How Pharmaceutical Companies Can Seize the 'Internet Plus' Opportunity: Strategic Transformation and Digital Health Integration
On May 15, at the “Disruption and Reconstruction – The 14th China Pharmaceutical Marketing Emerging Leaders Forum” held during the Shanghai Pharmaceutical Fair, Zhang Yingwei, Vice President of GSK China, shared GSK’s reflections and transformations in response to the new pharmaceutical landscape over the past year. The most significant change has been in its operational model, such as decoupling sales bonuses from sales volume, ceasing the payment of speaker fees to physicians and healthcare professionals, and organizing academic conferences through third parties. These measures, undertaken with resolute determination akin to “cutting off one’s own wrist to save the body,” have set a precedent in the industry. However, whether they can truly transform the operational model and achieve sustainable growth remains uncertain; like many others, I am currently observing these developments with cautious ambiguity.
On the other hand, with Premier Li Keqiang’s proposal of the “Internet Plus” strategy, the internet healthcare sector entered a period of explosive growth starting in 2014. A multitude of players emerged, fiercely competing for doctor and patient resources, and launching various initiatives to address the longstanding challenges of “difficult and costly access to medical care” in China.
Throughout this process, pharmaceutical companies have shifted from being bystanders to actively dipping their toes in the water. Whether this move is merely an attempt to get a first taste of “Internet healthcare” or a strategic deconstruction and restructuring of marketing models has been a hotly debated topic since the beginning of this year.
Next, allow me to interpret how pharmaceutical companies can seize the opportunities of “Internet+” from the three dimensions of “Trend,” “Principle,” and “Technique.” These are not profound insights, but rather an analysis based on my personal knowledge and limited experience. I welcome your guidance and feedback.
Trend Analysis:"Skilled strategists shape the momentum and guide it to their advantage."
From a global perspective, according to McKinsey’s projections, healthcare expenditure is poised for rapid growth. By 2050, if GDP grows at an annual rate of 2%, healthcare spending is expected to account for 30% of global GDP; even with an annual GDP growth rate of 1%, healthcare expenditure would still represent 20% of global GDP. This surge is primarily driven by the following three factors:
Technology and Innovation
Rising Patient Expectations Drive Increased Demand and Willingness to Pay
Population Aging
It can be said that economic and demographic pressures are forcing providers of global healthcare systems to make changes. The most significant trend is that payers are actively shifting from a fee-for-service payment model to a value-based, outcomes-focused payment model. This transition will primarily manifest in the following areas:
Therapeutic Areas with High Treatment Costs: Such as Chronic Diseases, Oncology, and Rheumatic Diseases
Low-Efficacy Treatment Modalities: Such as Irrational Medication Use, Inappropriate Hospitalization, and Unnecessary Surgery
High-cost healthcare settings: for example, attempting and encouraging the use of home care to replace some in-hospital care
Issues in the Healthcare System: Such as Fragmentation of Healthcare Providers and Suboptimal Utilization of Healthcare Data
Underutilization of Preventive and Primary Care Services Due to Distorted Incentives and Systemic Waste
Therefore, in the foreseeable coming years, healthcare systems and payers will actively collaborate with relevant stakeholders to seek solutions in the following areas:
Patient Compliance
Chronic Disease Management
Closed-Loop Disease Surveillance
Integration of Clinical Drug Trials
Data Transparency
This transformation will have a profound impact on pharmaceutical companies. Major observable trends include: the impact of low-cost generic drugs resulting from patent cliffs; increasingly stringent cost containment measures aimed at curbing healthcare deficits; the shift in prescribing influence from physicians to payers and patients; and the enhanced patient voice driven by greater access to disease-related information and knowledge via the internet.
Let us turn our attention to China. According to the China Health Statistics Yearbook, total health expenditure in China reached RMB 3,186.895 billion in 2013, accounting for 5.57% of GDP, which represents an 81.7% increase compared with 2009. Of this amount, government, social, and individual health expenditures accounted for 30.1%, 36.0%, and 33.9%, respectively. It can be said that although the government has continuously increased its investment in healthcare, the financial burden on society and individuals remains excessively heavy, and the problems of difficult and costly access to medical care for the general public have not yet been adequately resolved.
