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Special: The Next Health Care Disruption

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Spilled pills


This blog post is part of the ‘Think Further’ series sponsored by Fred Alger Management. For more “Think Further” content, please visit”

The frustration of the physicians comes through, piercing the structured format of a scientific journal. In July 2015, 118 oncologists at leading medical centers and cancer research institutes in the U.S. wrote in the journal Mayo Clinic Proceedings that the rising cost of cancer drugs “is causing harm to patients with cancer and their families.”

The authors cited prices for cancer drugs approved by Food and Drug Administration in 2014 that exceeded $120,000 for use over one year, with the average price of new cancer drugs increasing 5- to 10-fold over 15 years. They went on to recommend a series of steps to bring down the cost of cancer drugs including more action by FDA on drug prices, negotiations by Medicare for volume discounts, allowing imports from Canada, and new laws and regulations restricting practices that reduce competition.

In response, a vice-president of Pharmaceutical Research and Manufacturers of America or PhRMA, said the commentary’s authors ignore the fact that medications make up only about one-fifth the cost of cancer care. In addition, said PhRMA, the authors’ recommendations would “send a chilling signal to the marketplace that risk-taking will no longer be rewarded, stopping innovation in its tracks and halting decades of progress in cancer care.”

In reality, both the cancer specialists and the pharmaceutical industry are right. Prices for new drugs being charged health care providers and patients are taking an enormous toll on patients’ finances. Yet the development of new drugs remains an expensive and risky undertaking, and without the funds from drug sales in the U.S. the 800 cancer drugs now in development, for example, would likely be much smaller in number.

If there ever was a problem looking for a disruptive solution, this is it. The health care sector is and will continue to be a target for disruptive solutions. Accountable care organizations — groups of physicians and hospitals that coordinate their care with patients — and the move from fee-for-service to payments based on outcomes are examples of new delivery models taking shape.

(Text continues after the following video, The Future of Big Data, Bigger and Smarter)


In just the past few years a new type of care called precision medicine is beginning to take hold, based on the sequencing of human genomes — to identify the structure and order of nucleic acids making up our genetic codes — that make it possible to zero-in on mutations causing disease.

Rapid advances in computing technologies are also dramatically changing the way medicine is practiced. The combination of electronic health records, wearable technologies — with or without smartphones — and big data analytics are enabling health care providers to routinely capture much more data, and make sense of those data than ever before.

But the pharmaceutical industry continues to be the outlier. Many drug and biotech companies are taking part in precision medicine initiatives and making use of big data analytics, but the industry as a whole seems intent on fighting off outside efforts to lower drug prices. The fact remains, disruption is coming, and the industry needs to choose between leading development of new models and business practices, or waiting for others to do it.

Some research labs and companies in the pharmaceutical and biotechnology industries are already trying out different ways of doing business. The family of audio technology pioneer Ray Dolby who died of Alzheimer’s disease, established a new enterprise to translate neurological research findings from University of California in San Francisco into drug candidates for Alzheimer’s disease. The new entity is funded by Dolby Family Ventures and engages a biotech company to do drug discovery. This model eliminates the licensing steps between research labs and early-stage drug developers, usually done one compound at a time.

But it’s often clinical trials that test new drugs with human subjects, where the highest costs and longest time lines occur. Precision medicine offers hope for reducing the time and cost of clinical trials, by providing more focused genomic definitions of target patients with whom to test the new therapies. A data analytics start-up in New York is combining data from electronic health records and insurance claims, with genetic data collected by a genomics analysis spin-off enterprise from Harvard and MIT, where their combined genomics and big-data systems aim to offer more targeted recruitment and smaller samples sizes for clinical trials.

One of the most comprehensive projects to integrate these technologies is Answer ALS, a consortium of three medical centers in the U.S. The core of the project is a massive personalized database collected from 1,000 amyotrophic lateral sclerosis or ALS patients, with much of the clinical data coming from real-time monitoring of patients having wearable sensors and devices. Patients will also be asked to donate stem cells, which will be combined with genomic and real-time monitoring data. One of the objectives of this data crunching is to better understand different forms of ALS and use that understanding to more precisely recruit participants for clinical trials, making it more likely to find answers to this devastating disease.

Pharmaceutical and biotechnology companies are among the most innovative companies in the world, founded and driven by hard data and evidence. These are the kinds of enterprises most likely to respond to a call for disruption from within. All it takes is the industry leadership to make it happen.

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Disclosure: The author owns shares in two pharmaceutical companies.

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