The fourth edition of the Biocat Report, once again, aims to present updated indicators and main figures on the healthcare and life sciences sector in Catalonia in order to provide a holistic view of the BioRegion.
This year, we’ve worked hard to synthesize the ideas and the document in general. For the first time in digital format with a more visual design, it now includes both the situation of the main stakeholders in the ecosystem and the opinion of international experts and relevant initiatives, which we hope will help better understand the reality of a complex industry that is in transformation.
Noteworthy new elements in the 2015 report also include a series of success stories from local businesses showcasing the great quality of Catalan research, entrepreneurial spirit and a job well done at a growing number of companies on the front lines of the European and international league. Because the success of the BioRegion can be seen globally, with data, but also through specific projects and the teams behind them. It wasn’t easy to choose these cases, given that we’re starting to have quite a few examples from each subsector (biotech and pharma, medtech and digital health) to choose from, but we tried to put together a representative sample reflecting criteria of consolidated business development, financial success, large operations and innovation in terms of product/service.
A series of figures and stakeholders from the champions league that encourage us to continue working to boost the potential of a BioRegion that is advancing, despite the difficult situation, with an ever deeper commitment and greater capacity to address the large healthcare challenges of today, and to boost economic and social growth in a small country that is competing on a global market. .
Trends and Global Challenges
The intrinsic globality of the healthcare and life sciences sector requires us to pay close attention to the ongoing changes and evolving international trends that affect the markets and organizations working in them. Growth over the past two years has been marked, on one hand, by the demographic changes, increase in chronic diseases, expansion of emerging markets, advances in treatments and technology, and, on the other, by the demand from governments and suppliers to cut costs, improve results and prove value. Therefore it is clear that we are in a period of transition.
In the following section we highlight important considerations (some of which are also found in the articles in the report) that demonstrate the need to adapt, innovate, collaborate and become more efficient over the coming years.
First trend: Convergence among industries
Breakthroughs in science and technology over the past decade are causing the traditional lines among sectors in the healthcare and life sciences (providers, pharma and biotech, medtech, digital health) to be blurred.
Over the past 3 years, these sectors have begun to converge: not only is each of these sectors important in its own right, they are increasingly important to each other. If pharma wants to offer beyond-the-pill or beyond-the-molecule solutions, it has to look to medtech and digital health. Hospitals that want to cut pharmacy spending look at how to get pharma involved in risk-sharing agreements, etc.
On the other hand, we’re moving towards a world of consolidation not only in our sector, but also among traditionally disparate sectors. The next big M&A operation (mergers and acquisitions) could be between a large pharma company and a large telecommunications company.
This trend implies that it will be even more important than ever to collaborate with other stakeholders over the coming decade. The question is: who will take the reigns in these new situations?
Second trend: Each subsector must face new challenges
Each of the subsectors (providers, pharma and biotech, medtech, digital health) and the main activities tied to knowledge (research and innovation) are facing new challenges. Over the coming decade, we will need a lot of talent (intelligence), soft skills (collaboration), and multidisciplinarity to tackle this new paradigm.
- There is an increased feeling that there is a difference between the cost assumed and the value created. Governments (when healthcare is mainly funded publicly) and companies or individuals (when funded privately) are calling into question the effectiveness of healthcare expenditure.
- On a systemic level, governments and administrations question the value of money spent in providing healthcare services. Of the 200 countries in the world, not even one is reasonably satisfied with its healthcare system. The latest crisis has forced governments, the main source of funding for healthcare, to reduce their contribution to healthcare budgets. In the hospital arena, the decline in public funding has put extreme pressure on institutions to increase efficiency.
- The value-based health care delivery1 strategy proposed and promoted by Michael Porter (Harvard Business School)2 is behind some of the main efforts of several countries around the world (including Germany, the UK and Singapore). In an increasingly data-driven world, healthcare services are forced to be based more on clinical outcomes and not just on the perception of the intrinsic benefits of highly sophisticated technology.
- In recent decades, healthcare spending has risen considerably faster than the GDP (which is not sustainable). And that’s not all; this sector hasn’t been able to boost productivity as others have. In fact, according to a study by McKinsey & Co.3, the healthcare sector is at the bottom of the ranking on increase in productivity since 1990.
This trend will require all healthcare service providers (hospitals and primary care) to improve efficiency and productivity.
- In order to face these challenges, hospitals will increasingly work together. In fact, the number of areas in which they collaborate has grown compared to those in which they compete. Important examples include: High Value Health Collaborative (HVHC), International Consortium for Health Outcomes Measurement (ICHOM) and Children’s Hospitals’ Solutions for Patient Safety National Children’s Network.
- So far, cutbacks have been executed better than reforms. The two main reforms in hospitals will include: 1) changing the focus of the model (preventing not curing); and 2) leaving behind a business model that is highly dependent on physical structures (buildings, equipment) and very little on technology (online care and big data).
