Break with the past to deliver value beyond the pill
Beyond this first wave of product-focused services, there has also been a second; driven by the belief that pharma can actually deliver services as standalone commercial offerings.
A leader here has been Janssen Healthcare Innovation (JHI) who have placed big bets in this space. We wanted to get greater detail on how they have structured themselved to maximise their chances of success in a market that is still not clearly defined; we interviewed Kim Park, Partner at JHI to find out more.
Building blocks for innovation
It may seem strange that an organization with decades of experience (and success) in managing huge investment into high-risk R&D would feel the need to restructure to succeed with service delivery. However, for Kim’s team, a number of differences between services and products made this a necessary first step. Kim elaborated, “We knew that what we were developing would not resemble a patent-protected pharmaceutical product. When you think about the model that has served the industry for decades, it is well understood what the risk profiles are. You can guess with a high level of accuracy what will make it onto the market and what won’t. You also know that once you do, you have a lovely exclusivity period that allows you to get ROI on the investment that you have made.”
A key challenge with the service model is that patent protection is likely non-existent and at best limited; for this reason it was a priority at JHI to create an organization capable of moving with speed. Another requirement was the ability to work with an unclear risk profile to quickly identify market opportunities, or conversely, to react swiftly when a product wasn’t performing as planned. For this reason the start-up culture and entrepreneurial spirit that has served the Silicon Valley technology community so well was something that JHI were keen to emulate. Kim states, “We want the culture to be learn fast, but also fail fast. This allows us to get out of quickly areas where we do not have a sustainable competitive advantage. Traditional pharma culture would never allow us to put a minimum viable product on the technology side or attract the kind of talent that we believe is necessary for this model.”
Risk control vs. project ownership
Operating with a decentralized structure and giving the team ownership of their work might seem to run in conflict with the desire to fail fast. Individuals become attached to pet projects and may be reluctant to react quickly to poor progress. Kim notes that is indeed one of the biggest challenges; and they have structured to combat it, from recruitment to measurement. Kim says, “We try to attract talent that understands working with risk, and we make sure we are all evaluated against clear milestones". Indeed, the resolve to back only winners is evident; Kim observes that 2 years ago JHI were managing 15 commercial pilots, now the number is four.
Setting milestones for uncharted markets would be part of the challenge, but Kim explains that the initial focus is not establishing a business model; rather each project is measured by a common goal. Each solution must be designed to deliver better outcomes at a lower cost to the healthcare system. As JHI have chosen to focus on therapeutic areas where they also possess leading expertise, they have been able to define clear clinical metrics as to what constitutes better outcomes for each solution. If solutions do not meet this primary metric, Kim states, “There is no reason to progress.”
However, converting outcomes to income is not so straightforward. While there has been positive progress in pilot projects with reports of lower hospital readmissions and improved patient satisfaction, defining the customer has been more difficult. Kim says, “This is where we are just now. We are generating evidence to prove the value proposition, and then working with different customers to develop a business model that works for them and for JHI.”
Build on your capabilities
Other first movers in VAS, such as Aetna’s Healthagen, have based their initial foray on a health IT incubator unit, in contrast to JHI’s internal innovation team model. Indeed, it may seem intuitive that a simpler entry to health IT services would have been by financial clout, instead of going through the untested process of replicating the culture and structure that has so well served the technology start-up sector.
If the patient will benefit, then it is good business for us".
For Kim however there are distinct capabilities that JNJ bring that makes their model selection more appropriate. In addition to a depth of disease knowledge, they also have an extended network with healthcare institutions. The access that they already possess to physicians, payers, patients and hospital systems will give them a distinct edge in creating an integrated care value proposition that actually targets customer needs.
Looking to the future however, Kim doesn’t rule out an acquisition strategy, if it was an appropriate shortcut to achieving longer-term goals; indeed, Kim doesn’t even view Healthagen strictly as a competitor. Kim states, “Our vision is for JNJ to become truly a healthcare player as oppose to simply a product company. If we don't have a piece of the puzzle necessary for patient experience, why wouldn't we sit down and collaborate? If the patient will benefit, then it is good business for us.