Tune into this episode of PwC's Next in Health to hear PwC Health Research Institute's Trine Tsouderos, and Strategy& Principal, Igor Belokrinitsky, in discussion with Strategy& Principals Rick Edmunds and Shaguna Punj, on how pharmaceutical and life sciences companies can use value-based planning as a tool to make better choices to get better results. This episodes includes:
Topics: health, healthcare, pharma, pharmaceuticals and life sciences, workforce
Find episode transcript below.
Trine Tsouderos (00:04):
Welcome to HRI’s Next in Health podcast. I'm Trine Tsouderos and I'm a Management Consultant at PwC, working with Pharmaceutical companies on vaccines, mRNA and other drug products. I also lead our Health Research Institute, also known as HRI.
Igor Belokrinitsky (00:20):
And I'm Igor Belokrinitsky. A Principal with PwC’s Strategy& where I help leading health organizations with their strategies and operating models.
Igor Belokrinitsky (00:29):
And Trine and I are here today with Shaguna Punj, who's a Partner with Strategy&, and Rick Edmunds, who's a Senior Partner with Strategy& and they're here today to talk about value based planning, and we're very excited to have them. So welcome Shaguna and welcome, Rick.
Shaguna Punj (00:44):
Thank you for having me.
Rick Edmunds (00:45):
Thank you. Good to be here.
Igor Belokrinitsky (00:48):
Now, as you are both strategists, strategy is all about making choices. And as the industry changes, both the choices change as well as the ways and approaches for making those choices.
Igor Belokrinitsky (01:01):
And one of the more important ones is value based planning. So today, that's our topic for discussion. It seems that it's been growing in importance and usefulness as a tool for making choices, and so we're excited to talk to you about it.
Trine Tsouderos (01:17):
I think, when I think about these kinds of endeavors and I think a lot of folks think, when they think about these kinds of endeavors, they think about these exhaustive bottoms up accounting and rating exercises that happen in minute detail.
Trine Tsouderos (01:31):
But that's not what we're talking about today. We're talking about a more tiered, efficient approach to getting results. And so I'm really excited to hear what Rick and Shaguna have to say about that, about avoiding those exhaustive accounting exercise. I think people think about.
Igor Belokrinitsky (01:47):
So Trine, maybe it was that in mind. Let's start with the big picture. Let's talk about the current and future environment and what is it about? What's going on today that's pushing pharma and life sciences companies to make tough choices? How big of a deal is this? Rick, what do you think about this?
Rick Edmunds (02:04):
Well, if you step back for a moment and look at pharmaceutical companies and their performance, they've actually been underperforming over the last 1, 3, 5, 10 years in terms of shareholder returns relative to the broader industry, and it is an industry that typically had been an outperformer up until the last decade.
Rick Edmunds (02:23):
So what they are seeing is that their expectations remain high. They have a 30% higher price earnings ratio than the S&P more broadly. They are facing some pretty significant headwinds.
Rick Edmunds (02:37):
If you think about the natural pricing pressures, you think about the increasing competitiveness within the primary therapeutic areas and amongnst all that, they still have to improve performance significantly to even get to much less surpass the S&P 500.
Rick Edmunds (02:52):
And they're doing this coming off of what you would think would have been a good timeframe. They had a 33% growth in prescriptions, globally, over the last decade and their pipeline assets in terms of new modalities has increased tenfold.
Rick Edmunds (03:05):
So the net of all that together says, they have to not only increase their top line, which has always been a high expectation, but also increase their bottom line performance pretty significantly.
Rick Edmunds (03:17):
And in a way that they frankly have not been forced to do in the past and that does translate to bigger winners and losers.
Rick Edmunds (03:25):
The differential between the top quartile performer in pharma and the third quartile, the bottom quartile was 25 points. If you look back a decade now is up to 40 points.
Rick Edmunds (03:34):
So this differentiation in the industry and performance in the industry, both top line and bottom line is gotten to be much more significant, and therefore it requires companies to be more thoughtful around how they put their resources to the best use.
Trine Tsouderos (03:47):
So Shaguna, I wonder if you can talk a little bit about those choices that are going to have to be made because it sounds like to me from what Rick just said, that business as usual isn't going to cut it anymore and that there's a lot of pressure to take action.
Trine Tsouderos (04:00):
So can you talk a little bit about some of those tradeoffs of those choices that pharmaceutical and life sciences companies are going to have to consider?
Shaguna Punj (04:08):
So, yeah, there are a number of what we are increasingly seeing as tough choices that business leaders and executives and pharma on life sciences are having to make.
