Progressions_2011_Final_021011

Progressions
Building Pharma 3.0
Global Pharmaceutical
Industry Report 2011

Welcome
To our clients and friends:
A lot has happened in the year since the launch of Progressions 2010. That report — the first in which we
discussed the impact of a collection of trends we refer to as “Pharma 3.0” — detailed how the growing need to
make health care sustainable, combined with the simultaneous coming of age of technologies such as health
IT and mobile health applications, is transforming the very business of pharma. In Pharma 3.0, companies
will succeed or fail based not on how many units of a drug they sell, but on how well their market offerings
improve health outcomes.
Progressions 2010 was very well received, garnering widespread coverage in leading business media
outlets across the world’s established and emerging drug markets. More important, the report elicited an
unprecedented level of interest from you — our clients and friends. Pharma companies and non-traditional
players, it turned out, were very interested in discussing what these developments could mean for them.
Consequently, we have had many fascinating conversations with executive teams who were keen to
understand the changing competitive landscape, identify opportunities and define possible
strategic responses.
We are still actively engaging with companies on these issues, but the nature of our conversations has
changed significantly over the last 12 months. A year ago, the discussions were focused on questions of “if,”
“when” and “why.” Participants wanted to know whether Pharma 3.0 was real and how soon any of this could
realistically be expected to play out.
Today, there is general acceptance that Pharma 3.0 deserves a strategic focus. Moreover, it is becoming
increasingly clear that the emphasis on 3.0 is critical not only to sustain success in tomorrow’s outcomes-
focused ecosystem but also to increase market penetration and performance in today’s challenging business
environment. The opportunities that companies can seize by building success in Pharma 3.0 — solutions that
extend drug life, increase patient adherence, create more effective sales and marketing and much more — are
increasingly relevant for success in Pharma 2.0 as well.
The conversation has therefore shifted to “what,” “how” and “where.” What do we need to do to adapt
our strategy for success in 3.0? How do we go about implementing the changes that will be needed?
Where do we start? These questions are the focus of this year’s Progressions.

In Chapter 1, we describe advances in the rapidly evolving health outcomes ecosystem, and document how the pace
of change has accelerated. Still, even as pharma companies are experimenting with innovative 3.0 business models
at a faster clip than ever before, their 3.0 investments pale when compared with companies from other industries,
which have committed to business model experimentation and innovation in the health arena in a much bigger way.
And innovation does not come from experimentation alone. It also requires organizational capabilities, supporting
functionality and a rigorous process for making strategic bets on a large scale, identifying the most successful
models and scaling those up for market deployment. In addition, the participants in the ecosystem will need
coordinated action to realign incentives, standards and metrics around health outcomes — the subject of Chapter
2. In Chapter 3, we describe three organizational capabilities that will drive success in Pharma 3.0: connecting
information; entering radical collaboration; and managing multiple business models. In Chapter 4, we discuss six
supporting business functionalities that companies will either build from the ground up or significantly enhance to
support their 3.0 initiatives.
To a large extent, this year’s report was informed by interviews with a sizeable number of business leaders from
pharma companies, other health care firms and non-traditional players in the health outcomes ecosystem. You
will gain insights from these executives through quotes, interviews, guest articles, “A closer look” sidebars and a
roundtable with pharma strategy leaders.
That’s only fitting. As we worked on this year’s Progressions, it became increasingly clear that Pharma 3.0 is really
about co-creation — leveraging the insights and attributes of partners with different perspectives. In many ways,
form has followed content, and this year’s report is richer because of the insights we obtained from all of you — the
companies on the front lines of Pharma 3.0. We also want to thank our many colleagues at Ernst & Young who
contributed to this report, with particular thanks to Frank Kumli, Senior Business Analyst, and
Sue Lavin Jones, Senior Marketing Manager, who have worked tirelessly on this endeavor.
Ernst & Young’s worldwide organization stands ready to help you — and co-create value with you — as you navigate
your way forward.
Carolyn Buck Luce
Global Pharmaceutical Sector Leader
Gautam Jaggi
Managing Editor, Progressions

Contents
Chapter 1: A rapidly changing ecosystem 1
Using data to improve outcomes
Gianrico Farrugia, Mayo Clinic Center for Innovation 7
Managing health, holistically
Rajesh Jain, Panacea Biotec 9
Patient power
Mary Baker, European Brain Council and European
Federation of Neurological Associations 10
Bringing value to health care
John Agwunobi and Sandy Kinsey, Walmart 12
Delivering value
Bill Hook, UPS 15
Chapter 2: Getting to 3.0 17
Chapter 3: A road map for change 23
1. Connecting information 24
Perspective on connecting information
Connectivity changes everything
Don Jones, Qualcomm 26
Bringing outcomes to patients
Don Waugh, PharmaTrust 27
2. Radical collaboration 30
Perspective on innovation
Only do what only you can do
Chris Thoen, Procter & Gamble 32
3. Multiple business models 33
Strategy roundtable
Building Pharma 3.0 38
Dave DeMarco, Ernst & Young LLP
Jay Galeota, Merck & Co.
Kim Park, Johnson & Johnson
Kristin Peck, Pfizer Inc.

Chapter 4: Implementing change 43
1. Business model development 43
A closer look
The people side of Pharma 3.0
Carol Pasmore, Ernst & Young LLP 44
2. Community engagement 48
Perspective on community engagement
The power of listening
Daniel Palestrant, Sermo 50
Perspective on community engagement
The importance of being real
D. Stuart Sowder, Pfizer 51
A closer look
Six key elements of effective enterprise innovation
Brad Kenney, Ernst & Young LLP 53
Market access: the new frontier
Joerg Reinhardt, Bayer HealthCare 54
Managing a portfolio of partnerships
Jackie Hunter, Pharmivation 55
3. Information strategy 56
A closer look
The cloud as competitive advantage
Malcolm Postings, Ernst & Young LLP 57
Success will follow the information
Anthony Rosenberg, Novartis 58
Perspective on information strategy
Information is strategy
Ray Pawlicki, Biogen Idec 60
Perspective on information strategy
IT of the future
Michael Hedges, Medtronic Inc. 61
4. Performance management 62
A closer look
Scenario planning for 3.0
Frank Broetzmann, Ernst & Young Ltd. 63
5. Capital strategy 64
Perspective on capital strategy
Allocating capital
Adrian Rawcliffe, GlaxoSmithKline 65
A closer look
Tax planning for Pharma 3.0
Andy Brown, Ernst & Young LLP 67
6. Governance, risk and controls 69
A closer look
Privacy regulations and risks
Sagi Leizerov, Ernst & Young LLP 69
A closer look
Agile operations for an agile market
Keith Forsyth, Ernst & Young Ltd. 71
Guiding principles for building Pharma 3.0 73
Index of charts 74
Acknowledgments 75
Global life sciences contacts 76

f Progressions 2011
A rapidly changing
ecosystem

1
The story so far
In last year’s Progressions, we stated that the pharmaceutical
industry is in the early stages of moving to a very different
future: Pharma 3.0, the health outcomes ecosystem.
This shift is in fact the second major wave of change to strike
the industry in recent years. For the last decade or so, pharma
companies have already been reinventing their business models
as the patents on some of their biggest blockbuster drugs
drew close to expiration and it became clearer that existing
pipelines would not be sufficient to fill the gap. As the industry
moved from Pharma 1.0 (the blockbuster model) to Pharma
2.0 (today’s pharmaceutical industry), companies sought to
replenish their pipelines, boost revenues and “variablize” fixed
costs. They diversified away from blockbusters into portfolios of
more-targeted drugs in strategic therapeutic areas, as well as
into other segments such as over-the-counter (OTC) medicines,
generics, animal health and consumer products. They brought
increased focus and discipline to managing for the bottom line
with aggressive cost-cutting measures, including standardization
and outsourcing. And as emerging markets came into their
In brief
• In the year since the last issue of Progressions was
published, the pace of change in the Pharma 3.0
ecosystem has accelerated, as pharma companies have
expanded the number of reported 3.0 initiatives by 78%.
• The ecosystem has also grown more complex and
multifaceted, as Pharma 3.0 initiatives expand across
a broader array of technologies, disease categories and
stages in the cycle of care. Health-related smartphone
apps have boomed, the focus on diabetes has broadened
to other disease categories such as oncology, and
companies are developing business models that seek to
improve outcomes using more holistic approaches.
• Despite the rapid increase in the number of Pharma 3.0
initiatives, pharma companies are still investing much
less than non-pharma companies in 3.0 commercial
model innovation. By our rough estimate, non-traditional
players have publicly reported at least US$20 billion in
intended investments in the health outcomes space.
• The growing pressures on health care systems are
prompting payers in many markets to increase their focus
on health outcomes. Even as this is changing the rules of
the game for pharma companies, it is creating openings
for non-traditional players.
Chapter 1
A rapidly changing ecosystem
own, pharma companies expanded their geographic footprints
to increase efficiencies and tap new sources of revenue. In
short, Pharma 2.0 has been about moving to a cost-efficient,
diversified product/market model.
Even as pharma companies have been grappling with these
challenges, they are being propelled forward to the next iteration
of significant change: Pharma 3.0. In Pharma 3.0, companies
will succeed or fail based not just on how many units of a product
they sell, but rather increasingly on their ability to improve
health outcomes, with patients and payers squarely in the middle
of the model. Pharma 3.0 does not supplant Pharma 2.0 as
much as supplement it. Even as companies concentrate on the
challenges of 3.0 (with new business models to better manage
health outcomes), they will sustain focus on meeting unmet
medical needs and expanding access to their products.
At its core, this transformation is being driven by two
simultaneous trends: the coming to a head of health care
systems’ lack of sustainability and the coming of age of several
game-changing technological advances. These two trends
are catalyzing each other — new technologies are providing
breakthroughs to make health care more sustainable, affordable
and accessible, while the tremendous pressures on the health
care system are helping speed adoption, break down resistance
and realign incentives around changing business models that
leverage these technologies.
These trends are enabling improved health outcomes by driving
behavioral change. In essence, this represents the third big
leap in improving health outcomes. The first two advances —
widespread adoption of hygiene and extremely effective curative
medicines and devices — have delivered significant increases
in the quality and length of human life. We are now poised for
the third big transformation, which will come from behavioral
changes, as all participants in the ecosystem — patients,
physicians, payers, companies and more — revisit and realign
their practices in order to improve health outcomes.
Consumers are being empowered to change their behavior
by new technologies — creating what we referred to in last
year’s report as a new class of “superconsumers.” Social media
networks — from PatientsLikeMe to Sermo and Medscape
Physician Connect — are making data on outcomes and efficacy
more transparent and freeing it from the control of corporate
giants. Mobile phones are enabling patients to monitor their
own health as never before — using everything from apps for the
latest smartphones to text-message platforms that can expand
access for patients in rural areas and emerging markets.
The widespread adoption and meaningful use of electronic
health records (EHRs) — being heavily encouraged in the US by
incentives in the February 2009 economic stimulus package —
promises to vastly increase not just the efficiency of health care
but also the volume of data that can be mined to compare the
efficacy of different treatments. Large integrated systems such

