Digital disrupters take big pharma 'beyond the pill'

After Maggie Philyaw developed Type 2 diabetes, she found solace not in the medicines of the pharmaceutical industry, but the technology of Silicon Valley. Two years ago, her then employer in North Carolina signed Ms Philyaw up to a programme run by Livongo Health, a California-based start-up, which gave her a device, smaller than an iPhone and fitted with a cellular chip, that keeps track of her blood sugar levels.

Using the latest advances in cloud computing, the drop of blood she draws each day is instantly analysed, and a text telling her what to do - "drink two glasses of water and walk for 15 minutes" - is sent if her readings place her in the danger zone. At the press of a button she can also access further help over the telephone from her "coach", a highly qualified dietitian who has managed her own diabetes for more than 40 years.

For the titans of big pharma, Ms Philyaw represents omen and opportunity, as a disruptive breed of digital innovator becomes the access point to healthcare for hundreds of thousands of patients and threatens to undermine the industry's decades-old business model. Big pharma has long focused on the lucrative business of drug development, supported by armies of sales people deployed to persuade physicians to choose its medicines.

But emerging digital technologies are reshaping the landscape. A new generation of companies is using big data, sensors and artificial intelligence to provide precise real-time monitoring of patients, especially those suffering from conditions such as diabetes and chronic obstructive pulmonary disease, which are imposing a daunting burden on overstretched health budgets.

As a result of the products and services these companies are developing, a patient's primary point of contact with the health system can sometimes now be a remote monitoring centre, or disembodied voice on the telephone, instead of a doctor's office.

"Rather than buying a pill, [insurers or employers] might buy an overall solution for diabetes," says Tom Main, a partner in 7wire Ventures, a venture capital fund that led the first round of investment in Livongo. "And that's a very different framework for pharma."

Now retired from her job as a registered nurse, Ms Philyaw pays $50 a month for Livongo's service and lives free of medication. She counts her coach Toby Smithson, whom she has never met but who has offered practical and psychological support, as her most frequent point of contact with the health system.

"I have a good relationship with my physician but I feel I speak with [Ms Smithson] more often," she says. "Having a coach has contributed to fewer doctor visits and less money spent that way. I feel that she really cares if I make it or meet my goals [on diet and exercise]", she adds.

Glen Tullman, chief executive of Livongo, says as recently as three years ago the technology underpinning his company did not exist. But corporate America, which is a major provider of health insurance, is taking notice. More than half the companies in the Fortune 100 are working with Livongo and it is eyeing expansion into Europe, Asia and Canada.

Investors are starting to bet heavily on the potential of technological innovation to transform the way healthcare is delivered. According to Rock Health, a venture fund dedicated to digital health, a total of $4.2bn was invested in the sector last year, with companies in the analytics and big data category attracting $341m over 22 deals, more than doubled from 2015.

However the pharma industry will have to grapple with its own entrenched culture if it is to take advantage of the expansion in digital technologies.

Stefan Biesdorf, who leads McKinsey's digital pharma and medical technology work in Europe, says the margins achieved by a digital health business are small compared with those associated with a blockbuster drug, making it harder to build a commercial case for investment. Moreover, the never-ending cycle of tweaks and upgrades through which a digital device passes is foreign to an industry that will wait more than a decade to get a drug from bench to bedside - but expects to make no further changes once it has secured regulatory approval.

Nor is the industry well placed to exploit a new healthcare universe that requires an ability to build lasting bonds with consumers. He cites as an example mySugr, a Vienna-based company that uses a similar blend of technology, combined with on-demand support, to collect data directly from consumers.

"It only has 50 employees but it has much, much, more in-depth understanding of patient behaviour in diabetes than probably some of the largest diabetes companies, or insulin producers, in the world," says Mr Biesdorf.

Joe Jimenez, chief executive of Novartis, the Swiss drugmaker that is widely seen as the leader among big pharma companies on digital health, concedes that the industry has been "slow to adopt some of the digital technologies, compared to other industries" and recognises "a risk that some of these digital start-ups 'own' the relationship with the physician and the patient and they distance the pharmaceutical company from that".

However, Mr Jimenez, a former Heinz executive whose background is in the fast moving world of retail, says the industry is adopting digital technologies "at an accelerated rate", and argues that they can boast a base of knowledge the digital minnows cannot rival.

