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AstraZeneca’s strategy to target early cancer

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AstraZeneca has turned traditional biopharma R&D on its head and is targeting early stage cancer
This strategy benefits from some of AstraZeneca’s R&D endeavours
But the strategy faces strong headwinds, which include significant technological and market challenges and substantial Competition from at least two unicorns

AstraZeneca’s strategy to target early cancer

Will José Baselga’s gamble pay off?

Baselga is AstraZeneca's new cancer research chief who has turned traditional biopharmaceutical drug development on its head by announcing AstraZeneca’s intention to target early- rather than late-stage cancer. “We need to spend our resources on those places where we can cure more people and that’s in early disease”, says Baselga, who knows that early detection can significantly improve patient survival rates and quality of life, as well as substantially reducing the cost and complexity of cancer treatment. Baselga also must know his strategy is high risk. Will it work?

In this Commentary

In this Commentary we discuss the drivers and headwinds of AstraZeneca’s strategy to increase its R&D focus on early stage cancer. But first we briefly describe cancer, the UK’s situation with regard to the disease and explain why big pharma targets advanced cancers. Also, we provide a brief description of AstraZeneca’s recent history.

What is cancer?

Cancer occurs when a normal cell’s DNA changes and multiplies to form a mass of abnormal cells, which we refer to as a tumour. If not controlled and managed appropriately the tumour can spread and invade other tissues and organs. In the video below Whitfield Growdon, a surgical oncologist at the Massachusetts General Hospital in Boston US, and a Professor at the Harvard University Medical School explains.

The UK’s record of cancer treatment

In the UK cancer survival rates vary between types of the disease, ranging from 98% for testicular cancer to just 1% for pancreatic cancer. Although the UK’s cancer survival rates lag those of other European countries, the nation’s overall cancer survival rate is improving. Several cancers are showing significant increases in five-year survival, including breast (80% to 86%), prostate (82% to 89%), rectum (55% to 63%) and colon (52% to 60%). Many of the most commonly diagnosed cancers in the UK have ten-year survival of 50% or more. With regard to cancer spending, compared with most Western European countries, including France, Denmark, Austria and Ireland, the UK spends less on cancer per person, with Germany spending almost twice as much per head.

Why big pharma targets advanced cancers?

Most cancers are detected late when symptoms have manifested themselves, which renders treatment less effective and more costly. When cancer is caught early, as in some cases of breast and prostate cancer, tumours tend to be removed surgically or killed by chemoradiation therapy (CRT) and this, for many people, provides a “cure”, although in some cases the cancer returns.

Studies in developed economies suggest that treatment costs for early-diagnosed cancer patients are two to four times less expensive than treating those diagnosed with advanced-stage cancer. Notwithstanding, there are physical, psychological, socio-economic and technical challenges to accessing early cancer diagnosis and these conspire to delay cancer detection. Thus, big pharma companies have traditionally aimed their new cancer drugs at patients with advanced forms of the disease. This provides pharma companies access to patients who are willing to try unproven therapies, which significantly helps in their clinical studies. And further, big pharma is advantaged because regulators tend to support medicines that slow tumour growth and prolong life, albeit by a few months.

Imfinzi: the only immunotherapy to demonstrate survival at three years

A good example of this is AstraZeneca’s immunotherapy drug called Imfinzi (durvalumab) used in unresectable stage-III non-small cell lung cancer (NSCLC), which has not spread outside the chest and has responded to initial chemoradiation therapy. Imfinzi works by binding to and blocking a protein called PD-L1, which acts to disguise cancer cells from your immune system. Imfinzi removes the disguise so that your immune system is better able to find and attack your cancer cells.

Findings presented at the June 2019 meeting of the American Society of Clinical Oncology (ASCO), build on a clinical study of Imfinzi reported in the September 2018 edition of The New England Journal of Medicine, and suggest that Imfinzi is the only immunotherapy to demonstrate survival at three years in unresectable stage-III NSCLC. AstraZeneca has begun a phase-3 clinical study of the PD-L1 inhibitor protein in stage II NSCLC patients.

Some information about AstraZeneca

AstraZeneca is a British-Swedish multinational biopharmaceutical company with a market cap of US$107bn and annual revenues of US$22bn. The company operates in over 100 countries, employs more than 61,000, has its headquarters in Cambridge, UK, and is recovering after patents expired on some of its best-selling drugs and a failed takeover bid in 2014 by Pfizer.

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A paradigm shift in cancer diagnosis

Patents, legacy drugs and new biologics

When pharma companies develop a new drug, they can apply for a patent that stops other companies from making the same thing. A patent lasts for 20 years, after which point other producers can replicate the drug and its selling price plummets. This happened to AstraZeneca’s when the patents expired on two of its best-selling drugs: Crestor (rosuvastatin), and Nexium (esomeprazole). The former is a statin that slows the production of cholesterol by your body, lowers cholesterol and fats in your blood and is used to reduce your chances of heart disease and strokes. The latter is a drug used to treat symptoms of gastroesophageal reflux disease (GERD) and other conditions involving excessive stomach acid. Unlike some of its rivals, these were oral medicines based on small molecules that are easy for generic manufacturers to copy, which made AstraZeneca vulnerable to cut-price competition immediately after the legal protection of the drugs had expired. Notwithstanding, AstraZeneca’s new generation of biologic medicines, which it launched in the first decade of this century, are protected to some degree by the fact that they are difficult to copy as they are manufactured using cells, instead of big chemistry sets used to make conventional drugs.

