Is Disruption Just A Young Pup’s Game?

BY JOANNE SHORTHOUSE

Executive Summary

Big pharma has faced many evolutions to the pharma playbook of old. New technologies such as wearables introduce behavioral change to patients, while e-commerce giants such as Amazon seek a piece of the Rx action. The health care industry has done a reasonable job of weathering the storm inflicted on its core business model over the years, but it has yet to be a true disruptor. As the world marches on is pharma’s choice to disrupt, or inevitably be disrupted for good?

How does disruption differ from innovation? Both concepts are too alike to be unrelated, some might say two sides of the same coin. Many companies, in all industries, are innovating in their lane. However, to be a true disruptor means emanating an idea or technology to build a continued operational advantage over competitors.

When we think of disruptors in any industry we think of nimble companies that bring real change, not only in the way society thinks but in the way that it acts. Think of Netflix or Amazon; both concepts have revolutionized consumer behavior with technology at the core of its offering. To create this kind of change takes expertise, influence and most often financial backing.

Large pharma companies have the monetary advantage in this respect. But is the operational disadvantage of a big pharma behemoth that it cannot move fast enough, or think fast enough to bring about disruptive change in the way drugs are developed and patients interact with health care providers? It is not so much a case of asking ‘Is there life in the old dog yet?’, but ‘Is there life in the big dog yet?’. Or is disruption just a young pup’s game?

Of course, large pharma companies lack the inclination to create disruption from within when they have the financial backing to acquire companies with a culture to create lasting change. The externalization of innovation is a longstanding strategy, with some believing that to be successful, big pharma needs to accelerate this approach.

Topline Findings From A Powerful Pairing Report

The health care industry’s reaction to COVID-19 has been a catalyst to redirecting technology talent towards the sector. In the survey: • 86% of technology professionals said that the health care and pharmaceutical industry’s digital moment has arrived • 83% reported a willingness to work in the health care and pharma industry • 52% see the opportunity to innovate through technology as the top reason to apply for a job in health care • 40% feel they do not have enough industry knowledge • 20% do not feel qualified enough to apply

Source: Novartis In a recent blog, Peter Behner, EY’s global health sciences and wellness strategy and transactions leader, wrote that small companies are more efficient drug developers than larger organizations, and that externally sourced products are increasingly more lucrative than homegrown ones. “Biopharma leaders should embrace this trend and refocus their internal innovation efforts in favor of more aggressive business development,” he said.

Large pharma is actively supporting this switch to externalization and many companies have begun to experiment with external innovation models such as corporate venture capital funds, incubators and innovation centers in biotech hubs. According to EY figures, from 2014 to 2018 biopharmaceutical companies spent an average of $100bn on M&A annually. In 2019, the value for M&A was even higher, north of $250bn.

At the dawn of the pharma industry – 100 years ago when pharma companies and pharmacies were petri dishes for disruptive action – it created behavioral change in patients. Today, the thing that once allowed pharma to accelerate has now become its biggest constraint: size.

“Pharma companies continue to run very large internal R&D infrastructures, yet the productivity of those lacks what is out in the market, and more and more is being acquired to supplement what is coming through the internal pipelines,” Behner told In Vivo.

A pharma company is truly world class at one, two or three things, he believes. “The rest of it is not world class and the reality is that the company is burning a ton of money. Abandon that and start buying. Cut the internal spend and use it for external acquisitions.” Long-term, Behner expects

that the ratio of external to internal innovation will be 70:30, possibly even 80:20. The EY exec talks in terms of a physical pharmaceutical product, but what about digital disruption?

Digital Dawn

Over the last five years numerous big pharma names have embraced the world of artificial intelligence (AI) with expert partners for the purposes of drug target identification and validation, such as GlaxoSmithKline plc’s 2016 deal with Insilico Medicine; or in target-based and phenotypic type drug discovery like Takeda Pharmaceuticals International GmbH’s multi-year research partnership with Numerate to develop new clinical candidates.

Last year Novartis AG announced a multiyear partnership with Microsoft for AI exploration and empowerment. While these deals show the concept of digital disruption is increasingly essential to pharma’s R&D model, few have chosen to step into the field of digital independently.

Health care evolution creates the need for new technologies. Personalized medicine, for example, increases the complexity of drug discovery and amount of data required. Insurers now need to know more about drug performance once it is in use. Both instances depend on data availability and analysis.

While large companies have been making investments in digital, some have the capabilities to go it alone. In June, Roche Diagnostics’ launched an algorithm, which could improve the speed and accuracy of a lung cancer diagnosis. “This is more about behavioral change,” commented Behner, “but it is reimbursable. I have had conversations with several CEOs about this topic and they are clearly extremely interested in this, but not necessarily well-positioned for it. They probably do not have the capabilities to do this today, exceptions duly noted, so they are acquiring these types of products. I think over time, and as we speak, companies are beginning to develop such capabilities.”

Many pharmaceutical companies still view themselves as developing a pharmaceutical product, a biological or a chemical that does something in the human body. Digital is a different angle, but it is not just about digital products, there is also the expertise required to build digital infrastructures to support said product. Pharma’s challenge here is to develop a digital health ecosystem and to be able to connect the constituents of that health ecosystem in a patient-centric way.

“Pharma companies are building digital infrastructures and departments and electing a chief digital officer, but they are coming from a totally outsourced end, so they are buying everything today, and in the future they might develop some of those things themselves,” said Behner.

A Disruptor’s View

One company that has disrupted within the digital health care space is Sensyne Health, founded by Lord Drayson, the former minister for science and innovation in the UK government. It is a clinical AI company working in partnership with the UK’s National Health Service (NHS) to develop software products, and conduct machine-learning led medical research to improve patient care and accelerate the development of new treatments.

