Can emerging technology help biopharma improve the returns on R&D?
Health Care Current | December 19, 2017
This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory, and legislative changes.
Can emerging technology help biopharma improve the returns on R&D?
By Greg Reh, Vice Chairman and Life Sciences Sector Leader, Deloitte LLP
Nearly $2 billion. That’s the average cost to bring a new drug to market, according to estimates featured in Deloitte’s latest report on research and development (R&D) costs, and the returns, among 12 of the world’s leading biopharmaceutical manufacturers. While our study finds that biopharma companies are investing more than ever to develop innovative and effective therapies, their returns are not keeping pace.
Projected returns on R&D among these firms fell to an average of 3.2 percent in 2017 – down from an average of 10.1 percent in 2010, according to the eighth annual Deloitte report, New future for R&D? Measuring the return from pharmaceutical innovation 2017. An extended cohort of mid-to-large biopharma companies continue to out-perform the original pharma cohort, with projected returns of 11.9 percent in 2017 (up from 9.9 percent in 2016), but are still below the high of 17.7 percent reached in 2014.
Despite the shrinking returns we’ve witnessed over the past several years, I see plenty of reason for optimism, particularly among biopharma companies that are leveraging new scientific platforms, including technologies that can drive greater productivity and harness data sources. Technologies such as artificial intelligence (AI), robotic and cognitive automation (RCA), and digital health tools have the potential to improve the efficiency of clinical trials, accelerate time to market, and improve the evidence generated. Moreover, technology can boost efficiencies and help ensure accuracy in repetitive operational tasks – from drug discovery all the way through to regulatory filing.
Technology could help reduce pipeline clogs
Applying emerging technologies to clinical development processes could help biopharma firms make strategic decisions focused on high-value outcomes. Case in point: Celgene Corporation recently launched a company-wide information initiative that led to the creation of a new big-data platform to manage real-world evidence (RWE). Through Celgene’s Synapse platform, the company can leverage the data coming in from certain types of studies to inform decisions at multiple stages of the pipeline. This process can help drive better decision-making from pre-clinical research through commercialization.
Launching the platform required a mind-set change regarding the way the company thinks about and manages data. Capturing and using information about each therapy – and about the patients who will benefit from it – guides decisions at every stage. The platform allows Celgene to catalogue all available data at its disposal – from internal databases to data from external partnerships. To make big data useful, leadership recognized the need to have governance structures in place, as well as the importance of data tagging and consistent taxonomies. It is also important for the data to be easily understood and fit-for-purpose for specific departments or functions. Apps designed for non-data scientists have helped drive those goals in addition to the new data science environment. As a result, the company has already seen benefits by achieving significant savings in process run times for real-world patient data analysis and a reduction in operating costs by migrating legacy workloads to the platform and was recognized with a Cloud Pioneer award at the 2017 Strata Big Data conference.
AI, RWE, machine learning could streamline processes
Technology can help biopharma companies streamline some of their most time-consuming processes. For example, Deloitte research indicates that filing upcoming regulatory submissions 12 weeks faster could generate additional net present value (NPV) of $800 million to a pharmaceutical company with a balanced portfolio.
Here’s a look at several other technologies and how they might benefit biopharma companies:
- RWE and AI can keep clinical trials on track: Nearly 80 percent of clinical trials fail to meet their initial enrollment projections. Difficulty or delays in recruiting patients can hamstring a clinical trial. Through the use of RWE, biopharma companies have the ability to quickly identify patients to enroll in clinical trials. Deloitte’s 2017 RWE benchmarking study, Getting real with real-world evidence, found that biopharma companies are starting to invest in RWE capabilities and are exploring a number of use cases. The industry, for example, is prioritizing trial patient recruitment as an RWE application. A step further, applying AI to this RWE data set can help companies predict performance of certain trial sites, anticipate drop outs, and in some cases, help predict outcomes. (As an aside, stay tuned for the second annual RWE benchmarking survey launching in the spring).
