The Business of Healthcare Innovation

The Business of Healthcare Innovation is the first wide-ranging analysis of business trends in the manufacturing segment of the health care industry. In this leading edge volume, Professor Burns focuses on the key role of the 'producers' as the main source of innovation in health systems. Written by professors of the Wharton School and industry executives, this book provides a detailed overview of the pharmaceutical, biotechnology, genomics/proteomics, medical device and information technology sectors. It analyses the market structures of these sectors as well as the business models and corporate strategies of firms operating within them. Most importantly, the book describes the growing convergence between these sectors and the need for executives in one sector to increasingly draw upon trends in the others. It will be essential reading for students and researchers in the field of health management, and of great interest to strategy scholars, industry practitioners and management consultants. Cover......Page 1 Half-title......Page 3 Title......Page 7 Copyright......Page 8 Dedication......Page 9 Contents......Page 11 Figures......Page 13 Contributors......Page 18 Preface......Page 21 Acknowledgments......Page 23 Innovation and the value chain in healthcare......Page 27 The technological imperative in healthcare......Page 29 The innovation challenge......Page 30 Resource-based view......Page 32 Organizational innovation perspective......Page 33 Failure to fully appreciate the technological imperative......Page 35 Lack of provider focus on upstream supply costs......Page 36 Reinforced stereotypical views of manufacturers......Page 39 Growing prominence of product sectors in the economy......Page 40 Convergence of technologies across sectors......Page 41 Impact of technology sectors on local and national economies......Page 43 Similarities and differences across producer sectors......Page 44 Overview of the volume and of chapter content......Page 45 Notes......Page 48 Part I The life sciences......Page 51 What is a pharmaceutical?......Page 53 Biologicals/bioproducts......Page 54 Market size......Page 55 The largest companies......Page 56 Therapeutic areas......Page 58 Generic drug companies......Page 59 Risk, time, and return......Page 60 A challenging business model......Page 61 Biotech company evolution......Page 62 Pharmaceutical companies......Page 63 Healthcare innovation environment......Page 66 Role of the USA......Page 67 Germany......Page 68 The value proposition......Page 69 First in class drugs......Page 70 Drivers for advancements in healthcare......Page 71 The potential demand for pharmaceuticals......Page 73 Population......Page 74 Determinants of pharmaceutical pricing......Page 75 Market demand equals price-times-population......Page 76 Research and development: the key steps in the value chain......Page 77 Target identification......Page 79 Target validation......Page 81 Lead generation......Page 82 Candidate selection......Page 84 Preclinical and medical development......Page 85 Phase I testing: first studies of safety in humans......Page 86 Phase II testing: first studies of efficacy......Page 87 Phase III: definitive multicenter trials......Page 90 Registration......Page 91 Phase IV studies......Page 92 Problem statement......Page 93 Biological understanding and productivity......Page 95 Organizational structure......Page 98 Introduction......Page 99 Form/fill/finishing (F/F/F)......Page 100 Supplying the medicine......Page 101 Forecast accuracy......Page 102 Process robustness......Page 103 Current good manufacturing practices and compliance......Page 104 Biotechnology products......Page 105 Marketing across the value chain......Page 106 The focus on blockbusters......Page 107 The sales organization......Page 111 Customer relationship management......Page 112 E-detailing......Page 113 Requirement: coordinated implementation, implementation, implementation......Page 114 Can it really be a smooth-flowing pipeline?......Page 115 The role of risk......Page 116 The business development approach......Page 117 Anatomy of a strategic alliance......Page 119 Making the strategic alliance work......Page 121 Mergers and acquisitions (M&A)......Page 122 Barriers to entry in pharmaceuticals......Page 125 Summary and conclusion......Page 126 Notes......Page 127 Introduction......Page 129 History......Page 130 Overview of the biotechnology sector today......Page 134 Impact on healthcare......Page 137 Monoclonal antibodies......Page 142 Genomics......Page 143 Proteomics......Page 144 High-throughput screening......Page 146 Gene therapy......Page 147 Business models – managing scale and scope......Page 148 FIPCO......Page 149 Technology platform model......Page 151 RIPCO......Page 154 NRDO......Page 155 Summary......Page 157 Financing and the capital markets......Page 158 Private placements......Page 159 PIPEs......Page 160 Convertible debt securities......Page 161 Summary......Page 162 The biotechnology–pharmaceutical company alliance......Page 163 Managing a biotechnology firm......Page 176 The global structure of the biotechnology sector......Page 179 Europe......Page 180 United Kingdom......Page 181 Germany......Page 183 Canada......Page 184 Asia......Page 186 Japan......Page 187 Singapore......Page 189 China......Page 190 Australia......Page 191 Global companies......Page 192 Regulation......Page 193 Embryonic stem cell research......Page 197 Human cloning and germline gene therapy......Page 198 Generic biologics......Page 199 Orphan drug law......Page 200 Bioterrorism......Page 201 International conference on harmonization......Page 202 Europe......Page 203 Japan......Page 205 Conclusions: the real drivers of the biotechnology sector......Page 206 Notes......Page 209 Overview......Page 216 Technology platform companies: a turning point in biotechnology business models......Page 217 Genomics, proteomics, and drug discovery......Page 219 Strategic alliances and technology platform companies......Page 223 Therapeutic area