Building pharma pipelines using a socioeconomic lens

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Pharmaceutical companies use innovation to address unmet needs and tackle conditions that blight and shorten the lives of millions. While that goal has remained unchanged, the focus of innovation has continued to evolve. Over the years, the industry has tackled numerous challenges—HIV in the ’80s and ’90s, cardiovascular disease in the ’90s, autoimmune diseases in the 2010s—often with life-changing effects. Most recently, pharmaceutical and life sciences companies have risen to the incredible challenges posed by COVID-19, developing multiple novel vaccines and therapies within a year of the virus emerging.

While direct patient outcomes are the driving impetus behind each of these developments, until recently we have lacked a more holistic way to assess the socioeconomic benefits of reducing the burden of different conditions. The advances made over the past 40 years established and improved therapeutic paradigms in many fields of medicine, but some disease areas have seen less scientific progress despite their high healthcare burden.

How might a more holistic socioeconomic lens shift our understanding of the world’s disease burden?

Methodology that McKinsey introduced in 2020—to assess the socioeconomic impact of health conditions by sizing the impact that poor health has on society—can also be used to prioritize pipeline investments in different innovations based on the economic impact of the health improvements they deliver to society (see sidebar, “Methodology”). This perspective is particularly timely for developed nations facing declining working-age populations, a challenge high among the priorities of governments and industries that ultimately bear the cost of medicines and medical technologies.

What new insights emerge from this approach? Our analysis highlights underresearched conditions such as mental-health disorders, which fall disproportionately on younger and middle-aged people, and musculoskeletal conditions. For mental-health disorders specifically, the global disease burden is significant: it is the single largest cause of poor health among people aged 15 to 24 and is expected to rise 20 percent by 2040. The most common conditions in this category include depression, anxiety, schizophrenia, and bipolar disorders. Our methodology finds that the expected burden of such diseases could be reduced by around 24 percent by 2040 using existing therapies and cognitive behavioral therapies alone. Development of novel therapies to address the remaining 76 percent would only increase the potential value of investment in this area.

When examined from a societal perspective, musculoskeletal, mental-health, and neurological disorders—particularly migraines and headaches—that are not addressed by the current standard of care, together with access to medicines, drive the largest health burden. We expect the burden of these conditions to increase roughly 11 percent from 2020 to 2040 as an aging population offsets the benefits of improved care. If we were able to address this remaining disease burden, it could add $13.4 trillion to the global economy while delivering myriad social benefits (Exhibit 1).

Applying an economic lens to disease burdens reveals a high level of unmet needs in musculoskeletal and mental disorders.

Within musculoskeletal disorders, for instance, lower back pain is a major burden to society, primarily affecting working-age individuals between 20 and 54 years of age. Lower back pain is the second-largest cause of disease burden in this age group, and its prevalence is projected to increase by 34 percent by 2040. Existing interventions could avert almost one-third of the disease burden expected by 2040, particularly in low- and middle-income markets. However, the remaining two-thirds of that burden lack effective therapies today, which translates to a socioeconomic cost of $2.7 trillion annually. This suggests a major opportunity (Exhibit 2) and places considerable responsibility on biopharmaceutical innovators to address not only the needs of patients but also of society as a whole.

The most significant opportunities for innovation are in musculoskeletal, mental, and neurological disorders.

How are science breakthroughs creating new opportunities for building pipelines?

This innovation challenge comes at an opportune time when scientific priorities can be fulfilled in new and often more targeted ways. The confluence between biology and technology allows us to think more holistically about treatment paradigms and patient outcomes and equips us with a growing repertoire of approaches to understand and combat diseases. In a recent report, the McKinsey Global Institute explored this wave of innovation in biological sciences enriched by advances in computing and AI, collectively called the Bio Revolution. It is fueled by advances in research methodologies (for example, versatile rapid-hypothesis validation methods like cell-on-a-chip or CRISPR) coming together with data and analytics to systematically improve our understanding of disease and therapeutics design. About 20 percent of the clinical pipeline today is in so-called novel technologies, up from 12 percent in 2000, and the breadth and versatility of their therapeutic applications keep expanding.1

The confluence between biology and technology allows us to think more holistically about treatment paradigms and patient outcomes and equips us with a growing repertoire of approaches to combat diseases.

As novel technologies become increasingly important, there has been a movement toward “platform” technologies—technologies such as mRNA and cell therapies that have potential application across many disease areas. Innovating in such spaces requires pharmaceutical companies to make bigger bets around a technology and invest in manufacturing capabilities from the outset, as well as increasingly correlate risk across portfolios.

At the same time, innovation has become increasingly accessible, driven by the broadening range of easy-to-scale modular technology platforms as well as the decreasing barriers to entry, as new approaches can be validated in smaller populations. Increasing availability and breadth of outsourced capacity and capabilities, as well as unprecedented levels of venture-capital investment, have also made it easier for smaller pharma companies to pursue innovation.2 In the first half of 2020, biotechnology attracted $12.6 billion in investment from private-equity and venture-capital firms.3 That year, some 70 percent of new clinical trials were sponsored by players outside of the top 20 pharmaceutical companies, up from about 60 percent in 2016 (Exhibit 3).4

The increase in the volume of clinical trials has come from beyond Big Pharma.

