Technology is key to improve R&D efficacy and cost effectiveness: Morgan Stanley report

It also highlights global tech companies’ investments to leverage opportunities arising through healthcare and technology convergence

Investment research firm, Morgan Stanley has released a report which assessed the potential impact on R&D costs of combining technology with biological innovation. The report, titled, ‘Global Healthcare, Technology & Software: Digitising Drug Development: How Much Can It Save?’ explores how cost savings could help subsidise a lower pricing structure and technology’s potential to disrupt the traditional R&D process.

The study examines multiple inefficiencies across the healthcare system and role of technology in addressing inefficiencies, while top-line headwinds loom on the horizon, especially in drug development. The report reflects that as soaring drug prices stress the healthcare system, political and public pressure may force biopharma to seek efficiencies and lower costs. Technology can potentially reduce prices for individuals while improving the efficacy of R&D and enabling more medical breakthroughs. The firm’s analysis suggests ~23 per cent in potential annual R&D savings by 2030, translating to average savings of $330 million per approved drug that could hypothetically be shared with patients/consumers/payors in the form of lower pricing.

The study has a matrix to frame potential outcomes along two vectors. One registers the impact of digitisation on price transparency from low to high. With low transparency, companies enjoy historical levels of pricing power, while high transparency lowers price inflation to zero and then negative single digits, as seen in European markets. The other vector indicates digitisation’s impact on innovation, with improvements that include enhancing R&D yields, finding new patients to treat, and increasing prescription fill rates, adherence, and persistence. It explores potential outcomes through a quadrant analysis, with technology impacts on one vector and drug price changes on the other. The four scenarios outlined are Balancing Act, Rainbow’s End, Status Quo, and Doomsday.

An analysis of the potential impact of increased technology use across drug development companies and the supply chain suggests as much as ~10 per cent more downside to pharma, biotech, and distributor market capitalisation as per the Balancing Act scenario. This implies the industry needs to further sharpen its pencils to lower cost structure. It also draws parallels between consistent trends across industries that have experienced increased digitisation, such as Media, Hotels, and Airlines and concludes that the industry may still need to rethink its current cost structure/ SG&A spend to protect the future profit pool.

The report also highlights that global tech companies have started investing significantly to leverage the opportunities that arise through the convergence of healthcare and technology. It states, "IBM has invested ~$4 billion in healthcare acquisitions and Google’s parent company, Alphabet, has set up two separate healthcare ventures, Verily and Calico. Interestingly, technology executives hold an estimated ~7 per cent of healthcare company board seats (over 40 per cent of whom have joined since 2014). From consumer-focused wearables to machine-learning-driven, evidence-based medicine, digitisation is emerging across all segments of healthcare."

For more detailed information, check out excerpts from the report in Express Pharma’s upcoming issue, dated May 1-15, 2017.