Wednesday, April 16, 2014

Disrupting Healthcare with a Blue Ocean Strategy

Disrupting Healthcare with a Blue Ocean Strategy

Gilead is currently the 8th largest pharmaceutical company in the world.  With their recent launch of Sovaldi, a cure for hepatitis C, they have been met with increasing consumer dissatisfaction.  Although Sovaldi cures 90% of hepatitis C infections with minimal side effects, it costs users $1000/day over 12 weeks, totaling $84,000 per treatment in the United States.  This should generate revenues as high as $19B for Gilead over the next three years, as up to 150 million people around the world suffer from hepatitis C.  Gilead is defending their price for this drug by stating that due to the high development costs of pharmaceuticals, successful drugs such as Sovaldi have to recoup not only their own expenses, but also that of all their failed drug counterparts. 

The rising cost of pharmaceutical developments, with limited opportunities for ‘blockbuster’ drugs, is forcing pharmaceutical companies to raise the price of their products to recoup their losses.  This is decreasing consumer satisfaction, and creating a societal concern that drug manufacturers are ripping off their customers with such high margin products.  This provides the perfect landscape for a disruptive innovation to revolutionize the way we currently treat diseases. 

Currently, the American healthcare system is set up to treat diseases.  Although bacterial infections can be cured, the majority of disease treatments only mitigate symptoms to improve quality of life.  With the recent development of molecular diagnostic technologies, however, the time is ripe for a massive paradigm shift to sweep the entirety of the healthcare industry; moving it away from disease treatment and intuitive care, to that of precision medicine and preventative care. 

Molecular diagnostics, which can identify hereditary and infectious diseases through gene sequencing, can provide the healthcare industry with a blue ocean landscape of uncontested market space with great increases in value and reductions in costs.  Identifying the likelihood of a disease, say Alzheimer’s or breast cancer, through gene sequencing, doctors would be able to mitigate the significance of the disease through preventative measures.  Utilizing gene sequencing to positively identify a bacterial, fungal or viral pathogen will reduce time to diagnosis and improve quality of care. 

Preventing diseases from ever taking hold, the overall cost and burden to the healthcare industry may be alleviated through the use of molecular diagnostics.  However, the current profit structure for treating symptomatic patients will suffer.  Therefore, pharmaceutical companies are not incentivized to develop these technologies themselves, and this innovation will have to occur from other sources who identify the blue ocean opportunities.  Changes in federal regulations, which prioritize good health, and the opportunity to reduce costs and overhead for insurance providers can serve as motivational factors to adopt this technology, altering the boundaries of the existing healthcare industry and creating a new demand for healthy living. 

What are other industries that are ripe for innovative disruptions to take place?  Are the current industry leaders in a position to take advantage of these opportunities, or will these developments occur through new entrants?

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