- Patient-centered clinical trials can improve recruitment and retention: Emerging technologies such as social media, health apps, wearables, connected devices, and telemedicine all have the potential to transform the way patients are engaged during clinical trials. This can enable expedited enrollment and improve retention. In addition, novel clinical trial approaches – such as master protocols that test multiple treatments at once using a shared patient network – could help make trials more accessible to patients. Greater patient access to trials can be a win-win for patients and companies that are seeking to advance treatments and cures to market.
- Robotic and cognitive automation can boost accuracy: RCA can enable cost efficiency, productivity gains, and quality/compliance improvements in clinical trials. Some research indicates that as much as 50 percent of today’s tasks can be eliminated through automation. Automation of certain aspects of the clinical trial process could free up program teams to focus on critical path activities, or accomplish tasks that were previously thought to be too time consuming or costly. RCA could be applied across the clinical trial value chain.
There are many reasons to be bullish on biopharma
Recouping R&D investments has commonly become more challenging for biopharma firms due to increased competition, expiring patents, declining profitability, evolving regulations, and pricing, which is under close scrutiny across the health care landscape. Due to the high scientific risk associated with drug development, many promising new therapies never make it to market.
But there is reason to be optimistic about the future for biopharma. There were many innovation success stories in 2017, which could give us a glimpse into what might lie ahead in 2018 and beyond. In addition to numerous immunotherapies being developed, the first chimeric antigen receptor T cell (CAR-T) therapies, which use a patient’s own reprogrammed cells to target and kill cancer cells, were approved this year. Another first for 2017 was the approval of a digital pill – a pill embedded with a sensor that confirms when a patient has swallowed it. The sensor is able to transmit data to a smartphone application that can be shared with selected caregivers. This technology has the potential to improve medication adherence.
Financial returns, although important, are only one measure of innovation. Taking advantage of emerging technologies to advance new scientific platforms can offer great promise for making additional treatments and cures available to patients.
PS. As we watch tax reform unfold, stay tuned for an upcoming special issue of the Current later this week for implications the bill might have on your organization.
In the news
Congressional Conferees reach deal on tax reform
Last week, House and Senate conferees reached an agreement on a tax reform package aimed at lowering tax rates on corporations, pass-through entities, individuals, and estates. It also seeks to move the US toward a territorial-style system for taxing foreign-source income of domestic multinational corporations.
If approved, the tax bill would:
- Reduce the top corporate tax rate to 21 percent (from 35 percent under current law) effective on January 1, 2018
- Repeal the corporate alternative minimum tax (AMT)
- Provide a one-time tax on the accumulated off-shore earnings of US based multinationals at a two tiered tax rate (15.5 percent on cash and cash equivalents, 8 percent on illiquid assets)
- Repeal the nine percent tax deduction for domestic manufacturing activity, and limit business interest expense deductions
Some of these changes will have significant implications for life sciences and health care companies:
- US based life sciences companies may have greater opportunities to repatriate profits: The bill would generally exempt dividends received from foreign subsidiaries. Additionally, US companies choosing to retain intellectual property (IP) in the US or migrate IP to the US from overseas may be eligible for a reduced tax rate (13.125 percent) on foreign-derived intangible income, which is lower than the headline 21 percent tax rate
- Companies may want to review international supply chains: The tax bill would impose a 10.5 percent minimum tax on global intangible low-taxed income (GILTI), which may cause some companies to review existing international supply chains and cause US taxation of income that may have otherwise been subject to low or no tax around the world
- Companies may still use research credits: Tax credits for rare disease research were retained, albeit at a reduced rate (25 percent instead of the current 50 percent rate), and tax deductions for research and development will be spread out over five years for domestic research and fifteen years for research conducted abroad starting in 2021
- Not-for-profit health systems may face more challenges recruiting executives: A special 21 percent excise tax on compensation over $1 million will apply to the five highest paid officers, putting these organizations loosely on par with the requirements that publicly traded companies will have in the new tax bill
- Health care spending by consumers could rise: The deduction for unreimbursed medical expenses would be available for costs exceeding 7.5 percent of income which may increase consumers’ propensity to spend on health care services
- The number of uninsured could rise: By eliminating the Affordable Care Act (ACA) penalty on individuals who choose not to purchase health insurance, the Congressional Budget Office predicts that 13 million Americans would retreat from the health insurance rolls, causing health insurance premiums for all others to rise about 10 percent
- Lower corporate tax rates for health plans could reduce premiums: Large health plans often pay close to the current full 35 percent tax rate and are expected to benefit from the new rate cut to 21 percent. That could reduce premiums for consumers given that insurers must comply with the ACA’s medical loss ratio rules, which mandates that at least 80 percent of individual and small-group premium revenue (85 percent for large-group plans) be spent on medical expenses
The combined bill must be approved by both chambers of Congress. The Senate is likely to vote on the measure early in the week of December 18 with a House vote expected shortly thereafter (see Deloitte’s Tax News and Views for more details).