2 Progressions 2011
as Kaiser Healthcare and Intermountain Health have already
been doing this for a while, and new entrants in the personal
health record (PHR) business such as Google Health and
Microsoft HealthVault could take “value mining” to an entirely
new level.
Indeed, last year’s report described how the opportunities
latent in these trends are spurring experimentation with new
approaches and business models and attracting significant
numbers of non-traditional entrants to health care — IT firms,
retailers, insurers, food companies, telecommunications
providers, global conglomerates and several others.
The ecosystem advances: a progress report
A year later, the picture that emerges is of an ecosystem that
is rapidly expanding with more investments and initiatives
than ever before. The space is becoming more complex, as
non-traditional entrants continue to experiment with creative
business models, and the investments in Pharma 3.0 expand
across a broader array of technologies, disease categories and
stages in the cycle of care.
To better track these trends, Ernst & Young has collected and
analyzed the Pharma 3.0 initiatives that we have been able
to identify from various sources. Our database — the first
comprehensive analysis of such investments — tracks initiatives
launched by pharma companies during the last five years.
By our count, about 220 Pharma 3.0 initiatives were launched
by pharma companies (either alone or by partnering with other
entities) between 2006 and 2010. That’s an impressive total,
but it’s even more remarkable that 44% of those initiatives were
launched in 2010 alone. In fact, the 97 initiatives launched in
2010 represent a 78% increase over the number of initiatives in
existence as of 2009. Remarkably, practically all of the leading
pharmaceutical companies are active in the Pharma 3.0 space,
though a few firms — including Johnson & Johnson, Pfizer,
Novartis, Merck & Co. and Roche — are leading the charge with a
relatively larger share of initiatives.
Despite the rapid increase in the number of initiatives, the
level of 3.0 investments by pharma companies is still far below
where it needs to be. Non-pharma companies are investing
much more: at least US$20 billion, by our estimate. (This is a
rough estimate based on publicly disclosed information, and
it excludes initiatives for which companies have not assigned
a specific price tag.) “Pharma is still focused on investing in
drug innovation — we’re not making the kinds of investments in
Pharma 3.0 that many non-traditional entrants are making. It
has been eye-opening to realize how significantly we will need
to invest in transformative partnerships and the broader health
care ecosystem to be relevant in 3.0,” says Kim Park of Johnson
& Johnson’s Janssen Healthcare Innovation Unit.
Source: Ernst & Young.
Chart shows cumulative number of initiatives by pharma companies in existence per year.
0
The number of Pharma 3.0 initiatives increased by 78% in 2010
240
200
160
120
80
40
2006 2010200920082007
“Pharma is still focused on investing in drug
innovation — we’re not making the kinds of
investments in Pharma 3.0 that many non-
traditional entrants are making. It has been eye-
opening to realize how significantly we will need
to invest in transformative partnerships and the
broader health care ecosystem to be relevant in 3.0.”

3
Smartphone
apps
11%
mHealth
(excluding
smartphone apps)
5%
Educational websites
20%
Social media/
online communities
18%
Risk-/cost-
sharing with
payers
13%
Patient support
programs
13%
Open
innovation
9%
Patient-controlled
medical devices
5%
Other
6%
There’s an app for that
The surge in pharma’s 3.0 initiatives has been led by a
remarkable increase in mobile health investments, especially in
smartphone apps. Between 2006 and 2009, 16% of initiatives
undertaken were in the mobile health space, but in 2010 the
category accounted for one out of every two new initiatives.
For the most part, this has been fueled by a sharp increase in
the number of health-related smartphone apps, as the category
vaulted from 11% of initiatives undertaken between 2006 and
2009 to a whopping 41% of new initiatives in 2010.
To a large extent, this reflects larger economic and social trends.
Growth in smartphone sales has outpaced growth in the overall
mobile phone category in recent years. What makes these
devices so compelling, of course, is that they are much more
than mere phones. Smartphones are effectively very powerful
mobile computers that are packed with sensors, continuously
connected, and customizable with a wide range of apps.
Across the economy, smartphone apps are reinventing the way
companies interact with their customers and are empowering
individuals by giving them greater control and allowing them to
receive and share information in real time. Indeed, the ability
of new technologies to change behaviors has led to increased
efficiencies and new growth channels in numerous other
There’s an app for that: investments in smartphone apps soared in 2010
Smartphone apps
41%
mHealth
(excluding
smartphone
apps)
9%
Educational websites
20%
Educational programs
2%
Social media/
online communities
9%
2006—09 2010
Charts show number of pharma company initiatives by type, as identified by Ernst & Young.
Patient support
programs
11%
Open
innovation
3%
Patient-controlled
medical
devices
2%
Other
3%
industries (for instance, as customers became more comfortable
with shopping and banking online). The smartphone revolution
has tremendous potential to improve health outcomes by
empowering patients in much the same way — helping create the
superconsumers of Pharma 3.0.
Therefore, the flurry of activity in this space is not surprising.
But it is worth noting the tremendous diversity in the types
of apps that have emerged over the last year. In Progressions
2010, we highlighted LifeScan’s iPhone app that allows diabetic
patients to interface wirelessly with their glucometers. In
the same vein, we are seeing many more apps emerge that
empower patients by giving them increased control over all
aspects of disease management. In diabetes, for instance,
where effective management requires a coordinated and
holistic approach, it’s encouraging that new apps are helping
patients manage not just their blood glucose but also other
aspects of their health maintenance, such as diet and exercise.
Abbott, for instance, launched a German language iPhone app,
DiabetesMapp, which allows patients to map specialists nearby
in order to manage a wide range of diabetes-related conditions,
including diabetologists, podiatrists, psychotherapists, support
groups and more. Also in the diabetes space, Merck’s iPhone app
Vree for Diabetes provides patients diabetes education, blood
glucose tracking, nutrition tracking, activity tracking, medical

4 Progressions 2011
tracking and progress charts. Despite its name, Vree isn’t free.
Like a number of other health care apps, Merck’s offering has
a price tag, a sign that the value of such information is already
being recognized by the market.
The range of smartphone apps is by no means restricted to
diabetes. We have identified at least 14 disease categories in
which companies have launched new apps in the last year alone.
These include apps that help patients keep track of vaccination
schedules (Novartis’ VaxTrak), manage their hemophilia A Factor
VIII infusions (Bayer’s Factor Track), locate cancer clinical trials
within 150 miles (GSK’s Cancer Trials) and much more.
We noted that smartphone apps tend to empower customers.
But pharma’s customer base includes more than patients, and
it’s not surprising that a significant portion of new apps are
aimed squarely at empowering physicians. In June 2010, Pfizer
announced that it was collaborating with Epocrates to give
providers a way to contact the Pfizer Medical Information Group
to obtain answers to product-related questions or report adverse
events. Sanofi-aventis launched AFib Educator, an iPhone app
that helps health care providers explain atrial fibrillation to
patients, their families and caregivers. And Japan’s Astellas
has released a smartphone app that gives physicians access
to criteria used to assess the need for cardiac radionuclide
imaging.
In many ways, this is just an early indicator of things to come.
So far, many of the health care apps that have emerged
have targeted Apple’s popular iPhone. But over the last year,
Google’s Android platform has emerged as the fastest-growing
smartphone segment, and it seems likely we will see companies
expanding their offerings to cover more platforms in the years
ahead. In addition, this is about more than phones. “The
wireless revolution,” as Don Jones of Qualcomm points out in
our interview with him on page 26, “is just getting started. Over
the next decade, the cellular industry plans to add 50 billion
mobile devices to the 5 billion in existence today — a tenfold
increase. Most of these devices won’t be phones as we think of
them today.” Indeed, wireless connectivity is now starting to be
applied to everything from pill bottle caps to hospital beds, as
the internet of computers gives way to the internet of things.
(See Chapter 3 for more on this trend.)
Recognizing the growing importance of mobile technologies
in the health space, the FCC and the FDA began collaborating
for the first time, in 2010, to work through the challenges
and ambiguities in regulating technologies that are starting to
blur the line between medical device and telecommunications
equipment.
Seeking unmet needs: beyond diabetes
The increasing diversity of the ecosystem is also being reflected
in the diseases where pharma companies are focusing their
Pharma 3.0 investments. Much of the early action in Pharma
3.0 initiatives has been in diabetes. There are good reasons
for this. Type 2 diabetes represents a tremendously important
disease area, where demographic trends and changing lifestyles
are expected to create huge increases in patient populations
in the years ahead. In addition, as a chronic disease, diabetes
requires constant management, and there are significant
“value leakages” where health outcomes are not improved or
maintained because of factors such as lack of awareness, poor
monitoring and non-compliance with treatment regimens. (For
more on the value leakages in diabetes, refer to the discussion
and chart on pages 45 through 48.)
Between 2006 and 2009, therefore, diabetes accounted for
more initiatives than any other disease category — 24% of the
total. But in 2010, the 3.0 investments of pharma companies
began to diversify more into other diseases. Oncology claimed
the top spot, with 15% of the year’s initiatives, while diabetes
and metabolics as a group tied for second with immunoscience/
inflammatory diseases (12% each). It is perhaps logical that
oncology would be an attractive target as pharma companies
expand their 3.0 investments into other disease areas, since
oncology is the leading disease category in the drug industry’s
drug R&D pipeline and is an area where there is tremendous
“The wireless revolution is just getting started.
Over the next decade, the cellular industry plans
to add 50 billion mobile devices to the 5 billion in
existence today — a tenfold increase. Most of these
devices won’t be phones as we think of them today.”
Don Jones, Qualcomm