AstraZeneca’s history with early stage cancer therapies

Baselga’s gamble benefits from the fact that AstraZeneca developed an interest in the detection of early stage cancer before his appointment. Today, AstraZeneca is active in clinical studies with other biopharma companies and leading academic institutions targeting earlier-stage therapies.

Working with collaborators over the past two decades, AstraZeneca has tested a number of drugs including Iressa (Gefitinib) and Tagrisso (Osimertinib) in cancers from stage-I onward, in some cases to try to shrink tumours before they are removed surgically. Tagrisso is a potential star-drug for AstraZeneca. It was originally developed to treat a group of lung cancer patients whose cancer had become resistant to established tyrosine kinase inhibitor therapies such as Iressa and Roche’s Tarceva (erlotinib). Tagrisso surprised AstraZeneca as it turned out to be better than Iressa and Tarceva when used in untreated patients with epithelial growth factor receptor (EGFR) mutations. EGFR is a protein present on the surface of both normal cells and cancer cells, and are most common in people with lung adenocarcinoma (a form of NSCLC), more common with lung-cancer in non-smokers, and are more common in women.

Epithelial growth factor receptor (EGFR)

Think of EGFR as a light switch. When growth factors (in this case tyrosine kinases) attach to EGFR on the outside of the cell, it results in a signal being sent to the nucleus of the cell telling it to grow and divide. In some cancer cells, this protein is overexpressed. The result is analogous to a light switch being left in the "on" position, telling a cell to continue to grow and divide even when it should otherwise stop. In this way, an EGFR mutation is sometimes referred to as an "activating mutation". Tagrisso "targets" this protein and blocks the signals that travel to the inside of the cell and growth of the cell stops. In 2003, when AstraZeneca received regulatory approval of Iressa we had little understanding about EGFR. Today however about 50% of drugs approved for the treatment of lung cancer address this particular molecular profile.

Technological challenges

Baselga’s gamble is assisted by advances in liquid biopsies, which work by detecting fragments of malignant tumour DNA in the bloodstream to identify oncogenic drivers, which help treatment selection. The challenge of this approach is that tumours shed meniscal amounts of circulating tumour DNA (ctDNA), which significantly raises the difficulty of detecting the genetic signals that oncologists need to identify specific cancers and select treatments. ctDNA should not be confused with circulating free DNA (cfDNA), which is a broader term that describes DNA that is freely circulating in the bloodstream but is not necessarily of tumour origin.

The good news for Baselga is that in recent years looking for ctDNA has become a viable proposition because of improvements in DNA sequencing technologies, (see below) which make it possible to scan fragments and find those few with alterations that may indicate cancer. While other blood-based biomarkers are being investigated, the advantage of ctDNA is that it has a direct link to a tumour and can be very specific at identifying cancer. ctDNA also provides a means to profile and monitor advanced stage cancers to inform treatments.

Notwithstanding, a paper published in the June 2018 edition of the Journal of Clinical Oncology suggests that, “there is insufficient evidence of clinical validity and utility for the majority of ctDNA assays in advanced cancer”, and therefore it is still early to adopt cfDNA analysis for routine clinical use.

Next generation genome sequencing

DNA sequencing is the process of determining the sequence of nucleotides in a section of DNA. The first commercialised method was “Sanger Sequencing”, which was developed in 1977 by Frederick Sanger, a British biochemist and double Nobel Laureate for Chemistry. Sanger sequencing was first commercialized by Applied Biosystems, and became the most widely used sequencing method for approximately 40 years. More recently, higher volume Sanger sequencing has been replaced by next-generation sequencing (NGS) methods, which cater for large-scale, automated genome analyses. NGS, also known as high-throughput sequencing, is a general term used to describe a number of different state-of-the-art sequencing technologies such as Illumina’s Solexa sequencing. These allow for sequencing of DNA and RNA significantly more quickly and cheaply than the previously used Sanger sequencing and has revolutionised the study of genomics and molecular biology.

Can AstraZeneca acquire success?

Baselgo’s gamble is not helped by the relative dearth of biotech companies engaged in clinical studies of early stage cancers. This significantly narrows AstraZeneca’s options if it wants to buy-in clinical-phase assets to fit with Baselga’s strategy.

Notwithstanding, there are at least two biotech companies of potential interest to AstraZeneca. One is Klus Pharma, founded in 2014, based in Monmouth Junction, New Jersey, US, and acquired for US$13m in October 2016 by the Sichuan Kelun Parmaceutical Co., a Chinese group based in Chengdu. Another is Dendreon, a biotech company based in Seal Beach, California, US. In 2014 Dendreon filed for chapter 11 bankruptcy. In 2015 its assets were acquired by Valeant Pharmaceuticals. In 2017, the Sanpower Group, a Chinese conglomerate, acquired Dendreon from Valeant for US$820m.

Klus is recruiting patients with stage-I rectal cancer for a phase 1/2 clinical study of its anti-HER2 antibody drug, and is also working to extend its flagship product, Provenge (sipuleucel-T) as an option for patients with low-risk prostate cancer. Provenge is an autologous cellular immunotherapy. It was the first FDA-approved immunotherapy made from a patient’s own immune cells. Since its approval in 2010, nearly 30,000 men with advanced prostate cancer have been prescribed the therapy.

