Pharma 3.0 Will Drive Shift from Life Science to HealthTech Investing

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(Part I of III)

Healthcare’s hyperinflation is driving the transformation of how care gets reimbursed resulting in a massive disruption in healthcare.

For example, pharma companies will succeed or fail based not on how much drug they sell, but on how well their market offerings improve outcomes.

As the largest spenders on R&D in healthcare, massive changes in the way pharmaceutical companies operate are going to have a profound effect on health technology while letting pharma adapt to marketplace changes. It is creating opportunity for startup businesses that heretofore have been stymied when trying to make inroads into healthcare.

In the past, I have frequently said that healthcare is where tech startups go to die. A combination of factors ranging from risk aversion to entrenched legacy vendors exerting account control to health IT not being viewed as a source of competitive advantage for healthcare providers has made it difficult for promising new companies to make a dent. In this three-part series, I will lay out the most important dynamics transforming the opportunity for health technology startups.

In Part I, I will highlight how “Pharma 3.0” will drive a shift from traditional Life Science to HealthTech investing. In Part II, I will outline how healthcare providers will use HealthTech to differentiate and produce better outcomes. I’ll wrap up the series laying out how many healthcare organizations are on a path to repeat mistakes the newspaper industry made beginning in the mid-90’s. There are remarkable parallels that both spell peril for the incumbent healthcare providers if they repeat the newspaper companies’ mistakes and create massive new opportunities such as those I outlined earlier in pieces about The Most Important Organization in Silicon Valley No One Has Heard About and Hotwire for Surgery.

Pharma 3.0 Will Drive Shift from Life Science to HealthTech Investing

E&Y has produced industry reports for the Pharmaceutical industry that provide a comprehensive look at pharma’s history to outline its present condition. E&Y interviewed scores of innovators and senior executives to outline out a vision for what they call “Pharma 3.0.”

The following is an excerpt from their nearly 100 page report entitled “Progressions – Building Pharma 3.0” (read the full report here):

    The Progressions report identifies several industry trends driving nontraditional companies into the sector, including health reform, health IT, comparative effectiveness, and the rising confidence in consumer power. These factors and others are prompting pharmaceutical companies to broaden their focus from producing new medicines to delivering “healthy outcomes” – a shift that will be driven through creative partnerships and business model innovation.

The Progressions report describes the rapid transition from the industry’s long-standing vertically integrated blockbuster-driven model, defined in the study as pharma 1.0, to today’s pharma 2.0 business model. Under this business model, companies have adopted a number of changes to improve productivity and financial performance, from pursuing more targeted therapies, broadening their portfolio of products and capabilities, to establishing more independent and flexible R&D units, to boosting partnerships with biotech firms, and universities and outsourcing many non-core functions.

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The report finds that even as pharmaceutical companies continue to implement strategies to prosper in pharma 2.0, these efforts may be overtaken by a pharma 3.0 “ecosystem” comprised of established industry members, nontraditional companies and an increasingly informed data-empowered consumer.

During my years working in health systems and hospitals, I rarely crossed paths with the pharma industry even though we were ostensibly serving the same organization. The only time I saw pharma reps was noticing well-dressed folks in the cafeteria that were clearly the pharma reps. My time was spent in the IT and Patient Accounting departments where much of Health IT was relegated. Whereas Health IT was viewed as a cost item to be minimized, pharma and Medical Device products represented revenue generation and differentiation opportunities for healthcare providers.

Read more . . .

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