5
potential to improve outcomes through more targeted
approaches to diagnosis, treatment, and managing quality of life
and co-morbidities.
As Pharma 3.0 investments expand their presence in other
disease categories, it seems inevitable that other chronic
and complex conditions, such as respiratory diseases and
cardiovascular conditions, will see brisk growth. Chronic and
complex diseases account for about 75% of the US health care
burden, a share that is only projected to grow in the decades
ahead. Such diseases require continuous monitoring and care
and significant coordination between patients, caregivers and
health care professionals — creating significant opportunities to
improve outcomes.
The holistic picture
Of course, improving outcomes in these chronic and complex
conditions will require a holistic approach to patient care. It will
no longer be enough for companies to limit themselves to the
narrow segment of the cycle of care that they have traditionally
served. Such shifts have been very visible in recent months,
as pharma companies and others have adopted more holistic
approaches through disease management, coordinated care and
an expansion across different stages of the cycle of care.
A striking example was provided by sanofi-aventis in September
2010, when the French firm announced that it is aiming
to become the world leader in diabetes. What was truly
noteworthy, though, is how the firm plans to approach this goal.
Instead of focusing just on drugs, sanofi is expanding into other
market offerings, including monitoring devices, insulin pumps,
smartphone apps, patient-oriented services and educational
programs. And the company is bringing a truly 3.0 mindset
to this approach by seeking to partner widely to develop this
expanded portfolio. Pierre Chancel, the head of sanofi’s diabetes
division, was quoted in the press saying that the company’s aim
is “to become the first and best integrated health care company
in diabetes. Today there’s no integrated partner — the patient is
suffering from fragmentation in care delivery.”
Sanofi soon started to deliver on its goal by announcing the
upcoming launch of two blood glucose monitoring devices,
BGStar and iBGStar (developed in partnership with New
Hampshire-based AgaMatrix) that allow patients to better self-
manage their care. Patients can use the iBGStar for on-the-go
testing as well as connect it to the iPhone to get an on-screen
display of results that can be communicated to doctors.
Seeking unmet needs: investments diversified across disease categories in 2010
Diabetes and
metabolics
24%
Oncology
18%
Neuroscience
12%
Virology
6%
Infectious
diseases
5%
Cardiovascular
5%
Immunoscience/
inflammatory diseases
4%
Other
27%
Diabetes and
metabolics
12%
Oncology
15%
Neuroscience
10%
Dermatology
7%
Peripheral
vascular
6%
Cardiovascular
5%
Other
32%
Immunoscience/
inflammatory diseases
12%
2006—09 2010
Charts show number of pharma company initiatives by type, as identified by Ernst & Young.

6 Progressions 2011
Pfizer’s collaboration with San Francisco-based Keas brings a
holistic approach to developing online personalized care plans
for patients. These plans empower patients to manage various
aspects of their health in a coordinated manner, including
healthy living, weight loss, smoking cessation, diabetes
prevention or control, heart disease, pediatric issues and
reminders for taking prescriptions or getting lab work done.
Meanwhile, Roche announced a multiyear agreement with
InterComponentWare, an e-health specialist, to develop a
next-generation web-based solution for diabetes management.
The online platform will allow patients to securely share data
and communicate with health care professionals. It will also
help patients and caregivers manage diabetes more efficiently.
The partners are testing the effectiveness of a diabetes risk
management solution in a clinical trial involving about
400 patients.
But pharma companies are by no means the only ones
developing more holistic approaches for improving health
outcomes. A number of non-traditional entrants — from
insurance companies to pharmacy benefits managers (PBMs)
and even health club chains — are coming up with creative ways
to combine their strengths to address the entire cycle of care.
For instance, UnitedHealth Group, a leading US health insurer,
is partnering with Walgreens and the YMCA on a diabetes
management program. The program has two parts. The
prevention arm uses UnitedHealth’s data to identify people at
risk of developing diabetes and invite them to a free exercise
and nutrition program at a local YMCA. Under the control arm,
administered with Walgreens, participants who are already
diabetic receive assessments and coaching sessions that cover
both medical and lifestyle management.
In many ways, PBMs are well positioned to deploy coordinated
approaches for improving health outcomes, and many of the
biggest players have been active over the last year. Germany’s
Celesio and US-based Medco announced a joint venture aimed
at improving European health outcomes through integrated
solutions for chronic or complex conditions. Among other
things, the venture will provide payers with analytical insights
into clinical issues and health care program effectiveness as well
as introduce new tools and support systems to provide payers
and providers with an integrated approach to serving patients.
Data, data everywhere
Approaches such as the Celesio-Medco joint venture are seeking
to leverage the power of data. Indeed, data is at the center
of Pharma 3.0, as the adoption of electronic health records
(EHRs) and personal health records (PHRs) promises to vastly
increase the volume of health data. As discussed in Chapter 3,
we are also starting to see a greater variety of data types and
sources, as companies are starting to track and mine data being
generated in social media conversations (on sites such as Sermo
and PatientsLikeMe), wireless communications and much more.
“Demonstrating value will be less about the kind of study a
pharmaceutical company can do on its own and more about how
pharma can collect data from the entire patient experience,”
says Margaret McNab, Commercial Director at UK-based Bupa
Home Healthcare. “Patient-led experiential data will have more
and more resonance.”
Across major markets, we are seeing continued progress toward
the adoption of EHRs. In Europe, the European Commission
announced that it aims to provide patients with secure access to
digital health records by 2015, as part of its Digital Agenda for

7
Europe. Among other things, the agenda seeks to address issues
related to data interoperability and standards and expand high-
speed internet access. In the US, Kaiser Permanente reached a
significant milestone when it announced that it had completed
its EHR implementation and that every medical facility within
its system is now participating in what is effectively the world’s
largest private sector EHR system. At the Mayo Clinic, EMRs
have been fully implemented since 2005 and are actively being
used in very meaningful ways to improve health outcomes.
(See the article by Gianrico Farrugia on this page for more
on Mayo’s approach.)
As emerging markets ramp up their health care systems to
better serve the medical needs of their populations, many
are investing in EHRs. For instance, China’s 2009 economic
stimulus package — like that of the US — includes specific funding
for electronic medical records. In November 2010, Microsoft
HealthVault entered the Chinese market when it announced an
agreement with iStoneSoft to develop PHRs for the city of Wuxi.
Gianrico Farrugia, MD
Mayo Clinic Center for Innovation
Associate Medical Director
Using data to improve outcomes
At Mayo Clinic, we have had a fully implemented, completely
paperless electronic medical record (EMR) system since
2005. Everything related to a patient’s care, from physician
notes and appointment schedules to laboratory and test
results, is instantly available to our caregivers through more
than 16,000 computer terminals on Mayo’s three main
campuses in Rochester, Minnesota; Jacksonville, Florida;
and Phoenix, Arizona.
Mayo is now extending the value of the EMR by using it
increasingly in advanced decision-making, for individualized
medicine and for population care. First, we are providing our
primary care physicians with a daily dashboard on the health
of the populations they serve, so that they can better assess
and manage priorities with their care teams. Second, we are
using the EMR to create a rules-based disease management
system that helps ensure physicians are asking patients
the right questions and are personalizing treatment to
individual needs. Third, the EMR is integrated in our intranet
AskMayoExpert program, a platform for providers to obtain,
locate and contact Mayo Clinic experts for advice on specific
conditions and their treatments. Fourth, we use the EMR in
integration with other data sources, such as lab and radiology
reports, to issue relevant alerts, graded by urgency and
communicated to physicians electronically or by phone.
The EMR is also a key part of our Enterprise Data Trust
(EDT), a secure collection of data on more than 7 million
patients. The EDT provides consistent data to inform a wide
range of analysis, from comparative effectiveness studies
and outcomes research to clinical quality improvement and
genomic association. As part of the EDT, the EMR is allowing
Mayo Clinic to improve health outcomes by improving quality,
boosting research productivity and developing best practices.
It takes a global village
Indeed, Pharma 3.0 is every bit as relevant in emerging markets
as it is in the mature markets of the West. The pressures to make
health care sustainable are mounting as governments seek to
expand coverage to more of their citizens. Countries that have
slowed population growth within the last generation, such as
China, face their own demographic time bombs (though other
locations, including India and many African nations, still have
very young populations). Lastly, as incomes rise, so do chronic
and complex diseases such as diabetes.
But while the pressures they face may be similar, domestic
pharma companies in these markets can bring different
strengths and mindsets to address these challenges. For one,
unlike their counterparts in the industrialized world, pharma
companies in emerging markets have never been through the
blockbuster model of Pharma 1.0, nor has their growth been

