The keys to digital healthcare success
The perceived opportunities in digital healthcare are generating considerable excitement about the investment prospects for the sector and the prospect of a boom in innovations, acquisitions and perhaps even completely new types of business partnerships.
Over the next 18 months, 92 percent of the life sciences companies and 96 percent of the technology companies we surveyed report that they plan to increase their investment in digital healthcare.
Increasing investment Both sectors agree on digital healthcare’s investment potential: 48 percent of technology companies said they expected a significant increase, and 48 percent a moderate increase in their overall investment in digital healthcare. Meanwhile, 42 percent of life sciences companies planned a significant increase in investment, and 50 percent a moderate one.
However, they differ slightly on the best routes for entering and succeeding in digital healthcare. The vast majority of technology companies said their strategy will be driven by creating new proprietary products and acquiring others in development.
In contrast, 55 percent of life sciences companies placed the highest priority on partnering as a route to entering and succeeding in digital healthcare. This is interesting given that 44 percent of life sciences companies viewed technology companies’ entry into healthcare as a threat. Life sciences companies ranked creating new products and acquisitions second and third almost equally: 52 percent and 50 percent, respectively.
High valuations won’t stop M&A As digital healthcare enters the mainstream, this could prompt a new wave of M&A for companies that are no stranger to the deal-making table. More than half of our survey respondents saw M&A as an attractive route for entering and succeeding in digital healthcare, despite the fact that 88 percent of respondents believed that digital healthcare companies are significantly or moderately overvalued.
Even companies that think these assets are overvalued still want to be involved in developing technologies that can contain healthcare costs, collect enormous quantities of data, measure patient outcomes and deliver more effective solutions.
Leslie Morioka, a White & Case Intellectual Property partner, says client feedback about digital healthcare innovators is largely positive. “This is a real sea change in healthcare. Everyone is trying to come up with new ideas and new ways of doing things. The digital healthcare company that successfully takes us to the next step can dramatically improve results for patients while gaining a competitive advantage.”
Obstacles to overcome
This investment optimism is tempered by frustration over the continuing lack of awareness of available services among patients and consumers, with 60 percent of survey respondents seeing this as one of the biggest obstacles to the broader use of digital healthcare services and devices. The second-highest obstacle was also related to consumers—with 55 percent of survey respondents citing a lack of digital awareness among older patients.
One powerful force pressing for these new technologies may come from insurance companies using data collection to encourage people to adopt healthier lifestyles and subscribe to preventive healthcare packages. If people won’t be covered by insurance unless they participate in preventive healthcare, this could become a very effective tool for promoting behavior change.
Many respondents worried about the risks of failing to protect confidential data, with 48 percent seeing privacy and security concerns as a key obstacle to the broader use of digital healthcare services and devices.
Many of those looking to enter digital healthcare do not realize the need for a “privacy by design” strategy. This type of strategy would allow companies to create innovations with built-in protection from problems resulting from security failures along with processes for handling highly confidential healthcare information as it is moved among users, providers and platforms.
Daren Orzechowski, a White & Case Sourcing & Technology Transactions partner, predicts concerns about privacy strategies: “People have always been very conscious of privacy in Europe but, until recently, Americans were much more relaxed about it,” he says. “All that has changed in recent years, and now questions over contractual and technical controls to protect the transfer of individuals’ data have become an essential part of product development and due diligence in M&A. We have seen deals die because data cannot be moved without the consent of all of the individuals concerned.”
A number of survey respondents echoed his sentiments. “Research collaborations are being totally blocked because of data transfer regulations,” said one Head of Digital Marketing and Strategy in a life sciences company. “It is becoming a real barrier to growth.”
In addition, 43 percent of survey respondents noted resistance among physicians to a changing healthcare landscape. “A lot of clinicians view the use of technology as a disruption to their work,” said one Director of Digital Customer Engagement in a life sciences company. “They are not promoting these services themselves but are being forced to use them by the payers to improve the potential value of the industry. We need to educate them better and get them properly on board.”
“This is not happening as fast as it should, because there is simply a lack of awareness of the huge potential benefits,” said one Director of a life sciences company. “Although the market is picking up slowly, the hesitation of doctors has meant investors are not confident that they will use new innovations, and they don’t want to risk their investment in nonperforming technology. This is something we are working hard to overcome.”
Tech takes the lead One obstacle stated by a number of life sciences companies was that they are lagging behind in their move into the digital age. While 62 percent of technology companies described their digital healthcare strategy as well-developed, just over a third of life sciences said the same. And while 30 percent of life sciences companies said their strategies were either at the exploratory/planning or pilot stage, only 16 percent of technology companies said the same.
Some senior staff voiced their frustrations: “We are just too fearful about investing and adopting newer technologies for our products. We need to take a few more risks,” said one Digital Director at a US life sciences company.
One Director of Healthcare at a US technology company expressed a similar view: “Life sciences companies lack the necessary understanding and are satisfied with hanging onto their traditional ways of doing things.”
As a result, a number of technology companies in our survey said they are making progress on their own, by tackling the issues of collection, storage and transfer of patient data in other ways. “We have focused on the growing importance of storage facilities for hospitals and healthcare companies to record and access their patient information at the same time as keeping it secure against minor errors or leakages,” said one Director of Healthcare Solutions at a technology company. “We are successfully increasing our offering within this space.”
There are several businesses in a prime position to take a lead in this field. We are already seeing some of them come forward.
Jeff Oelke, Intellectual Property Partner, White & Case
■ 92% of life sciences and 96% of technology companies plan to increase their investment in digital healthcare ■ Lack of awareness among patients and consumers is seen as the biggest practical obstacle to the broader use of digital healthcare services and devices ■ Most companies see the creation of new, proprietary products as the best route for entering and succeeding in digital healthcare ■ 55% of life sciences companies see partnering as the best route for entering and succeeding in digital healthcare ■ 63% of technology and 50% of life sciences companies see M&A as an attractive route for entering and succeeding in digital healthcare, though 88% of them say digital healthcare assets are overvalued
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