Unicorns threaten AstraZeneca’s strategy for early cancer

Perhaps the biggest threat to Baselga’s gamble is competition from unicorns, which include Grail, and Guardant Health.

Grail
Grail was spun-out of the gene sequencing giant Illumina in 2016 and backed by more than US$1.5bn in funding, including money from Microsoft cofounder Bill Gates and Amazon founder Jeff Bezos. Grail is on a quest to detect multiple types of cancer before symptoms manifest themselves by way of a single, simple and cheap blood test to find fragments of ctDNA. Grail has made significant progress in its quest to develop highly sensitive blood tests for the early detection of many types of cancer, but it still has to engage in further large-scale clinical studies. At the 2018 ASCO conference, the company presented data from its Circulating Cell-free Genome Atlas (CCGA) project, which showed detection rates ranging from 59% to 92% in patients with adenocarcinoma, squamous cell and small cell lung cancers. The rate of false positives - a major concern for the oncology community - was under 2%.

In an effort to improve its technology and its outcomes, Grail has been working with researchers from the Memorial Sloan Kettering Cancer Center, MD Anderson Cancer Center and the Dana-Farber Cancer Institute, to develop a new assay. According to results published in the March 2019 edition of the journal Annals of Oncology, this joint venture has successfully come up with a method, which can detect mutations in NSCLC patients’ blood with high sensitivity. In some cases, the technology was useful when tissue biopsies were inadequate for analysis. The new tool uses Illumina’s “ultradeep next-generation sequencing", which involves reading a region of DNA 50,000 times, on average, to detect low-frequency variants. White blood cells were also sequenced to filter out "clonal hematopoiesis", which are noncancerous signals that can come from bone marrow. The sequencing information was then fed to a machine learning algorithm developed by Grail to determine mutation readouts.

Guardant Health
The other unicorn for AstraZeneca to watch is liquid biopsy developer Guardant Health. Founded in 2013, it is now an US$8bn precision oncology company based in Redwood City, California US. In April 2019 Guardant presented data of its oncology platform at the American Association of Cancer Research (AACR) in Atlanta, US. The platform leverages Guardant’scapabilities in technology, clinical development, regulatory and reimbursement to drive commercial adoption, improve patient clinical outcomes and lower healthcare costs. In pursuit of its goal to manage cancer across all stages of the disease, Guardant has launched two next-generation sequencing liquid biopsy-based Guardant360 and GuardantOMNI tests for advanced stage cancer patients, for minimal residual disease/recurrence monitoring and for early detection screening, respectively.

The Guardant360 test is used to track patients’ responses to drugs and select most effective future therapies. It can identify alterations in 73 genes from cfDNA and has been used by more than 6,000 oncologists, over 50 biopharmaceutical companies and all 28 of the National Comprehensive Cancer Network Centers.

Further, Guardant has launched a new liquid biopsy called Lunar. At the April 2019 AACR meeting the company presented data of Lunar’s use as a screen for early-stage colorectal cancer. The assay was used to test plasma samples taken from 105 patients with colorectal cancer and 124 age-matched cancer-free controls. It is the test’s utility as a screen for early-stage disease that should interest AstraZeneca most. Guardant expects to position Lunar as something approaching a true diagnostic: a screening test to identify solid tumours in the healthy population. Wider clinical studies of Lunar are expected to start soon and Guardant believes that Lunar’s market opportunity as a cancer screen is some US$18bn and sees a US$15bn market opportunity in recurrence monitoring.

Also, in April 2019 Guardant acquired Bellwether Bio, a privately held company founded in 2015, for an undisclosed sum. Bellwether is focused on improving oncology patient care through its pioneering research into the epigenomic content of cfDNA. This could aid Guardant in its efforts to develop a cancer screen and further advance its research into cancer detection at earlier stages of the disease.

Guardant is well positioned to develop individual early indications of cancer. Grail, on the other hand, is well positioned to develop a pan-cancer test. Notwithstanding, both companies need to engage in further lengthy, large-scale clinical studies before it will become clear which of these strategies will be more successful. However, both unicorns and other start-ups are potential competitors to AstraZeneca’s endeavours to target early cancer.

Takeaways

AstraZeneca’sproposed bold and risky shift in its R&D strategy is to be welcomed since the early detection and treatment of cancer should significantly enhance the chances of a cure, which would radically improve the quality of life for millions and substantially reduce the vast and escalating costs associated with the disease. AstraZeneca has some advantages since over the past two decade it has significantly enhanced its technology and been developing a platform of therapies for early stage cancer. Notwithstanding, for its strategy to target early stage cancer to be successful the company will have to overcome intense, fast growing, well-resourced competition and substantial technical and markets challenges.

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5 years, 10 months ago

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Is the digital transformation of MedTech companies a choice or a necessity?

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Medical Technology

MedTech

Is the digital transformation of MedTech companies a choice or a necessity?

Will 2019 see medical technology (MedTech) companies begin to digitally transform their strategies and business models to improve their commercial prospects?

We describe some of the changing market conditions that drive such transformations. We also briefly report the findings of two research papers on corporate digital transformations published in recent editions of the Harvard Business Review. These suggest that there are two “must haves” if company transformations are to be successful: leadership with the appropriate mindset and access to talented data scientists.