Nick Scott-Ram, Sensyne Health plc’s chief of strategic development, told In Vivo that the company has created a unique commercial approach to benefit patients, the NHS, and the life sciences industry; a for-profit plc making a positive social impact. “We provide both a financial return to the NHS via equity and a share in revenues, and a patient outcome ‘return’ advancing care delivery and disease research and development,” he said. This is an unusual approach. Patient data is ethically sourced; any analysis of patient data (and hence the company’s access to it) must be pre-approved for each program on a case-bycase basis by the relevant regional NHS Trusts to ensure anonymization and the proposed analysis is subject to appropriate ethical oversight and information governance.

“It’s currently a completely unique model that combines altruism and capitalism, providing improved patient care and generating value from anonymized patient data in an ethical way, providing an attractive return to its shareholders while making a positive social impact and maintaining public trust,” Scott-Ram explained. “We hope the rest of the industry will copy it.”

Sensyne Health is working with three pharma companies: Alexion Pharmaceuticals Inc., Bayer AG and Roche Holding AG. Scott-Ram said he had noticed “strongly increasing interest” from the global pharmaceutical industry in partnering with organizations able to use advanced analytical techniques to analyze large sets of anonymized patient data. “This is driving demand for ever larger population datasets to undertake this research in drug discovery and clinical development,” he said, explaining that the company’s initiatives are designed to increase the size and scope of datasets it has access to, which enables it to “remain competitive in this fastmoving area.”

Industry Inflection Point

One large pharma company keen to originate digital evolution and disruption from within its walls is Novartis. It appointed former Amazon executive Bertrand Bodson at the beginning of 2018 as its first chief digital officer, tasked with spearheading digital transformation.

Bodson told In Vivo that he is a firm believer in the importance of partnerships, and is keen to “learn and collaborate with the health tech ecosystem at large,” while concurrently building core internal platforms, particularly those that enable Novartis use its data as more of a strategic asset.

While Bodson seems to have one foot firmly planted in the value of externalization and internally produced initiatives, he “absolutely” believes that Novartis can be a digital disruptor. To do this, Novartis has made “going big on data and digital” one of its five enterprise priorities and is committed to a company transformation anchored to three ‘what if’ questions:

• What if we could transform how we innovate in

R&D to bring medicines to patients two years faster?

• What if we could upend traditional approaches to customer engagement and reach twice as many patients twice as fast?

• What if, with an eye to reinvest in R&D, we look at our business operations and ask, could we revolutionize the way we work and reduce our costs by $1bn-2bn?

Answering these questions would require Novartis to transform how it had traditionally worked and challenge itself to better use data science and digital technologies across the board, said Bodson.

“Reimaging medicine with data and digital is certainly a priority at Novartis,” he said. As such, the firm has recently published the report, A Powerful Pairing, which looks at how tech talent now views a career in health care differently post-COVID-19, as opposed to more traditional avenues such as banking. Headline findings from the report showed that 73% of tech executives said their opinion of the health care industry had improved because of the way the sector reacted to the coronavirus pandemic. However, a lack of health care knowledge is the main concern among this group of professionals.

“The fact that 40% tech talent don’t believe they have enough industry knowledge to join us isn’t a big surprise but does highlight an area we need to address if we want to attract high caliber talent,” Bodson told In Vivo. “We have world class scientists; what we need are customerobsessed tech natives who can join us in reimagining medicine with data science and digital technologies. The need to continue to show how we’re committed to bringing diverse expertise together – this is where the magic really happens,” he continued.

Joining Bodson’s team in the last two years are execs from IBM, Google and academia, as well as more consumer-focused industries. New recruit, Nestle’s global head of ecommerce Sebastien Szczepaniak, is a “fellow ex-Amazonian” who has joined Novartis to “help us rethink how we engage with patients and so together we can elevate the practice of digital engagement across marketing, medical and patient engagement,” Bodson explained.

The Internal Disruptor

Has the pharma industry moved too far from its 100% internal innovation past that it would be impossible to create an internal disruption engine? Certainly, there will always be companies that have a particularly good pedigree in developing a pharmaceutical product, Regeneron Pharmaceuticals, Inc., for example. But these types of companies will arguably always need the launch credentials and grunt of large pharma partner.

“I think it’ll always be a mix,” said EY’s Behner. “If you rely 100% on external then you have a quite different type of skill set. I think you need to develop a core competency internally to understand what you are buying. How can you assess the quality and class of the external acquisition if you do not have an internal perspective? You need to have some of that inhouse, you also need to develop a conceptual framework for it in-house, and then buy and supplement.”

When asked about the possibility of large pharma companies ending the externalization of disruptive activities such as AI to establish them in-house, Sensyne Health’s Scott-Ram was not confident: “I think pharma is still at a relatively early stage in developing AI and machine learning and is spending much of its time in this area focusing on structuring and contextualizing its data before it can move on to applying AI to it.”

He continued to say that while there is undoubtedly AI expertise being built in-house in pharma, “I think dedicated outsourced teams with very high competence and expertise in AI and machine learning will continue to be attractive as a partner to the pharma industry.”

The idea of big pharma reversing years of partnering with R&D engines is unrealistic, companies have been successful in licensing disruptive products and diagnostics that meet patient needs. However, digital disruption, while it is still largely the territory of specialist companies that partner with big pharma, seems a more likely target for the build up of internal specialisms within the industry. If Novartis’ recent findings are accurate and come to fruition, with more tech natives finding a home within pharma, there might still be a lot to play for in the digital disruption game.