Medtech’s growing influence on pharma
By Dr Munna Choudhury, and Dr Mark Wickham, MBA
There is no doubt that medtech/pharma deals increasingly appear in the news and that new medtech products and advancements in digital & connected health technologies are being heralded as value-adds to medicines. But what is the real value of medical devices to pharma and how is this likely to change in the future? These are important questions that all medtech and pharma companies should give their attention to.
Data captured by wearables represents one application of new technologies that is driving change. Mobile health apps and social media are now transforming the way healthcare is delivered. The size of the global digital health market (comprising wireless health, electronic health records, telehealth among others) is expected to increase from ca. $61B (2013) to ca. $233B in 2020, representing more than 20% CAGR .
The market opportunity that digital healthcare presents has led to a variety of deals between pharma and medtech companies that reflect pharma’s need to demonstrate additional value to its marketed or pipeline drugs. Ultimately, whether a drug succeeds in the market will be determined by health economic outcomes and its ability to deliver an end-to-end solution in patient care. Drugs do not collect data, therefore, this gap represents an opportunity for devices and wearables. We believe senior executives from both industries should focus on this “sweet spot” where pharma and medtech converge.
“We are seeing more instances where people either are adding a wearable component as part of the package or an app that is an integral part of the therapeutic…not everything that makes you better is a pill” – Dr. Joseph Kvedar, Vice President of Connected Health at Partners HealthCare. (Source: MobiHealthNews, 11th November 2015).
Non-healthcare companies, namely from the telecommunications and consumer electronics sector, are also entering the medtech space. Innovative drug delivery systems, wireless monitoring devices, smart diagnostic monitors and even digital medicines are now being associated with pharmaceutical drugs through such collaborations. For example, auto injectors can facilitate easier self-administration, improved patient compliance, and reduced anxiety and dosage errors. Smart diagnostic meters can store and analyse, and then communicate patient test results to clinicians.
GSK and Propeller Health’s development of next generation smart inhalers for asthma and chronic lung disease, represents a step forward in monitoring whether patients are actually using inhalers correctly and will provide pharma with key information about how well compliance relates to the safety, efficacy and economic benefits of the drug.
Even though inhalers have revolutionised care by delivering medicines directly into the lungs and avoiding the serious side effects seen with older oral drugs, incorrect use of the device would render even the most efficacious drug sub-optimal. With asthma and chronic obstructive pulmonary disease affecting ca. 500 million people worldwide, the potential opportunity is huge. If we can reduce serious asthma attacks by correct application and improve patient adherence, this could save $19 billion a year in U.S. health care costs alone, according to a Goldman Sachs report .
GSK’s involvement with Verily (USA) to create a new company focussed on using bioelectronics to address various diseases, including rheumatoid arthritis (RA) and type 2 diabetes illustrates two important points: firstly, that pharma is receptive to new partnerships outside its own industry and, secondly, that pharma is focussing on developing novel medical devices based on technological and scientific advancements. They are thinking outside the box. Yet, to achieve this, pharma recognises the benefits of working with a partner that has already refined or validated a technology or intervention.
Miniaturised medical devices that interface with the body are intended to make surgical procedures as non-invasive as possible so as to maximise patient uptake and adherence. They are highly precise in their ability to target the specific organ associated with a disease without affecting the entire body – similar to precision medicine drugs. However, these devices are not drugs and neither are they intended to replace drugs. Instead, they offer an alternative for patients who are not responding to current pharmacological treatments (such as RA sufferers). With more than a million people in the US suffering from RA, a new intervention could improve their quality of life, ability to work and even increase their life-span.
Bioelectronics is also being used in the treatment of type 2 diabetes which affects nearly 400M people worldwide. Diabetic patients need to constantly make decisions on medication, food and activity. Some do not bother to visit their GP for months after their last appointment. Therefore, “intelligent implants” with the ability to listen to irregular or altered electrical signals that occur in cases of disease, can be used to treat patients and modify treatment regimens thereby providing another tool alongside continuous glucose monitoring kits.
Bioelectronic medicine is intended as a new form of targeted therapy that avoids some of the side effects associated with traditional drugs. It can be complementary with existing therapies or it can open up a completely new aspect to helping patients by co-developing new drugs with bioelectrical intervention .
“These devices are not expected to replace the drug; rather, they may amplify the effectiveness of certain treatments as they sit alongside existing therapies.” – Moncef Slaoui, Chairman, GSK’s global vaccines group. (Source: Pharma and Healthcare/Cutting Edge, 2 August 2016, “How GSK & Google’s Verily will tackle Diseases with nerve ending chips.”)
Roche’s recent stake in Foundation Medicine (a leading provider of tumour testing procedures in the development of precision medicines) and its acquisition of CAPP Medical and Ariosa Diagnostics Inc. support its stated strong commitment to providing advanced molecular diagnostics products. Roche, the largest manufacturer of cancer drugs, has said that it views this commitment as giving patients the power to know earlier about health anomalies and the ability to act faster to prevent disease. Roche expects to achieve this by having access to genomic profile tests for cancer immunotherapies and for continuous blood-based monitoring – critical since molecular information is playing an ever-increasing role in the treatment and management of cancer.