A bull market encouraging a business-as-usual mindset

MedTech is a large growing industrial sector (see below), which has benefitted significantly from the bull market in equities over the past decade but is one of the least equipped to prosper over the next decade in a radically changing healthcare ecosystem and a more uncertain global economy.

For the past decade equity markets have outperformed global economic growth and protected a conservative, production-orientated business-as-usual mindset in MedTech C-suites and boards of directors. This has made organizations either slow or reluctant to transform their strategies and business models, which define how they create and capture value. As we enter 2019 the protection that the MedTech industry enjoyed for years has been weakened by more uncertain markets, the tightening of monetary policy, slower global economic growth and disruptive technological change.

In this new and rapidly evolving environment MedTech markets are expected to continue growing but at a slower rate, operating margins are expected to decline as unit prices erode and companies will no longer be able to earn premium margins by business-as-usual strategies. Building a prosperous organization in a more uneven future is an important challenge facing MedTech leaders and will require a significant shift in their mindset and the talent they engage and develop.

Medical technology

MedTech represents a significant sector of global healthcare, which has been relatively stable for decades. It has a market size of some US$430bn and has consistently experienced high margins and significant sales growth. For example, over the past decade the sector has grown at an annual compound growth rate of about 5%, with operating margins between 23% and 25%. The sector includes most medical devices, which prevent, diagnose and treat diseases. The most well-known include in vitro diagnostics, medical imaging equipment, dialysis machines, orthopaedic implants and pacemakers. The US and Western Europe are established centres for the sector, but trends suggest that China and India will grow in significance over the next decade. The sector is dominated by about 10 giant companies, which account for nearly 40% of the global market in sales revenues. All MedTech companies have significant R&D programs and the global spend on R&D is expected to grow from US$27bn in 2017 to US$34bn by 2022. An indication of how far developments in medical technology have come is robot-assisted surgery, which employs artificial intelligence (AI) for more precise and efficacious procedures. Robot-assisted surgery is expected to become a US$13bn global market by 2025. In the US the repeal of the medical device excise tax was not included in the recent tax reform. The industry believes the tax has a negative impact on innovation, and the rate of R&D spending by US MedTech companies is expected to fall by 0.5% over the next five years.

Resistance to change

For the past decade a substantial proportion of MedTech companies either have resisted or been slow to transform their strategies and business models despite increasing pressure from rapidly evolving technologies, changing reimbursement and regulatory environments and a chorus of Industry observers calling for MedTech companies to become less product-centric and more solutions orientated. This reluctance to change can be explained by a bull market in equities, which began in March 2009, outperformed economic growth, delivered some of the best risk-adjusted returns in modern market history and encouraged a conservative mindset among corporate leaders, who were reluctant to change and developed a “if it’s not broken why fix it” mindset.

Because the MedTech sector has been stable for years, established players have been able to compete successfully across the device spectrum, applying common business models and processes without much need for differentiation. MedTech’s strategy has been to market high priced sophisticated product offerings in a few wealthy regions of the world; mainly the US, Western Europe and Japan, which although representing only 13% of the world’s population account for more than 86% of the global MedTech market share (US: 42%, Europe: 33%, Japan: 11%). It seems reasonable to assume that in the future, as markets become more turbulent and uncertain, this undifferentiated strategy and business model will need to transform into ones that are far more distinctive and proprietary.

M&A has been MedTech’s principal response to market headwinds

MedTech’s principal adjustment to market headwinds over the past decade has been to increase its M&A activity rather than transform its strategies and business models. M&A’s increased companies scale and leverage, drove stronger financial performance, allowed companies to obtain a broader portfolio of product offerings and increased their international footprints. Some recent high-profile examples of M&A activity in the sector include Abbott’s acquisition of St. Jude’s Medical in January 2017, which led to Abbott holding some 20% of the US$40bn global cardiovascular market. Johnson & Johnson’s US$4bn buyout of Abbott Medical Optics Inc in February 2017, and the “mother of all M&A activity” was Becton Dickinson’s 2017 acquisition of C.R. Bard for US$24bn, which is expected to generate annual revenues of US$15bn.

According to a January 2018 McKinsey report between 2011 and 2016, 60% of the growth of the 30 largest MedTech companies was due to M&A’s, and between 2006 and 2016, only 20% of 54 pure-play publicly traded MedTech companies, “mostly relied on organic growth”.

As MedTech leaders return to their desks in early 2019 after the worst December in stock market recent memory, they might begin to reflect on their past all-consuming M&A activity, which resulted in bigger but not necessarily better companies. After such a prolonged period of M&A’s, there is likely to be a period of portfolio optimization. Divestitures and spin-outs allow companies to capture additional value by improving capital efficiency, reducing operational complexity and reallocating capital to higher-growth businesses as the industry invests more in R&D to develop innovative product offerings that demonstrate value in an increasing volatile era and increasing price pressures. But divestitures are not necessarily changing strategies and business models, so MedTech’s vulnerabilities remain.

