Life sciences outlook for 2019: Moving from the hypothetical into a new reality
Tuesday, December 11, 2018
As we step into the new year, the pace of change in life sciences feels like it is moving faster than ever. While trends in the industry generally take place over decades rather than years, many of the foundational elements to shift from treatment to wellness, for example, are beginning to take shape.
Several trends will likely continue to shape biopharmaceutical and medical device manufacturers in 2019. As the sector continues to face pressure to drive prices down and demonstrate the value of their products, the use of outcomes-based payment models is expected to become more common. In response, health care stakeholders, including medical device manufacturers and biopharma companies, will likely need to accept more risk for the value that their products provide. At the same time, biopharma companies will likely continue to seek ways to reverse the declining return on research and development investments, and they should adapt to the new regulatory frameworks that are expected to emerge in the year ahead.
These trends, taken collectively, are likely going to push life sciences companies to become more efficient, nimble, and customer-focused. Growth in the use of digital technologies, increased use of omics and real-world data (RWD), ongoing breakthroughs in the fundamental science behind therapies and cures, the incorporation of the patient voice throughout the lifecycle of therapy development, and new types of partnerships and collaborations are signaling a shift in how the life sciences sector might operate in 2019 and beyond.
In 2019, the industry might finally reach the tipping point that moves it beyond the hypothetical and into a new reality. First, consider these four macro trends:
- Scrutiny over drug pricing: 2018 was undoubtedly one of the biggest years for policy efforts to reduce drug prices and out-of-pocket expenses for patients. In April, the White House and the US Department of Health and Human Services (HHS) released a “blueprint” to lower drug prices, reduce out-of-pocket costs for consumers, and make drugs more accessible. Some of the big focus areas were on proposed changes related to how Medicare Part B pays for drugs and the International Price Index, 340B changes, and proposed changes to require drugmakers to include list prices in their direct-to-consumer ads.
- Increased interest in contracts that demonstrate value: The launch of several gene and cell therapies has been a catalyst to advance the discussion of alternative payment models. As health plans embrace more value-based contracts, we expect life sciences companies will need to develop pricing strategies that demonstrate the long-term value of their products.
- The declining return on investment (ROI) for research and development (R&D): Our analysis on the ROI of R&D among 12 large-cap biopharma companies portrays a steep decline over the nine years that we have performed the analysis. Last year, R&D returns declined to 3.2 percent—down from 10.1 percent in 2010. The trend for this year looks even worse (stay tuned, we will be releasing new data in the coming weeks from our 10th annual analysis).
- Evolving regulatory frameworks and collaboration between industry and regulators: The US Food and Drug Administration’s (FDA) pre-certification program, which launched in late 20171, is a great example of how collaboration between industry and regulators can drive more self-regulation that is rooted in a culture of quality, organizational excellence, and performance monitoring. As software-based medical products become more mature, the feedback provided during the pilot phase of this program will help FDA refine the proposed regulatory model and could influence new regulations, address outstanding issues, and ensure that new regulations and guidelines are fit for purpose.2 FDA has also indicated that it intends to work more collaboratively with companies to bring innovations to market more quickly. In addition to its Software as a Medical Device (SaMD) pilot,3 FDA has also supported increased use of RWD and has approved a large number of innovative therapies over the past year.4Collaboration can allow stakeholders to deliver more proactive, cost-effective care and improved outcomes.
In response to these macro trends, life sciences companies should shift their strategies—and their mindsets—to prepare for a future that is grounded in digital, data, personalization, and efficiency.
Here’s how we think life sciences companies can respond:
- Embrace a digital-first mindset: Digital technology has the potential to change everything from the way R&D is conducted, to how clinical trials are designed, to how new products are commercialized. But, many companies are still in the experimental stage when it comes to digital and have been reluctant to make bold moves, according to a survey of biopharma executives that we conducted with the MIT Sloan Management Review. For companies to address mounting pressures, a digital-first mindset will likely be required to make business operations more efficient and bring transformational therapies to the market. We expect to see more adoption of technologies such as robotic-process automation (RPA), which can help improve the efficiency of R&D including clinical trials. Cognitive, artificial intelligence, and RWD will likely continue to transform the way new innovations are developed.
We also expect to see more companies bring digital talent from the outside. There appears to be an expectation that these digitally savvy outsiders can offer a fresh perspective to typically conservative life sciences companies. Case in point: Global pharmaceutical manufacturer Merck recently hired its first chief digital and information officer, whose most recent experience was with consumer product companies including Nike Inc.5 Novartis’ chief digital officer was previously the CDO at one of the United Kingdom’s largest online retailers, and also held senior positions at Amazon.com.6
- Use new forms of data to demonstrate value: The targeted nature of precision medicine could mean better patient outcomes in an increasing number of therapeutic areas—particularly if digital tools can be used to ensure patients comply with their treatment regimens, monitor the effectiveness of therapies, or report adverse events. And with outcomes-based and alternative payment models being piloted, we expect life sciences companies will focus more attention on multiple external data sources, which have the potential to drive disruption across the entire value chain—from R&D, to the delivery of care, to regulatory review and approvals. RWD can be the key to creating new business models by using patient outcomes to support value-based contracts for personalized medications, or using information from wearable devices to understand and improve the patient journey. It can help ensure medical adherence, and also help better predict outcomes.
According to our real-world evidence (RWE) benchmarking survey, however, companies haven’t fully unlocked the potential. Only half of surveyed companies have capabilities that are mature enough to take full advantage of RWD. With the business value now better understood, more life sciences companies will align with RWD strategies in 2019 as they prepare for a new future.
- Collaborate with new partners: 2018 was a big year for nontraditional competitors and technology companies entering the market. One of the more significant market signals in this overall industry shift was Roche’s acquisition of Flatiron Health earlier this year, pointing to the focus of big data, analytics, and personalized medicine. We’ve historically seen life sciences companies partner with providers and academia, but we expect more non-traditional acquisitions and partnerships in the new year to drive innovation and patient-focused agendas. For example, we could see more partnerships between life sciences companies and patient advocacy organizations, informatics companies, or technology firms to improve the design and delivery of therapies. Stronger partnerships between life sciences firms and their physician and hospital customers can be formed around the patient. We expect IoMT (or the internet of medical things) to lead to some interesting partnerships in 2019 as companies focus on more connected devices.
- Find new ways to connect with consumers: Advancements in electronic health records (EHRs) are paving the way for consumers to take more active roles in their health and wellness. While some consumers still might be leery of this concept, we are seeing a willingness to embrace new tools and technologies, according to our 2018 health care consumer survey. The challenge, however, will be how to create intrinsic value for consumers and ultimately win their trust (the same survey told us consumers are least likely to share their data with life sciences companies). Technology could help bridge the gap and make clinical trials—and other connection points—more patient-friendly and accessible.
We also expect more at-home diagnostics to enter the market in 2019, which could help put consumers at the center of their care. Data from these diagnostics, along with wearable devices, can drive more proactive health care and help companies understand their patient populations.
I believe that 2019 will be a year of change—and a year of continually evolving and advancing trends. It also could be a foundational year as companies continue to focus on wellness in addition to treatment, and on adding value to the overall health care system. The industry will be paving the way for a new future for life sciences and health care—even if it might seem incremental, these are monumental shifts to an industry focused on care driven by data and cross-collaboration across all health care (and nontraditional) stakeholders. We’ll see what 2019 has in store.