Shaguna Punj (04:16):
An example would be they're constantly challenged on how to prioritize their portfolio in terms of where they allocate resources. Traditionally, a number of companies, their current portfolios are made up of large blockbuster products that have multiple indications and reach out to a number of patients.
Shaguna Punj (04:34):
But where they're seeing a lot of the future value is being driven by a tail of niche products with much smaller patient populations.
Shaguna Punj (04:40):
So even just thinking on how you reprioritize your dollars, but also your overall resourcing and activity related to your portfolio and where it is in the life cycle is pretty tough, especially in some of these larger, complex pharma life sciences companies.
Shaguna Punj (04:55):
Another example that's also being led from a market perspective is the shift to newer digital channels, traditionally a lot of what marketers have done have been around traditional channels, off media and banner ads, where they have some comfort in knowing the effectiveness of their channels for their brands.
Shaguna Punj (05:13):
And now there's a shift towards digital channels, which may be more efficient, but the effectiveness is probably less tested. And so really, how much can I bank on that? Where do I shift the resources is tough?
Shaguna Punj (05:25):
But Trine, we've also seen not just at a business leader perspective, also at the brand level. Some of the brand leaders, functional leaders are also constantly challenged around these tradeoffs.
Shaguna Punj (05:35):
So, one of the examples is pharma has always invested a lot in generating discretionary publications that's out of the word of mouth and the scientific data.
Shaguna Punj (05:44):
But how much do you continue to do that for relatively established products? Or how much do we need to reinvent the wheel around content?
Shaguna Punj (05:52):
And what content goes to the different audiences for some of the mature and more established assets, or one of the classic ones is doing different speaker programs and events, which may be limited in their return on investment but can be seen as more strategic, especially when your competitors and peers are doing it.
Shaguna Punj (06:09):
So there are a number of those choices that the business leaders and brand leads face day to day. I think on the point of where these can be a little bit more low hanging fruits is where there's clear indicators of productivity or ROI.
Shaguna Punj (06:22):
It becomes much harder when you're talking about spend categories that are related to more internal facing functions, which are of course, much needed to operate in the business like market research or data, or even medical affairs. But you can't really tie it back to value.
Igor Belokrinitsky (06:37):
So the stakes seem really high here. These are big bet your career, bet the company types of decisions and it's not just binary A or B, it's also how fast do we want to move in a particular direction?
Igor Belokrinitsky (06:50):
So for an executive, how do they go about making these decisions, these choices? What methods are they using?
Rick Edmunds (06:57):
Well, it's interesting. Our clients, both the business leader’s side and the CFOs that we work with, are looking for a better way to decide on how they think about resource allocation of their operating expense across the portfolio, across functions, across geographies.
Rick Edmunds (07:14):
Not just in terms of direct promotions and proposed increases in spend, but even regarding their full base of spending, a little bit of that without employing zero based budgeting that zero based mindset.
Rick Edmunds (07:25):
Where are the places that we can free up capacity given the need to increase spend, but they really want to do it in a more sustainable way than they've done in the past.
Rick Edmunds (07:32):
After they've completed a major transformation or a big deal where they've driven just synergies and they've had to capture that opportunity. But it hasn't really set them up on a more sustained basis in terms of managing their portfolio.
Rick Edmunds (07:43):
They want to tie it to actual choices around the workload, around the activities, around the efforts of the organization, not just around how hard they push on the financials and or the person.
Rick Edmunds (07:54):
And then finally, more about an especially larger pharma companies have moved to a more decentralized decision making and operating model.
Rick Edmunds (08:02):
And they need this newmodel to work in a construct where they are empowering these business leaders versus mandating change from the center.
Rick Edmunds (08:10):
So that's where value based planning has come in. It is actually a much more sustainable way of working within a large organization, empowering owners, but providing the insights necessary to make those trades off decisions.
Shaguna Punj (08:22):
Yeah. And just to build on what Rick was saying. Resource allocation methodologies are not new. And when we think about some of the things that have existed, like zero based budgeting, tactical planning, driver based planning, a lot of different methodologies have been employed by different companies.
Shaguna Punj (08:36):
I think the challenge that we often see, especially in larger, more complex pharma companies, is the lasting impact and the ease of implementation.
Shaguna Punj (08:44):
When we think of value based planning, there are few differentiators or enhancements that we think of overall. One is really sort of tying the activity to cost and resourcing.
Shaguna Punj 08:54):
So to what Rick was saying in terms of what really drives the cost and making the business leader think about where would I rather spend my dollars? The second piece is around looking at the totality of spend.
