Digital in R&D: The $100 billion opportunity
Digital
promises to transform R&D productivity over the next decade. What will it
take to realize this potential?
Healthcare today
faces extraordinary challenges as aging
populations, an increasing chronic diseases burden, and growth in the middle
class in Asia transform patient needs. These stresses are placing new demands
on innovation as health systems world-wide increase their scrutiny on value to
address rising costs. Simultaneously, we are witnessing an unprecedented
explosion of breakthroughs in science and technology that are redefining
society and the practice of medicine.
All these changes have profound
implications for biopharmaceutical research and development. Today’s clinical environment
is evolving rapidly and presents specific challenges: for example, the rise of
personalized medicine and artificial intelligence has led to increasingly
complex protocols and new end points; trials are more frequently targeted at
smaller and harder-to-find patient populations; and competition has increased
across the board, making the battle for trial sites and patients even more
fierce. Biopharmaceutical company R&D is a series of high-risk,
high-investment decisions and the industry is facing a considerable
productivity challenge in terms of identifying, testing, and bringing new drugs
to market, especially in the context of the highly innovative therapies we seek
today.
The
R&D productivity challenge
With the average pre-tax cost of each new prescription
drug estimated at almost $2.6 billion (including failures and capital costs)
the spotlight is firmly on R&D productivity. The issue, long recognized, is
that R&D expenditures have been increasing while drug approvals have
largely been in decline for almost 50 years.
Digging further into this R&D
productivity challenge in the biopharmaceutical industry, McKinsey analysis of
the ratio of revenue to R&D spend shows that productivity reached its nadir
between 2008–11—with return on investment (ROI) plunging to 0.5 in
2008—following a decade-long decline . When we first analyzed this trend two
years ago, the high failure rates for investigational compounds was the single
largest driver behind the rocketing costs of launching a single successful
drug. Additionally, the blockbuster potential of new market entrants has often
been exaggerated: an analysis found that 43 percent of consensus forecasts
overestimated actual revenues by more than 40 percent.
Encouragingly, however, the
biopharmaceutical industry has found some recent reasons for optimism. Lately
there has been a promising upturn in approvals and successful therapeutic
launches, with productivity reaching a ROI vintage index of 1.3 in 2014. While
the industry has not returned to the heady days of 1996–97, the ROI vintage
index spiked at 3.1 in 1997. The signs of recovery in R&D productivity
appear to be building some momentum. Developments in select therapeutic areas
including oncology and the advent of technologies such as CRISPR5are
opening up a new era of precision and personalized medicine—some of which is
reflected in the rise in biotech valuations that we have witnessed recently.
Yet, despite these silver linings, the cost of developing new drugs continues
to be a cloud over the industry and the long-term R&D productivity
challenge remains to be fixed.
So what lies behind this systemic decline
in productivity and how is the transition to new science affecting R&D? In
part, the industry’s productivity problems stem from this very transition.
While looking extremely promising for the longer term, realizing the possibilities
of the genomic revolution has required considerable upfront investment to
translate leads and potential into medicines that can benefit the patient.
Moreover, the technology has generated an explosion of information, which has
presented a new set of challenges for organizations—the equivalent of finding
the proverbial needle in the haystack. Simultaneously, the hurdles relating to
the regulatory requirements for demonstration of efficacy have also risen.
Thus, balancing the risk-reward equation is becoming an increasingly
significant factor for pharma: the failure costs of new molecular entities are
climbing, which in turn are dramatically raising the overall cost of each NME.
The
digital opportunity
Today we’re witnessing the simultaneous
maturing of numerous breakthrough technologies—genomics, nanotechnology,
sensors and the Internet of Things, big data and advanced analytics, artificial
intelligence (AI) and robotics, and 3D printing among others—that is
unprecedented in human history. Broadly defined, digital is the application of
these breakthrough technologies to radically reshape companies, industries and
indeed broader society. This includes:
·
Creating extreme winners and losers by
industry
·
Radically reshaping consumer to company
interactions
·
Transferring value to the consumer
·
Dramatically lowering the cost base driven
by technology/labor trade-offs across “processes”
·
Dislocating the “role of the worker”
For businesses, it is paramount to
reinvent the core and reimagine entire business models: products and services,
research and development, sales and marketing, and channels. Within
biopharmaceutical R&D, digital presents the opportunity to ensure better
outcomes for patients via targeted therapies; significantly reduce the cost of
drug development; and accelerate cycle times to get treatments to patients
faster.
In 2013 we predicted that digital
technology breakthroughs would transform biopharmaceutical R&D and the
wider healthcare landscape.6At
the time we anticipated a future where the following would not only be
possible, but necessary.
·
Predictive modeling of biological
processes and drugs would become widespread as a result of R&D
organizations using more diverse sets of molecular and clinical data. This
would have a profound effect on the ability of manufacturers to identify
molecules with the highest probability of successful development and to
identify failures earlier.
·
Patients would be matched to clinical
trials using diverse data sources. They would be enrolled based upon factors
such as genetic information—rather than via serendipitous visits to doctors’
engaged in trials while the trials themselves would be smaller, shorter, less
expensive, and generate better insights.
·
Trials would be monitored “live” including
using a diverse ecosystem of sensors and wearables around the patient to
rapidly identify safety or operational signals requiring action, thus reducing
costly delays.