In summary, these deals highlight how collaboration is a fundamental building block of the new healthcare system. New digital offerings “around the pill” recognise that the patient experience is bigger than symptoms and treatments. Simply focussing on medications without understanding other patient pain points is not enough.
What is driving change?
The healthcare industry’s value chain is being transformed by five major drivers which are focussed on:
- Reducing healthcare costs through value based pricing models.
- Addressing an ageing population associated with more complex, chronic diseases.
- Rising consumerism as patients want a greater stake in their health but at lower cost and greater convenience.
- Better targeting of medication linked to individual genotypes.
- Availability of advanced technologies, such as smart devices and diagnostics that enhance the value of existing drugs either through better compliance, reduced side effects and/or by providing alternative treatment scenarios (e.g. home care vs. hospitalisation).
What are the consequences?
The decreasing price and increasing availability of technologies and devices (such as smart phones), the general increase in digital acumen of most demographics of the population, and pharma’s need to provide services that are both around and beyond the pill, are all contributing to the trend toward smart medical technologies being developed alongside drugs to transform the value chain.
Today’s technologies go beyond just collecting data and feeding it back to the end-user/physician. It also analyses the data making it possible to ascertain how well a patient is responding to the treatment plan and allows modifications to be made at an earlier stage of the disease progression.
The healthcare landscape is also changing from a system of silos where healthcare providers, insurers, drug makers and medtech companies have been largely disconnected from each other and the consumers they serve, towards that of a modular environment with greater touch points (connectivity) between traditional healthcare players (i.e. pharma/medtech/hospitals/payers etc.) and also new entrants. This is important since a modular setting allows innovation to occur more rapidly and existing and/or new entrants can demonstrate their expertise in specific areas (or discrete “chunks”) of the care delivery value chain without the need to have expertise in all areas.
It is also evident that the innovation of “yesterday” will not suffice today; simply adding smart features to existing products will not merit a drug or device price increase. Instead, both pharma and medtech must focus on service and business model innovations alongside those incremental product changes. The latter is not so simple; value based healthcare means that business leaders will need a different mindset from the past when focus was on products, volume and fee for services models. But as we transition to value, we need to start thinking about digital solutions & services to augment the drug; this often necessitates the need for new capabilities within an organisation together with a shift in mindset and culture. We believe that organisations that can develop critical capabilities (either in house or in partnership) will be able to market themselves as the preferred partner in a changing landscape. Failure to do so will mean that they face threats from new players eager to claim a stake in the $478B global medtech market or the $1.3T pharma market .
Impact and value of medtech on pharma pipeline
Pharma is still facing the threat of patent expirations on numerous blockbuster drugs; this year AstraZeneca’s Crestor, with annual estimated revenue of $6.4B, Daiichi Sankyo’s Benicar, worth $2.6B, and Merck’s Zetia, worth $2.6B will lose patent protection. At the same time there are fewer opportunities for pharma companies to bring convincing products to market since most first-line treatments for common diseases, like diabetes, depression and heart disease, are already available as generics. Demonstrating value against these inexpensive alternatives is becoming harder. Consider Novartis’ new heart failure pill, Entresto, that has been proven to significantly reduce risk of death. Physicians are calling it a game changer. But Novartis is charging ca. $12.50/day ($4,500 /year) which is unlikely to appeal to payers especially in the absence of real world evidence . It will no longer be sufficient to demonstrate safety/efficacy in clinical trials and use this data to convince GPs to prescribe the drug and insurance companies to pay for them.
Pharma must now implement innovative lifecycle management strategies that, in many cases, will involve a medtech contribution. Considering Entresto again, Novartis is addressing the reimbursement issue with a beyond the pill strategy that involves working with digital health companies to monitor patients remotely. If Novartis can prove the value of the drug in avoiding expensive hospitalisations and keeping patients well, then governments, insurance companies and others are more likely to pay for the drug. GSK is a good example; Britain’s largest drug company has been working on bioelectronics medicines since 2012 and is now developing new patentable treatments (using bioelectronics) to fend off generic competition to its asthma medication, Advair. However, at the same time as companies try to demonstrate value and reduce drug development costs, the actual cost of bringing a drug to market continues to rise from an estimated $318M in 1987 to $2.6B in 2016 .
The greatest cost component is associated with large Phase 3 clinical trials and it is this that pharma is attempting to streamline in order to reduce overall drug development costs. However, 70% of trials experience delays spanning over a month which can cost the sponsors up to $1M/day in unrecognised revenue. Most delays are related to recruitment and compliance problems (only 1 in 4 screened patients actually complete the trial while 25% of all sites do not even enrol a single patient!) .
If the speed, accuracy and compliance of clinical trials could be increased, then pharma would realise potential savings which could be re-invested into new product innovation or lifecycle management strategies. Today, pharma is realising that the use of medtech devices to monitor patient conditions and their compliance throughout the trial duration could provide a more accurate and efficient mechanism for collecting drug safety/efficacy data. Adverse events and patient drop outs could also be identified early in the trial, which could then be stopped (without further waste of time and money) or more patients recruited as required.