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The IoT and healthcare

Black December 2018 for equities

It is too early to say whether “Black December 2018” represents the end of the longest equity market bull-run in recent history, but it is worth noting that on Friday 21^st December the Nasdaq composite index closed at 6,332.99, which was a drop of 21.9% from an all-time high of 8,109.69 on August 29^th. The generally accepted definition of a bear market is a drop of at least 20% from a recent peak. World markets followed Wall Street. Japan’s Topix Index fell to its lowest level for 18 months and the pan European Stoxx 600 Index hit a two-year low. However, seasoned market observers suggest that although the average bull market tends to last for about 10 years, it does not simply die of old age, and the December 2018 market behaviour is consistent with a “maturing cycle” in which there is still room for stocks to grow. This note of optimism could encourage a continuation of a “business-as-usual” mindset in MedTech C-suites and boards of directors.

Anaemic economic growth forecasted

The outlook for the global economy in 2019 does not bring any comfort. In October 2018 the International Monetary Fund lowered its forecast for global economic growth for 2019, from 3.9% to 3.7%; citing rising trade protectionism and instability in emerging markets. In September 2018 the Organisation for Economic Cooperation and Development (OEDC) suggested that economic expansion may have peaked and projected global growth in 2019 to settle at 3.7%, “marginally below pre-crisis norms with downside risks intensifying.” The OECD also warned that the recovery since the 2008 recession had been slow and only possible with an exceptional degree of stimulus from central banks. And such support is ceasing.

Tightening of monetary policy

Global monetary policy is tightening as central banks retreat from their long-standing market support. After four years of quantitative easing (QE) the European Central Bank (ECB) has ended both its money printing program and its €2.6trn bond purchasing program. The Bank has done this just as the Eurozone growth is cooling and Europe seems to be destined for a slow relative decline, which raises concerns about the sustainability of the single currency area. Notwithstanding, some observers suggests that for the next few years capital can be reasonably safely deployed in the beer-drinking nations of northern Europe, but not in the wine-drinking countries of southern Europe; especially France and Italy, two countries at the centre of the Eurozone’s current challenges. France’s budget deficit exceeds that permitted by the EU and in the latter part of 2018 the nation’s anti-government gilets jaunes demonstrators led to President Macron promising more welfare spending than the nation can afford. This could suggest that France is on the cusp of an Italian-style debt crisis. Although these economic trends have been telegraphed for some time, after nearly a decade of a bull market and low interest rates, there seems to be some complacency in the equity markets about the risks from higher rates and elevated corporate debt. But this sentiment is expected to change in 2019.

Transformation is no longer a choice

This more uncertain global economic outlook, heightened US-China tensions, tighter monetary policy and a maturing global business cycle together with significantly changed and evolving healthcare ecosystems suggest that transformation of MedTech strategies and business models is no longer a choice but a necessity if they are to maintain and increase their market positions over the next decade.

A challenge for many MedTech companies is that they still work on dated and inappropriate systems or hierarchical processes, and too few leaders and board members fully comprehend the speed and potential impact of advanced digital technologies. Those organization with some appreciation of this are already looking to adjacent sectors for talent and knowhow that could help them evolve their strategies and business models. But such partnerships might not be as efficacious as expected. We explain why below.

Digital transformations

Let us turn now to consider digital transformations. Data scientists and machine learning engineers are critical to any digital transformation. One significant challenge for companies contemplating such change is talent shortage, which disproportionately affects companies not use to dealing with such talent. Data scientists are aware of their scarcity value and they tend not to work in IT silos of traditional hierarchical organizations but prefer working for giant tech companies in devolved networked teams, focusing on projects that interest them.

Companies that fail to engage talented data scientists will be at a disadvantage in any digital transformation. Mindful of such challenges some MedTech companies are beginning to partner with start-ups and smaller digitally orientated companies. But this is not necessarily an answer because talent shortage also affects start-ups. The answer lies in understanding how giant tech companies recruit talented individuals. Companies like Google and Facebook are more interested in “tech savvy” individuals and less interested in formal qualifications. They tend to catch such talent with attractive internships when they are seniors in high school and juniors at university. These companies understand digital technology and have seen enough interns that they can correlate their performance on coding tests and technical interviews with their raw ability and potential rather than relying on formal qualifications as a proxy for skill.

A new and more dynamic leadership mindsets

Future MedTech leaders will not only need to have a deep knowledge of disruptive digital technologies and AI systems, but will need to have the mindset of an “inclusive networked architect” with an ability to create and develop learning organizations around diverse technologies with dispersed talent. Traditional hierarchical production mindsets, which have benefitted from business-as-usual for the past decade are unlikely to be as effective in an environment which is experiencing the impact of a significant and rapid shift in technological innovation. Sensors, big data analytics, AI, real-world evidence (RWE), robotic and cognitive automation are converging with MedTech and encouraging companies to pivot from being product developers to solution providers. This requires leaders with mindsets that reward value instead of volume and are agile enough to meet increasing customer expectations, whether those customers are payers, providers or patients.

Without leaders with informed, forward-thinking mindsets, enthused about new models of organizational structures, culture and rewards that provide greater autonomy to talented teams and individuals, MedTech companies could remain at a disadvantage in competing with other technology companies for similar talent and expertise. Future MedTech leaders must understand how work is being redefined and the implications of this for talented individuals and devolved networked teams. It seems reasonable to assume that future MedTech leaders will be generalists: executives with more than one specialism with an ability to breakdown silos and bridge knowledge gaps across organizations and develop new models of organizational structure, culture, and rewards.