Shaguna Punj (09:06):
So really thinking beyond what we would need incrementally year over year, how much are we spending from a tactical or an internal or an headcount perspective and tying that back to productivity?
Shaguna Punj (09:17):
So this ties back to the point that I was making earlier. How are different ways that we can improve our spend base. And then finally, touching on the third point would be around empowering the business leaders with the right analytics and tools.
Shaguna Punj (09:29):
So it's less about this being done to them, but really sort of enabling them to see how they can make better decisions. And I think those are some of the key differentiators we found to be more effective and create more of a lasting capability than some of the things that have existed earlier.
Trine Tsouderos (09:47):
So it sounds like to me what this does is it brings more clarity and control to the organization. So I'm wondering if you can talk Rick and Shaguna, a little bit about what that really means? What are the benefits of gaining that clarity and control in concrete terms?
Shaguna Punj (10:03):
Yeah, I mean, the benefit definitely first more qualitatively is you're empowering your business leaders to be able to make some of those decisions versus what has happened more traditionally is every time there's a cost pressure that is a target handed and it is being done to them.
Shaguna Punj (10:18):
So the idea would be to really embed better analytics to enable better business judgment. But when you're making it more tangible and talking about value, we have been able to do this at a number of places and create almost about 15 to 20% more flexibility in the budgets for clients where they've already gone through a number of cost transformations.
Shaguna Punj (10:38):
They've gone through deal synergies and integration. So even beyond that there is some value, that you can drive by linking activity to cost. And sort of see where you might be able to do that flexibility.
Shaguna Punj (10:50):
The risk is obviously, sometimes if you don't do this organizations are going to have some constant burnout. We see a constant cost transformation or cutting cost out is sort of a crash diet.
Shaguna Punj (11:01):
And so when you are not able to really enable your business leaders to do this in a more natural form, there's going to be some target fatigue. And it's not that you cannot get back 15-20% through other transformations, it's just having a more empowered business leader.
Igor Belokrinitsky (11:18):
Very interesting, very interesting. So, what is a good way to get started on this process and start applying this methodology?
Rick Edmunds (11:26):
Well, I'd say there are two predominant choices for a company. One is whether they want to take a do, then build approach. The other is whether they want to do a build, then apply approach.
Rick Edmunds (11:37):
In the do that build approach, we started with a fairly intense and broad pilot effort where the goal is really to work with the different business leaders in current and forecasted spend areas to identify significant improvement opportunities.
Rick Edmunds (11:52):
Either by reducing workload, as we've discussed enhancing productivity through internal or external service models or other means for reducing unit cost.
Rick Edmunds (12:01):
One recent example yielded over a 15% improvement around operating productivity, enabling the company to grow double digit in a heavy needed growth mode without increasing their spend.
Rick Edmunds (12:12):
And to do so again in a way where the business leaders were truly bought in and delivered against that sort of a change.
Rick Edmunds (12:18):
And then once it's been proven successful, the company is translating it into an ongoing capability, such as they continue this going forward, not only within the areas that were initially employed, but more broadly. If you take a build, then apply approach.
Rick Edmunds (12:31):
It actually starts with the capability building and in essence, that's done through three main elements, one of which is to really identify the primary drivers of workload in each of the functional and business areas.
Rick Edmunds (12:42):
Second is to identify and link the critical data, usually coming from several different sources that linked together to demonstrate that workload and how it drives the financials.
Rick Edmunds (12:52):
And therefore to understand the implications of changing in that workload, combined with the automated analytics to generate the key insights to bring back to the business leaders around the tradeoff opportunities. And then finally, the third element is around the overall process and governance redesign.
Rick Edmunds (13:08):
And most importantly, within that is not just the overall budgeting process, but really incorporating these explicit tableau sessions for business leaders, where they're able to assess and evaluate the tradeoffs across their spend options, or delivering the modified plan budget while still delivering against the top line successfully.
Trine Tsouderos (13:24):
I really like the metaphor of the crash diet versus something that you might think of as like a longer, more sustainable lifestyle change. So thank you so much, Rick and Suguna for walking us through this.
Trine Tsouderos (13:37):
Sounds like pharmaceutical and life sciences companies are going to be considering this over the next few years as the pressures continue. I don't see a change in that anytime soon. So thank you so much for joining us.
Rick Edmunds (13:49):
Thank you. It's been a pleasure.
Shaguna Punj (13:50):
Igor Belokrinitsky (13:52):
For more on these topics and other health industry insights driven by policy, innovation and care delivery changes, please visit our website at pwC.com/hri. Until next time, this has been Next in health.
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