Mehta Analysis: Disrupt or be Disrupted

Many industries are
being profoundly disrupted by IT. The survival of the publishing industry is in
question as ad rates have plummeted in response to data and content
transparency in the digital world. Digital technology has enabled pricing
transparency that is fundamentally shifting spending patterns in travel,
entertainment, transportation and many other industries.

The biopharma industry so far has not felt too much heat—thanks to the complexity of its business. (Also see “Six Questions For McKinsey’s Fox On Pharma’s Digital Struggle” – Scrip, 28 Oct, 2016.) But let it be noted that other industries looked complex in their own way—until, that is, some newcomers figured out ways to deploy the right tools to overcome the complexity. Often they succeeded in creating parallel channels to provide the necessary product or service, completely bypassing existing structures, while adapting regulatory barriers to their advantage. Uber and Airbnb are two of the better known examples.

Digitalizing More Of
The Pharma Pie

To appreciate the
implications for biopharma, let us recall the way its economic pie comes
together. Biopharma’s share of US healthcare spending is approximately 15%. In
round numbers, a tenth of this biopharma spending goes to the cost of producing
the medicines, a fifth goes to R&D, and two fifths to selling, marketing,
and operations, leaving an attractive profit that fetches the biopharma sector
one of the highest stock market valuations. Production has already been greatly
automated, and now IT promises to reshape much of the rest of the biopharma

The benefits of IT in
biopharma today are most evident in new product development, and especially
clinical trials. From accelerated recruitment of patients into clinical
studies, to wearables that simplify data gathering, to faster analytics and
automated regulatory submissions, clinical development is beginning to benefit
from new tools. These incremental improvements should make the D portion of the
R&D spending more efficient, although the regulatory processes themselves
are unlikely to improve quickly enough over the next decade to make a dramatic
difference in how the value of new product development evolves.

The impact of IT on
two other fronts, drug discovery and the way health consumers procure their
healthcare, including drug therapies, promises to be more dramatic and quicker.
IT tools are more effectively overcoming regulatory and other barriers along
these two fronts, helping to combat healthcare and biopharma inefficiencies with
the power of data.

Payers around the
world are sitting on data treasure troves. They are yet to fully deploy
deep-data analytics, but they are beginning to do so.

Well over one-half of
healthcare spending goes towards outpatient care, and a vast majority of
biopharma’s 15% share of healthcare spending is in the outpatient setting. The
healthcare consumer today already has at her disposal an ever-expanding range
of IT tools that break open the regulatory veil, educating her not only about
the disease that needs to be treated, but more importantly, about the value of
the various therapeutic alternatives. Equally importantly, US payer groups,
including the US government bearing the majority of the US healthcare costs,
are demanding transparency to assess the cost-benefit ratio of therapy options
– and increasingly they are getting it. After all, they are the ones processing
the health claims. This also is true of most centralized, single-payer
healthcare systems of Europe and Asia. Payers around the world are sitting on
data treasure troves. They are yet to fully deploy deep-data analytics, but
they are beginning to do so.

Exploding Pharma’s
Low-Transparency Business Model

The results will turn
evidence-based medicine from a buzzword to a true analytic power accessible to
all key stakeholders, patients, payers and prescribers alike, blowing apart the
low-transparency business model of biopharma and forcing a value-focused
transformation of every biopharma business practice. In the US, no longer will
the next product automatically be paid for at a premium to the previous
generation, and the days of regular price increases regardless of value
addition are history. Above all, the industry strategy of increasing prices by
extraordinary amounts on the eve of US patent expiry is increasingly untenable.

Mobile health tools
are reducing the role of middlemen, enabling the patient to work via
telemedicine with the most appropriate clinician, not just the physician. Many
of these IT tools effectively adapt the regulations, enabling easier entry for
new entrants, further intensifying the competitive landscape. These interlopers
range from small mobile health start-ups to the Amazons, Apples, Googles, and
Microsofts of the world who have already invested tens of billions dollars in
deep-data intelligence, along with an aggressive push to integrate imaging and
devices to greatly enhance the entire value chain, targeting healthcare system
inefficiencies from diagnostics to treatment to monitoring. (Also see “Interview:
Philips Plugs Into Patient Connectivity
” – Scrip, 3 Nov, 2016.)

IT integration is
influencing new product innovation even more rapidly. Artificial intelligence
is being fed an ever-increasing stream of life science data, leading to higher
probability pathways, while pruning out potential dead-ends early. Here again,
newcomers, from 21andme to Illumina to IBM, to mention just three, are not only
selling their wealth of data to the biopharma companies, but, lacking the
burden of big pharma bureaucracy, are deploying these insights into their own
discovery platforms, ready to show that a new and truly valuable drug need not
cost a billion dollars and take over a decade to reach the patient – nor would
it necessarily entail the high selling and marketing costs of the traditional
biopharma output.

One constant will
remain: growth based on efficient innovation will be key to maintaining
biopharma market valuations. But IT pioneers are challenging who qualify to be
a part of this biopharma universe. It is time for the current biopharma
managements to choose the path of the disruptor, or to be disrupted themselvesThis column originally
appeared on Scrip Biopharma Intelligence, April 24th, 2017

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