Successes and failures of digital transformations

We have focused on digital transformation of traditional companies as a means for them to prosper in radically changing market conditions. Although there has been a number of successful corporate digital transformations there has also been a significant number of failures. Understanding why some succeed and some fail is important.

Successful digital transformations

One notable successful digital transformation is Honeywell, a Fortune 100 diversified technology and manufacturing company, which overcame threats from market changes and disruptive digital technologies by transforming its strategies and business models. In 2016, Honeywell’s Process Solutions Division, a pioneer in automated control systems and services for the oil, gas, chemical and mining industries, set up a new digital transformation unit to assist its customers to harness advantages from the Internet of Things (IoT) by increasing their connectivity to an ever-growing number of devices, sensors and people in order to improve the safety, reliability and efficiency of their operations.

The Unit’s primary focus is on outcomes, such as reducing costs and enabling faster and smarter business decisions. Honeywell’s IoT platform called Sentience, is considered a toolkit to collect, store and process data from connected assets, offering services to analyse these data and generate insights from them to enable data-based, value-added services. Unlike similar platforms developed by Siemens and General Electric (GE), Honeywell does not sell their platform as an app, but markets data-based services predicated on its platform, which enable its customers to optimize the performance of their connected assets and improve overall production efficiency. Other corporations that have set up similar transformation units to harness the benefits of disruptive technologies include Hitachi, Hewlett-Packard, SAP and UPS.

Failed digital transformations

Perhaps the biggest digital transformational failure is General Electric (GE). In 2011, the then CEO Jeff Immelt became an advocate for the company’s digital transformation. GE created and developed a significant portfolio of digital capabilities including a new platform for the IoTs, which collected and processed data used to enhance sales processes and supplier relationships. Immelt suggested that GE had become a “digital industrial company”. The company’s new digital technology reported outcomes of a number of indices, which over time improved and attracted a significant amount of positive press. Notwithstanding, activist investors were not so enamoured, GE’s stock price languished, Immelt was replaced and the company’s digital ambitions came to a grinding halt. Other notable corporates, which tried and failed to harness the commercial benefits from disruptive technologies include Lego, Nike, Procter & Gamble and Burberry.

Digitally transformed companies outperform those that resist change

Notwithstanding, research findings published in the January 2017 edition of the Harvard Business Review suggest that digitally transformed companies outperform those that lag behind. Findings were derived from 344 US public companies drawn from manufacturing, consumer packaging, financial services and retail industries with median revenues of some US$3.4bn. Conclusions suggest that digitally transformed companies reported better gross margins, enhanced earnings and increased net income compared to similar companies, which lagged behind in digital change. “Digital technology changes the way an organization can create value: digital value creation stems from new, network-centric ways your business connects with partners and customers offering new business combinations,” say the authors of the study. Critically, the mindset of leaders is significantly linked to successful digital transitions. According to the study’s authors, “Our research indicates that these leaders approach the digital opportunity with a different strategic mindset and execute on the opportunity with a different operating model.”

Reasons for failing to transform

According to a paper published in the March 2018 edition of the Harvard Business Review there are four reasons why digital transformations fail.

Leaders’ narrow understanding of “digital”, which is not just technology but a blend of talented people, organizational culture, appropriate machines and effective business processes
Poor economic conditions and depressed demand for product offerings
Bad timing. It is important that your market sector is prepared for the changes your company is proposing
Paying insufficient attention to legacy business. “The allure of digital can become all-consuming, causing executives to pay too much attention to the new and not enough to the old”.

Takeaways

Business history has shown that large and established companies, which fail to respond to disruptive technologies in a timely and appropriate fashion can fail and disappear. Notable examples include America Online, Barnes & Noble, Borders, Compaq, HMV, Kodak, Netscape, Nokia, Pan Am, Polaroid, Radio Shack, Tower Records, Toys R Us and Xerox. MedTech leaders might be mindful of Charles Darwin’s hypothesis, which he describes in his book, On the Origin of Species published in 1859. Darwin suggests that “in the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment”. Such a statement would not be out of place in a modern boardroom. It suggests that all industrial sectors need to develop to keep abreast of innovations and evolving trends. The main difference is that Darwin’s natural selection processes take millions of years, while significant changes that effect commercial businesses can take a matter of months.

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The convergence of MedTech and pharma and the role of biosensors

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The convergence of MedTech and pharma can generate innovative combination devices that promise significant therapeutic and commercial benefits
Combination devices such as advanced drug delivery systems offer more precise, predictable and personalized healthcare
The global market for advanced drug delivery systems is US$196bn and growing
Biosensors play a role in convergence and innovative drug delivery systems
Roger Kornberg, Professor of Medicine at Stanford University and 2006 Nobel Prize winner for Chemistry describes the technological advances, which are shaping new medical therapies

The convergence of MedTech and pharma and the role of biosensors

MedTech and pharma companies are converging.
What role do biosensors play in such a convergence?

Traditionally, MedTech and big pharma have progressed along parallel paths. More recently, however, their paths have begun to converge in an attempt to gain a competitive edge in a radically changing healthcare landscape. Convergence leverages MedTech’s technical expertise and pharma’s medical and biological agents to develop combination devices. These are expected to significantly improve diagnosis, monitoring and treatment of 21^st century chronic lifetime diseases, and thereby make a substantial contribution to an evolving healthcare ecosystem that demands enhanced patient outcomes, and effective cost-containment.