8 Progressions 2011
based on innovative therapeutics. Consequently, they may be
less limited by traditional mindsets, structures and cultures.
In addition, as Chris Tsai, CEO of Taiwan-based Bionet points
out, “the conglomerate structure is far more common in
many Asian markets than in the West. So, while working with
‘non-traditional’ partners may be a novel concept for Western
pharma companies, it is often ‘business as usual’ for Asian
conglomerates which have many different industries in the same
group. Moreover, with slowing growth in many industries that
Asian conglomerates have traditionally focused on, such as
electronics, many are seeking faster growth in health care and
life sciences.”
As a result, companies in emerging markets may be more
comfortable with Pharma 3.0, and we often see some very
innovative approaches being developed. India-based Panacea
Biotec, for instance, describes itself not as a biotech or pharma
firm, but rather a “research-based health management company.”
The focus on managing health outcomes is evident throughout
the firm’s operations and offerings. For instance, the firm has
developed an online portal — named “Best on Health” — that
allows users to share information on not just Panacea’s products,
but also competing medicines, preventative measures, alternative
therapies and more. (For more on Panacea’s approach to health
outcomes, see the article by Rajesh Jain on page 9.)
While patients in the West are often shielded by health insurance
from the true costs and consequences of their decisions, the
absence of widespread health insurance in many emerging
markets means that patients who are paying out of pocket
are better incented to seek value. Meanwhile, customers in
these markets are rapidly embracing the platforms that enable
superconsumerism. Mobile phone access has grown at a very
fast pace in developing countries, as companies have developed
innovative business models for these markets (e.g., cheap
handsets and per-second billing). China’s online population grew
to 457 million in 2010 — 50% larger than the entire population
of the United States. Even more noteworthy, the number
accessing the internet on mobile phones in 2010 increased 30%
from the previous year, to 303 million.
“The conglomerate structure is far more common
in many Asian markets than in the West. So,
while working with ‘non-traditional’ partners
may be a novel concept for Western pharma
companies, it is often ‘business as usual’ for
Asian conglomerates which have many different
industries in the same group.”
Chris Tsai, Bionet

9
Rajesh Jain, PhD
Panacea Biotec
Joint Managing Partner
Managing health, holistically
Panacea Biotec describes itself not as a pharmaceutical
or biotech company but as a “research-based health
management company.” The choice of words is intentional.
We see ourselves as being not just in the business of
developing drugs but rather in the business of managing
health. Above all, managing health requires two things:
understanding the customer and approaching health
holistically.
Understanding the customer
We believe it is essential to have an understanding of the
customer — not just doctors, but people in various states of
disease and wellness. How do people use a doctor’s clinic,
a pharmacy, a hospital or even a health website? How do
doctors actually go about their practice and interact with
patients? What do we know about a patient when he or she
is admitted to a hospital? We believe the typical life sciences
company has become too focused on a brief, transactional
relationship: calling on doctors and promoting brands.
Companies have lost sight of how much you can learn from
spending real time with doctors and patients.
So one important aspect of our approach is for our
employees to spend time at a hospital to get to know our
customers and really understand their lifestyles, their
preferences, and simply how they go about their days. This
is how we train our employees — management, researchers,
marketers — across the entire company. Everyone has the
opportunity to learn about our customers firsthand. In fact,
understanding the customer is so important that it has
prompted us to invest in setting up our own hospitals.
A holistic approach
We also think it is becoming increasingly important to look
at health care more holistically. Treating or managing a
disease or condition is not just about medication. It is also
about understanding the different approaches to treatment
— for example, allopathy, ayurveda, unani and yoga — along
with an individual’s state of health, medical history, lifestyle,
age and so on, and then figuring out if and how all these
factors connect. For example, if you are doing yoga while
being treated for certain diseases, your medication dose
reduces over a period of time and your quality of life goes
up. Once we can make connections like this, it is the totality
of this information that becomes incredibly valuable and
allows us to create what we call health management plans
that can be tailored to the individual. We had an awakening
of sorts within Panacea Biotec that this is how we need to
approach health care and become truly patient-centric. We
launched our website, Best on Health, with this goal in mind.
This portal is designed to guide and educate patients on the
various approaches to health care, disease management and,
ultimately, better quality of life. The emphasis is on overall
health — not just treatments and medications — and learning
to connect the dots that lead to better outcomes.

10 Progressions 2011
Ernst & Young: From transparent information to new online
communities, Pharma 3.0 is giving patients more power
and control over their health. How are these technology-
enabled solutions affecting patient associations and
their members?
Baker: Overall, these solutions are providing abundant
opportunities to partner. What patient associations need now
is the language to effectively communicate their point of view
to potential partners. You can’t demand to sit at the table if you
don’t have the language to engage the influential people — the
clinicians, academics, regulators, payers and health economists,
for example — sitting next to you.
As these technologies are providing more opportunities, they
are also creating more inequities. Patient advocates for the more
prevalent diseases are moving ahead faster than those for some
of the rarer diseases. The success of these technologies will be
realized only when everyone can benefit equally from them.
Ernst & Young: How has the role of patient associations
evolved, particularly as they interact with other
stakeholders?
Baker: For decades, the primary role of patient organizations
was to raise awareness of certain diseases and of the challenge
of living with these diseases. Today, with the growing focus on
health outcomes, they are beginning to see the importance
of making an economic case — the cost of treating the disease
versus the cost of not treating it. This requires tremendous
knowledge, training and data gathering. It is emotionally difficult
to put a price tag on suffering, but that is what is needed now.
Moving forward, patient organizations will still need to raise
awareness, but they will also need to forge partnerships and be a
part of larger coalitions that can make convincing arguments.
Ernst & Young: Will the realignment of incentives in
Pharma 3.0 (around health outcomes for patients) increase
opportunities for you to partner creatively with others?
Baker: Yes, the new alignment will be a huge incentive for us
to collaborate with other stakeholders and overcome divisions.
We have historically looked at the human body through the
lens of individual organs. The life sciences industry has adopted
the same pattern in developing its products, as have patients
in designating their diseases. These divisions, however, have
not created an effective health care system. As Pharma 3.0
aligns incentives to look at health outcomes more holistically,
we are beginning to see patient groups partnering to take a
unified approach to disease. At the European Brain Council, for
example, we are bringing together neuroscientists, seurologists,
psychiatrists, neurosurgeons, pharmacologists, patient
organizations and industry into a single federation to promote
brain research in Europe and to improve the quality of life of
those affected by brain diseases.
Ernst & Young: How eager are patients to partner with
the pharma industry? Are partnerships between patient
groups and pharma companies truly achievable?
Baker: Society’s trust in the industry is low, and media has
played a role here reinforcing a certain line of thinking which
is not really balanced. The media has tended to portray
the industry as a greedy “fat cat,” delivering more to its
shareholders than to patients. This is a dangerous perception,
because when patients get to the pivotal moment of diagnosis,
they need to understand what treatments are available to them.
That requires being more engaged than ever with the pharma
industry, with clinicians and with patient groups, who are fellow
travelers in navigating their illness.
I truly believe that pharma companies are beginning to see
that their customers are not the doctors, but the patients.
This is a good change, and a long time coming. It bodes
well for the industry being a better partner in the health
ecosystem of the future.
Mary Baker
European Brain Council
President
European Federation of Neurological Associations
President
Patient power

11
Growing pressures — and opportunities
The pressures propelling the move to Pharma 3.0 continue
to build. In March 2010, President Obama signed the Patient
Protection and Affordable Care Act, also known as the US health
care reform bill. While the new law enacts the most substantial
changes that the US health care market has seen in decades —
and provides millions of previously uninsured individuals access
to health insurance coverage — it is still uncertain how much it
will help lower health care costs in the long run. To the extent
that costs do not meaningfully decline — even as the system
seeks to provide coverage to more individuals — the need for
increased efficiency will only intensify.
Those pressures have become very visible in many major drug
markets, where governments are responding to budgetary
pressures by clamping down on drug prices — and are using
health outcomes-based criteria to decide where to cut.
Germany’s Pharmaceutical Market Bill, passed by parliament
in November 2010, permits pharma companies to freely
price newly launched patent-protected drugs for only the first
year, during which they have to negotiate prices with health
insurance funds based on cost-effectiveness criteria. In Italy —
which passed a similar law a few years ago — the Government
Medicines Agency announced in July 2010 that the prices of
several oncology drugs will be reduced in 2011, based on data
showing them to be less effective than drug makers claimed at
the time of launch. In France, the Government’s 2011 budget
plans to save €560 million from reduced spending on drugs,
primarily by targeting drugs of lower therapeutic value. And in
Japan, a new pricing mechanism introduced in April 2010 will
largely exempt newer, more innovative products from price cuts.
Some of the biggest changes, though, may be under way in
the UK, where the Government announced that it intends to
replace the current pricing mechanism with a new “value-based
pricing” scheme for new branded drugs starting in 2014. While
the details are still being worked out, the Government intends to
measure value based on criteria such as patient benefits, unmet
needs, therapeutic innovation and benefit to society as a whole
— all of which sounds a lot like Pharma 3.0.
It’s also significant that the planned overhaul of the UK’s
National Health Service (NHS) is very patient-centric. Indeed, the
Government has announced that it plans to create a patient-led
NHS focusing on health outcomes through measures such as:
• Making clinical decision-makers more responsive to patients
• Driving up standards of care, eliminating waste and improving
outcomes
• Engaging patients in decision-making and providing more
choice
The growing pressures from payers can create challenges and
opportunities for pharmaceutical firms. “Pharma companies
can no longer limit themselves to passively satisfying regulatory

