C. Rozwell Research Note 6 October 2003 Commentary Technologies That Ease Pharmaceutical Industry Disruption Several disruptive forces are altering the life science business model. Enterprises must select their technology investments carefully to respond to the challenge without wasting money. The current business model of the life science industry discover a treatment for a prevalent medical condition and convince doctors to prescribe it to as many patients as possible is under severe threat from four significant forces (see Figure 1). Figure 1 Top Industry Trends Affecting Life Science Firms' Financial Performance 2006-2013 Gartner 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.
Real-time business Connections via the Internet, wireless Location independence Disruptive forces Government intervention Price controls Regulatory scrutiny Intellectual property rights Impact Discovery shortened cycle more data and drug targets Development targeted treatments pharmacogenomics new economic model Commercialization more product launches marketing to smaller groups of consumers Manufacturing capacity shortages biopharming Scientific advances Genomics Proteomics Informatics Disruptive forces Consumer demographics Aging baby boomers Engaged and aware Globalization Source: Gartner Research (September 2003) Not the least of these disruptive forces is the science itself, which offers a two-edged sword. The mapping of the human genome augurs the potential to develop treatments that are specifically targeted to an individual's genetic profile; however, at the same time, researchers seeking to unlock the commercial potential of the new knowledge have created an exponential increase in data that needs to be captured, stored, managed and mined. As one example, in 1982, the GenBank the genetic sequence database of the National Institutes of Health held approximately half a million base pairs in its database. In 2002, it had 22 billion. Leading-edge life science firms are shifting their data management strategies from gathering and storing data to techniques that provision data on an as-needed basis to researchers for predictive drug discovery and development. A second factor stressing the industry is the change in consumer demographics. This shows up as an increase in an aging population and a trend of increasing consumerism in general. In the United States, which accounts for nearly half of the world's drug sales, the percentage of the population that is over 65 will increase 31 percent between 2001 and 2015. The 55- to 65-years old age group will increase by 63 percent. In contrast, the U.S. population as a whole will increase 13 percent, according to data from the U.S. Census Bureau. As people age, their drug consumption increases as they deal with a series of agerelated maladies such as heart disease, diabetes and cancer. This aging population has an increased need for treatments and they take multiple medications for long periods of time. The industry has yet to deal with the need for "lifetime" clinical trials to study the interaction of medications that are taken for extended intervals. The third factor is the threat of governmental intervention, which manifests itself as increasing regulatory scrutiny and pressure on industry pricing models. Gartner has noted several actions aimed at reining in the high cost of prescription medication. The latest was on 25 July 2003, when the U.S. House of 6 October 2003 2
Representatives passed a bill to allow U.S. citizens to procure drugs abroad. Under the measure, the U.S. Department of Health and Human Services will allow importation of Food and Drug Administration (FDA)-approved drugs from Canada, the European Union and seven other nations, as long as the manufacturers use counterfeit-resistant technologies and register their production operations with the FDA. This feeds our concern that the pressure to prove the outcomes of costly treatments will increase, along with the potential that the government will launch an investigation into drug-pricing tactics. The fourth factor the emergence of the real-time enterprise is not unique to the life science industry. However, it does play out as some significant shifts in customer attitudes and behavior in the life science value web. Today's "time-tortured" customers demand speed and convenience. They expect businesses to operate around the clock. They expect suppliers to take note of their individual preferences and present customized offers to them. Consumers and business buyers expect quality, service and low cost. These are not characteristics normally associated with drug manufacturers, or the healthcare system in general. Top Technologies That Life Science Companies Need to Employ to Achieve Business Growth The impact of these four forces is rippling through the life science value network. Enterprises are pressured to shorten the discovery cycle and to kill off unpromising projects more quickly. As targeted treatments are brought to market, they will force life science companies to abandon their mass marketing strategies in favor of more-personalized marketing approaches. Instead of focusing on the physician as the focal point of sales details, they will need to learn how to reach out to smaller groups of consumers and provide them with the specific information they need to make outcomes-based decisions on treatment options. Targeted treatments also augur more manufacturing complexity. Biologics manufacturing does not scale like chemical manufacturing, so life science companies will need to find alternative sources of production capacity. This will increase the demand for contract manufacturing services. Because these four disruptive forces are hitting at the same time, they are having a compound effect on the industry. This is being manifested as a decrease in revenue, research