Conventional diagnostics & drug delivery

Conventional in vitro diagnostics for common diseases are costly, time-consuming, and require centralized laboratories, experienced personnel and bulky equipment. Standard processes include the collection and transportation of biological samples from the point of care to a centralized laboratory for processing by experienced personnel. After the results become available, which usually takes days, the laboratory notifies doctors, who in turn contact patients, and modify their treatments as required. Conventional modes of treatment have mainly consisted of simple, fast-acting pharmaceuticals dispensed orally or as injectables. Such limited means of drug delivery slows the progress of drug development since most drugs are formulated to accommodate the conventional oral or injection delivery routes. Concerns about the quantity and duration of a drug’s presence, and its potential toxic effect on proximal non-diseased tissue drives interest in alternative drug delivery systems and fuels the convergence of MedTech and pharma.

The end of in vitro diagnostics

Roger Kornberg, Professor of Medicine at Stanford University, reflects on the limitations of conventional in vitro diagnostics, and describes how technological advances facilitate rapid point-of-care diagnostics, which are easier and cheaper:

Converging interest

Illustrative of the MedTech-pharma convergence is Verily's (formerly Google Life Sciences) partnership with Novartis to develop smart contact lenses to correct presbyopia, (age-related farsightedness), and for monitoring diabetes by measuring glucose in tears. Otsuka’s, partnership with Proteus Digital Health is another example. This venture expects to develop an ingestible drug adherence device. Proteus already has a FDA-approved sensor, which measures medication adherence. Otsuka is embedding the Proteus’s sensor, which is the size of a sand particle, into its medication for severe mental illnesses in order to enhance drug adherence, which is a serious problem. 50% of prescribed medication in the US is not taken as directed, resulting in unnecessary escalation of conditions and therapies, higher costs to health systems, and a serious challenge for clinical studies.

Drivers of change

The principal drivers of MedTech-pharma convergence include scientific and technological advances, ageing populations, increased chronic lifestyle diseases, emerging-market expansion, and developments in therapies. All have played a role in changing healthcare demands and delivery landscapes. Responding to these changes, both MedTech and pharma have continued to emphasize growth, while attempting to enhance value for payers and patients. This has resulted in cost cutting, and a sharper focus on high-performing therapeutics. It has also fuelled MedTech-pharma convergence and the consequent development of combination devices. According to Deloitte’s 2016 Global Life Science Outlook, combination devices “will likely continue to rapidly increase in number and application”.

MedTech’s changing business model

Over the past two decades, MedTech has been challenged by tighter regulatory scrutiny, and continued pressure on healthcare budgets, but advantaged by technological progress, which it has embraced to create new business models. This has been rewarded by positive healthcare investment trends. Over a similar period, pharma has been challenged by the expiry of its patents, advances in molecular science, and changing demographics, but buoyed by increased healthcare spending trends, although the forces that increase health costs are being tempered by a demand for value.

As pharma has been increasingly challenged, so interest has increased in the potential of MedTech to address some of the more pressing healthcare demands in a radically changing healthcare ecosystem. Unlike pharma, MedTech has leveraged social, mobile, and cloud technologies to develop new business models and innovative devices for earlier diagnoses, faster and less invasive interventions, enhanced patient monitoring, and improved management of lifetime chronic conditions.

Such innovations are contributing to cheaper, faster, and more efficient patient care, and shifting MedTech’s strategic focus away from curative care, such as joint replacements, to improving the quality of life for patients with chronic long-term conditions. This re-focusing of its strategy has strengthened MedTech commercially, and is rapidly changing the way in which healthcare is delivered, the way health professionals treat patients, and the way patients’ experience healthcare.

Josh Shachar, founder of several successful US technology companies and author of a number of patents, describes the new healthcare ecosystem and some of the commercial opportunities it offers, which are predicated on the convergence of MedTech and pharma:

The decline of big pharma’s traditional business model

Pharma’s one-size-fits-all traditional business model, which has fuelled its commercial success over the past century, is based on broad population averages. This now is in decline as patents expire on major drugs, and product pipelines diminish. For example, over the past 30 years the expiry of pharma’s patents cost the industry some US$240bn.

Advances in genetics and molecular biology, which followed the complete sequencing of the human genome in 2003, revolutionized medicine and shifted its focus from inefficient one-size-fits-all drugs to personalized therapies that matched patients to drugs via diagnostic tests and biomarkers in order to improve outcomes, and reduce side effects. Already 40% of drugs in development are personalized medicines, and this is projected to increase to nearly 70% over the next five years.

Today, analysts transform individuals’ DNA information into practical data, which drives drug discovery and diagnostics, and tailors medicines to treat individual diseases. This personalized medicine aims to target the right therapy to the right patient at the right time, in order to improve outcomes and reduce costs, and is transforming how healthcare is delivered and diseases managed.

Personalized medicine

Personalized medicine has significantly dented pharma’s one-size-fits-all strategies. In general, pharma has been slow to respond to external shocks, and slow to renew its internal processes of discovery and development. As a result, the majority of new pharma drugs only offer marginal benefits. Today, pharma finds itself trapped in a downward commercial spiral: its revenues have plummeted, it has shed thousands of jobs, it has a dearth of one-size-fits-all drugs, and its replacement drugs are difficult-to-find, and when they are, they are too expensive.