Ernst & Young: What opportunities do you see for Walmart
in health care and in the growing focus on health outcomes?
Agwunobi: As the focus on health outcomes increases,
everybody in the system — from payers to patients — is seeking
better value for money. Unfortunately, the industry lacks
companies whose core mission is to lower the cost of health
care, which creates a clear opportunity for us. We want to be the
first, but we’d love others to follow.
Kinsey: Improving access to health care is also important to
our strategy. We haven’t quite tapped into Walmart’s immense
network and global clout to piece together the synergies that
we think are there — the same way we have with our other
businesses — to “globalize” health care and make it both
accessible and affordable. Of course, health care systems in
different countries bring unique challenges. But we’re looking at
how to stay within the country-specific laws and regulations and
still leverage the abilities of Walmart and its suppliers to drive
cost savings and access.
Agwunobi: There are some core themes here. First, we’re only in
it if we can offer lower costs. Second, we only target businesses
where we can develop the scale needed to lower costs. It would
be great if we can figure out a way for the health care system
itself to save money. That’s where the future should be. It’s what
governments and payers across the world are wrestling with:
how do we make health care more affordable and sustainable
even while increasing access?
Ernst & Young: Describe your pharmacy business.
Agwunobi: We’ve lowered the price on more than 300 popular
medications to simplify pricing and make them affordable to
anyone — no membership or insurance plan is required. And
now we’re taking this successful approach beyond our stores.
One way is by partnering with employers, such as Caterpillar,
which has asked us to be the provider of discount medications
to its 100,000 employees and retirees. We’re also exploring
ways to reduce the cost of pharmacy insurance plans and have
developed a Medicare Part D program with Humana that may
have the lowest-priced premiums in the US.
Kinsey: Our in-store health care clinics are doing very well
and we will accelerate their growth in 2011. They provide
easy access to low-risk, low-cost primary care services. Simple
touches, such as posting prices for services, can give patients
more awareness of and control over costs. Hospitals benefit by
using our in-store space, which is much more economical than
space at a hospital. They also benefit by giving their practitioners
better access to patients — we’ve got 140 million customers who
walk in our doors every week — as well as more opportunities for
patient monitoring so they can improve treatments and health
outcomes.
Ernst & Young: What can health care companies learn from
your approach to customer centricity?
Agwunobi: Our focus has always been on the consumer or
patient. We’re just doing things more creatively now. For example,
to compensate for both the tough economy and the ever-
increasing cost of health care, customers have been gravitating
toward self-treatment — buying more toothpaste for sensitive
gums to try to control gum pain or using an interactive machine
that can determine the kind of orthotic you should buy — so we
have been adjusting our store offerings to meet this new informed
and empowered customer.
Kinsey: Along with the trend toward self-treatment, patients
want to be better informed. Yet doctors have less and less time.
So websites such as WebMD are growing in popularity. Walmart
is exploring website opportunities, online and in the store, to
build communities around an illness to connect treatment to
outcome more holistically. We’re also looking at “needs states.”
One example is a store we’re piloting in Florida dedicated to
improving the health of the older customer through its collective
offerings — the products sold as well as ease of use of our
services. For example, the pharmacy, vision and hearing aid
centers are easily accessible at the front of the store.
Ernst & Young: How else is Walmart helping improve
health outcomes?
Agwunobi: We can have a significant impact by showing how
important adherence is in health outcomes and how powerful
cost is to adherence. Quite a few studies show that when you
lower the price of a tobacco cessation product, for example,
more people quit smoking. Likewise, when you increase the
price of cigarettes, less people smoke. In the same way, for
Sandy Kinsey
Walmart
Vice President, Pharmacy
Merchandising,
Health and Wellness
John Agwunobi
Walmart
Senior Vice President and
President, Health and Wellness
Bringing value to health care

13
chronic diseases such as high blood pressure, when you lower
the medication cost, people are far more likely to adhere to
their treatment plan — leading to fewer complications and
hospitalizations, and saving the system money.
Kinsey: Improving outcomes will require empowering patients
with better education and making them more accountable for
making the right health care choices. We should consider the role
we can play as health care coaches, giving patients the tools to
understand and manage their health.
Ernst & Young: How does this all play out with insurance?
Agwunobi: Patients who don’t have insurance often avoid health
care if they can’t afford it. I recently spoke with an uninsured
customer who had been getting free prescriptions from a
local clinic. But Walmart’s four-dollar prescription price was so
affordable that she decided to get her prescriptions at Walmart
instead. Since she could afford to pay four dollars, she preferred
the convenience of using Walmart. And this is better for the
system, because having some price burden creates incentives for
the right behaviors.
Kinsey: Absolutely. The key is greater transparency on the true
costs of providing health care. Due to the way that insurance is
set up, people who have health insurance are shielded from the
information and price signals that would allow for more optimal
decision-making. From the simplest antibiotic to something as
complicated as open heart surgery, people don’t understand the
costs and how money flows through the system. We think if there
is more transparency in health care costs, people will make better,
cost-effective health care decisions.
Ernst & Young: Who do you see yourself partnering with to
improve the cost of health care?
Agwunobi: Partnerships with pharma will continue to be
important. For example, we’d like to work with pharma companies
and governments on how to make many drugs that must
currently be prescribed available without a prescription. We also
propose expanding another class of drugs — between prescription
and nonprescription products — that pharmacists can dispense
without a prescription at a lower cost.
We’ll also continue partnering with manufacturers and suppliers
to improve overall pricing and price transparency. We want the
patient and the physician to be able to choose the best treatment
at the best price. We announced a partnership with Eli Lilly &
Company earlier this year that allows Walmart to reduce the
price of Humulin insulin to $24.88, more than a 50% reduction
from the average retail price available in the market. This price is
available to everyone, and in some cases, is less than what people
with insurance are currently paying with their copays.
Kinsey: There is also a lot of potential cost savings in the area
of diagnostics. When administered by a doctor or hospital,
diagnostic testing can be expensive and, for some, unaffordable.
By partnering with diagnostic companies, we can explore giving
consumers access to simple, affordable screening tests — like those
for strep throat or influenza A. This would enable more consumers
to make better, prompter health decisions about whether an illness
is contagious or whether they need to see a doctor.
And we should not leave out partnerships with prescribers — the
physicians, nurse practitioners, and dentists of the world — for
their insights from the front line on how to reduce the cost of
health care without reducing quality.
Ernst & Young: The new health outcomes ecosystem will
require the ability to manage a network of dissimilar players
to develop new offerings. What can pharma learn from the
way Walmart manages its complex network?
Agwunobi: Health care should not overlook the role the
customer can play in the network. They may be surprised at how
much the customer is willing to manage and take on — especially
when it’s packaged properly. For health care, this could mean
coordinating care, building their own networks of providers and
compiling their own data. The potential savings for the health
care system could be enormous.
There also needs to be more partnering at all levels and
segments of the health care industry — among the traditional
and non-traditional players in health care, as well as among
governments, providers, suppliers, prescribers, etc. And a one-
size-fits-all approach will not be successful — they have to be
willing to customize based on the type of community and the
goals of the partnerships. We need to look to those partnerships
as a way to drive our goals for the future.

requirements,” says Panos Kanavos, Senior Lecturer in
International Health Policy at the London School of Economics.
“They have to proactively engage with payers and regulators
— and do so early in the R&D process, when they first start to
design their clinical trial programs.”
But the pressures on the system are also providing huge
openings for non-traditional entrants. For instance, John
Agwunobi, Health and Wellness President at Walmart, points out
that “as the focus on health outcomes increases, everybody in
the system — from payers to patients — is seeking better value
for money. Unfortunately, the industry lacks companies whose
core mission is to lower the cost of health care, which creates
a clear opportunity for us.” As our interview with John and
his colleague, Sandy Kinsey, on pages 12-13, demonstrates,
Walmart has already brought innovative new business models
to its pharmacies and stores and sees opportunities around the
world in the pressures building in the health care system.
In another interview accompanying this article, Bill Hook of
UPS describes a number of innovative approaches his company
is taking to help pharma companies in the drive to increase
efficiency and boost outcomes, from “direct” distribution models
that eliminate wholesalers and give pharma companies more
insights into patients’ needs and buying habits to risk- and cost-
sharing partnerships.
Meanwhile, General Electric — a company that knows a thing or
two about efficiency — sees opportunities in health care’s waste
and inefficiency. In a June 2010 interview with the Financial
Times, John Dineen, head of GE Healthcare, announced that
the company’s Performance Solutions division plans to bring
its legendary management practices to health care. “I am an
industrial guy and when I hear cost problems, quality problems
... I get excited,” said Dineen. “That spells opportunity.”
Seizing opportunities
The health outcomes ecosystem is creating tremendous
opportunities for pharma companies as well as for a growing
cohort of non-traditional entrants. Seizing these opportunities
will involve innovating new business models, often by
collaborating in radically different ways with very dissimilar
partners. It will require new competencies and supporting
business functionalities.
But to get to Pharma 3.0, the various actors in the ecosystem
will also need to address certain underlying challenges — aligning
incentives, developing standards, defining metrics and changing
mindsets. Pharma companies will face challenges of their own
in articulating why they should be partners of choice in the new
ecosystem. These challenges are the focus of Chapter 2.
“As the focus on health outcomes increases,
everybody in the system — from payers to
patients — is seeking better value for money.
Unfortunately, the industry lacks companies
whose core mission is to lower the cost of health
care, which creates a clear opportunity for us.”
John Agwunobi, Walmart

