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Eucomed MTF 2011: “New medtech business models required, but where are the opportunities?” – PwC

This article was originally published in Clinica

Executive Summary

In medical technology, business innovation is moving the industry more towards services, like IT did 20 years ago.

Many companies, however, are ill prepared to make the paradigm shift that is required in creating new service-led products; many healthcare staff are generally not yet appropriately skilled to take on the mobile and electronic health (m-health and e-health) technologies that will be involved, and patients will also be required to change their mindset about the interactions that take place during consultations, diagnosis and treatment.

This means that there are significant challenges ahead, including choosing not only what service to market, but where. So, where are the product/service opportunities? Where are the geographic opportunities? And where are the most favourable market conditions for success?

These questions were addressed at the Eucomed Medtech Forum 2011 in Brussels on 12 October by Mr Christopher Wasden, global healthcare innovation leader at PricewaterhouseCoopers (PwC), who reported findings from the 2011 PwC Medical Device Innovation Scorecard study.

Dr Christopher Wasden, Global Healthcare Innovation Leader at PricewaterhouseCoopers (PwC) Photo: david plas photography

The study, which focused on nine countries – the US, Brazil, UK, Germany, France, Japan, China, India and Israel – showed that the gap between traditional innovation leaders and emerging economies is rapidly narrowing.

Its main findings included that:

?the medical technology innovation ecosystem, long centred in the US, is moving offshore, with innovators going elsewhere to seek clinical data, new-product registration and first revenues;

?US consumers are not always the first to benefit from medical technology and could eventually be last. Innovators already are going first to market in Europe and, by 2020, likely will move into emerging countries next; and

?the nature of innovation is changing as developing nations become the leading markets for smaller, faster and more affordable devices that enable delivery of care anywhere at lower cost.

It found that the US is experiencing the most rapid relative decline, albeit from the highest base, while China is accelerating the fastest, followed by Brazil and India.

Emerging-market countries such as China, India and Brazil, meanwhile, despite comparatively weak healthcare system infrastructure, are quickly taking the lead in developing “lean, frugal and reverse” innovation. This type of innovation simplifies device processes, retaining essential functions, while applying newer technologies that are more mobile, customised and less costly.

One company that has exploited the demand for such innovation in China is mobile health technology company Ideal Life. This Canadian company has teamed up with a Chinese pharmaceutical and medical-supply distributor to build a network of interactive kiosks and remote monitoring devices for 100,000 people in China in what is being described as the “largest remote health-monitoring project in the world”, Dr Wasden said.

The speaker noted that healthcare could take a path in emerging markets similar to that of mobile communications, where these countries bypassed the development of broad landline structures and jumped headlong into rapidly-adopted mobile technology.

Indeed, during the meeting, many references were made not only to the potential health applications of smart phones, but also to the Apple business model that was created in developing the iPhone, Apps and the App store, in a way that gave Apple effective “ownership” of particular areas of mobile communications. This model is now inspiring the medtech sector.

This business model should inspire medical technology companies, many of which are already innovating to create new business models for “owning the disease” – a phrase used frequently by Dr Wasden.

He added that the most powerful and radical classes of innovation occur by combining technology and business model innovations, creating the most value by harnessing creative tensions in the system and organisation - such as volume versus value and silos versus systems.

He described three classes of innovation:

incremental: such as disease management call centres;

breakthrough: such as texting and emailing patients; and

radical: such a proteus wireless pill device.

Citing Alan Lafley chief executive officer of Procter & Gamble, Dr Wasden said: “You need creativity and invention, but until you can connect that creativity to the customer in the form of a product or a service that meaningfully changes their lives, I would argue you don’t yet have innovation.”

Merck Serono was one company that Dr Wasden considers has achieved radical innovation through transforming its business model to “own the disease” through customer insight, in this case in the area of growth disorders.

It has revolutionised the technology: through having call centre nurses patient monitoring and compliance of a generic growth hormone; through in-home patient training and sharing patient data with providers and payers.

And it has revolutionised the business model innovation, among other things, through evaluating customer experience and proposing a service and product together and through setting up in-office nurse consultation for buyers and non-buyers.

Sanofi was also cited for its progress in delivering “best-in-class complete integrated solutions to diabetic patients” through integrating:

  • new pharmacological targets;
  • genetic variations and biomarkers; and
  • seamless connectivity among diagnostics, treatments and monitoring.

The company has also created an integrated structure among its departments which all work on diabetes and are responsible directly for 12 markets.

In PwC’s view, there are six basic principles to this new radical innovation model: interoperability; integration; intelligence; outcomes; socialisation; and engagement.

This is clearly no easy model to juggle, but for those who can work with patients, buyers and providers and have the vision and creativity to create novel solutions that provide value and ride on cost-savings that can be gained through m-health and e-health, there is likely to be an exciting future ahead.

Additional facts and figures on interest presented by Dr Wasden included:

  • the US continues to lead in health spending with no expected “bending” of the cost curve. China is expected to be in second place by 2020;
  • the US continues to lead in share of government spend allocated to healthcare; 19.3% compared with 17.9% in Germany and Japan, the next biggest leaders, and just 3.4% in India;
  • Israel leads in ease of reimbursement approval, with a score of 6.9 on a 1-9 ranking and just above the US (6.6%) with Japan (3.4%) and China (3.9%) at the lowest ranking;
  • emerging markets are becoming more entrepreneurial and gaining greater access to venture capital;
  • when it comes to market access by country in terms of marketing and distribution capabilities, the US is perceived as the easiest with a score of 7.3 on a ranking on 9, while Japan is the most difficult (1.8); and the US will continue to lead in R&D spend, but China is eclipsing Japan and is closing fast;
  • China is now number 2 in research output and number 5 in university leadership (and not far behind Germany, Japan and the UK;
  • China is overtaking Japan in patent applications; however it lags relative to number of researchers but will close the gap aggressively as development progresses;
  • when it comes to regulatory approval time vs ease of regulatory approval process, only Japan fares worst than China; and
  • emerging markets are becoming more entrepreneurial and gaining greater access to venture capital.

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