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Opportunities for FinTech in the Pharmaceutical Industry

Post by:
Prove
January 29, 2022
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January 29, 2022
Opportunities for FinTech in the Pharmaceutical Industry

There has never been a greater focus on the pharmaceutical industry at any other time in recent history than during the ongoing COVID-19 pandemic. The entire world is looking at the pharmaceutical industry to rescue them from this infectious and life-threatening disease. In this article, we explore the growing pharma industry and the new technologies & business models needed to tap the FinTech + Pharma opportunity. 

Identifying Pockets of Problems in this Growing Industry 

Due to the ballooning healthcare costs, the pharmaceutical industry has been accused, perhaps unjustly, for being profiteers. In its 2016 report to the US Congress, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) revealed that the total spending on retail prescription drugs in the US was $305 billion in 2014 while spending on non-retail prescription drugs was estimated to be $119 billion, bringing the total figure to $424 billion in 2014. However, according to SelectUSA, the biopharmaceutical industry's overall impact on the US economy cannot be downplayed. In 2015 alone, the industry accounted for $1.3 trillion in economic output, representing 4% of total output. It employs over 800,000 people directly and supports a further 4.7 million indirectly. 

Granted, the cost of healthcare is high, but this can also be attributed to a lot of other factors outside the pharmaceutical industry, including the national health care system, insurance, and regulatory environment. It is due to these factors that there exists much disparity in the cost of healthcare per capita across different countries. According to the commonwealth fund report of 2017, the US spends more on prescription drugs per capita than any developed high-income country. The US’ per capita spending stands at $1,014, which is almost three times that of Sweden’s ($315). This disparity can be attributed to the large uninsured population and the fact that cost-sharing requirements for those with coverage are more burdensome than in other countries. 

The cost of research and development, drug trials, and other compliance costs determine the price at which any drug is going to hit the market. Bringing drugs to market is a costly undertaking for any pharmaceutical company, so it stands to reason that they would do whatever is necessary to protect their investment by patenting their work. This is important to enable the company to recoup its investment before anyone else is allowed to use their discovery to bring to market a similar competing product. Moreover, it is also why lawsuits on patent infringement are fairly commonplace in the pharmaceutical industry, adding to the cost of drugs and the overall cost of healthcare.

Smart Patents

Since there is no central worldwide registry for all patents, it takes constant vigilance and a lot of money to ensure that one’s intellectual property (IP) is not infringed on without their consent. In its most basic form, patenting is just a record of ownership; it is a ledger that shows who owns what, and this is why blockchain has the potential to revolutionize the patenting process. The blockchain distributed network would provide a smart solution to patent offices, allowing for validation of the rights, record-keeping, registering & clearing rights, controlling & tracking the distribution/trade of rights, and establishing IP contracts. 

Not surprisingly, there is already a blockchain IP solution: IPwe. IPwe leverages AI and IBM’s blockchain platform for multicloud to create a platform that makes it easy to find patents, know what the patents cover, and determine who owns the patent. It is also a marketplace for patents, making intellectual property a tradable asset. This kind of technology could have consequential effects in the pharmaceutical industry, making it easy to register, transfer, and negotiate IP rights. It can also enable the pharmaceutical and biotech firms to conduct focused research and development, knowing what existing patents cover to improve the rate of success.

Supply Chain Solutions

Blockchain technology can also be leveraged in the pharmaceutical industry to make their supply chain more efficient. The FDA, with help from IBM, already pioneered a study into how this can be done, with encouraging results. It goes to show that blockchain-based supply chain management can improve visibility enabling the regulator and drug companies to verify the status of a product quickly and, if necessary, trigger a recall, thereby improving patient safety. It can also provide the ability for drug companies and the FDA to fight counterfeit drugs, improving their bottom line in the process, which is critical for drug companies since their other major challenge is in the area of finance.

Financing Options

On average, a pharmaceutical company’s ability to successfully develop and bring a drug to market carries a success rate of under 10% according to a 2016 research report by Biotechnology Innovation Organization. Though there are more optimistic estimates of up to 13.8% from other studies like the MIT Laboratory for Financial Engineering, it means that the majority, over 80%, of research projects that the companies spend their resources on fails to provide the anticipated return on investment. These numbers are not great considering this citing from the aforementioned ASPE report: it takes between $1.2 billion to $2.6 billion to bring a new drug to market. Failure, therefore, is very costly, and this brings to focus the challenge that pharma and biotech companies face when it comes to funding. One way of survival is to make the cost of successful drugs high enough to pay for future research projects and recoup losses suffered as a result of failed ventures. This sounds inherently unfair, but one cannot begrudge the drug companies for trying to survive, and, honestly, there does not seem to be a choice.

The other alternative which is hardly explored is to finance it through credit. Unless it is an established drug company with enough cash flow from its other successful ventures, the business proposition would be too risky for an average bank to finance. It would be foolhardy even to consider it.