Given the availability of capital, biotech firms are staying independent longer, and an increasing share of drug launches are coming from companies making their first launch—27 percent from 2016 to 2018 compared with 10 percent from 2011 to 2016.5 This more fragmented landscape creates a much more complex network of potential partnerships and service providers. Pharmaceutical companies can partner on assets, platforms, services and capabilities, data and analytics, digital solutions, and more. Additional partnership models have become increasingly diverse, with wider use of “build to buy,” company creation, venture capital from established pharmaceutical companies, as well as traditional in-licensing activity.

This era could become a golden age of innovation, given the confluence of technologies, the growing number of successful innovators, more diverse and growing investment, and the increased collaboration among pharma companies and with regulators. In fact, bringing about such an age is critical if we are to tackle the healthcare challenges that could cripple society over the coming decades.

How to build thriving bio/pharma pipelines and portfolios in the new environment

Navigating this complex landscape in a purposeful way will be a landmark feature of the most successful pharmaceutical players in the future. These companies are going to differentiate themselves by delivering against the societal expectations by taking full advantage of the promise of the broader, deeper, and more rapidly evolving innovation landscape. While we don’t have all the answers and each organization will need to find the right approach for itself, we see five areas of evolution ahead.

Expand the view of what constitutes a high-priority, unmet need

Pharmaceutical companies are increasingly expected to migrate from a pipeline focused on the most tractable and lowest-risk unmet needs to those most meaningful at a societal level, even if the economics and risk seem less attractive at the outset. This may include reevaluating equity commitments and the level of investment in diseases and pathologies that primarily affect low- and middle-income markets where huge unmet need remains.

This is particularly important now, given that we are likely to see that most rapid advances in health outcomes result from a breakthrough understanding of the root causes behind large and growing diseases. The emergence of more precise, design-driven modalities like gene editing or mRNA has enabled this development, which is leading to treatment—and in some cases, cures—for previously unaddressed rare diseases. This is coupled with an increasing awareness of the need for holistic care encompassing pharmaceutical and nonpharmaceutical interventions to tackle areas of the highest remaining unmet needs—many of which are multifactorial in nature. With such new approaches in place, players will increasingly assess the value at stake not only for individual patients but society at large—including the economic cost of people being unable to contribute to their communities economically or socially.

Partner with different stakeholders to achieve holistic impact

It will take new and diverse areas of scientific expertise to advance our progress in health solutions, and these capabilities are unlikely to all reside within a single organization. For example, companies need to have a better understanding of the use of data and AI to enhance the generation of therapeutic hypotheses and to drive R&D efficiency. Applying AI to clinical and real-world data sets can deliver a higher-quality pipeline—for instance, one stratified and with less risk through the use of in-silico validation approaches—that can be brought forward more quickly and at lower cost per drug candidate.6 AI also creates the potential to address diseases with complex pathologies that are often misdiagnosed or require a more precise taxonomy to develop effective therapies for all subpopulations.7 On the other hand, digital innovations by consumer and health technology companies offer better monitoring and adherence routines and digital therapeutic approaches to improve patient journeys synergistically with novel medications and enhance outcomes on a societal level.

Additionally, an increasing share of innovation is taking place beyond the walls of Big Pharma, and leading players have responded by strengthening their partnership capabilities, improving their ability to identify potential partners, and differentiating themselves in an increasingly competitive healthcare deal-making space through the services and support they offer to potential partners.

Embrace the potential of digital solutions

Achieving holistic impact with solutions that address diseases and their socioeconomic impacts as we develop approaches to healthcare and health outcomes includes taking a broader look at treatment options. Digital therapeutics that can deliver patient health benefits by supporting behavioral changes without a pharmacological intervention or drugs, paired with a companion application to increase patient adherence, precision diagnostics to better target cancer therapies, remote-patient self-monitoring tools, and other means of enacting or strengthening a health outcome are gaining importance. Advances in digital therapeutics and technologies could be the answer to cost-effective and scalable solutions for treating large populations in that they can provide a technology-enabled, tailored approach to an individual.

Consider regulatory engagement

In this increasingly complex landscape of stakeholders, pharmaceutical companies could consider consulting with regulators earlier in the treatment development life cycle so that regulatory insights and perspectives can inform development choices and decisions. More effective and collaborative relationships between developers and regulators could help manage risk and potentially accelerate time to market.

There is also a need for societies to reevaluate the premium put on healthcare innovations—particularly those that tackle areas of high unmet need. For example, the price paid for therapies alleviating lower back pain or mental-health conditions should be balanced against the socioeconomic benefit at stake.

Prioritize agile portfolio management

Tackling more targeted diseases and patient needs in a multifaceted ecosystem of stakeholders with complexities of ownership and transparency across different data sets and solutions could increase developmental risk.

We expect players to increase the richness of data used to make decisions, including real-time information on their own portfolios and those of others, as well as improve decision-making approaches by consistently implementing frameworks and countermeasures to reduce bias throughout portfolio guidance. However, as portfolios become increasingly diverse in ownership and modality and innovation cycles continue to accelerate, the ability to make “game time” decisions based on ambiguous and incomplete data will become increasingly important. We see companies moving from considering each investment at an individual level to reviewing a portfolio of trade-offs, often with correlated risks. For example, they may apply an “efficient frontier”—a mathematical method to identify, given a set of assets, the optimal project.

Although there is no silver bullet, rethinking innovation strategy and upgrading portfolio management will allow the pharmaceutical industry to better harness the Bio Revolution and maximize its value to society over the coming decades.

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