“Digitalization in the Pharmaceutical Industry” – this was the big topic which decision-makers from the healthcare and the technology sector discussed on our Executive Management Forum on 21 May 2019 at our Innovation Campus in Eschborn. The result was an evening full of exciting know-how exchange and valuable insights for all participants.
The goal of the event was to bring together the three leading parties for the development of digital solutions in the pharmaceutical industry: selected experts and thought leaders from Europe’s leading pharmaceutical companies, technology platform experts from Microsoft and realization partners from Zühlke. While we contributed with our cross-sectoral implementation know-how of digitalization innovation projects, Microsoft contributed with latest insights in key technologies including cloud computing, mixed reality and AI. The aim was to draw a common picture and answer the questions like: What is the current situation of the pharmaceutical industry in the digitalization journey? Where are key opportunities and what challenges does the pharmaceutical industry face on its way there?
- Keynote by Prof. Dr. Oliver Gassmann (University of St. Gallen) on the efficiency dilemma in the pharmaceutical industry: Expenditures on R&D are rising while approvals of new drugs are decreasing.
- Keynote by Dr. Benjamin Kreck (CTO Intelligent Cloud at Microsoft Germany) on key digital technologies for the pharmaceutical industry.
- Discussion with Prof. Dr. Oliver Gassmann, Dr. Jens Atzrodt (Head of Hub Management Office, Sanofi German R&D Hub), Dr. Benjamin Kreck, Murat Vurucu (Managing Director & Co-Founder Latentine) and Arne Flick (CEO IOT1 Academy/IOTA Foundation).
One finding of the evening: The participants all have their own view on the state of the pharmaceutical industry and there is no 100% agreement. However, the participants mostly agreed on the big picture: The pharmaceutical industry still profits from high margins by blockbusters but the development efficiently significantly drops and digitalization remains also for Pharma a new terrain. On the other hand, it also has new opportunities, such as an evolutionary leap in the development of new services, driven by digital innovations and a more patient-centric patient journey.
Where does the pharmaceutical industry stand today?
1. More focus on chronic diseases
The participants agreed on a major aspect: There are many developments of our society that bring new challenges with them. One of the major ones is the demographic effect in society. The consequences are already visible today: The focus in the health care system will increasingly shift even further in the future from the treatment of acute diseases to the treatment or even prevention of chronic diseases.
2. The era of blockbuster drugs is coming to an end.
Another trend is that it is becoming more and more difficult and expensive to develop and approve further blockbuster drugs, e.g. by increasing regulatory requirements. Here, the focus is shifting towards personalized medicine, i.e. to tailoring drugs and therapies more closely to the individual patients for example by CAR-T or gene therapies.
3. Health gadgets are developing fast to become a serious therapeutic option.
The biggest disruptive potential to the pharmaceutical industry is expected to be driven by new digital players including Google, Apple or Amazon, which are just beginning to establish themselves in the health industry. The appearance of these new players is also encouraged by the fact that not all solutions and products in the healthcare sector need to be regulated any more – for example, for an early detection of chronic diseases by wearables or smart watches.
4. Healthcare startups: low-tech but close to the consumer.
The increasing number of startups in the healthcare sector is impressive. They offer innovative solutions, especially in the field of diagnostics, but also increasingly digital solutions for chronic diseases. This often involves coaching patients, for example by app. Such solutions often start very low-tech and are still often laughed at by the established pharma players. However, their solutions are often very consumer-centric. Above that, startups tend to be extremely fast in adapting and enhancing their solutions.
5. Big Tech as a competitor to Big Pharma
On the other hand, Big Pharma is facing more and more competition from Big Tech. High margins are achievable in the healthcare industry – so it’s not surprising that this sector is an attractive target for Amazon, Apple, Google & Co. These companies bring a different, mostly data-driven perspective to this industry – and can also produce innovative new solutions through their technological competence and cross-industry experience. One example of this is the use of big data to diagnose diseases or to establish real value-based prizing models. In addition, as platform providers, tech companies can also attack Big Pharma’s sales model and ultimately influence pricing, e.g. by taking over the distribution channels of drugs (see our previous article).