Payers want real world evidence to assess the economic value of drugs. Use of wearables allows continuous monitoring and collation of real world evidence for regulators as part of the drug approval process; lack of which impacts reimbursement and patient access. Medtech devices would also allow pharma to learn why some products work better in certain patients than in others. Such services can also generate additional scientific insights in the post-marketing phase.
Roche is an example of a company doing this today: by using an internally developed Smartphone app to monitor the progress of patients during a Phase I clinical trial of its Parkinson’s drug candidate, the company is able to identify anomalies more readily. Novartis intends to use Qualcomm’s cloud-based Life2net data-sharing platform in clinical trials to automate the collection of patient data from medical devices at patients’ homes.
Pharma will also benefit from new diagnostics that drive precision medicine – after all, diagnostics are the cornerstone of the treatment paradigm. The demand for companion diagnostics to enable patient selection will remain high. According to Tufts CSDD, 20% of new drugs winning approval in the U.S. last year were considered precision medicines, a number that is expected to grow, based on investment plans of major drug companies. For instance, in the first half of 2016, Roche Diagnostics sales grew 6% driven primarily by immunodiagnostic products compared with its Pharmaceuticals Division sales which were up 4% (but again, driven by oncology and immunology medicines) .
In 2015, Roche invested over $9B in R&D, ca 20% of its total revenue. This is the largest R&D investment in the healthcare industry. According to Forbes, almost 90% of Roche’s R&D budget is spent on pharmaceuticals (half of which is attributed to oncology) while the remainder is spent on diagnostics  .
How should biopharma engage with medtech to best advantage?
Whether it is through research partnerships, the use of drug delivery devices, apps for clinical trials or companion diagnostics, medtech is playing a greater role in the biopharma business. We are now seeing greater integration of therapeutics, devices and services with clinical management processes. But a key question for pharma companies is how best to engage with medtech; whether to team with independent medtech firms, acquire those companies, work with outside consultancies, or build their own capability. This decision is often compounded by pharma and medtech being very different businesses both technically and commercially, and each not understanding the other very well. While collaboration is clearly key, there is no “one size fits all” solution. Instead, each option should be carefully considered to determine what best achieves the objective and at what cost. Roche and Sanofi for instance have their own in-house medtech/diagnostics units while AstraZeneca have typically preferred to cherry pick best in class solutions from multiple providers.
Often, external healthcare consultancies which provide pharma/medtech industry sector experience combined with deep functional knowledge can be better positioned for working through the pros and cons of each approach and recommending an engagement strategy.
We believe Alacramed’s wide range of services and deep industry experience can help companies making the transition from volume to value, and product to services. In particular, Alacramed’s expertise in medical device technologies due diligence is important to assess the investment opportunity in terms of technical feasibility, market opportunity and commercial viability. Given that technology moves fast in the medical device industry, it is crucial that senior management keep pace with developments and understand the potential impact on the competitiveness of their business. Alacramed can advise on how emerging technology developments are likely to influence the dynamics of clients’ markets and also identify technologies and companies for potential acquisition when a need arises. Alacramed can also provide a product development service that can develop and integrate new products and software into the pharma value proposition.
Another area where companies may require external assistance is in figuring out how to work with the multitude of technology companies and start ups offering digital health solutions. Inevitably companies need to answer key questions such as: “what are we trying to bring to the market?” and “how partners can help us achieve that solution?” It is important to ensure that new solutions/services complement existing therapies and integrate with clinical trials so that pharma can sell drugs and services as a package. Alacramed can help pharma/medtech understand what products they should bring to market, and which partners will help them achieve this (through best fit analyses).
Finally, given today’s focus on health outcomes, healthcare agencies and payers are demanding economic analyses of the cost/benefit and budgetary impact of new drugs and associated services. Safety and efficacy studies are no longer sufficient for optimal market access. External experts often bring new information and insight necessary to address these issues.
What is the future?
The medical device/diagnostics landscape is changing rapidly as new technologies become available that give devices smart/data analytics/connectivity capabilities.
These capabilities have the potential to:
- Reduce time and cost to market for new drugs,
- Better target drugs to individuals who will benefit most,
- Improve safety, patient compliance and convenience to patients, and
- Monitor patients’ response to drugs and feedback information to clinicians to optimise dosing regimen.
The pharma industry should continue to embrace these new technologies as they become available and consider how best they can add value to their drug pipelines.
It will often be necessary for biopharma companies to seek outside help to identify new technologies as they become available, consider how best they can be applied to add value, and then lead their implementation. Consultancies with a broad knowledge of medical devices/diagnostics/IT will undoubtedly continue to be used in this respect.
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4. EvaluateMedTech World Preview 2015, Outlook to 2020.
5. New York Times, 7th July 2015; “FDA approves heart drug Enestro said to cut death risk by 20%.”
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