Key digital health opportunity: Arbitraging pharma's rigidity

Article Highlights

  • The technologies of digital health are going to become increasingly important to pharmas

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  • There’s going to be significantly increased focus on what results are actually being delivered

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  • While some pharmas are poking around digital health now, they are unlikely to jump into this area and sort things out themselves

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As busy as the digital health space has been lately – Castlight and others prepping for IPOsAudax acquired by OptumBasis acquired by IntelSXSW preparing to fete wearables – one group of stakeholders has been conspicuously absent from the proceedings: pharma companies.

Shame on anyone who is surprised.

Most large companies, and especially most large pharma companies, are not early adopters.  They are neither eager nor nimble.  They are establishment, their mindset intrinsically conservative.  Decision-making is usually laborious, with many layers and many committees.  There are usually many ways to dampen initiatives, few ways to accelerate them.  Their priorities tend to be:

(1)    Don’t screw up what’s working (keep in mind, most are quite profitable)

(2)    Optimize existing approaches to make them work even better

(3)    Valorize, contemplate, and relentlessly message innovation  (perhaps accompanied by a handful of lightly-resourced “innovation” initiatives to highlight in the annual report)

The idea that this sort of culture could connect with one that prides itself on agility, iteration, screwing up, moving fast and breaking things, seems comical when you think about it.

Digital health, for its part, is (with a few exceptions) hardly ready for prime time, at least in the sense of delivering products that offer a robust value story predicated on anything but hope, or perhaps eyeballs.  There’s been a compelling (in some cases, wildly ambitious) narrative, but rarely the data to support it.

It’s tough to imagine anyone in their right mind envisioning that pharma is likely to rush and embrace this nascent, evolving area.

So how does this play out?

My guess: the technologies of digital health are going to become increasingly important to pharmas, especially as there’s increased emphasis on value, and as the need to deliver solutions rather than pills becomes essential, table stakes, an integral part of the way products are evaluated and used.

Whether risk is pushed onto providers, as Ezekiel Emanuel and others anticipate, or onto consumers, as experts such as my Tech Tonics co-author Lisa Suennen predict, there’s going to be significantly increased focus on what results are actually being delivered, and the companies with the greatest ability to optimize this – both by identifying just the right drug for just the right patient, and then offering this in the context of a wrap-around offering that improves real-world efficacy – are likely to win.

While some pharmas are certainly poking around digital health right now, they are unlikely to jump in to this messy area and attempt to sort things out themselves; this approach just isn’t in their constitution – especially while they have the cash to wait and see what emerges from the muck.  In general, pharmas are much more inclined to significantly overpay for a derisked capability.

So here, quite plainly, is the opportunity (and what I’d probably focus on if I had my own venture fund): emerging digital health companies expected to address a key pharma need.  The thesis is that while pharma isn’t prepared to embrace these raw startups now, a more mature offering, perhaps five years down the road, is likely to be highly valued by key stakeholders, and hence by the market in general.

Essentially, the idea would be to arbitrage pharma’s legendary aversion to risk and change, and deliver to them, on a platter, with a bow, something they’ll soon want but presently lack either the culture to develop or the temerity to acquire.

Skeptics will likely contend there aren’t enough quality digital health startups or potential downstream acquirers to justify the risk of this investment strategy.  I suspect there are plenty of both– but only if you can figure out where to look, and have a clear sense of where you need to go.

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