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Disruptive technology for curing disease

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Jan 28, 2016

Cell with Target : SightsThe term precision medicine is exploding in popularity (and unfortunately ambiguity) in the healthcare community. But, at its simplest, precision medicine is the effective cure for a disease. It occurs when scientists fully understand the mechanism behind an illness, and can develop precisely effective therapies; for example, amoxicillin or cephalexin very predictably target streptococcal pharyngitis bacteria that causes strep throat.

While the obvious win with precision medicine is ideal care, theory states that it also can make care much cheaper and easier to access. It makes sense; if you don’t need an expensive guess-and-check process to cure a disease and can simply follow a rules-based regimen, it will likely be fundamentally cheaper. We therefore classify precision medicine as an enabling technology of disruptive innovation— a sophisticated solution that simplifies a problem such that a lower cost business can deliver it.

This is tougher to understand in light of recent events in healthcare spending. New precision “miracle” drugs are becoming more rare, so when novel, ultra-effective drugs come out, it’s a big deal. In 2013, Gilead Sciences made headlines with their groundbreaking new drug sofosbuvir—branded Sovaldi in the U.S.—which cures Hepatitis C with stunning efficacy. By most indications, it completely fits the bill for precision medicine: it’s causally targeted, reliable, uses biomarkers for diagnosis and prescription, causes few side effects, and has a high barrier to viral adaptation. For a disease that has stubbornly resisted eradication and counts 150 million hosts worldwide (including a resurgent 3.2 million in the U.S.) this was a tremendous breakthrough.

The downside? Sovaldi is priced at $1000 per pill. For a 12-week regimen, the treatment effectively costs payors $84,000 (or more) per patient. Even for a drug that works as well as Sovaldi, that’s a tough handful of pills for whomever is footing the bill.

Understandably, the grumblings of sticker shock eventually reached Capitol Hill and unleashed an overwhelmingly bipartisan response. A scathing Senate Finance Committee report highlighting Sovaldi showed that the rise in specialty drug pricing—particularly Hepatitis C drugs—was the cause of a robust 12.2% growth in prescription spending in 2014. Additionally, the report accused Gilead of pricing the drug so high that only 3% of the patients who could have benefited were able to access the drug. In this context, Sovaldi hardly seems like a disruptive innovation and it would seem to challenge our assertion that precisely effective treatments make care more affordable and accessible.

But a more careful application of disruption theory suggests that may be too simplistic. For one, precision medicine is only the enabling technology of disruption. The second element—a disruptive business model—is just as necessary. Disruptive business models are a new way of delivering on either an existing value proposition at lower cost (in this case, curing Hepatitis C) or addressing a new value proposition in such a way that more people can access it.

Before Sovaldi, the total average cost for Hepatitis C treatment was $65,000, but much higher for those with longer life expectancies. The relative cost of the old business model is still very likely high—and additive to the cost of taking Sovaldi. The diagnosis and treatment of chronic Hepatitis C is practiced by highly trained heptalogists or gastroenterologists, who must be involved because of liver complications associated with this debilitating disease. Additionally, outpatient, rehabilitative, and other costs associated with severe or end-of-life situations around Hepatitis C are substantial.

However, if a new business model were to emerge whereby the diagnosis and treatment of Hepatitis C was routinized so nurses or pharmacists with diagnostic machines could not only issue the drug but also diagnose and manage treatment, it is foreseeable that system costs would lower dramatically. In fact, such a model might be emerging in Egypt via pharmacies, where Gilead is issuing Sovaldi near manufacture cost. Additionally, mitigating the downstream costs of acute, episodic care in expensive general hospitals and moving treatment to outpatient or home settings is the hallmark of disruptive healthcare.

Therefore, it is shortsighted to think an expensive pill today can’t be an essential cog in the disruptive wheel tomorrow. The exact same computing performance that would have cost $8.3 trillion in 1961 (not a typo) costs $0.08 today. When the technology cost falls and eventually enables a new, lower cost business model, it dramatically reduces costs and can make a cure accessible to everyone. So while regulators debate the Senate Finance Committee’s report – and what to do about high drug pricing –  they should keep the big picture in mind: technology that costs a lot today can fundamentally improve delivery and lower costs in the future.

Michael Devonas

  • The question on whether something is Disruptive, that is – whether it will change the status quo by more widely distributing an ability that once was rarified (and thus likely exploited) – is clearly not answered (or likely answered) in the affirmative.

    Why? It’s because the firms, organizations, institutions who will develop, deploy, and distribute these drugs are the same as they always have been. As such there will remain an incentive in place to prevent and prohibit any application of the drugs or the underlying technology which might become Disruptive (in the sense referred to above).

    It’s a little like the story of the scorpion and the frog. Recall the scorpion’s response to the frog after being asked why the scorpion would elect to sting and kill the frog after taking it across the stream. It is every bit as much a part of the nature of the modern corporation to help enough to be profitable and perceived as needed, but never to the point of relinquishing it’s power, influence or continuity.

    There is NO likely or clearly foreseeable path from what is called and described in the article as “precision medicine” to the kind of Disruption observed and recorded by Clayton Christensen.

    We can further debate if you like. Feel free to post a link to that effect at the Disruptive Innovation forum at LinkedIn (https://www.linkedin.com/groups/1837479) to initiate.

    • Michael Devonas

      Hi Rick, thanks kindly for your comments. I think what we’re not explicitly stating here, but is implied, is that delivery and pharmaceutical development are different industries. What we’re arguing is that the technology that is historically the enabler of disruption on the delivery side is precision medicine. Now, as we point out, substantive differences may be necessary to make that a reality. What could enable disruption amongst the development of pharmaceuticals is not addressed here, but elsewhere in our work. Certainly, to your point, the path forward in this sense may be very difficult to see and/or fraught with regulatory and incentive hurdles. But we are pointing out that without the technology core AND the business model, disruption is unlikely to occur. It will almost certainly not be as swift or dramatic as what we see in other industries. It is also important to note that disruption does not mean simply a radical turnover in the industry or a more widely available product, but is a very specific competitive dynamic wherein a no consuming or low end market gets new access via a novel value network and then moves upmarket via tiers of profitability. Not all industries have these conditions. So, we share your concerns about the difficulties of making this a reality. We just want to point out that precision medicine is one key to moving this process forward and is therefore a desirable pursuit.

  • Evan Shore

    Hi Michael, moving the site of care from specialist office to a PCP’s office or nursing station at a Minute Clinic could indeed reduce personnel and overhead costs; however, the cost problem is more in the cost of the drug itself. It sounds like Sovaldi is actually sustaining – more expensive and better care – at it is currently deployed. Also, Sovaldi’s sticker shock happens in a single year, while the benefits (avoided costs) happen over subsequent years. If patients move to a different plan, the insurer will have paid more for a treatment and not received the benefit. So either the drug itself needs to be less expensive than existing treatments, Pharma needs to enter the total cost of care business, or insurers need some mechanism or a new business model that can capture the total cost of care benefits even if patients move away from their plans. Curious on your thoughts.