alliances......Page 228 Technology development alliances......Page 229 Measuring alliance performance......Page 231 Business and revenue models: an overview......Page 234 Macro and micro factors affecting business and revenue models......Page 237 Business and revenue models: rethinking vertical integration......Page 238 Technological reintegration and the healthcare value chain......Page 246 Notes......Page 247 Introduction......Page 249 M&A rationales in industrial organization theory and research......Page 250 M&A trends among pharmaceutical and biotechnology firms......Page 252 M&A rationales among pharmaceutical firms......Page 255 Combat increased profit pressures......Page 256 Cutting infrastructure costs......Page 257 Satisfy the market mandate to maintain earnings growth in the face of pipeline problems......Page 258 Maintain competitive scale and scope......Page 260 Defense against acquisition......Page 261 Gain access to foreign pharmaceutical markets......Page 262 Extend capabilities to new therapeutic areas......Page 263 Achieve economies of scale and scope in R&D, sales, and marketing......Page 264 Create a competitive advantage in R&D productivity......Page 265 Summary of rationales: is there a problem here?......Page 266 The impact of M&A on the performance of pharmaceutical firms......Page 267 Relationship between scale and R&D inputs......Page 268 Relationship of scale with R&D outputs......Page 269 Relationship between scale and stock price, sales, market share, and profitability......Page 270 Relationship of scale and scope with efficiency......Page 272 Summary of the empirical evidence: is there a disconnect with the rationales?......Page 274 Broader evidence on the value of size, concentration, and integration......Page 275 Sources of value in the M&A process: building capabilities to enhance future performance......Page 276 The future of pharmaceutical M&A and the value chain perspective on innovation......Page 280 Notes......Page 287 Part II Devices and information technologies......Page 295 Introduction......Page 297 Comparisons with other industries......Page 298 Historical perspective: missteps, miscues, and misapplications of technologies......Page 299 Market size......Page 303 Global versus US sourcing......Page 305 Unique and defining characteristics of medical devices......Page 310 Separation of consumers, customers, and payers......Page 311 The powerful economics of clinical needs......Page 312 Channels–direct selling......Page 315 Education......Page 316 Feedback–playback......Page 317 Selling efficiencies......Page 318 Limited consumerism......Page 321 Electronics......Page 323 Materials sciences......Page 326 Drug–device convergence......Page 328 Sources of growth: demographics, unmet clinical needs, procedure penetration, price......Page 331 Unmet clinical needs......Page 332 Procedure penetration......Page 333 Pricing......Page 334 Rising importance of channels......Page 335 M&A activity during the last decade......Page 336 Concentration ratios......Page 338 Pace of IPOs......Page 339 Buying growth......Page 342 Leverage distribution channels......Page 343 Increased scale, scope, or geographic reach......Page 344 Conclusion:public market activity and its impact on innovation......Page 345 Notes......Page 346 Introduction to information technology......Page 348 Why has progress in healthcare IT been glacial?......Page 349 Current technology has limited the automation of clinical care......Page 350 Healthcare IT market structure......Page 352 Major healthcare IT applications......Page 355 The electronic medical record: the point of convergence......Page 356 Historical milestones on the path to CPOE......Page 357 Constraints on CPOE adoption......Page 358 Diagnostic applications......Page 359 Digital radiology......Page 360 Remote monitoring/management of patients......Page 361 Payer applications......Page 365 Consumer-directed health plans – an IT intensive new health insurance product......Page 367 Outsourcing information technology installation and management......Page 368 Conclusion......Page 370 Notes......Page 371 The twin towers: invention and adoption......Page 374 Common business models......Page 379 Resources......Page 380 Organizational routines and capabilities......Page 382 Technological convergence across sectors......Page 387 Notes......Page 389 Index......Page 391 Written By Professors Of The Wharton School And Industry Executives, This Book Provides A Detailed Overview Of Business Trends And Technological Innovation In The Pharmaceutical, Biotechnology, Genomics/proteomics, Medical Device And Information Technology Sectors. Acknowledgements -- Preface -- 1. The Business Of Healthcare Innovation In The Wharton School Curriculum/ Lawton R. Burns -- Part I. The Life Sciences -- 2. The Pharmaceutical Sector/ John Northrup -- 3. The Biotechnology Sector/ Cary G. Pfeffer -- 4. Biotechnology Business And Revenue Models: The Dynamic Of Technological Evolution And Capital Market Ingenuity/ Stephen M. Sammut -- 5. Mergers, Acquisitions, And The Advantages Of Scale In The Pharmaceutical Sector/ Lawton R. Burns, Sean Nicholson And John Evans -- Part Ii. Devices And Information Technologies -- 6. The Medical Device Sector/ Kurt Kruger -- 7. Healthcare Information Technology Sector/ Jeff C. Goldsmith -- 8. Healthcare Innovation Across Sectors: Convergences And Divergences/ Lawton R. Burns And Stephen M. Sammut. Edited By Lawton R. Burns. Includes Bibliographical References And Index. Robert Lawton Burns focuses on the key role of the 'producers' as the main source of innovation in this wide-ranging analysis of business trends in the manufacturing branch of the health care industry. Written by industry academics and executives, the book provides a detailed overview of the pharmaceutical, biotechnology, genomics/proteomics, medical device and information technology sectors. Most importantly, it describes the growing convergence between these sectors and the need for executives in one sector to increasingly draw upon trends in the others.