Swiss biopharma giant Novartis has been on a tear lately on the M&A front.  It’s recent bid to acquire Alcon for $50 billion to boost its eye care franchise (encompassing everything from pharmaceuticals to contact lenses to OTC products) certainly seems in line with the wave of large deal activity within the pharmaceutical sector.  However, it was not until I picked up The Economist (January 16th-22nd 2010) this week and reviewed an article entitled “Pills Get Smart: Potential Encapsulated” that I noticed another recent Novartis deal that completely flew under the radar.  Despite the lack of attention this deal received, the technology associated with the deal appears to have extraordinarily broad potential through a nascent yet disruptive technology.

Last week, Novartis executed a $24 million upfront payment for a licensing and alliance deal with VC backed Proteus Biomedical, a Redwood City California based company focused on developing “intelligent medicines” through their proprietary Ingestible Event Markers (IEM) technology.  In laymen’s terms, this platform technology encompasses tiny edible microchips designed to be embedded within a particular therapeutic.  Once ingested by the patient, the microchip has the ability to transmit a wealth of patient related data to either the patient’s cell phone or directly to their physician.  My initial reaction upon review of Proteus’ platform technology is that the underlying benefits of this microchip technology are twofold within the context of the pharmaceutical industry. 

First, it allows physicians to monitor and track patient compliance of their prescribed therapeutics, an issue that has plagued the pharmaceutical industry for quite some time.  Not only may the the patient not be receiving the maximum therapeutic benefit of the prescribed  medication but pharmaceutical companies may be losing out on critical revenues as a result of patient non compliance.  This creates an enormous burden on the healthcare system (from manufacturers, to payers, to providers) should patients continue to seek additional treatment at hospitals/nursing homes due to that fact that they did not comply with their medicines as prescribed by their physicians.
 
Second, it allows physicians to analyze the specific response of the patient to the particular therapeutic.  Physicians could therefore be equipped with the appropriate information necessary to adjust dosages based on pharmacodynamics and customize the patient’s treatment based on the response transmitted by the IEM.  This could ultimately serve as the fulcrum to a new wave in personalized medicine.

However, there is also a third area (which has not yet been discussed) where Proteus’ technology could also be exploited to improve the efficiencies within the currently fragmented healthcare value chain.  For example, pharmaceutical supply chains have significantly lagged behind other industry verticals on both performance and efficiency.  As a result, increased costs resulting from such inefficiencies have been passed directly onto the patient.  Perhaps one of the most significant reasons for this complexity results from a lack of insight into patient demand and requirements.

Recent research shows that pharmaceutical companies are attempting to get closer to downstream patient demand in order to make significant upstream decisions, tradeoffs, and investments.  Yet, as far as I know, there has not been a technology that has been able to translate actual patient demand and response levels all the way back into the biopharmaceutical supply chain.

Anyone who follows the pharmaceutical industry closely enough is certainly well versed in the issues related to the R&D decline and the quickly approaching patent cliff.  Therefore, the remedy for Big Pharma will be both to innovate on the R&D front, while at the same time reducing costs, increasing revenues, and reducing complexity within their own supply chains (i.e. reducing COGS, improving manufacturing cycle times, reducing WIP and finished goods inventory, bypassing PBMs and GPOs through DTP distribution).  Could Proteus’ technology be the answer to facilitating these improvements?

Despite the enormous benefits of Proteus’ technology, there are still numerous concerns.  For one, there are fears that this type of technology will ultimately infringe on patient privacy, which is reminiscent of the challenges and fears echoed by the RFID industry.  As a result, patients could learn to bypass the microchip or subject themselves to further non compliance.  Secondly, if the broader application of the technology is used throughout the value chain, the question will be whether pharmaceutical manufacturers will have the capacity, bandwidth, and technology to translate mountains of patient data into actionable strategic plans.

Despite some of the objections and challenges of the technology, Novartis clearly understands that it will need to obtain a more thorough understanding of their patient behaviors and consumption moving forward.  The industry will need to incorporate this idea in conjunction with enabling technologies if it wants to achieve competition based results and positive patient outcomes.
 
Do you think this technology has promise to improve the way pharmaceutical companies operate with their trading partners?

Jeremy Friedler

Tags: Supply Chain

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