15
Ernst & Young: What initiatives is UPS undertaking in the
health care arena? What new opportunities do you see emerging
from the recently enacted US health care reform law?
Hook: Health care reform has accelerated pricing pressures. As
a result, pharma companies are streamlining their organizations
and outsourcing activities in areas such as manufacturing,
supply chain and clinical research. Some are experimenting with
new business models that can help deliver better clinical and
financial outcomes.
This creates opportunities for UPS. We have been working
with pharma companies to help them increase the efficiency
of their global supply chains. To do so, we’ve developed deep,
collaborative relationships that enable both parties to learn
from one another and pool our strengths and capabilities. This
has allowed us to tailor our solutions to better align with the
needs of our customers — and ultimately with the needs of their
customers (patients and providers) as well. In this environment,
we are tailoring our solutions to different companies’ needs —
some are looking for the lowest transaction price, while others
want to collaboratively revamp their supply chains.
Ernst & Young: What potential opportunities might
Pharma 3.0 create for UPS?
Hook: Pharma companies are increasingly focused on health
outcomes and are teaming with non-traditional players to better
drive connectivity and share information. We’re working with our
clients around these efforts by bringing creative approaches that
best meet their needs.
For instance, one of our client’s diabetes practice is focusing on
better aligning the needs of their patients and clinicians around
outcomes-driven solutions. In this case, we moved the company’s
supply chain to a “direct” model that allows the company to
see how people are accessing care and better understand
their buying habits. UPS employed pharmacy staff to help
the client directly provide information and advice to patients
on health and lifestyle — empowering those patients to make
educated decisions.
In some cases, we’ve even moved from our traditional fee-for-
service, procurement-oriented mindset to a risk/reward-sharing
approach. This has required investing significantly in our
ability to measure and track the value that different partners
add, either through financial or efficiency standards. We are
calculating performance metrics that we haven’t measured
before, and are deploying methodologies quite different from
the traditional ones we’ve used in the past.
Ernst & Young: What value proposition does UPS offer
pharma companies in the 3.0 ecosystem?
Hook: We have a broad and diverse portfolio of supply
chain capabilities, ranging from general package delivery to
pharmaceutical-dedicated distribution centers. In fact, if you
were to walk through any of our facilities, you would see
multiple distribution models in action.
But what truly sets us apart is our willingness to partner deeply
with our customers. We recognize that Pharma 3.0’s value-
driven environment requires us to go beyond our traditional
boundary lines. For example, we are continually seeking out and
investing in cutting-edge health care supply chain approaches for
our customers and partners. To enter collaborative relationships
with us, pharma executives want to know that we will add value
and push their efforts forward.
Bill Hook
UPS
Vice President, Global Strategy,
Healthcare Logistics
Delivering value

Getting to 3.0

17
We’ve devoted a good deal of ink (both in last year’s
Progressions and, to a lesser extent, in Chapter 1 of this year’s
report) to describing the health outcomes ecosystem that is
emerging before our eyes. We’ve shared a vision of where these
trends are heading, and painted a picture of what the future
could look like.
But for many pharma company executives, even as that vision
looks increasingly real (thanks to escalating pressures on the
existing business model and the rapid emergence of non-
traditional entrants and disruptive new technologies), it may
simultaneously appear impossibly far because of substantial
challenges that stand in the industry’s way.
Disrupting the value network
One major challenge to “getting to 3.0” is that the interests
of stakeholders are deeply entrenched in the existing health
care system, with siloed incentives that are aligned to health
care as it exists today, rather than a genuine outcomes-focused
ecosystem.
Prof. Clayton Christensen’s concept of “disruptive value
networks” is relevant here. In his recent bestseller,
The Innovator’s Prescription, Christensen provides the
following definition:
“A value network is the context within which a firm establishes
its business model, and how it works with suppliers and channel
partners or distributors so that together they can respond
profitably to the common needs of a class of customers. The
business models of each of the firms in a value network tend to
be consistent with those of other firms in the system … shaping
In brief
• Getting to the Pharma 3.0 ecosystem will not be easy. The
patent cliff, anemic growth and stock price pressures have
pharma executives locked into delivering tangible results
for the next two years. Despite their best intentions, all
the stakeholders, including pharma, are entrenched in the
existing ecosystem with incentives, metrics, standards and
mindsets that are not truly aligned to Pharma 3.0.
• Pharma companies have not yet made the case that they
could be partners of choice in the new ecosystem. This will
involve:
• Clearly articulating their strengths
• Addressing perceived conflicts of interest
• Taking action to build trust
Chapter 2
Getting to 3.0
the rewards and threats they expect to experience through
disruptive and sustaining innovations.”
Christensen is referring, in short, to how the pieces of the puzzle
fit together: the business models of different players and the
system of rewards and incentives they provide for each other.
He argues that unless new business models and simplifying
technologies are accompanied by the simultaneous emergence
of a disruptive value network, they will just be subsumed by the
existing value network. For instance, he points out that Sony’s
invention of solid-state radios and televisions would not have
easily disrupted the vacuum-tube-based products of RCA, Zenith
and others without the simultaneous emergence of discount
retailers such as Walmart and K-Mart, which had a business
model and system of incentives that was much better aligned
with Sony’s offerings (lower price points and less dependence on
aftermarket service).
It’s not hard to see how this applies to today’s health care
ecosystem. Indeed, the reason that US health care reform has
been so complex and challenging is that it’s not happening
in a vacuum; rather, reform measures must occur within the
existing, and highly complex, value network. An isolated change
to one part of the value network inevitably produces winners
and losers, and so every proposed legislative change has had to
be accompanied by simultaneous changes in other parts of the
ecosystem to try to maintain the balance. In effect, health care
reform has been a complicated and delicate balancing act that
attempts to simultaneously move everyone in the ecosystem
to a new value network. Concurrent alignment of all the puzzle
pieces is extremely difficult. In fact, last year’s US health care
reform legislation was primarily insurance reform, while health
care reform legislation in China has focused primarily on hospital
reform. Disruptive value networks tend to evolve rather than
appear in a big bang.
The preceding discussion might seem to suggest that the
emergence of an outcomes-based ecosystem is inevitable. In
fact, the only thing we can say with certainty is that the growing
pressures on the system will inevitably lead to dramatic changes.
This could happen the right way, through a system that truly
measures and rewards health outcomes. But it could also
happen the wrong way. Instead of rewarding players based on
the outcomes they deliver, payers could attempt to cut costs by
simply instituting price caps or other constraints — with possibly
drastic impacts for drug companies and innovation. Disruptive
One major challenge to “getting to 3.0” is
that the interests of stakeholders are deeply
entrenched in the existing health care system,
with siloed incentives that are aligned to health
care as it exists today, rather than a genuine
outcomes-focused ecosystem.

and challenging as it is, Pharma 3.0 is the better approach for
pharma companies and, indeed, for society as a whole. But it is
by no means inevitable. Getting there will require a fundamental
disruption of the existing value network. And this, in turn, will
require new incentives, metrics, standards and mindsets.
Metrics. Realigning incentives in Pharma 3.0 will involve
identifying and implementing the right metrics so that players
are truly rewarded based on their ability to improve health
outcomes. These metrics will be holistic, measuring value
across the system, disregarding silos and using measures
that have appropriately long time horizons. They will assign
imputed economic values to negative and positive externalities
in order to provide the right price signals. They will require an
appropriate baseline against which interventions are compared.
To reach agreement on metrics, the participants in the
ecosystem will need to deal with some difficult dilemmas and
trade-offs. How much should payers pay for an intervention that
extends life by a few weeks or months? How much is it worth to
improve the quality of patient’s life, even if there is no extension
in the length of life itself? These are not easy questions — there
may be no right answers — and they can pit the cold reality of
life-and-death decisions and budget implications against basic
societal values. But they will need to be addressed.
Standards. Since much of the innovation in Pharma 3.0 will
be in uncharted territory, unambiguous standards will need
to be set in concert with the different participants in the
ecosystem. The lack of clarity is already visible in some areas
where companies are pushing the envelope with innovative
new approaches. In new communication channels such as
social media and mobile apps, for instance, regulators are
still considering how to respond. But the uncertainty creates
a disincentive for pharma companies to invest in these
technologies (and presumably delays the realization of improved
health outcomes that might result from such investments).
There is a similar lack of clarity in areas such as value mining.
“In Pharma 3.0, it will be critical to establish new and improved
standards for data analysis,” says Mervyn Turner, Chief Strategy
Officer at Merck & Co. “There is a huge difference between
‘gold-standard,’ double-blinded, placebo-controlled clinical trials
and studies based on reported marketplace outcomes or ad hoc
comparative data analyses. If there is going to be wide-scale
metadata analysis, how are those studies to be conducted?
What standards will we establish for data mining? The FDA is
very aware of these issues, and pharma companies — as well as
payers and others — need to be part of the conversation.”
As payers grow increasingly influential in the health outcomes
ecosystem, it will be important not just for companies to proactively
communicate with them, but also for payers and regulators to talk
with each other. The standards by which regulators and payers
evaluate treatments may not always be aligned, increasing cost,
complexity and uncertainty for pharma companies.
To reach agreement on metrics, the participants
in the ecosystem will need to deal with some
difficult dilemmas and trade-offs. These are not
easy questions — there may be no right answers —
and they can pit the cold reality of life-and-death
decisions and budget implications against basic
societal values. But they will need to be addressed.

