Why Ally Instead of Buy?

The vast amounts of data accumulated by Medco, PCS and DPS, and purchased by Merck, Lilly and SmithKline Beecham, must be sorted out somehow if those expensive acquisitions are to prove their value. Finding the best way through the task is a daunting prospect, akin to embarking on a cross-country trip when you’ve just learned to drive, taking someone you don’t know very well as a companion. A few years ago, news of these major PBM acquisitions was greeted with excitement and some envy—these were once-in-a-lifetime journeys. Yet no acquisitions of similar scale have occurred since late 1994. Can no other firms find sufficiently alluring partners, or is something else at issue?

The kinds of alliances that drug companies are now forming with data holders are more like agreements to take a weekend trip together, somewhere not too far from home. Rather than buying “lives” and infinite capability, drug and biotechnology companies are now establishing alliances through which they can gain skills and experiences vital to survival in a managed-care environment. A look at three alliances formed in the first month of 1996 show how these firms’ smaller ventures are niche-ing into the services side of disease management.

The Rhone-Poulenc Rorer alliance with Quantum Health Resources centers on marketing to a well-defined patient population: namely, the 25,000 to 30,000 Americans suffering from Lou Gerhrig’s disease, otherwise known as amyotrophic lateral sclerosis or ALS. Services are at the heart of the agreement; they will be a key means of earning market acceptance for Rilutek, RPR’s orphan drug designed to slow degeneration in this fatal neurodegenerative disease. Quantum, which continues to carve its own niche as a distributor of specialized, chronic therapies, does more than just get the drug to the patient through its mail-order system. The company addresses the needs of the patient’s family and clinician too, via services such as analysis of reimbursement options, and by coordinating nursing support, home treatment and compassionate care. Quantum also tends to payors such as managed care organizations, offering them services in risk-management, as well as analyses of medical outcomes and product utilization. In a way, RPR is buying understanding of the elements that need to be included in a patient care “kit.”

Sandoz Pharmaceuticals and Value Health have also allied to serve a defined population, but together they expand the Quantum formula from what might be considered a “product-specific” alliance into a more comprehensive “category-specific” alliance: in this case, to serve the $4 billion U.S. market for solid-organ transplantation. The two firms will design and offer services, programs and products to transplant physicians, transplant centers and HMOs, as well as to patients and their families.

The alliance may help Sandoz dominate a U.S. market that the Swiss firm did much to expand a dozen years ago, through the discovery and introduction of cyclosporin drugs to prevent organ rejection. Over 18,000 transplants of organs including kidney, heart, liver and lungs were performed in 1994, at 278 centers around the country, some with benefit of cyclosporin drugs, others with newer technologies. The alliance with Value Health, a leading developer of disease management programs, will allow Sandoz to build on its experience in immunology to expand out into services, meanwhile gaining insights that may influence development of other successful therapies. Value Health will continue to build its experience in developing clinically sound, cost-effective protocols. The mutual effort makes use of time as a structuring concept: it considers the stages of patient care, from pre-surgery, when education might be most helpful through post-surgery, when compliance becomes an issue.

The alliance between Glaxo-Wellcome and Physician Computer Network can be thought of as a “capability-specific” deal, where the partners create and sell something that helps their customers be more effective. The purpose of this alliance is to create electronic information systems, to spare health care providers the time and effort of sorting through current paper-based systems. For instance, the partners plan to create computerized systems that will guide physicians through the maze of managed-care regulations as they are making clinical decisions about patient condition and treatment. Such systems will also afford Glaxo opportunities for one-stop detailing: once an HMO’s management is convinced the firm’s drugs should be on the formulary, that decision (as well as clinical data supporting it) can be dispatched to all physicians on the network. The alliance will give rise to an independent company, to which both Glaxo-Wellcome and PCN will contribute product and development assets as well as a minimum of $50 million of capital. The new firm’s customers will include health plans, providers and suppliers.

The feature common to each of these alliances is the access they provide partners to deeper understanding of the customer (i.e. providers) and the customer’s customer (patients). The disease-management partners get the chance to build functioning systems that demonstrate the value and burgeoning role of informatics. For their part, the drug companies gain experience and establish systems that can help them capture more of the nation’s health care dollar. Perhaps more importantly, alliances like these can buy a drug company assurance that its products will be included in, and validated through, the latest treatment protocols—without paying the price for an entire PBM.