·
Data would flow freely among functions
within pharmaceutical companies as well as to partners such as academia and
contract research organizations, substantially speeding analysis and value
generation.
The only surprise for us today is just how
much change there has been already and how fast these innovations have arrived.
Our
vision for the future
Now, as we look toward the future of
R&D ten years ahead, we glimpse an entirely new vista: a world where drug
discovery is driven by machine learning and advanced analytics mining large
data sets, enabling us to understand and visualize interaction with targets and
to predict in silico a molecule’s likelihood of success and reach approval in the
market. Among many other innovations, we will see mainstream use of real-world
evidence (RWE) to demonstrate the efficacy, safety, and outcomes of products
with regulators, payors, and providers; a new model for conducting clinical
trials where patients are enrolled as part of their routine care and rich data
is collected through non-interventional means to improve the speed, cost, and
quality of operations; the widespread use of sensors to collect rich
information continuously from patients, and the broad-based application of
artificial intelligence and deep learning to diagnose and treat patients.
This is a world that is completely
digital—not simply digitized. While the latter applies digital technologies to
current approaches (for example, moving from manual processes to paperless
systems), going digital requires a complete rethink: deploying digital
technologies to reimagine value chains and drive new innovation. Done right, we
believe the size of the opportunity is $50–150 billion of EBITDA across the
industry.7Given
the nature of R&D, we think this journey will unfold over the next decade.
Achieving
this vision
What then needs to be done and how do we
set about architecting the digital transformation to achieve this vision? We
believe that there are three key areas of focus that will unlock success: the
first two concentrate on areas of disruption that will transform R&D
productivity, while the third targets the technology processes, culture, and
mind-set that will underpin this transformation at scale.8
1. R&D in the age of analytics. Companies that succeed at big data and advanced
analytics outperform their competitors in every sector—for instance, Amazon in
retail and Capital One in financial services—and we are currently at the start
of the revolution in drug development. We see a wide range of use cases
spanning R&D, including:
·
Mainstream use of real-world evidence for
regulatory, payor, and medical applications
·
Use of data and analytics for
next-generation clinical operations
·
Insights from in silico studies and
analysis of diverse datasets to accelerate research and early development
through more informed decision making, including smoothing the repurposing of
existing drugs for new therapeutic areas
·
Building active surveillance capabilities
to enhance pharmacovigilance (PV) operations and improve patient safety
2. Connecting with the individual
customers. It is no secret that the true impact
of digital has been about reinventing the customer experience. Apple has
successfully changed human behavior many times over, and technology winners
such as Facebook, Netflix, Uber, and Amazon have simultaneously eliminated
transaction costs while offering a delightful customer experience. A
significant value driver within R&D will be reinventing how companies
engage physicians, patients, and investigators at a granular level.
·
Through digital, medical affairs teams
have the opportunity to understand the requirements of individual physicians
(as well as other stakeholders) and to deliver precise information on demand.
·
Digital provides the opportunity to
reimagine clinical trials around people. Patients will benefit from our greater
understanding of their journey to improve their outcomes and trial experience
including participation and adherence. Additionally, the use of wearables and
other connected devices offers the opportunity to collect richer data
automatically and enhance the experience of both patients and investigators.
·
Equally, adopting a partnership approach
with investigators—understanding their specific pain points and deploying
digital to streamline protocols and processes—will undoubtedly benefit sponsors
in today’s increasingly cluttered landscape of more complex trials.
3. Designing the digital transformation at
scale. Most pharmaceutical companies are
digital laggards compared with companies in other sectors such as media,
retail, and telecommunications. Their digital-transformation efforts can stall
for many of the same reasons these efforts are thwarted for others—for
instance, a limited understanding of the specific ways that implementation of
new technologies can create business value, a shortage of native digital
talent, and insufficient focus on digital topics from senior leadership. Our
experience with companies inside and outside the healthcare ecosystem suggests
there are four core principles for succeeding with this kind of
all-encompassing change program. First, healthcare companies (and R&D
organizations) need to identify and prioritize their critical sources of value;
they need to identify the capabilities that lead to competitive differentiation
and those that would benefit most from digitization. Second, they must build
their service-delivery engines—not just in managing new digital technologies
but integrating agile, data science, and experience design into the fabric of
the organization. Third, healthcare companies should look for ways to modernize
their IT foundations: for example, moving to digital platforms such as cloud
and Software as a Service, managing data and knowledge as a strategic asset,
and improving security protocols for the company’s crown jewels. Finally,
companies must ensure that they build and maintain core management competencies
including governance, financial processes, and organizational health—in other
words, all the enablers that allow them to pursue a successful digital agenda.
These are the challenges and opportunities
that lie ahead and we note that realizing the digital opportunity is no simple
task—it represents a new innovation capability for the entire organization.
What follows maps to each of these components to provide a broad-brush picture
of how these momentous changes will play out in R&D over the next ten years
or so, enabling us ultimately to plot a course through these uncharted waters.
By Sastry Chilukuri, Edd Fleming, and Ann Westra December 2017
https://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/digital-in-r-and-d-the-100-billion-opportunity?cid=other-eml-alt-mip-mck-oth-1712
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