Pharmaceutical companies are some of the best-positioned players in healthcare, with a captive audience for their key products and muscular global relationships. And on the surface, it seems unlikely that they’ll lose their powerful grip on drug distribution and pricing anytime soon.But in reality, I’d argue, the #digitalhealth revolution is putting their future at risk. Despite the size of the companies involved, digital health is poised to play havoc with pharma business models, just as with every other major healthcare industry sector.The truth is, no one relies more than pharmas on a network of intermediaries to keep profits high. And digital health technologies are poised to be powerful disintermediators.
Here’s some recent events that underscore the need for pharmas to make substantial, strategic digital health plays:
- Some pharmas are already going there, and it wouldn’t be smart to be outmaneuvered. For example, the news recently broke that Teva Pharmaceuticals has invested tens of millions of dollars in consumer telemedicine startup American Well. According to company CEO Erez Vigodman, the idea behind the investment is to help Teva “expand to solutions beyond medication.” But I’d argue that the quote was disingenuous at best. The pharma company enjoys a 13.6 percent profit margin on its existing drug business, and I doubt it plans to wander too far away from that business, or have any expectation that the Amwell investment will have any major impact on its nearly $22 billion in annual revenue. But investing in telemedicine could help Teva understand how its products will reach digital consumers.
- Drug channel players see digital health as a way to gain control of consumers — and they may get it. Take a look at how Walgreens, the largest drugstore chain in the U.S., is engaging with digital health.The chainjust announced that it will offer virtual medical visits in 25 states, working in partnership with telehealth vendor MDLIVE.While Walgreens doesn’t generally put the pieces together in its public statements, it is clearly looking to expand its digital service line substantially, led by Vice President of Digital Health Adam Pellegrini. Pellegrini’s job is to build out next-gen digital health and mHealth platforms for the drug retailer. Over time, I’d submit, when Walgreens has developed a global audience of drug consumers, it will have the muscle to squeeze far more profit out of drug sales distribution chain. Exactly how that will happen, I’m not sure, but controlling the next big direct-to-consumer audience will help.
- Under new reimbursement schemes, providers will seek to control pricing risk, especially high-end drug prices, and digital healthcare could be their best weapon. With providers increasingly signing value-based or even capitation contracts — hey, back to the future! — they’re going to need much tighter control of variable costs, and drug expenses are clearly a massive example. One way they’ll do that is by doing a much better job of managing chronic illness, which includes cutting down on the often eye-popping medication costs needed to care for such patients While it won’t happen overnight, digital health solutions are likely to be the default source of data on chronically-ill patients in the near future. If pharmas want to maintain any control over how providers manage drug therapies for sicker patients, they’ll need to invest in mobile population health technologies themselves, and position themselves as the data vendor of choice.
Ultimately, the best justification is common sense. If pharmas want to understand and play effectively in the new digital health era, they’ll need to have skin in the game.