What are potential solutions to these challenges?
The pharmaceutical industry is facing an exciting development – which is not solely driven by digitalization. The discussions and speakers at the Executive Management Forum have clearly shown this. But how can the pharmaceutical industry react to these challenges? The discussion focused on two possibilities: First, companies in the healthcare sector should leverage new digital technologies to become more effective and efficient in developing new drugs. For Microsoft, key technologies for the pharmaceutical industry include Medical IoT, Artificial Intelligence and Quantum Computing.
Digital innovation in the pharmaceutical industry
Especially in R&D, all phases of the value chain can be improved by digital tools. One mentioned example was the acceleration of clinical studies by a more effective cohort selection based on data science. Additionally, there is a strong trend towards a completely digitalized lab including – improving work processes and thus efficiency.
Whether these internal optimizations of the pharmaceutical industry are sufficient, is questionable. Hence, the participants of the discussion agreed that it is also important to use the emerging new technologies as a basis for new business models. In this way, companies in the healthcare sector can establish digital services beyond the pill on top of their existing know-how, e.g. for a better and holistic treatment of chronic diseases.
Great potential for data driven business models
However, the vast majority of participants saw the biggest potential in data driven business models. For example, pharmaceutical manufacturers could offer entire therapies at a fixed price instead of only selling drugs independent of their success (valua-based pricing). If the actual treatment costs less, the manufacturer wins; if it costs more, it loses. The providers of such a business model would of course have to be able to predict the expected costs for a therapy. The basis for this: Data and their insights, generated by AI.
Importantly, medical data might be traded and sold directly be patients themselves. “I would immediately sell my anonymized medical history”, as reported by one of the discussion partners. Blockchain or the related Distributed Ledger Technology (DLT) are promising technologies which can provide an indispensable basis for such business models: Confidence that one’s own data is secure and can only be used by specific partners which have been selected by patients.
What are the obstacles along the digital transformation of pharma?
According to our guests, the biggest obstacle is the culture within the pharmaceutical industry. A quote in this context: “We need a corporate culture in sprint fashion, the currency of the future is speed”. Several participants would like to see a similarly agile pioneering spirit in pharma as it exists since several years in the biotech industry.
The importance of the corporate culture becomes clear when considering the following number: 70% of all change initiatives in companies fail. No surprisingly, 39% of these fail due to the resistance of their own employees. Importantly, however, is that 33% of all failures can be attributed to management behaviour. The decisive question is therefore: How can the pharmaceutical industry create a culture in which digital innovations succeed? A quote in this context: “Generating a postpubertal playground is not enough”.
Two ways to successful innovation in the pharmaceutical industry
Prof. Gassmann highlighted two approaches for successful innovation and explained how they could be applied in the pharmaceutical industry: On the one hand, there is the disruption approach which will probably not work on a corporate scale. One way of implementing this possibility would be to set up one’s own start-ups. The other approach holds more potential for Gassmann, but also higher hurdles: to integrate innovation on a broad basis within companies instead of innovating in special and isolated departments like innovation hubs. To conclude his ideas in a nutshell:
1. Think big – New solutions must be thought of from the end. How would the new, disruptive solution change the entire industry or even other industries on a global scale?
2. Start small – Every beginning is difficult. Start easy and small but be ready to expand fast.
3. Fail cheap – The earlier we learn by mistakes, the cheaper the first approaches are.
4. Move fast – failures will happen for sure. Therefore, it is important not to be discouraged by this and to adapt quickly to market changes, developed insights and experiences.
Most importantly, our learning speed must be higher than the speed at which our environment changes. The good news is that digitalization not only increases the speed at which our environment changes. It also offers numerous opportunities to steepen one’s own learning curve.