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February 16, 2010
The Art of the Long View: The Future of Health Care & Pharmaceuticals

Learning faster than your competitors is the only sustainable competitive advantage in an environment of rapid change and innovation (Arie de Geus, Royal Dutch Shell).

While futurists do not predict the future, Richard Worzel, Canada’s leading futurist, did mention that the Maple Leafs were not going to win the Stanley Cup. I like this guy already. Futurists don’t predict the future, because the future is inherently unpredictable. Inevitably, we are caught by surprise. But, what a futurist does is study the future with the intent of helping us deal with the uncertainties ahead.

The terrorist attacks of 9/11, the tsunami in south Asia, the SARS epidemic, hurricane Katrina, the overpass collapse in Montreal and the financial panic of 2008 had all been forecast by competent experts, but the forecasts had been dismissed as “alarmist” or “far fetched” by the relevant authorities.

This illustrates one of the fundamental realities of dealing with the future: We deny things because we can’t imagine them. However, Worzel asked us to imagine and this is what we saw… and the coffee was not spiked, I assure you.

Assume that it is the beginning of a new year, 2035. Imagine a global computer network that gathers information about the health of each individual within the network. The network covers almost two-thirds of humanity. It provides early warning signals about possible new diseases and epidemics.

The building block of this system is the embedded computer companion (aka avatar), or the wearable computers that most of the world’s population now uses, and the widespread decoding of individual genomes… is this guy related to James Cameron? I drink a little more coffee…

The signals gathered by the global network then lead to identification of global disease patterns and those most susceptible to those diseases. This leads to just-in-time development, production and targeted administration of antibiotics. Not quite our current approach of vaccinating everyone and hoping for the best.

As a result of these computer companions, our health will be monitored in never-seen-before ways. This will lead to a dramatic decrease in significant heart attacks, strokes, and other sudden-onslaught health threats. It will also lead to a graduated scale of health insurance premiums, based on the lifestyle factors that are a matter of personal choice like fitness and diet. By law, genetic factors are specifically excluded in determining insurance premiums.

Meanwhile, non-infectious diseases, like cancer and diabetes, will have largely been cured, or are at least managed, and survivability of all cancers, especially ones like ovarian and pancreatic, will have risen dramatically because blood tests for their markers will become common practice.

While the seemingly good news appears to be that we will live longer, a practical financial issue will arise. People will be in retirement for much longer than they will have worked. This will foster a battle over pension rights, entitlement to government funded health care and intergenerational issues that were unknown in previous generations.

All very nice Mr. Worzel, but what’s in it for us pharma folks? Well, in 2035, the pharmaceutical industry is still very much alive, but much changed. Drug purchases, and health treatments, will be negotiated between the computers of the supplier, payer, patient, and practitioners, with humans being involved only if there are significant disagreements. Price negotiations will be largely based on mathematical models of previous transactions. In short, people of that era will look at what we do today as unforgivably primitive.

Professor John H. Holland, University of Michigan, said, “By the mid-twenty-first century, much of medicine as it was practiced in the latter part of the twentieth century—for example, using surgery, chemotherapy, and radiation to treat cancer—will look as ineffective as the bloodletting of earlier centuries.”

If this scenario is true, how do we get there from here?

There are three principal issues that will drive health care over the next quarter century: An aging population, technology and money.

We have all heard about the demographic shifts. The cost of healthcare is constant until about age 55 and then increases exponentially. Combine this with the fact that three of the key demographic cohorts are about to undergo major demographic transitions, and it is no surprise that governments will come close to bankruptcy to sustain healthcare costs. The International Monetary Fund (IMF) estimates that Canada’s debt load will reach four times its Gross Domestic Product (GDP) due to its liabilities related to healthcare costs… guess we won’t see tax breaks, any time soon.

The second driver of healthcare change is technology. Today’s Smartphone has more computing capacity than one of the computers used by the North American Aerospace Defense Command (NORAD) in the 1980s for missile defense. According to Moore’s Law, computers double in speed and halve in price every 18 months. Kids in school will have their mobiles embedded in their bodies, powered by body heat (there goes the car adaptor business). Worzel suggests that Moore’s Law is too conservative and that computers will double in speed every 11 months, thereafter decreasing by a month or so annually. The change in computing power will lead to changes in the speed at which the genome is decoded.

Genome de-codification will propel personalized medicine to new heights. Genetic screening tests will be given before any drug to identify those patients most likely to respond to the drug. This opens up new possibilities for drug companies who today shy away from $100M drugs because of insufficient investment recovery. The future will be about developing these drugs more economically and with better accuracy by identifying the right patients in clinical trials and future use. What the manufacturer will lose in volume of patient pool, they will save in drug development by selecting the right patients for their product.

Thus the drug development model changes to target a smaller population, derive lower revenues, but at higher profit margins. Herceptin and Gleevec are present day examples of this.

The new metric of performance will become cost-per-dollar-of-profit. Companion diagnostics will help predict cost-per-dollar-of-profit and that should become the yardstick for performance going forward.

Under this model, with the use of more sophisticated screening, a low-cost, generic drug cannot only be more effective, but could destroy the potential market for a more recent drug that does not identify the appropriate niche for application. Moreover, how many failed drugs could be resurrected with an appropriate genetic screening? And how much would that save in R&D costs?

The recent waves of industry merger have been driven by the belief that the bigger companies can buy the R&D pipelines of the smaller companies and thereby improve their research capabilities. Despite their research spending doubling in the last 8 years, new drug approvals have actually gone down. Pharmaceutical forecaster Steve Burrill coined this “The Pharma Innovation Gap.” On the other hand, biotech companies and much smaller innovators have done a much better job at coming up with new drugs.

Therefore, a dispassionate observer would look at what’s happening in the pharmaceutical industry, and conclude a number of things:

First, while big pharma should continue to perform some research in-house, they should also spend a lot of time and money cultivating networks of smaller companies in order to license or buy new drugs instead of trying to come up with them themselves. Next, pharmaceutical companies should focus on what they’re extremely good at: development, manufacturing, distribution, marketing and sales. Finally, be prepared for governments to bargain hard on pricing.

What’s a poor pharma soul to do today?

Look at streamlining your operations as much as you can, putting the money where it counts most. For example, new social networking software is emerging that may allow you to increase the effectiveness of your sales and marketing efforts. One example is www.OneOncology.com in the United States, which aggregates demand for oncology drugs from doctors and has suppliers bid on supplying them. Sales happen without the need for sales calls or marketing efforts. OneOncology went from 0 to $2 billion in sales in 9 months. This kind of development is coming, whether you want it or not. The Internet is changing the marketing from bottom to top instead of the other way around.

Next and perhaps most importantly, make it a central part of any case that new drugs will reduce the amount of money governments spend, because that’s what’s going to be uppermost in their minds: Cost Effectiveness not Drug Effectiveness.

Recognize that change will come slowly at first because social systems have tremendous inertia. Drug approvals are slow. Payers are slow to accept new, more expensive, more effective drugs. Doctors are so swamped that they are reluctant to take the time to learn new fields, like genetics, so that genetic based medicine will take years or even decades to catch up with research in the lab.

Nonetheless, pharmaceuticals remain an exciting industry and the best years are still to come. We will solve our problems not by merging but by thinking our way out of them.

Richard Worzel may not have provided all the answers but he definitely gave us a lot to imagine. For additional resources, visit his website at www.futuresearch.com or the World Future Society website at www.wfs.org.