Congress examines ways to control drug costs
In order to effectively and sustainably lower drug prices, Congress must increase regulations on the pharmaceutical industry, according to a National Academy of Sciences (NAS) report that was the focus of a December 12 Senate Health, Education, Labor, and Pensions (HELP) Committee hearing.
NAS’s report outlined eight recommendations:
- Permit the Department of Health and Human Services (HHS) to negotiate drug prices.
- Expedite the approval process for safe and effective generics and biosimilars, and have the Department of Justice and Federal Trade Commission monitor companies for tactics that inhibit competition.
- Increase transparency by requiring drug companies to disclose drug prices, rebates, and discounts to HHS, who should then make the information available.
- Ban the tax deduction for direct-to-consumer advertising.
- Limit out-of-pocket costs for Medicare Part D beneficiaries, and ensure that cost sharing is based on price and effectiveness.
- Increase oversight of the Medicare 340B Drug Pricing Program.
- Revise the Orphan Drug Act to ensure that approved drugs are for treating rare diseases.
- Strengthen restrictions on drug samples and on company employees who visit physicians.
Some witnesses said that the most vulnerable Americans bear the financial and medical brunt of high drug costs. However, others said instead of regulating the industry, Congress should work to reduce the cost of bringing drugs to market. Some members of the HELP Committee, including Ranking Member Patty Murray (D-Wash.), questioned whether the current nominee for HHS Secretary, Alex Azar, would work toward lowering drug prices.
The following day, December 13, the House Energy and Commerce Health Subcommittee held a hearing on the drug supply chain. Members of Congress from both parties called on industry stakeholders to work to lower drug prices.
Lawmakers agreed that the supply chain system was complex and difficult for patients to navigate. Most of the discussion centered around who was responsible for increasing drug prices. Subcommittee Chairman Michael Burgess (R-Texas) said if the industry cannot find a solution to drug pricing, some type of congressional action is likely.
Related: Congress advisory committee looked for ways to reduce drug costs
On December 14, the Medicaid and CHIP Payment and Access Commission (MACPAC) held three hearings to examine ways Congress could act to reduce drug costs. In two of the hearings, commissioners examined strategies to manage drug spending at the state level. Currently, states must provide coverage for new drugs as soon as they become available. Commissioners agreed that states should have time to consider whether a new drug is safe, effective, and has therapeutic equivalents before paying for them.
In the third hearing, commissioners discussed recommendations for the Medicaid Drug Rebate Program. Adjusting the formulas used to calculate rebates could reduce federal Medicaid spending, but doing so could shift the cost to states and manufacturers or reduce options for beneficiaries, commissioners said. They also discussed strengthening the program’s oversight and enforcing manufacturers’ compliance with reporting requirements.
Report: High-deductible health plans do not reduce health care costs
High-deductible health plans (HDHPs) and other consumer-directed health plans have little or no effect on reducing spending on 26 “low-value” services, according to a report from the University of Southern California and the RAND Corporation.