productivity as evidenced by the reduced number of new chemical entities being approved by the FDA, despite increased spending for R&D and sales effectiveness. These pressures are spurring technology investments in areas essential to profitable operation (see "Hype Cycle for Life Sciences Technologies, 2003"). Key technologies for life science enterprises are those that support: Collaboration in the discovery process so that compounds can be evaluated quickly, and the mostpromising can be selected from among the many potential candidates. Some examples of these technologies are knowledge management, content and document management, intellectual capital management, visualization and simulation tools. Clinical trials automation tools to increase the accuracy of data collection and simplify the process of preparing regulatory submissions. Some examples are electronic data capture tools and electronic patient diaries. Sales effectiveness tools so that representatives target the most-appropriate physicians and make the best use of face-to-face details. Some examples are sales force automation tools, business intelligence, customer analytics and mobile devices. Supply chain efficiency that provides all players in the life science value network with visibility into requirements. Some examples are manufacturing execution systems, 21 CFR part 11 solutions, bar codes and electronic product codes. 6 October 2003 3
Best Practices From the Life Science Industry Although life science companies are generally science-savvy but IT immature, there are some examples where the industry demonstrates best practices and is ahead of other industries in its use of technology to support business goals. Best Practice: Organized approach to compliance management. Because the life science industry is so highly regulated, firms take compliance seriously. They regard compliance as an ongoing activity, assign resources and allocate funds to ensure that federal regulations are being met see "Survey Shows Life Sciences Firms Complying With 21 CFR Part 11" (www.gartnerg2.com/rpt/rpt-0703-0065.asp) and "How Life Sciences Firms Approach CFR Part 11: Survey Results" (www.gartnerg2.com/rpt/rpt-0803-0067.asp). Next Frontier: Compliance program management office. Leading-edge life science firms are consolidating their compliance resources and establishing a corporate-level responsibility for all compliance efforts regardless of the regulatory agency headed by a chief compliance officer. They bring together disparate resources working on various aspects of compliance, such as for 21 CFR Part 11 or the U.S. Health Insurance Portability and Accountability Act, into a compliance program management office. By coordinating compliance activities into a program management office, life science firms reduce their risk exposure and resource redundancy while increasing the success of their compliance efforts. Best Practice: Data visualization. Life science firms rely on a variety of visualization and analytical tools to help them unlock the secrets in their data. Researchers explore many sources of information, internal (such as compound libraries) and external (for example, chemical content repositories or gene expression information), as they do their experiments. Scientists use visualization tools to integrate the varied sources, and present information in an interactive format so that they can explore relationships within the complex data sets. Visualization techniques enable researchers to examine large data sets perhaps with as many as 500,000 to 1 million points and quickly discern a trend. Faster analysis leads to faster speed to market. Better analysis allows researchers to pursue the most-promising opportunities and ignore those with less potential for being developed into marketable products. Next Frontier: Accelerating innovation. Life science firms are only beginning to grapple with the coordinated use of technology to accelerate drug discovery innovation. No single tool will streamline the drug discovery process, rather a series of tools and techniques will be required for researchers to tap into a variety of information sources that currently do not have any common structure. Some firms are standardizing on the same data analysis tools and have established consistent work practices with a functional area, but few have extended data and workflow integration discipline across the company. Most efforts are focused on intracompany workgroups; applying technology to multiorganization research collaboration is still in its infancy. Using technology to enable information provisioning to the desktop improves collaboration among research teams and allows firms to convert data into knowledge for drug discovery. Leading-edge life science companies are beginning to move away from data warehouses constructed as passive accumulations of information, and are facilitating the timely access to, and distribution of, data sources to enable real-time decision making. They are also making research information available outside of the discovery organization to clinical, marketing and manufacturing groups. Bottom Line: Four disruptive forces are rendering many life science business practices less effective, or even obsolete. As enterprises struggle to bolster anemic research pipelines, they still need to adhere to strict government regulations that ensure product quality and patient safety. Life science companies generally lag other industries in their use of IT to support business processes; however, recent pressure 6 October 2003 4
on profit has forced them to take a new look at technologies that support the collaboration necessary for faster speed to market. Meanwhile, the industry provides some best practices in its compliance management programs and the use of visualization tools for drug discovery. 6 October 2003 5