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Pharma execs gear up for the digital revolution
2014 has witnessed an important change in sentiment among pharma companies towards digital healthcare, according to research from consultants Arthur D Little. Nick de Cent reports.
Although technology has always been a key driver of change in healthcare – think intelligent prosthetics and big data – digital medicine is set to transform the global healthcare industry in the coming years. And it’s starting to be taken seriously even at the highest levels within pharma organizations.
Digitization has become a credible “transformational strategy” rather than just a “nice marketing gimmick” in the eyes of pharma executives, according to an industry analyst.
Dr Thilo Kaltenbach, a partner at the Central Europe Healthcare Practice of consultants Arthur D Little, explains that in 2014 there is now a “new dynamic” with digitization more of an organizational priority compared even with last year. “These activities are really picking up this year,” he tells eyeforpharma. Back in 2012, digitization was really only a focus at the product management level, he adds.
The firm recently partnered with the Karlsruhe Institute of Technology to quantify the significance digital medicine and related technology innovations will have on the industry over the next six years. They interviewed over 50 senior pharma executives from around the world for their report Impact of Digital Health on the Pharmaceutical Industry – Will Business Models be Reshaped by Digital Health?
The team found that at the time of the survey in 2013, while the industry was pinning its future growth plans on technology innovation, two-thirds of companies had no active digital health strategy in place.
“Digital Health will transform the business models of the pharmaceutical industry. Although many companies have not yet formulated a concise digital health strategy, industry executives expect that by 2020, digital health will enable pharmaceutical companies to activate new business segments as well as to significantly improve their competitive advantage,” the authors declare.
What pharma execs think
The study indicates that executives understand that digital health will have transformed pharma’sbusiness model by 2020:
- 84% of study participants considered it crucial to have a digital health strategy in 2020, compared with 13% who believed it was already crucial today;
- whereas digital health programs are still in an evaluation and piloting phase today, 73% of participants were sure those programs would be implemented by 2020;
- 77% believed digital health would generate new business by 2020, and 94% believed it would either extend the existing value proposition (37%) or even invent a new value proposition for the pharmaceutical industry (57%);
- as a consequence, all of the survey participants believed digital health would have an important (27%) or even crucial impact (73%) for the competitive advantage of their organizations.
The findings demonstrate that the majority of executives and senior managers have understood the value and business potential behind digital health, Dr Kaltenbach and his fellow authors suggest. “Any pharmaceutical company wishing to remain profitable and at the forefront of life-saving innovations beyond 2020 must act now to be in a position to make the most of the digital health revolution.”
How digital will transform pharma
The authors suggest that successful implementation of digital health strategies will result in transformation across four main areas:
- Organizational prioritization;
- Customer focus;
- Enlargement of capabilities; and
- Uncertainty of revenue streams.
Meanwhile, survey participants identified a number of key external drivers giving impetus to the digital revolution:
- Increasing health awareness of consumers;
- Technological progress; and
- The expectation to reduce healthcare cost.
Those trends are supported by an increased desire for integrated systems in a new world of open innovation.
Advice to pharma companies
In conclusion, Dr Kaltenbach offers advice for pharma companies seeking to compete in the new digital landscape:
1. Make digital health a company-wide priority. Today, the majority of companies see digital health as a marketing and sales issue. However, until R&D teams begin to embrace the potential of patient data analytics, and quality control is managed in enterprise-wide cloud applications, pharma companies will not realize the full potential of digital technology to create value and introduce new revenue streams.
2. Look out for new partnerships in unlikely places. IT companies, public health systems, and app developers have all been identified as innovators in public health. Where does this leave pharma? With a need to bring in new skills, scan the horizon for innovation, and stop looking for partnerships among the “same old cast of characters”. The digital health revolution has reinforced the need to look outside the traditional biotech industry and build relationships with smaller, more agile players. Software companies and national health systems are top targets for pharma execs looking to kick off their digital health strategy in 2014.
3. Find ways to monetize digital health networks and outcomes. The study found that, while pharma execs see digital health as a new-business generator, they are uncertain who will pay for the technology investment, and how those investments will generate new revenue streams. Without a clear business case, or evidence of ROI, the industry will not be able to make the necessary transformation toward digitalized healthcare.
Specifically, with regard to monetization, Dr Kaltenbach suggests that “companies should change their mindset” and look at digitization initiatives from a risk-management perspective rather than evaluating ROI in the traditional way. He points out that, while pharma may be used to margins of 30-40%, IT companies tend to be more efficient and operate with margins of 10-15%.
It looks like reduced margins may well be something that pharma companies have to get used to in the future.
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