Big Pharma need to reinvest the business model due to covid-19

Astonishing growth rates of >25 (BDO market insight) both in market capitalization and downloads depict the potential providers see in digital therapeutics (DTx). A development that has further been boosted by Covid-19 as telemedicine solutions became an imperative especially for mental health indications in times of social distancing. Current market uncertainties dry-up venture capital available for start-ups active in the sector, an opportunity that shall not be missed by innovation-seeking pharma/MedTech players.

A high dependence on blockbuster products has led numerous pharma companies to a dead-end, where LoE seriously endangers the underlying business model. By 2030 blockbuster sales of more than $100bn will be affected by patent loss. As compound pipelines are less promising than ever before, the resulting top- and bottom-line shock will force many large MNEs to substantially transform their organizations. In this context, capital markets evaluate the transition ability of the TOP 5 US pharma players much better than their European counterparts (the gap widened from $289 in 2019 to $48bn– see also the graph below). Digital capabilities are desperately needed to develop new business models, especially in the European Market, that will enable a response to patent-loss and market uncertainty. Moreover, such skills are sought-after as more accurate treatment solutions, as P4 medicine (LINK Artikel 3), are a relief for strained healthcare budgets especially in developed countries. Therefore, payer organizations and policymakers on a global scale have a strong interest to see this change happening.

Upcoming legislation will favour the application of digital solutions beyond well-being

The emergence of digital solutions enables governments to curtail their spending on healthcare significantly, which has been shown by manifold examples. Nevertheless, legislators are not creating the right ecosystem to fully utilize the potential. On the forefront Germany with its DIGA has created a legal framework that facilitates reimbursement of digital practices. In the US, payer organizations have included digital solutions like Altoida NMI, Semler Scientific’s QuantaFlo or Pear Therapeutic’s Reset in their programs, another clear sign that the benefits outweigh the costs. Renown KOLs further accelerate this development as they act as a multiplicator towards general practitioners. We predict the vast majority of medical practitioners will promote the use of digital applications as it will help them to increase patient well-being by reduced time to diagnosis and a higher degree of referral quality by benefiting from AI-supported expert knowledge.

Market uncertainty will consolidate the sector

Recent market turmoil also had its impact on the digital therapeutic sector. Uncertainties from the war in Ukraine as well as the high likelihood of a recession has dampened the outlook of investors and thereby dried up the ever-increasing venture capital fountain. Since 2019 more than $100bn was invested in pharma and biotech start-ups, yet VC investments in Q2/2022 were the weakest since Q1/2020 in the US. This development will in the next 1-2 years speed-up consolidation in the industry as limited funding will severely impact the liquidity of digital therapeutic companies. However, those market participants with long-standing relationships with pharma partners will be spared if they have negotiated their licensing agreements properly and are successful to proof their concepts not only to their partners but also to practitioners and payer organizations.

An opportunity for big pharma arises

Such a market environment opens-up a wide range of opportunities for cash-rich, innovation-seeking pharma players. A crucial task, however, is to find targets that match not only the product portfolio & strategy but also are a good cultural/ inter-personal fit. The latter is important as it will enable the knowledge transfer from the agile, digitally versatile start-up to the large MNE thereby enabling to build up the necessary capabilities for transformation. A regular review of the market environment and the current portfolio of partnerships as well as a set of clear decision-criteria will help to lead such players in a fruitful future.

Summary:

• Digital Therapeutics (DTx) are an immense opportunity to both pharmaceutical companies and governments around the globe
• Payer organisations will profit from DTx as the access to expert knowledge will positively impact the referral quality and time-to-diagnosis thereby relieving strained state budgets
• For MNEs in the pharma sector, DTx will accelerate the transformation pathway that is necessary due to LoE for blockbuster products via cooperating with agile start-ups
• Current post Covid-19 market dynamics will facilitate market consolidation in the DTx industry thereby giving cash-rich, innovation-seeking pharma players an opportunity to build-up digital capabilities

Outlook:

The future holds huge potential for innovative and disruptive digital healthcare solutions. Since DTx products are expected to improve the current healthcare systems, further examining the approaching market trends is undeniably of high relevance. If you found our articles around MedTech topics intriguing and want to remain on the radar, feel free to request our pharmaceutical strategy portfolio and get in touch with us!

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