The DNA of Disruptive Innovation

For the past 30 years pharma has thrived on big molecule breakthroughs and savvy marketing, but that model has been challenged by an environment of skyrocketing health care spending, rising development costs and intensifying competition from generics. Clearly, pharma needs a way to rethink its business—change its DNA—and re-invent and renew itself by rethinking the entire end-to-end value chain.

July 22 2013 by Jennifer Pellet


What’s more, while inefficiency surely exists, the aging of America—19 percent of the population is expected to be over 65 by 2030—and, ironically, the development of treatments effective at prolonging lives is also fueling the rise in health care costs. “It isn’t just that we’re inefficient, it’s that the population is getting older,” said Michael Gutnick, CFO of Memorial Sloan-Kettering Cancer Center, who pointed out that Americans have come to expect proactive—and costly—health care. “In this country people don’t want to be told, ‘I’m sorry, there’s nothing more we can do for you.’”

Several participants also expressed concern that big pharma’s innovation engine has stalled, largely due to the intrinsic risks of attempting to develop a blockbuster drug. “If you look at pharma versus other areas, the profitability is just not there any more,” agreed Dan Regan, chief commercial officer of the biopharmaceutical company Intercept Pharmaceuticals. “The thing that concerns me is will there continue to be an incentive for venture capital companies to invest in pharma innovation?”

“The blockbuster model is a thing of the past—rather than having a Lipitor ending its patent life doing $14 billion, you have 10 molecules doing a billion each,” agreed Zak Hosny, CEO of Motif Biosciences.

Addressing Chronic Costs

Still, there are opportunities to bend the cost curve, particularly in the area of chronic disease. “There is a lot of process opportunity in treatment of chronic disease,” asserted Ashish Kachru, CEO of the healthcare technology company Altruista Health, who predicted that process innovation will trump product innovation. “Somewhere around 75 percent of the GDP on healthcare is begin spent on managing patients with chronic diseases [such as heart failure, chronic obstructive pulmonary disease, diabetes, hypertension, asthma and depression]. We have about 125 million of them today in the U.S. These people are frequent fliers to hospitalization, which runs about $10,000 on average.”

“It’s easy to forget how much money there is in good chronic care management,” agreed Davis. “From the hundreds of thousands of people we service at Mt. Sinai we identified a small number at high risk of readmission and put case workers on those people to address their problems, which ranged from not taking their insulin or eating too much salt. We were able to diminish readmissions by 50 percent in that group.”

While such successes suggest there is low-hanging fruit ripe for the picking in addressing the health care cost conundrum, many fear that simple demographics will stymie efforts to keep costs in check. “Nobody gets off planet Earth alive, and the problem with that is that the major driver of Medicare expense is the last year or the last six months of life,” summed up Davis. “As much as we can manage someone’s disease to keep them alive longer and for that to cost less, they’re still going to die. So unless we start to manage how people die in America, at the end of the day we will [eventually] be overwhelmed by the demographic problem.”