19
Lastly, there will be a tremendous need for standards in
EHRs, where data interoperability is critical for ensuring that
information can be aggregated in a widespread manner. The
field is currently characterized by several competing platforms,
and it is not even clear whether an EHR or PHR platform will
ultimately dominate. The lingering uncertainty can lead to
inefficient uses of resources and slow market uptake (as it has
in other situations where multiple technology platforms battled
it out for a prolonged period, such as VHS vs. Betamax or the
more recent contest between HD-DVD and Blu-ray).
Cultures and mindsets. Disrupting the value network will require
not just changes in the incentives, rewards and standards that
govern how players interact with each other. It will require
changes in the ways pharma companies operate, both internally
as well as in their interactions with other players in the ecosystem.
Without key changes in their mindsets, cultures and incentives,
it is unlikely that these firms will be able to engage with other
stakeholders in ways that will align interests and allow for true
codevelopment and co-creation. In the words of Rady Johnson,
SVP and Assistant General Counsel at Pfizer: “Pharma will not
succeed in the outcomes business unless it is trusted, transparent
and credible. While innovative science is the core of what we do,
we must continue our efforts to demonstrate with all stakeholders
that this is the case, that the science is truly first. We must
continue to be complete and objective with all the information we
provide, while evolving from a ‘push’ only model — where we just
pushed out information in every medium — to also embrace a ‘pull’
model, where we listen to our customers and respond to their
needs. Today’s environment seems to demand this capability and
technology can enable it.”
It is not surprising that the subject of new mindsets and cultures
comes up repeatedly in Chapter 4, where we discuss the
business processes that companies will use for operationalizing
their 3.0 strategies. This is something that cuts across
organizations, and the devil will be in getting the details right.
Initiating disruption. Clearly, disrupting value networks as
complex as the Rube-Goldberg health care systems of most
major markets is no mean feat. It won’t happen by itself, and it
will be far from easy to make it happen, given the entrenched,
often contradictory interests of existing stakeholders (witness
the hostile debate over health care reform in the US).
One way to make it happen, of course, is through collaboration
and joint action. New incentives, metrics and standards
should be developed jointly by payers, regulators and other
stakeholders across the ecosystem to ensure that the incentives
work for everyone and measure and reward the right behaviors.
On a smaller scale, disruptive value networks can also be formed
within collaborations and partnerships where different actors
come together to solve specific challenges in Pharma 3.0.
“In Pharma 3.0, it will be critical to establish new
and improved standards for data analysis. There is
a huge difference between ‘gold-standard,’ double-
blinded, placebo-controlled clinical trials and studies
based on reported marketplace outcomes or ad hoc
comparative data analyses. If there is going to be
wide-scale metadata analysis, how are those studies
to be conducted? What standards will we establish
for data mining? The FDA is very aware of these
issues, and pharma companies — as well as payers
and others — need to be part of the conversation.”
Mervyn Turner, Merck & Co.
But this also implies the need for aggregators. Indeed,
Christensen devotes a considerable section of his book to
discussing why the ecosystem will need entities that have
the heft and credibility to play a central role in organizing the
disruptive value network. He identifies a number of organizations
that could play this role, and it’s worth noting that pharma
companies do not make the list.
This takes us to a second big challenge for pharma companies:
making the case that they are qualified to play a central role in
the new ecosystem.
Why pharma?
Business ecosystems — like their counterparts in nature —
simply require a sustainable balance of give-and-take between
their denizens. They don’t necessarily need for someone to
be in control. In the health outcomes ecosystem of Pharma
3.0, however, it is becoming increasingly apparent that the
participants would benefit tremendously by having one or more
organizations serve as critical nodes — helping to shape the
conversation, connect dots and more.
It’s striking, however, that pharma companies are not often
considered for these aggregator roles. We have sometimes
used a diagram of Microsoft’s HealthVault — which includes a
wide array of ecosystem participants while omitting pharma
— to illustrate that the industry isn’t always included when
other players envision health information flows in the future
ecosystem.
In fact, the aggregator issue is just one example of a larger
challenge: convincing potential partners about the unique value
that pharma companies can provide in terms of insights on
outcomes. Pharma companies are often viewed with skepticism,
because of both their diminished reputations and the perception
of potential conflicts of interest.

Yet we think that pharma companies are uniquely positioned to
deliver value in the new ecosystem, and they should increase
their attractiveness as potential partners in three key ways:
Articulating strengths. First and foremost, pharma companies
have unparalleled knowledge about the products they have
developed, including related information such as efficacy,
drug interactions and adverse effects. As several of their most
successful products become subject to generic competition,
we will see even greater market demand for these offerings (in
terms of volume if not value). This greater market penetration
will, in turn, lead to an increased need for specific and relevant
information about these treatments. And the companies with
the deepest understanding of these products are the innovator
firms that have spent decades developing them in labs and
supporting them in the marketplace — not generics firms that
have only started selling them very recently.
In addition, pharma companies have a deep understanding of
the cycle of care, which will be critical in the new patient-centric
ecosystem. With their extensive expertise conducting clinical trials
(which are, after all, experiments to validate well-defined health
outcomes), they are well positioned to help develop relevant
metrics for measuring health outcomes in 3.0 as well as to
monitor performance to validate the achievement of
those outcomes.
Lastly, pharma companies have an extensive understanding of
information that is important for improving health outcomes,
such as knowledge of disease states and familiarity with
navigating regulatory pathways and gaining payer acceptance.
These strengths could be very valuable to non-traditional
entrants and other partners that aren’t as familiar with
these aspects.
It is important, however, for pharma companies to recognize
that they may have a limited window of opportunity. Today’s
non-traditional entrants, though unfamiliar with the health care
business, could prove to be quick learners, and the advantages
that pharma companies have because of their domain
knowledge could shrink in a few years.
Addressing conflicts of interest. To build trust as potential
partners, pharma will also need to address perceptions that it has
conflicts of interest precluding it from being an unbiased partner
or aggregator. One potential source of conflict — that a pharma
company would have reason to favor its own products over those
of competitors — can be partially addressed through contractual
terms that do not seek exclusivity for any company’s products
(though this itself requires a change in mindset from the way
pharma companies have traditionally operated). Some companies
are also starting to pave the way through their early interactions
on social media sites, where they are making a point of sharing
information about their products in an unbiased way — regardless
of whether the information speaks well of their products.
To some extent, the process of expansion into new business
models in Pharma 3.0 will itself help alleviate perceptions of
conflict. For instance, one potential conflict — that pharma
would favor brand-name drugs over generics, even though
generic substitution would save the system money — is
already somewhat diminished by the fact that several pharma
companies have expanded into generics themselves as part of
their diversification in 2.0. Another commonly held fear — that
pharmaceutical firms are likely to favor interventions involving
treatment rather than those involving prevention — could
similarly be diminished if companies were to expand into new
agreements and offerings that grow their sources of revenue
beyond drugs.
Taking action to build trust. A major reason it is sometimes
challenging for pharma companies to demonstrate their
attractiveness as partners in the new ecosystem is the
reputation and perceived intent of the industry, which has
plummeted in recent years. The good news, however, is
that companies can rebuild that trust by engaging with the
communities of 3.0 in ways that are transparent and unbiased
and demonstrate their intent to improve outcomes across the
ecosystem. (For a deeper discussion of engagement in 3.0, see
the “Community engagement” section of Chapter 4.)
Many of pharma’s existing initiatives, policies and ways of
“Pharma will not succeed in the outcomes business
unless it is trusted, transparent and credible. While
innovative science is the core of what we do, we
must continue our efforts to demonstrate with all
stakeholders that this is the case, that the science
is truly first. We must continue to be complete
and objective with all the information we provide,
while evolving from a ‘push’ only model — where we
just pushed out information in every medium — to
also embrace a ‘pull’ model, where we listen to our
customers and respond to their needs. Today’s
environment seems to demand this capability and
technology can enable it.”
Rady Johnson, Pfizer
Clearly, disrupting value networks as complex
as the Rube-Goldberg health care systems of
most major markets is no mean feat. It won’t
happen by itself, and it will be far from easy to
make it happen, given the entrenched, often
contradictory interests of existing stakeholders.

21
operation are often antithetical to the objectives of Pharma
3.0. As a result, pharma companies can be slow to act, are
sometimes reluctant to bring their assets to the table and often
have opaque and lengthy decision-making processes. A key part
of “taking action” will therefore be realigning internal incentives
and processes and committing to act in ways that demonstrate
new approaches and mindsets for co-creating value
with partners.
The next chapters
We ended last year’s Progressions with four guiding principles
for pharma companies:
• Define your Pharma 3.0 brand.
• Co-create value with partners and patients.
• Experiment. Think small. Fail fast.
• Prepare for success.
In many ways, this year’s report — and the remaining chapters
in particular — expand on these principles. As discussed in
Chapter 1, companies are indeed attempting to define their
brands and competitive strengths within the new ecosystem
It is important, however, for pharma companies
to recognize that they may have a limited
window of opportunity. Today’s non-traditional
entrants, though unfamiliar with the health care
business, could prove to be quick learners, and
the advantages that pharma companies have
because of their domain knowledge could shrink
in a few years.
NEED IMAGE
as they experiment at a faster pace with increasingly diverse
business models. Now, it is time to follow through on the other
three guiding principles, by developing the new organizational
capabilities and enhanced business functionalities to support
business model innovation. These aspects are discussed in the
next chapters of this report.

A road map for change

23
Success in Pharma 3.0 will require three core competencies:
connecting information, entering radical collaborations and
managing multiple business models.
In this chapter, we analyze these three core competencies to
understand why they are so critical and identify the gaps that
In brief
• In Pharma 3.0, companies will need organizational
capabilities in three critical areas where they currently lack
sufficient strengths, skills and scale:
• Connecting information for competitive advantage.
Information is the currency of Pharma 3.0, and
success will involve extracting insights by connecting
information from disparate sources. This challenge is
being compounded by vast increases in data generation,
the interlinking of sensor-equipped and context-aware
devices, the dynamic nature of knowledge networks, and
increasingly closed systems.
• Radical collaboration to drive business model
innovation. Companies will require a core competency in
building and scaling new business models that leverage
each other’s assets and attributes to drive value for
patients, payers, partners and shareholders.
• Operating multiple business models. Given the promise
of Pharma 3.0 — improving health outcomes for a wide
spectrum of patient demographics and health care
systems — a customer-centric strategy will involve
building, resourcing and operating a portfolio of multiple
business models that make up the “extraprise” of the
future.
• To succeed, companies will need to actively intervene
to accelerate transformation and build necessary
capabilities and processes. To do this, they will create
a learning model that can expand to a driving model for
transformational change, with adequate resources and
organization-wide efforts.
Chapter 3
A road map for change
Business model development: systematically experimenting with new models
Community engagement: engaging to add personalized value and build trust
Information strategy: empowering IT to guide 3.0 strategy
Performance management: measuring and communicating 3.0 value drivers
Capital strategy: adapting the capital agenda for Pharma 3.0 initiatives
Governance, risk and controls: embracing (and managing) risk in 3.0 initiatives
Pharma 3.0
Connecting
information
Extracting value out of
large volumes of data
from diverse, unfamiliar
sources
Radical collaboration
Innovative collaborations
with non-traditional partners
to co-create value for each
other and the system
Multiple business
models
Building and managing
a portfolio of innovation
models
Three core
competencies
for success in
Pharma 3.0
Business
processes
that should be
created or
enhanced
companies will fill to develop strengths in these areas. (To
build these competencies and operationalize their Pharma 3.0
strategies, companies will also develop new or significantly
enhanced business processes for various aspects of their
operations. These processes are identified in the chart below
and are the focus of Chapter 4.)
Building Pharma 3.0