"I do believe that large pharma companies have an advantage, not on the agility side but definitely on what they know about disease states, about patients, about the entire healthcare system, and many of the start-ups don't have that experience," he says.

Mr Jimenez adds that the digital exemplars are "definitely either potential competitors or they will become partners".

A flurry of deals in recent years shows that some pharma groups are racing to boost digital capability, by buying companies that offer ready-made expertise, or entering into partnerships as they seek to offer services "beyond the pill".

Teva Pharmaceuticals showed the way in 2015 when it announced it was buying Gecko Health Innovations for an undisclosed sum. The lure was Gecko's main product, CareTRx, a platform to help chronic sufferers from respiratory disease, which combines a sensor device that connects to most inhalers with a data analytics function.

Meanwhile, the French drugmaker Sanofi recently joined forces with Verily Life Sciences to work on devices and patient support for diabetics, and Pfizer is working with IBM Watson as part of its work on immuno-oncology, using its expertise in data analytics to identify new drug targets.

Erik Nordkamp, the UK head of Pfizer, says the future of healthcare will involve "a convergence of technologies to come to better solutions".

"Both locally and globally we are . . . having discussions with some of these companies to say, 'what could that future look like?'," he says.

It is still early days for big pharma's digital push. Even Novartis, whose investment in cutting-edge technology is informing everything it does, has yet to bring any digitally enabled products to the mass market.

One promising programme centres on its heart disease drug Entresto, which has been found to reduce hospitalisation and cardiovascular death by 20 per cent. It has formed a joint venture with Sanitas, a Swiss health insurer, to offer remote monitoring and coaching for patients with advanced heart failure.

Yet progress is slow. A pilot project features only 50 patients and will be extended only gradually in the coming months. Livongo, by comparison, has 35,000 "members", as it terms its users.

Mr Jimenez points to other Novartis initiatives such as the Breezhaler, a wireless enabled asthma inhaler, and a "smart" contact lens that can detect blood glucose levels through tears, obviating the need to draw blood, which will be "much less labour-intensive and much easier to roll out very quickly".

However, last year trials of the diabetic lens were postponed with no firm replacement date and Novartis is widely thought to be considering the sale of Alcon, its eyecare unit. (The company says it is "reviewing strategic options for the Alcon division to maximise shareholder value".)

The imperative to develop a capability in this field is becoming stronger as health systems demand hard evidence that a drug is effective and will ease strain on the budget - for example by reducing hospital stays.

Mr Jimenez says the prospect of these new payment structures makes big pharma "quite nervous. They say, 'if I'm going to be paid on the outcome of a patient's health, then I want to be able to control patient adherence, for example, because if that patient doesn't take their medicine, then that means I won't get paid'."

He estimates that about 25 per cent of all health spending, including on pharmaceuticals, "is not contributing towards a positive patient outcome".

Lars Fruergaard Jorgensen, chief executive of Novo Nordisk, the world's biggest insulin maker, suggests this is the missing piece for all drugmakers.

"We have spent more than 90 years refining the molecules, yet we have less than 10 per cent of our patients in a level of control that would eliminate the risk of late-stage complications and that's not good enough."

It has teamed up with Glooko, a Silicon Valley company that helps patients manage diabetes, to develop an app that will allow sufferers continuously to monitor their blood glucose levels. Through another partnership, with IBM Watson, it will gather data about the impact of its insulin, and patient compliance, that will provide "an increased comfort level" that it can balance the risks and rewards in future outcomes-based contracts.

Patients who have better knowledge about their health will "also treat [themselves] better, which would lead to higher use of high quality insulin from Novo Nordisk", he adds.

One of the biggest problems for the industry, however, is whether an app produced by a pharmaceutical company - and related to a single branded medicine - would generate the same degree of loyalty from patients and their doctors as those produced by an independent start-up.

In North Carolina, Ms Philyaw expresses just such reservations. "Personally I probably would prefer a more neutral ground that wasn't connected to a drug," she says.

At Livongo, Mr Tullman is planning to extend its service to cover at least two more conditions by the end of the year.

In a comparison that may resonate in the boardrooms of pharma companies, as they frame their response to the digital revolution, he likens the impact of these health technologies to that of Uber, which created a whole new market.

"Everybody said it's going to take the place of the traditional taxi but actually in the US people are using Uber who would have never used a taxi before."

He adds: "All of a sudden we can keep people healthier."

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Copyright The Financial Times Limited 2017