PricewaterhouseCoopers (PwC) has recently released two reports related to the life sciences industries. The first, titled “Health reform re-elected” discussed the implications of Obama’s re-election for the industry. Today, PwC released a report titled “From vision to decision Pharma 2020” that discusses many mega-trends affecting the pharma, as well as the medtech, industries.
To learn about the evolving life sciences environment, MD+DI spoke with Todd Evans, a director in PricewaterhouseCoopers Pharmaceutical and Life Sciences Advisory Services Group. For the past six years, Evans has participated in the majority of PwC’s thought leadership reports. He has closely followed Barack Obama’s interest in reforming the U.S. healthcare system after the president first announced he was running for office.
MD+DI: How would you characterize the medtech industry’s approach to preparing for healthcare reform?
Evans: A lot of people tend to take a wait-and-see attitude. Many of them were kind of burned by the 1990s, if you will. But this past year has been very seminal where we had an affirmation by the Supreme Court that a lot of folks were holding out for. And then we had the re-election of the president and his party in the Senate. From my point of view, we are at an inflection point that the wait-and-see strategy is not going to work any more. You have to take things for what they are and you have to respond to them intelligently and you need to begin taking real action. I think the industry is in a position now where they have to move from abstract planning and understanding to practical actions.
MD+DI: Many of the opinions I’ve heard from people in the industry on the Affordable Care Act have been less than optimistic. A number of people seemed to have high hopes for a repeal.
Evans: It is kind of the triumph of hope over reality sometimes, where you have a new regulation imposed on you or there is a law that constrains past behavior and you just don’t like complying with it. These are the laws of the land and, if you are going to do business in the United States, and you are in the industry, you have to be fully cognizant and compliant with them. Complaining is not usually a good strategy. You can seek to shape and reshape the law and that is always open for debate. Given this status quo of the government today, versus a month ago, I just don’t see massive changes to the law that stands today in the immediate future.
MD+DI: There is a LinkedIn post in the Medical Devices Group discussing how the election might affect investment in the medtech space. What are your thoughts on that topic?
Evans: Having certainty is a big deal. Anybody ideologically can classify whether it is good or bad. But uncertainty versus certainty is usually a bad thing. Nobody wants uncertainty. They want to be able to plan. If you are not planning, then by definition, you are opening up yourself to forces of chaos. At this point, the marketplace in the industry in the United States has a very clear idea of what the general outlines of the U.S. healthcare system are going to evolve toward for the next few years, writ large. There are hundreds of thousands or rules and other things underneath that remain to be rolled out. And yes, the devil can be in the details. But I think the premium on uncertainty over uncertainty has now been assigned. The question is: can you start planning because you have enough certainty? The answer is absolutely you can start planning. It doesn’t mean you have to like everything or dislike everything. It is what it is.
MD+DI: The medical device tax and the Sunshine Act provisions of the Affordable Care Act are scheduled to go into effect in 2013. The reforms that would significantly increase the patient pool don’t go into effect until 2014. How well do you think the industry has prepared for this transition?
Evans: So the industry generally has already had to deal with some of the effects of implementing new systems and processes to cope with both the Sunshine and the device tax. This is not something you can react to a week before it goes into effect. And I don’t see wholesale waivers to people that raise their hand and say ‘oops, sorry, I forgot.’ My perspective on this is that preparation is a much better plan than excuse-making. From our exposure to the community of manufacturers across the country, I think there has been a pretty reaction to this. Some are more ready than others, some will pay bigger bills than others, and some will have bigger processes and technology than others. I would say that, since quite some time ago, there has been a widespread recognition that this was coming and you needed to be prepared. If it went away, great. But it is here and it is being implemented and whether you are referring to the device tax or the Sunshine Act, it is going to have its effect.
And there are some things that you see in the marketplace of ideas and communication already saying, ‘gee, we are reacting because we have to right-size our cost structures and personnel are being impacted and there is an indirect cost to this thing that burdens us.’ Be that as it may, the law of the land is dictating that you must comply. It is our perspective that the vast majority of commercialize is well underway in becoming compliant.
MD+DI: I saw the recent PwC Pharma report that came out and noticed a number of parallels between the megatrends facing the medtech and pharma industries. What can medtech can learn by studying the pharma industry?
Evans: A lot of the report is about changes taking place in the market. And the market is first global but it isn’t homogenous and vanilla in nature. It is becoming more and more differentiated both by country and business models that operate within country systems. Our industry in the U.S., whether you are talking about medical device, pharma, or biotech, has traditionally addressed the market in discrete channels with a fairly uniform strategy to address them. What we are seeing is new business models evolve in the customer segments—a convergence and merger of interests, sometimes even legal mergers. That is creating goals that lead to collaboration with other stakeholders—be they outcomes, quality metrics, and measures.