Therefore, in the new round of healthcare reform, we can see that the government has demonstrated strong determination and undertaken substantial efforts to expand health insurance coverage, provide universal healthcare services, strengthen the primary healthcare system (such as through reforms of county-level hospitals), establish a national essential medicines system, and reform public hospitals. Whether it is the Anhui model, the Chongqing model, or the Sanming model, the most immediate impact felt by pharmaceutical companies is “price reduction.” As Premier Li Keqiang stated, the government’s core objective is singular: lower drug prices while improving the quality of healthcare services.
At the 2014 Summit on Internet Healthcare and Innovative Services held in Beijing, Chen Baoguo, Director of the Institute of International Technological and Economic Research under the Development Research Center of the State Council, stated, “In the future, health data will be integrated with technological systems, and personal health data will gradually receive greater attention.” He further noted, “The hospital-centric model, currently dominated by tertiary Grade A hospitals, will gradually weaken. Existing secondary hospitals and primary care institutions will be utilized more fully, and mobile internet technologies will facilitate a shift from hospital-centered acute treatment to post-treatment care and follow-up.” It was against this backdrop that an increasing number of companies entered the internet healthcare sector, ultimately leading to the explosive growth of “internet healthcare” in 2014.
Mingdao:"Things have their roots and branches, affairs have their end and beginning. To know what comes first and what comes last is to draw near to the Way."
I have previously stated on Weibo and in articles that, amid this industry transformation, pharmaceutical companies are like boats sailing against the current: if they do not advance, they will fall behind. This transformation is by no means merely an optimization of existing operational models; rather, it constitutes a thorough disruption.
Bain & Company, a globally renowned consulting firm, once made a forecast regarding the Chinese market: if multinational pharmaceutical companies continue to maintain their current representative-driven marketing model, and using the price reduction of Merck’s Zocor (simvastatin) as an example, assuming that half of the drugs from multinational pharmaceutical companies are included in the National Essential Medicines List and undergo annual price reductions, then within five to seven years, the profits of nearly all off-patent drugs will drop to zero.
For instance, a 2013 survey conducted by Bain & Company revealed that physicians believe pharmaceutical and medical device companies should actively participate in integrated healthcare initiatives and provide solutions, particularly in areas such as enhancing patient adherence, personal health programs, evidence-based clinical research, remote monitoring, data analytics, and telemedicine.
Companies like Welldoc in the United States have demonstrated that a patient-centered, data-driven intelligent internet platform can help diabetic patients improve glycemic control, enhance medication adherence, and strengthen self-management. This platform is also the first mobile treatment solution for type 2 diabetes to receive FDA clearance, and it is eligible for insurance reimbursement.
Therefore, for pharmaceutical companies, the next wave of transformation involves shifting focus from enhancing market access and sales returns to improving patient treatment outcomes. This shift will drive pharmaceutical companies to evolve from mere product providers to comprehensive solution providers. Those who take this step first will secure a competitive advantage in the future market.
The development of digital technology and mobile internet has supported pharmaceutical companies in their strategic transformation into providers of “patient-centric” holistic solutions.
Below, I have summarized the business model framework of internet healthcare. From this analysis, it is evident that only by securing a position in the future internet healthcare ecosystem—whether in vertical niche segments or across the entire spectrum—can pharmaceutical companies proactively transition into providers of “patient-centric” holistic solutions.
The author believes that China's healthcare system currently suffers from the following four key pain points:
Government: How to Provide Cost-Effective and High-Quality Medical Services to the Chinese Population?
Public Hospitals: How to Balance the Conflict Between Public Welfare and Profit-Seeking
Doctor: High work intensity, low income, and lack of job security
Patient: Difficulty and High Cost in Accessing Medical Care
Based on current trends, internet healthcare has demonstrated advantages and technical characteristics in four key areas. First, it effectively promotes tiered diagnosis and treatment by leveraging internet technologies to allocate medical resources rationally. Second, it enhances the accessibility of healthcare services, alleviating geographical imbalances in medical resource distribution. Third, by establishing electronic health records (EHRs) for users and electronic medical records (EMRs) for patients, and utilizing big data and cloud storage, it enables online preventive care. Finally, it not only reduces healthcare costs for individuals but also saves substantial national expenditures on medical insurance.
In the field of internet healthcare, any pioneer who can truly address even one of these pain points will have boundless prospects for future development.
Therefore, pharmaceutical companies must engage in internet healthcare at a strategic level and embrace this opportunity by transforming their business models.
Youshu:"Preparedness ensures success, while lack of it leads to failure."