Medical professionals and industry groups have defined services such as an MRI for lower back pain, or imaging for an uncomplicated headache, as low-value. The National Academy of Sciences reported that unnecessary services cost roughly $750 billion annually. Many industry experts have assumed that HDHPs could limit consumption of such services because consumers would bear more of the cost. The researchers looked to see if spending decreased on 26 low-value services after enrollees switched from a more traditional insurance plan to a HDHP. They found spending on these 26 services did not significantly change even though HDHP enrollees spent an average of $231 less per year on outpatient services.
(Source: Rachel Reid, Brendan Rabideau, and Neeraj Sood, “Impact of consumer-directed health plans on low-value healthcare,” American Journal of Managed Care, December 2017)
Administration will continue to distribute opioid funds based on population
In its fight against opioid abuse, the administration will continue to distribute funds to states based on population rather than rates of drug abuse, according to Elinore McCance-Katz, MD, PhD, assistant secretary for Mental Health and Substance Use. McCance-Katz spoke at a hearing before the Senate HELP Committee. Some lawmakers have pushed to change this policy to help states that are disproportionately impacted by opioid abuse.
The 21st Century Cures Act stipulates that the $1 billion allocated to states to combat opioid abuse would be distributed by population. The administration has said it will offer technical assistance and other services to help states that are disproportionately impacted by opioid abuse.
FDA guidance on decision-support software defines exclusions under Cures Act
On December 8, the FDA issued draft guidance to clarify the types of clinical decision support (CDS) software it regulates under the 21st Century Cures Act.
Many medical and legal practitioners want the FDA to issue tighter regulations on CDS software. Although patients do not physically interact with computer software (the way they would interact with, for example, an MRI machine), the software can cause errors that seriously impact care. Defective CDS software can overwrite information in health records, erase patient data, produce flawed data analyses, and cause providers to access incorrect records. As a result, providers might not be able to make informed or correct decisions, which can be serious or even fatal.
The Cures Act streamlines the approval process for CDS software, which critics say could expose patients to these risks by allowing faulty software to make it to market.
As explained in the draft guidance, Cures excludes “device” software that:
- Is not intended to acquire, process, or analyze medical imagery
- Displays, analyzes, or prints medical information, including patient records, peer-reviewed studies, and practice guidelines
- Provides recommendations to a provider about a condition
- Offers information that providers could not use independently to make a recommendation about how to treat a condition
The draft guidance also provides multiple examples of CDS software that count and do not count as devices. For instance, software that gives providers information about how the FDA recommends a drug be used would not be included. Software that performs image analysis for a differential diagnosis between ischemic and hemorrhagic stroke, for example, would be classified as a device.
After the CDS guidance is finalized, FDA will work to make it consistent with the guidance for Mobile Medical Applications.
(Source: “Clinical and Patient Decision Support Software: Draft Guidance for Industry and Food and Drug Administration Staff,” FDA, December 2017)
Pharmaceutical spending growth slows dramatically
Overall, health care spending growth slowed in 2016, but it still grew faster than the overall economy, according to updated national health expenditure (NHE) figures from the US Centers for Medicare and Medicaid Services (CMS). Health care spending growth in 2016 outpaced that of the overall economy by 1.5 percent.
Study sheds light on Medicare payment reform for primary care
CMS is interested in continually evolving payment for primary care providers. A new report from the Urban Institute and Robert Wood Johnson Foundation (RWJF) details how Medicare is modernizing primary care billing through the use of:
- New codes: CMS introduced new codes for primary care activities that it wants to encourage.
- Demonstration projects: CMS is using demonstration projects to evaluate new delivery models for primary care. Under these projects, the agency pays for services or tasks that might be difficult to quantify under the Physician Fee Schedule (PFS). For patients with chronic illnesses, payments can include performance bonuses or a flat fee for coordinating care with other members of a patients’ care team.
The report identified a number of Medicare’s primary care demonstration projects, including:
- Independence at Home: Pays for physicians to make house calls to older or frail beneficiaries.
- Multi-Payer Advanced Primary Care Practice Demonstration: Combines incentive payments from Medicare, Medicaid, and some private insurers under a patient-centered medical home model and encourages clinicians to more closely manage chronic conditions.
