefits of documentation is that it is beneficial for problem solving. A detailed analysis of what drove earlier decisions can help the team understand what assumptions have changed and how to adjust strategies accordingly.

Efficiency: Execute economically

Efficiency is another necessary component of product planning in biotech companies. Biotechs frequently have aggressive development time lines. Many target rare diseases. In both cases, knowing how to execute projects efficiently is of utmost importance.

Implementing the PRIDE Approach

The PRIDE approach can be used as is or with the phase-gate process, a method commonly used to weed out weak projects in development. Experts recommend that companies implementing a phase-gate process select a few effective metrics rather than a long list of indicators; using too many metrics can increase the time needed at each gate and can be costly.

PRIDE provides an integrated and effective framework for biotech companies to use in their drug-development processes. It can be adapted to corporate goals, resources, and limitations; can help to define product-development objectives; and is flexible enough to allow for integration of external stakeholder perspectives.

When to integrate payer perspectives

While biotechs are coming to understand the need to incorporate payer perspectives into drug-development decisions, changing internal decision-making processes do this because:

  • Many pharmaceutical executives and employees are relatively unfamiliar with the payer environment and its implications for drug development.
  • Adding the payer perspective to the decision-making process requires an intense, complex collaboration and trade-off analysis between multiple disciplines within the company.
  • Development programs with a stronger focus on payer value messages are often more expensive, time-consuming, and risky.
  • R&D incentives encourage rapid progression through stages of development, irrespective of the commercial value of the drugs — making clinical and regulatory teams hesitant to change drug-development goals and work processes.
  • Meeting payer requirements may pose tough financial tradeoffs and require significant changes to the way a company does business.

Nevertheless, payers tightly manage the market for many products, making it critical for biotechs to consider a product’s value from a payer point of view. Here, choice of indications and decisions about phase 3 trial design and endpoints are of prime importance. Phase 3 data form the basis for regulatory submissions and thus need to offer compelling evidence of meaningful and payer-relevant benefits over existing treatment options.

An early understanding of the payer environment is particularly important for biopharmaceutical companies making “portfolio” selection and allocation decisions. Articulating the value of a biologic therapy for payers can also aid the sponsor’s efforts to raise additional venture capital or to sell development and commercialization rights.

The payer environment and payer perceptions of data, or of potential data, related to the product should be assessed at the end of phase 2. One reason to wait for this juncture is that the payer environment is rapidly changing, and payers, payment mechanisms, or payer priorities may have changed since previous stages of development. That’s not to say, however, that the payer landscape should not be considered sooner. It is better not to launch an expensive and lengthy clinical development process unless the commercial post-approval landscape can be anticipated and defined by data that will be meaningful to all stakeholders. Nobody wants to make substantive changes to a clinical trial program during phase 3, and conducting a payer evaluation at the end of phase 1 or early in phase 2 will help with the design of phase 3 trials and with collection of outcome data.

To understand what outcomes are meaningful to payers, it is essential to understand who the payers are, how the product or disease affects outcomes that are important to payers, and the effect a product may have on a payer’s budget.

The general analytical process for a typical payer is exemplified by a series of questions:

  • How strong is the medical need for a new therapy?
  • Does the new treatment address the unmet medical need in a substantial way?
  • Is the evidence of effectiveness and safety compelling?
  • How will the approval affect the budget?
  • Can the payer control prescribing volume?
  • Would a negative formulary decision have public repercussions?

Orienting R&D programs to payer priorities early is likely to lead to the development of agents with fewer formulary restrictions and higher volume of use. The cost of incorporating payers into the R&D process is substantially less than the potential revenue gain.

Payers tightly manage the market for many products, making it critical for biotechs to consider a product’s value from a payer point of view.

Partha Anbil is associate partner in the Strategy & Transformation Practice, Healthcare & Life Sciences at IBM Global Business Services. He is also on the adjunct faculties of the Fox School of Business at Temple University and the Hult International Business School. Contact: partha.anbil@sloan.mit.edu

Jay Anbil, wife of Partha Anbil, is a principal at the Confluence Elite Group, a consultant to pharmaceutical and biotech companies. Contact: Jay.Anbil@Confluenceelite.com

The opinions expressed in this article are solely those of the authors and not necessarily those of the organizations they represent.

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