That leads us to the next option: a partnership with government agencies. The Defense Advanced Research Projects Agency (DARPA) has historically been known to take on some high-risk biological projects for the public good. The downside of this option and in taking government money, in general, is the greater scrutiny it invites and loss of autonomy. The public, through their representatives, is not too keen on financing private profit-seeking institutions. Another model of this public-private partnership is the collaboration between mostly public universities, teaching hospitals, and pharmaceutical companies as a cost-effective way of conducting research and drug trials. However, it still raises the issue of public access for the public good and intellectual property for profit.

A Role That FinTech Can and Should Play

Amid all this financing headache lies an opportunity for FinTech to design creative funding options for the pharmaceutical companies. One such earlier approach was by Agenus, which sought to fund expanded development, manufacturing, and the commercial launch of AGEN2034, an antibody, through a security token offering (STO). Though there has not been much in the way of an update about their Biotech Electronic Security Token( B.E.S.T) token, it caused quite an excitement due to its novel nature when it was announced. 

Unlike their ICO counterparts, which are unregulated and, at times, issued by sketchy entities, putting investors' funds at risk, STOs are closely regulated and only qualified, verified investors can participate. STOs, therefore, provide a great avenue for pharma and biotech companies to raise funds for risky research and development where other funding options are too expensive or unavailable. STOs are also built on the blockchain, making the transactions secure, verifiable, and easy to operate.

For an industry that relies so much on collaboration and data sharing, the pharmaceutical industry can form a strategic partnership with insurers to help bring the cost of research down. The two industries need each other, and through the application of InsurTech, this partnership can be managed well to improve efficiency. The pharmaceutical companies can benefit by adopting a risk-based approach based on data from insurance companies to develop a targeted solution to common ailments, eventually benefitting from a ready market for their products.

On the other hand, the insurance companies would benefit from bringing the overall cost of healthcare and health coverage down. However, this collaborative approach can only work when there is the security of patient data. Research by PwC shows that most consumers, 68% of them, are willing to share their health data with the pharmaceutical companies, including symptoms of their current and past ailments. This data can be made easily shareable if consumer identity is managed digitally in a secure, unhackable manner, and a blockchain identity management system can help in this process. This will enable symptoms of a disease to be easily trackable, pandemics patterns easily identified and controlled.

Besides collaboration, the application of RegTech can help lower compliance costs by automating reporting requirements. It can also help to preempt regulatory changes that could affect a product before and after it reaches the market. It can also allow for modeling and anticipating the effects of upcoming or planned regulations. The pharmaceutical industry is very sensitive to regulation, and a damaged reputation is hard to repair. Even a warning letter from the FDA, without any fine, is enough to trigger a panic in the market when the information becomes public. The shares of Akorn fell 12% a day after disclosing a warning letter from the FDA. Drug companies need to invest in required compliance resources because the cost of non-compliance has far-reaching consequences besides just a financial one.

Further efficiency in the pharmaceutical sector could be helped along with innovative solutions around payments—services like Invoice-Link, which enables pharmacies to manage invoices submitted by partner couriers online. Invoice-Link’s service enables the import and validation of invoices, and its data can be used to generate requisite reports, minimizing paperwork.

There is also the emergence of app-based drug delivery systems where prescriptions can be delivered to patients wherever they are. In Egypt, Yodawy, a digital pharmacy platform,  connects patients and consumers to pharmacies, doctors, and insurance companies. This type of solution enables transparency in drug pricing and better user experience. In Kenya, MYDAWA, an online pharmacy, offers drug authentication services in addition to drug delivery through its app, which in turn allows consumers to be confident that the drugs they are consuming are authentic and approved. There are other examples of this, especially in low and middle-income countries like India, where Medlife operates, offering not only prescription drugs but also lab tests.

These services rely on FinTech companies to provide efficient supply chain management solutions, efficient payment collection, automation of compliance reporting, accounting, and audit. 

"FinTechs have helped not only in handling collections and payments but also in managing downstream processes like reconciliation. Healthcare sector partnering with banks and FinTechs for digital solutions will overall result in improvement of operational efficiency and reduction of cost,” Standard Chartered Bank’s Manish Jain said in an interview.

Nanavati Super Specialty Hospital’s Dr. Patankar stated, “Amid an ongoing digital revolution in India’s healthcare system, FinTech companies integrate transparency, discovery, and financing that help patients in comparing prices of surgeries, quality of hospitals & doctors, and pay in EMIs.”

The application of these novel technologies will make healthcare accessible and create a vibrant and profitable pharmaceutical industry. This will limit the current unhealthy sort of free-for-all environment that is negatively affecting society. The pharmaceutical industry has long been known to inundate consumers with advertisements, promoting pay-to-prescribe tendencies among doctors, and generally encouraging the culture of casual consumption of prescription drugs. 

Some governments seem to have taken the cue by encouraging greater transparency through public disclosure of expenditure by pharmaceutical companies on sponsored research and payments made to doctors and teaching hospitals. This is a good start, and it shows that the application of technology, even in its most basic form like a searchable database, makes a difference.

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