- Comprehensive Primary Care Initiative: Focuses on high-risk, high-need, high-cost patients, access to the care team, care for chronic conditions, patient and caregiver engagement, and coordination of care.
- Comprehensive Primary Care Plus Model: Uses a population health management model and qualifies as an alternative payment model (APM) under the Medicare and CHIP Reauthorization Act (MACRA). Includes payments for care management, an up-front performance bonus, as well as regular fee-for-service payments.
The report noted other ways Medicare is working to increase payments to primary care providers. These include paying for more services that are not face-to-face, and combining payments for services which would be difficult to bill separately, such as emails, phone calls, or conversations with staff. Researchers determined health systems that focus on primary care have better outcomes and lower costs.
(Source: Rachel Burton, et al. “Medicare’s Evolving Approach to Paying for Primary Care,” Robert Wood Johnson Foundation, December 2017)
Health care innovation thrived in 2017
It’s the time of the year when health care industry leaders and stakeholders reflect on the last 12 months and look ahead to the next year. It is always interesting to see the “best of” lists – including the top inventions and technologies poised to revolutionize the way we live and work. Here are a few health care innovations that made the list:
- Glasses that help the blind see: An engineer with two legally blind sisters was one of the inventors of eSight 3. The glasses record high-definition video and use magnification, contrast, and proprietary algorithms to enhance images into something the legally blind can see. The device, which launched early this year, costs about $10,000 (the company does help connect interested buyers with funding sources, including grants).
- Bioabsorbable stents: Approximately 600,000 patients have metal coronary stents put into their chest each year to treat coronary artery blockage. Most of the time, the stent remains there even after it is no longer necessary. The stents can cause complications such as blood clots. This year, researchers were able to get bioabsorbable stents approved for market. These stents are made of a naturally dissolving polymer that widens the clogged artery for two years before it is absorbed into the body, much like dissolvable stitches.
- Wristbands for newborns. A company called Bempu invented a bracelet that can detect if a newborn baby’s temperature drops to dangerous levels. The device is designed for developing countries where the numbers of premature or low-weight births are highest, and resources such as incubators are sparse. The Bempu device fits onto a baby’s wrist to monitor body temperature. It lights up and flashes an alarm if babies are too cold so the caregivers can swaddle or warm them against their skin. So far, the device has helped an estimated 10,000 newborns, mostly in India but also in 25 other countries.
- Next generation vaccine platforms: Developing one vaccine can take 10 years and cost about $200 million, according to some estimates. With the recent outbreaks of Ebola and Zika, there is fresh urgency to cut this time dramatically. In 2018, after years of preparation, innovators are expected to upgrade the entire vaccine infrastructure to support the rapid development and delivery mechanisms of new vaccines. Instead of relying on the traditional system of incubating a virus in chicken eggs, companies are finding faster ways to develop influenza vaccines by using tobacco plants, insects, and nanoparticle systems. Companies are also working to improve freeze drying of vaccines to allow shipment of more products to areas of highest need. The technique also allows vaccines more time to be stored and delivered further before expiring (which can waste money and resources). More oral forms of vaccines, as well as patches, can also make vaccines easier and safer to administer.
- A wearable breast pump. Breastfeeding moms face many barriers if they need to pump and store breastmilk. While there are many portable electric breast pumps on the market, they don’t allow a great deal of discreteness. A company called Willow has developed a battery-powered alternative pump that is quiet, and small enough so that women can slip it into their bra and pump wherever they want. Each device is lined with a freezer-safe bag. While many employers understand that allowing working moms to pump breast milk has positive health outcomes for both moms and babies, loss of productivity can be a concern. Pumping at work can be challenging for women in certain industries such as retail, or for women who don’t have a private space. Innovations that modernize the traditional breast pump may be welcomed by moms and employers.
As we look back at the last year, it is clear that talented entrepreneurs and innovators remain passionate about making positive changes in health care and that health care start-ups are alive and well. For more on what innovations in health care we could see in 2018, go to Deloitte’s 2018 health care outlooks.