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Defining innovation in a changing healthcare landscape

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Filip Van Elsen

Partner, Global Co-head of Technology


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08 September 2014

The business model that has served the pharma industry so well for 20 years has become expensive and slow. But digital technology and Big Data, says Filip van Elsen, might help the industry reboot its relationship with patients and loosen its dependence on old-fashioned blockbuster drug development.

Developing a new drug costs billions of dollars. That investment is, of course, worth it if the developer can negotiate the lengthy development, clinical trials and approvals process, and successfully bring a patented product to market.

But the figures tell a worrying story. R&D successes are getting harder to come by, while the costs of development continue to rise exponentially. The U.S. Federal Drug Administration (FDA) approved 32 new drugs in 2013 and that figure has remained relatively flat in recent years. At the same time a number of big blockbuster drugs will this year tumble over the so-called “patent cliff”, at a time when pipelines are getting harder and more expensive to fill.
That leaves the industry facing two main challenges: it needs to cut the cost of R&D and, increasingly, it has to build a much closer relationship with patients, the ultimate consumer, to demonstrate how it is providing them with real value. It’s a case of moving from a pay-per-pill strategy to a pay-for-efficacy one, with a much stronger focus on outcomes.
It’s a radical shift and some big pharma companies are coping with it better than others.
One strategy to tackle the rising costs of R&D is manifesting itself in the M&A market. We’ve seen a raft of highly targeted acquisitions, joint ventures and asset swaps as leading companies try to focus on specific areas of the market or technologies. The USD19bn asset swap between Novartis and GSK this year was an example of just that; Bayer and Merck’s cardiovascular collaboration is another example.
At the same time the proliferation and digitalisation of data is providing another route to cutting the cost of development and improving patient safety. The industry and healthcare systems sit on huge amounts of data, which, if analysed and used very strategically, can help find new treatments at much lower cost. These days you’re as likely to find an IT expert, hired from Google, as a chemist developing new drugs.
This chimes with changes in public and private healthcare systems, where we’re seeing a shift from sick care – go to hospital, get a pill, get better – to preventative health care. Here connected devices, perhaps built as apps that work on smartphones and personal tablet computers, can be used to monitor patient health, make diagnoses and even allow individuals to self-medicate rather than go to a hospital or a surgery.
But there’s a problem. There are a whole host of complex legal issues thrown up by these digital technologies– conflicting regulatory systems, data protection and privacy, cybersecurity, IP, pharmacovigilance, liability, to name but a few. They need to be handled in a co-ordinated way, but the industry tends to work in silos. Making a success of connected health calls for a holistic approach, where scientists, marketers, IT specialists, legal experts and M&A strategists all work in close collaboration and with advisers who can offer equally holistic support and advice.
And when it comes to legal advice the need is for a multidisciplinary legal approach bringing together IP/technology expertise, data security and pharma regulatory expertise.
Public and private healthcare systems could also reap big benefits from using data more intensively. McKinsey recently calculated the U.S. healthcare system could save a massive USD300bn a year through better analysis of data from such things as clinical trials and health insurance transactions, but that also calls for a joined up approach.
There are many prizes on offer to the industry if it gets this right. Think of the proliferation of mobile devices, not just in developed markets, but in emerging ones too across Asia and Africa. The FDA has estimated that by 2015 as many as 500mn smartphone users worldwide will use some form of health app. Much of the development of these may still be focused on the West Coast of the U.S., but we are talking here about a potentially huge global market for connected devices and ways of taking healthcare to sections of the world’s population that have previously been unable to access it.
That offers the industry the chance to balance its on-going search for new, patented medicines with a new and complimentary stream of revenue and the chance to increase its efficiency massively. It also offers the potential for better healthcare outcomes to the world.