The Role of Management in Biotechnology

Post date: Jul 21, 2010 8:01:33 AM

By Ashish Maskara, IIM Lucknow

With the advent of new technologies and advanced research tools the role of management in the field of biotechnology is gaining importance. A lot of research is going on that could eventually unlock a cure for cancer, mitigate global warming or lead to a device that would improve the lives of millions. But unless that researcher has an understanding of business skills, those ideas may never make it to the marketplace. It is important that the ideas make business sense and are both scalable and profitable.

In contrast to the earlier times when biotechnology products treated rare conditions like Gaucher’s disease, hemophilia, and primary immune disease, many new therapies, and many more in the pipeline are targeting larger populations. This shift is raising concerns among payers and population managers about the associated financial burdens (Exhibit 1).

Exhibit 1: Changing costs and prevalence relationships in biotechnology

Costs concerns by the payers are leading to a reduction in their exposure to biotechnology costs. By signing contracts with specialty pharmacy providers (SPPs), payers have been able to eliminate physician drug mark-up and, in some cases, have negotiated favorable pricing. The emphasis on self-administered therapies allows payers to eliminate payments to physicians for office visits and administration while fostering patient convenience. This preference for self-administered therapies places greater pressure on manufacturers of infused agents to justify their comparatively greater cost.

Though these strategies have been relatively effective in reducing payer expenditures, analysis reveals that most of the savings generated to date have been captured from providers, mostly physician practices.

Evidence indicates that opportunities to extract additional savings from providers have entered the area of diminishing returns. As a consequence, payers will need to look elsewhere for savings opportunities, primarily by applying the lessons learned from small molecules to biotechnology and other specialty products. Comparatively few payers have meaningful policies in place that are advantageous to a particular biotechnology agent.

The biologics pipeline remains flush with new technologies, many of which will carry significant price tags and treat comparatively more prevalent conditions than in the past. At the same time, the population continues to age, placing more pressure on payers to manage cost growth more effectively. The industry has become competitive enough not to sustain continued double-digit premium growth indefinitely, and employers and payers alike seek ways to rein in this trend.

In this environment, payers will move along the management continuum, prioritizing therapies and placing more pressure on manufacturers to demonstrate tangible value. This will require developing more sophisticated economic models sensitive to unique and complex mechanisms of action. It also will necessitate a more comprehensive approach to benefit design and cost sharing.

References:

The 5 Stages Of Biotechnology Management – Thomas Baker