Pharma and Biotech:
- Pharmaceutical companies are increasingly advancing in the process of transforming their value chains. A decade ago, the value chain for a pharmaceutical product was totally or mainly controlled and carried out within the company. Later, different waves of outsourcing, first of secondary activities and later, in some cases, of core or main ones, allowed pharma companies to cut costs and use resources more flexibly. Now, we are seeing a disintegration of the value chain, towards different partnering structures (small biotech firms are no longer companies bought by pharma corporations but partners in different sorts of collaboration agreements).
- The challenge facing the pharmaceutical industry is to evolve from being drug suppliers to being health and disease management companies. This will require increasingly fluid communication between healthcare agents and the community of patients.
- The main driving force for growth in the pharmaceutical industry is unavoidably innovation. Faced with the challenge of the decreasing productivity of research (Eroom’s Law4), the pharmaceutical industry will increasingly look to open innovation processes, offering up platforms as collaborative spaces that give external partners access to research tools.
- In terms of products, the trend is to move towards beyond-the-pill solutions. Faced with the risk of generics and the patent cliff, how can they transform their products (without possible differentiation attributes) into services (“medicines as a service5”)? Medical devices (hardware) and digital health (software) are the perfect travel companion for the pharmaceutical industry.
- Before, it was enough for innovations to offer better results than the existing product or service. Now there is a new trend towards new products being both clinically superior and (more importantly) able to cut costs in the system. Historically, the medical technology sector has had better results but it has also helped push up the cost of the system.
- In response to the shift towards value-based payment systems, medtech companies must become strategic partners for the healthcare systems (governments and hospitals) and leave behind their traditional role as medical technology suppliers.
- Right now, the global medtech market is a concentrated market: more than 80% of the market share is in the hands of the top 15 medtech companies in the world. On the other hand, 95% of all medtech companies in Europe are SMEs6.
- In their traditional strategy of acquiring medical technology SMEs, large medtech companies are moving towards services and digital health companies. The case of Medtronic (the largest medical technology company after merging with Covidien in 2015) is a good example, acquiring Diabeter (a Dutch company focusing on providing diabetes management services for children and teens using monitoring and follow-up technology).
- Over the coming years, we’ll see how medical technology companies (Medtronic, J&J Medical Devices & Diagnostics, GE Healthcare, etc.) throw themselves into a race to buy up small and medium-sized companies in the field of services and digital health.
- What in the beginning seemed like just another layer of computerization (digitalizing the analogical) has become the most disruptive force in the healthcare sector.
- In 2014, venture capital investment in digital health companies in the USA totaled more than $4 billions, equal to the sum total from the previous three years (2011-2013). In 2015, this trend continued, with nearly the same volume7.
- What are known as digital therapies are starting to appear, which are reimbursable (initially by insurance companies, not yet by healthcare systems). In Europe, there are two good examples: Caterna (digital treatment for amblyopia, reimbursable in Germany) and MySugr (monitoring and managing diabetes, reimbursable in Austria).
- The challenge facing digital health in the coming years will be to use big data for predictive analytics, which allow us to transform the services provided, making them more focused on preventing than curing. If we use data properly, we’ll be able to create information that will transform: 1) medicine (as a science): when we can improve our knowledge of the biology of a disease (our greatest limitation now); 2) healthcare (as an industry): by introducing new stakeholders, mainly in technology, both industry giants (all the big ones are already working in the health arena: Apple, Google, Facebook, Amazon, Microsoft) and start-ups (the latest report from CBInsights has more than 800 start-ups with products and services in this field); and 3) healthcare (as a service): as we’re moving towards precision or personalized medicine, which will give each patient the specific treatment they need and not that determined by a generic protocol.
- In terms of investment, digital health activity has been wild: in 2015, there were more digital health deals (891) than biotech deals (473), although the total volume of the biotech deals was slightly higher ($6 billions vs. $5.7 billions)8.
Third trend: collaboration to leverage a new configuration of the ecosystem
The two main processes to generate value in a knowledge economy (research and innovation) are both, due to their specific nature, extremely inefficient. It is therefore key to choose the right strategies, policies and methodologies to get maximum return on investment in this setting of extremely tight budgets. Because, moreover, the option of transferring costs to other stakeholders in the system is diminishing.
Given the characteristics of our sector (diverse, regulated and with numerous interdependent stakeholders), in health it is relatively easy to create and deliver value (with activities that generate costs) and fairly complicated to attract value (generate income).
In this regard, one way to make processes as efficient as possible is to improve technology transfer activities, which not only contribute to the great tree of science but also to creating companies that market products and services that, on one hand, have a positive impact on patient health (if they don’t reach patients they are of no use to anyone) and, on the other, work to leverage economic and social growth in cities-regions-countries.
Because in our sector, the participation and joint leadership of all stakeholders is becoming more and more important. We can’t ask others to take all the risks. We have to share the risk: not only entrepreneurs, not just the private sector, not the public sector alone. Herein lies the difficulty of the challenge: in doing it together. Those who collaborate best will have more capacity not only to generate and deliver value but also to attract value. The sustainability of both healthcare systems and cities-regions-countries as tools of economic development in the future will take this path.
