Driving the future of health: How biopharma can defend and grow its business in an era of digitally enabled healthcare

Jul 03, 2019

Executive summary

By 2030, healthcare will be centered on patients empowered to prevent diseases rather than seek treatment. They will receive personalized health solutions in ways that are integrated seamlessly into their daily lives. All of this will be enabled by data and algorithms and provided within a healthcare system that is organized and regulated in an entirely new way.

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This shift will require transformation in every part of the existing healthcare system. Physicians and caregivers will need to redefine their roles; regulators will have to create acceptable frameworks for digital health solutions and the sharing of sensitive data; and payers will have to account for new types and ways of spending.

Alongside this overhaul of the healthcare system, tectonic shifts in global public- and private-sector budgets are expected: trillions of health dollars will be spent differently than they are spent today. There will be less emphasis on treatment and care, and more on prevention, diagnostics, and digital solutions, such as mobile apps, smart monitoring devices and artificial intelligence (AI)–enabled analytics tools.

Healthcare budgets in countries around the world are, in aggregate, expected to increase by 10 percent by 2030, according to a survey of more than 120 executives at the world’s top biopharmaceutical companies, conducted by Strategy&, PwC’s strategy consulting business. But some researchers’ expectations put the number much higher, at 42 percent. Spending per patient is expected to fall by as much as 28 percent. That’s because the number of people having access to healthcare is expected to increase disproportionately  to healthcare budgets.

At the same time, it will be tech companies — not incumbent biopharma players — that are likely to drive the change into this new world of healthcare. Our inaugural #FutureOfHealth Index reveals that biopharma recognizes that tech giants will be the dominant catalyst of these trends and that regulators are seen as the main inhibitors. One reason is that tech companies bring extensive expertise in using data and analytics.

In fact, big tech has already entered the prevention and diagnostics markets with its own product developments, filing an increasing number of patents in healthcare in recent years. At the same time, big tech is moving into biopharma’s traditional treatment segment through acquisitions and partnerships.

This will pose a significant challenge for biopharma companies and could create a future marked by lower margins. Assuming that operating costs per patient remain at current levels, we estimate that the current average net operating margins of 25 percent could come under serious pressure by 2030. In one scenario, such margins could fall to 17 percent, but there is a second, more severe scenario, in which they could even be erased.

At the same time, there are significant opportunities for biopharma if it is prepared to move strategically into new value pools such as diagnostics, prevention, and digital health solutions. Biopharma companies therefore need to reimagine the future of healthcare. They have three options: to eke out further efficiency gains and win market share, to move into new growth areas such as personalized and preventive medicines, as well as digital health, or to do both.

The good news is that most biopharma companies know this change is coming fast.

  • 96 percent of survey respondents fully (64 percent) or partially (32 percent) agree that the future of healthcare will be people-driven (with individuals increasingly managing their health themselves), preventive, personalized, digital, integrated into daily life, and enabled by new regulatory, organizational, and business models
  • 68 percent expect this scenario to be the norm in major healthcare markets by 2030
  • 75 percent perceive the future of healthcare as an opportunity for biopharma if the sector is willing to disrupt itself
  • 85 percent say they have some or all of the key elements of the future of healthcare on their corporate agenda
  • Only 25 percent, however, are taking a holistic approach to addressing the challenge

Knowledge is one thing, but time is running short for companies to define a comprehensive strategy so that new value pools can be captured while they tackle the challenges of a changing healthcare environment. The future of healthcare is coming, and it’s not a matter of whether, but when, the sector will be disrupted.

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“Only those who act early and fast enough will be able to turn the changes in healthcare into opportunity. With technology companies pushing into the healthcare market, they bring multiple natural advantages regarding new areas of growth. Traditional biopharma companies will either have to become much more efficient in order to maintain their margins or they will have to selectively invest in the growth areas of diagnostics, prevention, and digital health solutions.”

Dr. Thomas Solbach Partner, PwC Strategy& Germany

So what could be biopharma’s answer?

Reimagine healthcare
Coming from a decades-long successful business model and environment, biopharma executives should fundamentally reimagine the future healthcare landscape. Pressing and defining questions are emerging: What are people’s most important health needs? Is society still willing to pay a premium for health innovation? Will biopharma’s main business remain drugs, or will be it based on data or digital therapeutics?

Define a clear stand
Biopharma companies need to define their strategic positioning. We think there are three options:

  • Remain a traditional drug manufacturer, significantly improve efficiency, and try to gain market share
  • Unlock new value pools within the broader healthcare landscape, such as digitally enabled preventive solutions
  • Take a combined approach

Reimagine the business
Biopharma companies may need to shake themselves out of a complacent mind-set and work out how to play in new value pools as a way to lock in future margins.

  • Culture and leadership: Establish a mind-set across the organization that is driven by a “test/fail/learn quickly” mentality and in which people are not afraid of change but rather value responding to continual change as a differentiating capability. Employees must be empowered and willing to take decisions quickly — with the knowledge that their managers will back them.
  • People skills and systems: Hire people who bring new capabilities in digital health solutions development and commercialization, bioinformatics, and customer experience. To retain them, adopt incentive models that startups are using, such as a more generous share incentive plan. Give employees the opportunity to work on innovative ideas.
  • Business and operating model: Be open to entering into co-funded and co-led partnerships, bearing in mind that the new healthcare market will likely be made up of ecosystems of complementary players all revolving around the patient. Establish and commit to a business that you are willing to challenge and adapt at any point in time. Consider targeted, “bolt-on” acquisitions as well as partnerships.

Sprint with pilot projects
Test and validate new strategies by using pilots. Learn from failures, and scale into a sustainable, new business model.

Time is running out to experiment and define a winning strategy. The future of healthcare will be exciting, full of opportunities and new competition.

Act now to shape it.

#FutureOfHealth

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Dr. Thomas Solbach

Partner, Strategy& Germany

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