Illustrative of the advances in molecular science that helped to destroy pharma’s traditional commercial strategy is the work of Kornberg. Here he describes an aspect of his work that is related to how biological information encoded in the genome is accessed to inform the direction of all human activity and the construction of organisms for which Kornberg received the Nobel Prize in Chemistry 2006, and created the foundations of personalized medicine:

Advanced drug delivery systems

Over the past 20 years, as pharma has struggled commercially and MedTech has shifted its business model, drug delivery systems have advanced significantly. Evolving sensor technologies have played a role in facilitating some of these advances, and are positioned to play an increasingly important role in the future of advanced drug delivery. According to BCC Research, the global market for advanced drug delivery systems, which increase bioavailability, reduce side effects, and improve patient compliance, increased from US$134bn in 2008 to some US$196bn in 2014.

The growth drivers for innovative drug delivery systems include recent advances of biological drugs such as proteins and nucleic acids, which have broadened the scope of therapeutic targets for a number of diseases. There are however, challenges.

Proteins are important structural and functional biomolecules that are a major part of every cell in your body. There are two nucleic acids: DNA and RNA. DNA stores and transfers genetic information, while RNA delivers information from DNA to protein-builders in the cells.

For instance, RNA is inherently unstable, and potentially immunogenic, and therefore requires innovative, targeted delivery systems. Such systems have benefitted significantly from progress in biomedical engineering and sensor technologies, which have enhanced the value of discoveries of bioactive molecules and gene therapies, and contributed to a number of new, advanced and innovative combination drug delivery systems, which promise to be more efficacious than conventional ones.

Biosensors

The use of biosensors in drug delivery system is not new. The insulin pump is one example. Introduced in its present form some 30 years ago, the insulin pump is a near-physiologic programmable method of insulin delivery that is flexible and lifestyle-friendly.

Biosensors are analytical tools, which convert biological responses into electrical signals. In healthcare, they provide analyses of chemical or physiological processes and transmit that physiologic data to an observer or to a monitoring device. Historically, data outputs generated from these devices were either analog in nature or aggregated in a fashion that was not conducive to secondary analysis. The latest biosensors are wearable and provide vital sign monitoring of patients, athletes, premature infants, children, psychiatric patients, people who need long-term care, elderly, and people in remote regions.

Increased accuracy and speed

The success of biosensors is associated with their ability to achieve very high levels of precision in measuring disease specific biomarkers both in vitro and in vivo environments. They use a biological element, such as enzymes, antibodies, receptors, tissues and microorganisms capable of recognizing or signalling real time biochemical changes in different inflammatory diseases and tumors. A transducer is then used to convert the biochemical signal into a quantifiable signal that can be transmitted, detected and analysed, and thereby has the potential, among other things, for rapid, accurate diagnosis and disease management.

Recent technological advances have led to the development of biosensors capable of detecting the target molecule in very low quantities and are considered to have enhanced capacity for increased accuracy and speed of diagnosis, prognosis and disease management. Biosensors are robust, inexpensive, easy to use, and more importantly, they do not require any sample preparation since they are able to detect almost any biomarker - protein, nucleic acid, small molecule, etc. - within a pool of other bimolecular substances. Recently, researchers have developed various innovative strategies to miniaturize biosensors so that they can be used as an active integral part of tissue engineering systems and implanted in vivo.

Market for biosensors

Over the past decade, the market in biosensors and bioinformatics has grown; driven by advances in artificial intelligence (AI), increased computer power, enhanced network connectivity, miniaturization, and large data storage capacity.

Today, biosensors represent a rapidly expanding field estimated to be growing at 60% per year, albeit from a low start. In addition to providing a critical analytical component for new drug delivery systems, biosensors are used for environmental and food analysis, and production monitoring. The estimated annual world analytical market is about US$12bn, of which 30% is in healthcare. There is a vast market expansion potential for biosensors because less than 0.1% of the analytical market is currently using them.

A significant impetus of this growth comes from the healthcare industry, where there is increasing demand for inexpensive and reliable sensors across many aspects of both primary and secondary healthcare. It is reasonable to assume that a major biosensor market will be where an immediate assay is required, and in the near-term patients will use biosensors to monitor and manage treatable lifetime conditions, such as diabetes cancer, and heart disease.

The integration of biosensors with drug delivery

The integration of biosensors with drug delivery systems supports improved disease management, and better patient compliance since all information in respect to a person’s medical condition may be monitored and maintained continuously. It also increases the potential for implantable pharmacies, which can operate as closed loop systems that facilitate continuous diagnosis, treatment and prognosis without vast data processing and specialist intervention. A number of diseases require continuous monitoring for effective management. For example, frequent measurement of blood flow changes could improve the ability of health care providers to diagnose and treat patients with vascular conditions, such as those associated with diabetes and high blood pressure. Further, physicochemical changes in the body can indicate the progression of a disease before it manifests itself, and early detection of illness and its progression can increase the efficacy of therapeutics.

Takeaways

Combination devices, which are triggered by the convergence of MedTech and pharma, offer substantial therapeutic and commercial opportunities. There is significant potential for biosensors in this convergence. The importance of biosensors is associated with their operational simplicity, higher sensitivity, ability to perform multiplex analysis, and capability to be integrated into different functions using the same chip. However, there remain non-trivial challenges to reconcile the demands of performance and yield to simplicity and affordability.