So, how can one participate in internet healthcare? This is an era characterized by a flourishing diversity of approaches and vigorous debate among companies, with various pilots and explorations underway. I will share my personal perspectives from the standpoint of theoretical research.
Given the need to participate, it is essential to consider whether one has the capability to do so. This capability can be reflected in the digital marketing maturity of pharmaceutical companies. A study by Capgemini indicates that compared with high-tech enterprises, banks, insurance companies, and other industries, pharmaceutical companies still lag significantly behind in their digital marketing capabilities. Specifically, 33% of these companies are just getting started, 43% are merely following trends, 17% remain on the sidelines, and only 7% believe they are fully prepared.
As Bain & Company has pointed out, although an increasing number of pharmaceutical companies are spending more time online for professional purposes, they have yet to effectively leverage digital tools for sales management, patient education, and physician communication. While patients have already begun to proactively educate themselves about diseases and treatments via the internet, pharmaceutical companies remain hesitant to disseminate information through internet and digital media channels. These companies are still contemplating whether efforts to enhance patient adherence via the internet hold significant potential in China.
Therefore, to embrace the "Internet Plus" initiative and transform marketing models through internet-based healthcare, organizations must clearly understand the opportunities and adjustments this change brings. It is essential to recognize that this is a top-down transformation, not a bottom-up one. To successfully navigate this shift, I believe organizations should proactively initiate changes from within, rather than waiting for external pressures to force a revolution.
First: Assess your Organization’s Digital Excellence Maturity, which encompasses an organization’s vision, impact, strategic planning, development roadmap, change management, talent and skills management, digital marketing capabilities, processes, and monitoring in the realms of digital marketing or internet healthcare. In general, however, if an organization lacks a clear digital marketing strategy aligned with its corporate-level development strategy, it will be unable to establish enterprise-wide digital marketing capabilities to deliver superior digital solutions that ensure end-customer satisfaction.
Second: Gain a deep understanding of your customers—namely, the target patients. What are their actual behaviors? How do they experience the entire healthcare journey? Which factors influence their experiences? Have these experiences changed over time? Which aspects of their experience leave the most lasting impression? What are their true needs? Where can these patients be found? And what are patients’ genuine expectations from pharmaceutical companies?
Third: Only with a deep understanding of patients can organizations determine their digital marketing or internet healthcare strategies based on existing capabilities—specifically, which entry points to use, on which platforms, what services to provide, and what data to ultimately collect in order to deliver comprehensive solutions that improve patient treatment outcomes.
Fourth: With the strategy set, it is essential to establish a data-driven business operation model within the organization. In this era where data reigns supreme, only by integrating data—including all customer-facing interactions across sales, marketing, and medical affairs, as well as internal data such as financial and human resources information—can closed-loop marketing become a reality. Such integration enables the creation of detailed customer profiles based on data, thereby providing insights into customer behavior patterns and ultimately guiding the optimization of business operations and strategic adjustments.
Fifth: Recruitment and retention of cross-disciplinary talent, attracting outstanding digital professionals, particularly those who possess both healthcare industry knowledge and expertise in mobile technology and marketing. Placing the right people in the right roles and granting them sufficient authority and support are essential to ensuring effective strategy implementation. This step also involves redesigning the organizational structure. The author has discussed this issue with many industry insiders; however, due to the broad range of vested interests involved, no clear approach or viable solution has yet emerged.
Sixth: Establish extensive collaborations with all stakeholders in the internet healthcare ecosystem, particularly by forming strategic partnerships with key players at an early stage. It is crucial to secure a strategic position in a timely manner. For high-potential smaller players or startups, consider incubating them through investment or behind-the-scenes support.
Seventh: Establish a reasonable ROI evaluation system. After all, pharmaceutical companies, especially large pharmaceutical companies, ultimately aim to serve the interests of shareholders. Therefore, a sound ROI framework can better secure support from headquarters and shareholders, thereby ensuring long-term development.
The path for pharmaceutical companies to embrace “Internet+” remains long and arduous. In closing, I would like to quote Zeng Guofan: “Those who achieved great deeds in ancient times combined grand vision with meticulous attention to detail; neither element could be dispensed with.”
This article is published on VCBeat with authorization from Uncle Yao. The views expressed are solely those of the author and do not represent the position of VCBeat. Author: Uncle Yao, Explorer of Marketing Models in the Pharmaceutical Industry