1. Connecting information
If the currency of Pharma 1.0 was years of patent life, and
the currency of Pharma 2.0 is operating efficiencies, then the
currency of the health outcomes ecosystem is information.
Improving health outcomes, of course, will involve identifying
the interventions and practices that deliver the biggest
improvements — and that will require lots and lots of data.
Since delivering on the promise of health outcomes will
inevitably require data, companies’ success or failure will be
determined by this information. In Pharma 3.0, value will
increasingly migrate from the product (the pill or device) to
information about the product (its ability to improve health
outcomes), paralleling similar shifts in numerous industries
from banking and finance to retail trade. As Kim Park, Partner
at Johnson & Johnson’s Janssen Healthcare Innovation Unit,
puts it, “In Pharma 3.0, the role of the product (the pill) could
become very narrow. If companies believe they can sustain
double-digit growth by continuing what has been done, putting
more pils into the marketplace, that’s a short-sighted view of
where health care is headed.”
This growing pool of data will be generated across the
ecosystem through multiple new channels, such as electronic
health records, social media, online communities, wireless
devices and smartphones, meaning that no single entity will own
or control all of the data about any company, product, disease
state or patient behavior.
Drivers
In many ways, these shifts in the use of information in the
health care ecosystem parallel larger changes occurring in
the broader global economy. Understanding the context for
these shifts, as well as how they are being handled by other
sectors, will help articulate the challenges that pharma
companies will face.
Big data. We are in the early stages of the era of “big
data.” In the last few years, we have witnessed exponential
increases in the quantity of data being created. Walmart
generates more than a million consumer transactions every
hour. Google stores and analyzes 34,000 internet searches
per second. From retail giants to social networks and climate
The challenge of big data is being compounded
by the rapid advance of the next iteration of
connectivity — “the internet of things” — a world
in which everyday objects are empowered with
sensors and wirelessly interconnected.
research institutes, organizations are now collecting data that
is measured not in gigabytes or terabytes, but in petabytes.
(A petabyte is 1 million gigabytes — about a thousand times
the size of the entire printed collection of the US Library of
Congress.)
These trends are already starting to play out in the pharma
industry. In December 2010, for instance, Switzerland-
based Roche reported that the company is drowning in data,
with the quantity of information generated doubling every
15 months. Interestingly, this includes not just data from
internal R&D functions but also a rapidly expanding pool of
information stemming from partner companies, potential
collaborators and alliance proposals — the very sorts of
external relationships and data sources that are set to grow
dramatically in Pharma 3.0.
The internet of things. The challenge of big data is being
compounded by the rapid advance of the next iteration of
connectivity — “the internet of things” — a world in which
everyday objects are empowered with sensors and wirelessly
interconnected. As sensors, actuators, accelerometers,
GPS systems and RFID tags rapidly become more and more
commonplace, they are connecting everything from cars to
mobile phones to entire supply chains and smart utility grids.
Increasingly, many of these objects are not just connected;
they are also context aware with real-time data on users’
characteristics, preferences and geographic locations
— allowing new generations of applications to provide
information that is specific, actionable and vastly more
useful. Smartphone apps enable impulse buyers to scan a bar
code and immediately search for better deals nearby. Google
Goggles, a beta-version application by the Mountain View-
based internet giant, allows users to search for information
using cell-phone photos of landmarks, local businesses and
other common objects.
But what makes this trend even more powerful (and
simultaneously more challenging from an information
management perspective) is that these devices are not just
providing information; they are also generating data in real
time. Rental car companies now use on-board GPS systems to
track the location and speed of rented vehicles. And when a
devastating earthquake hit China’s Sichuan province in May
2008, tweets on the microblogging service Twitter broke the
news before it was reported by mainstream media channels.
“In Pharma 3.0, the role of the product (the pill) could
become very narrow. If companies believe they can
sustain double-digit growth by continuing what has
been done, putting more pills into the marketplace,
that’s a short-sighted view of where health care is
headed.”

25
Once again, we are seeing these trends play out in health
care as well. Not surprisingly, some of the earliest movers are
in the IT and medtech arenas, where devices and diagnostics
that are wirelessly connected and context-aware promise
quantum improvements in health outcomes. “The cellular
network is the most pervasive public utility in the world, with
far more availability than running water or electricity,” says Don
Jones, Vice President, Business Development, Health & Life
Sciences at Qualcomm. “Today, the power of that connectivity
is fundamentally changing the practice of health care. It
is collapsing time and space, by enabling faster and better
diagnosis, titration, patient self-management and monitoring.”
As detailed in our interview with Don on page 26, Qualcomm
is leveraging its deep expertise in wireless connectivity to
partner with a host of companies around everything from
“smart bandages” to innovative diagnostics. Meanwhile, a
number of companies, including Cisco, Medtronic and Philips,
are experimenting with “hospitals of the future” in different
locations. Among other things, these facilities will include
improvements such as wireless transmission of patient vital
signs from an ambulance to the hospital, as well as “smart beds”
that can communicate real-time patient data to the hospital’s
EMR system and alert caregivers about adverse events. (For
more on Medtronic’s Hospital of the Future initiative, refer to the
interview with Michael Hedges on page 61.)
For pharma companies, some of the biggest benefits from this
trend will likely stem from improved compliance. Novartis, for
instance, is working with California-based Proteus Biomedical’s
technology to develop microchip-embedded “smart pills” that
can wirelessly transmit data to a patch worn by the patient
and from there to a smartphone or a doctor’s computer.
Meanwhile, Toronto-based PharmaTrust is developing a device
called MedHome that can dispense the right medications to
patients in their homes while also communicating with providers
and caregivers about a patient’s compliance with a treatment
regimen. (For more on PharmaTrust, see the interview with Don
Waugh on page 27.)
Closed gardens. Ironically, even as we are generating vast
volumes of data and expanding the reach of the information
age to sensor-equipped objects, information is also becoming
isolated within closed systems. The point is eloquently made in
an August 2010 article in Wired magazine, “The Web is Dead.
Long Live the Internet.” As the authors point out, the World
“The cellular network is the most pervasive public
utility in the world, with far more availability than
running water or electricity. Today, the power of
that connectivity is fundamentally changing the
practice of health care. It is collapsing time and
space, by enabling faster and better diagnosis,
titration, patient self-management and monitoring.”
Don Jones, Qualcomm
“Five years from now, the CEO of a pharma company
should be uncomfortable if the CIO is not present
at a key strategy meeting. That’s how important IT
needs to be for pharma strategy.”
Werner Boeing, Roche

Don Jones
Qualcomm
Vice President, Business Development,
Health & Life Sciences
At Qualcomm, we don’t make end products for consumers, but
we make those products better by getting them connected. As
an innovator, designer and seller of wireless technologies for
all forms of mobile devices, we bring connectivity. Qualcomm
is a very horizontal player. We license technologies to our own
competitors and we partner widely — with big companies and
small firms across a spectrum of industries — wherever improved
connectivity is likely to add value.
And improved connectivity, it turns out, adds lots of value. The
cellular network is the most pervasive public utility in the world,
with far more availability than running water or electricity.
Today, the power of that connectivity is fundamentally changing
the practice of health care. It is collapsing time and space,
by enabling faster and better diagnosis, medication therapy,
titration, patient self-management and monitoring.
The examples are everywhere. Internet-connected pill bottle
caps made by Vitality, a Cambridge, Mass., start-up, increase
compliance and even allow patients to refill their prescriptions
with the push of a button on the cap’s underside. Connected
blood glucose meters keep track of how often patients are
testing, remind them when they are likely to need supplies, and
can handle reordering from the device itself. We are partnering
with Hughes Telematics to develop bracelets, watches and
pendants that are embedded with sensors for altitude, location
and relative motion, to alert caregivers when an elderly patient
has fallen down. Beyond these wearable devices, the next
generation will be peel-and-stick disposable biosensors — what
we call the “smart Band-Aid” space — to track heart rate, ECG
or other common vital signs. And we are working on ultra-low-
power radio technologies for these peel-and-stick sensors that
will enable them to be produced at fairly low cost in printed form
and still last for days on end.
One of the challenges associated with these advances is that
most health IT systems were not designed to receive, hold and
analyze streaming physiological data from devices. In response,
we are working on a platform technology that enables various
manufacturers to access one another, collaborate and interact
with one another’s devices, and create mix-and-match scenarios
that are most advantageous for their business models.
Outlook
Five years ago, pharma companies were gathering information
about these new technologies, but not taking action. Three
years ago, we started to see some movement. But in the last
year, things have really heated up, with a spate of deals and
investments. Still, pharma is significantly behind the medical
device industry in thinking about connectivity and using its
power for product and business model innovation.
Regulating these new technologies is complex and uncharted
territory for regulators and companies alike. We don’t always
know what questions to ask or what standards to apply. In a
hospital, for instance, the acceptable margin of error for blood
glucose measurements might be ±4%, but that standard was
developed for blood samples that are drawn periodically and
sent to a central laboratory. Now imagine a continuous test,
which provides a steady stream of data around the clock. If the
margin of error for this data is ±8%–10%, is the lower accuracy
compensated for by the fact that we now have much more real-
time data with which to identify upward and downward trends?
Today, neither the FDA nor the industry knows the answer. But
the agency has started reaching out to industry, and the FDA
and the FCC are working together, for the first time in history, to
address these challenges.
We will need to answer these questions, because the wireless
revolution is just getting started. Over the next decade, the
cellular industry plans to add 50 billion mobile devices to the
5 billion in existence today — a tenfold increase. Most of these
devices won’t be phones as we think of them today. Wireless
connectivity is rapidly becoming ubiquitous — and bringing huge
benefits to consumers and patients everywhere.

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