There are a lot of different things that everybody is looking to do that is common now. We have the rule of law that really enshrines the change with some degree of permanency. That was lacking in many of the changes that occurred over the last 15–20 years. Medtech companies, in my view, have to take a very similar view [as pharma] on the premium on the outcomes, positioning their solutions and their products with a new form of value that needs to be identified objectively and then conveyed through business cases. It is no different whether you have a pill, device, or an implantable. At all points, you have to demonstrate superior value to existing therapies in market today. That difference has to be material—not a green stamp.
MD+DI: Where do you see genomics playing a role for the pharma industry? Can we look forward to pharma companies essentially guaranteeing their products will work for people with certain genetic profiles?
Evans: I think there is a step to before thinking about warranties or guarantees on treatment—as nice as those would be. The first step is targeting patients that even have a chance of acquiring one level or another of an outcome benefit. Obviously, I am referring to the clinical piece here.
Harnessing genomics to identify a patient that has the potential to respond to treatment is a phenomenal development both from a cost and the clinical side. From a cost point of view, we would plough through many millions of lives to see if we could acquire some benefit. We didn’t understand, because we didn’t have a [genetic] marker, whether or not that patient was appropriate for the treatment. And we kind of lived with [subpar] results. In the meantime, we sold a lot of units on the way to that endpoint.
Now what we are seeing with the rise of genomics, and its alignment to treatments, is the notion that we can immediately rule out certain portions of the population for eligibility because they are genetically disposed to not respond [to a therapy]. That is a wonderful thing because that obviously saves on the overall dollars that are going to be spent to find the lives that are going to respond, so by definition, a savings. Secondarily, it starts to drive some certainty, which is where you ended up with your guarantee comment. I think it drives certainty of treatment benefit. And then the issue is: how do we stratify those clinical outcomes that range from cure to some marginal benefit, be it quality of life or clinical slowing of the progression of disease. There is a lot of different ways to talk about whether you got clinical benefit or not. I think there are a lot of different shades of gray there. I don’t think it is red-light/green-light, unless it is an outright cure or an outright prevention. That trumps everything.
But if, through studies, you know that you are going to positively influence patients in a treatment that meet minimum eligibility requirements, genomic or not, it is fair to consider a warrantee for a portion of lives treated. The issue is: what is the function of the warrantee or the guarantee and how exactly do we classify good versus great? There is a lot of gray area there but I think we have begun the journey already.
MD+DI: What, in particular, do you think the medtech industry stands to gain by studying the pharmaceutical industry? The regulatory situation in the device space is starting to look more like it does in pharma, with reports of “shifting goalposts” and a longer path to market.
Evans: I think one of our core messages here is addressing the intangible of culture. Pharma lives in a universe where the timeline to Eureka to a commercialized product is on average 10 years. We spend an awful lot of money per candidate in that pipeline. What pharma is learning is that, even if we made decisions three, five years ago for products that are already in the pipeline and now we have to address a “shifting goal post,” we need to develop the agility to repurpose those assets to meet that new definition of value. We have got to break some cultural paradigms to do it.
"I think one of our core messages here is addressing the intangible of culture."
The old processes, the old paradigms, and the old models of how we managed, most, likely need to be adapted. Change is always the big bugaboo. We have to be more open, transparent, and collaborative. We need to understand how to make better, smaller, earlier decisions on whether our candidate products in [development] really should see the light of day. Are they really going to drive the kind of value as it is now being defined? How it was defined five years ago doesn’t matter. If the goal post has moved so far that it is no longer the right decision, than you have to allow the management decision-making discretion to kill the product and focus those precious resources on products that are going to drive value under the new definition. [Granting] permission to do that is a big cultural shift. The reward structure, obviously, has to follow with it. Being open to these sorts of things is very, very important. And developing a model that is highly agile and differentiated to the purpose of a highly fragmented market that is finding its way to new value definitions is an absolute necessity.
One thing you could look at by way of reference is other industries that have gone through similar transformative changes. Look at the aerospace, the automotive, and the high-technology industries from where they started to where they are today. You’ll find that all of them have globalized and all of them have coped with highly differentiated markets, very disruption introduction of technologies and even at the meta-level, national agendas where very interesting collaborations that would have been unheard of in the 1940s, 50s, 60s, and 70s. They are now taken as commonplace. [The life science industry] is globalizing. Healthcare and disease is global but delivery is local. That requires a great deal of agility to design solutions that products play inside that are well adapted to the unique requirements of those local situations.
When we talk about collaborating and how we develop products, maybe run trials and studies, being good at collaboration is a skill. It is not just that you know how to make a phone call. As such, there is a learning curve and an experience curve that the entire industry has started down the road of. Some will mature faster than others; some will have cultures better adapted to being able to collaborate more easily. The bottom line is we are beginning that journey as well. Those that really master that capability, that art, have a leg up on some of their competitors that may be slower to adapt.
Brian Buntz is the editor-at-large at UBM Canon's medical group. Follow him on Twitter at @brian_buntz.