Situation in the BioRegion
As of September 2015, the BioRegion of Catalonia has 734 companies (221 biotechnology enterprises, 46 pharmaceutical corporations, 94 innovative medical technology companies, 208 suppliers and engineering firms, 139 professional services and consultancy firms and 26 active investment bodies) and 89 research bodies (41 research centers, 15 university hospitals, 11 universities with degrees in the life sciences; 13 science and technology parks active in the life sciences; 7 technology centers and 2 large science facilities).
All of these assets make the BioRegion a highly competitive, innovative ecosystem that has gained importance compared to other leading European clusters, most of which it has collaboration agreements with.
We’ll start with a business overview, with the balance of these two years leading us to a positive global assessment. On one hand, the greater number of companies (due to sustained growth, new service companies in this sector and the expansion of the database for the Biocat Directory9, especially with medtech and digital health companies), the increased size of companies (the number of medium-sized companies has increased and the number of small firms has dropped), the noteworthy amount of funds invested (especially in 2015) and the large business operations are signs that demonstrate the progressive consolidation of our ecosystem. Because the Administration’s commitment more than 10 years ago to promoting the BioRegion is now beginning to yield more significant fruit. The quality of our research, the scientific level of projects, the maturity of companies, the entrepreneurs and specialized local investors –increasingly connected internationally- have contributed effectively to the success seen over the past year. In the field of biotechnology, for example, just three operations in Barcelona (Minoryx, Oryzon and Aelix Therapeutics) surpass all private investment in 2014. It must be said that the effervescence of international markets, above all in the USA, with important IPOs, many mergers and acquisitions and large capital increases, has surely had an influence on this positive period.
In terms of scientific excellence, Catalonia continues to be among the top regions in Europe in quality and quantity, thanks to a model based on the autonomy of centers, results-based hiring, independent peer assessment and a commitment to programs to attract and retain talent. Nevertheless, the need to gain critical mass and international competitiveness has motivated a series of mergers and the concentration of bodies and facilities over this period, noteworthy among which is the creation of BIST (Barcelona Institute of Sciences and Technology), which brings together six large research centers, and EURECAT, which has united six large technology centers. In academia, Catalonia has three universities among the top 200 in the world10 (UB, UAB, UPF) and two of the 10 best business schools in Europe (IESE, Esade)11. Most research indicators still put us between 50% and 100% above population-based expectations in Europe, with an increase in the grants received from the ERC (European Research Council) and through competitive national and European funds, and scientific production in the lifesciences that continues to grow, now making up 3.15% of all that in Europe.
In this sense, and despite the recession, Europe, which also hopes to improve innovation indicators, has launched instruments like the RIS3 (Regional Smart Specialization Strategies) in order to get all the stakeholders in the system to work together to consolidate innovative strategies in the main industrial pillars of each region, and other initiatives like the Knowledge and Innovation Communities promoted by the EIT (European Institute of Innovation and Technology). Of these communities (KIC), the one focusing on health and active ageing has a node in Barcelona (EIT Health) and is one of the most ambitious publicly funded projects in the health arena over this period and a resounding success for the BioRegion.
Nevertheless, the analysis the report is based on continues to highlight challenges that are still unresolved, which must be addressed and overcome:
- Public and private R&D expenditure as a percentage of the GDP is very low. It was 1.47% in 2014, still far off the 3% EU target. Companies (down 13%), institutions of higher education (11.5%) and the public administration (3.7%) have been cutting investment in research since 2009. It is essential that we increase support for basic research and clinical research, with the commitment of the business sector, in order to have treatments and products that improve people’s health.
- The R&D&i system’s capacity to generate economic activity (patents, licenses and spin-offs) is not proportional to scientific production. The top-notch research isn’t made into socioeconomic value. Therefore, there is still a divide between business and research, a gap too large between our indicators regarding scientific excellence and those on innovation. We must continue improving the quality of the system and be able to transform knowledge into economic growth.
- Despite the investment success seen in 2015, access to capital continues to be one of the main obstacles facing our companies, which need large injections of capital throughout the different stages of their projects, from start up to research to market. We must establish funding vehicles to develop proof of concept (and overcome the death valley of projects), expand our pool of investors, attract more foreign private capital, boost visibility of investment opportunities, take advantage of new alternative funding platforms and, also very important, have the legal mechanisms to incentivize patronage of research and innovation, given the progressive decline in public resources.
- We need to attract and retain the best talent, because apart from creative, innovative entrepreneurs, we also need good managers with the ability to make and communicate decisions. Managers with experience that have the skills needed to lead companies in a unique sector, which requires the coexistence and confluence of science and business profiles, in order to value the technology opportunities, deal with investors and ensure the viability of the business throughout its growth.
These local handicaps emphasize the need to continue working to achieve a true ecosystem with shared commitment and strategic actions –with the public and private sectors working together– that will help boost value and be essential to gaining international competitiveness and differentiation in a sector that is transforming. We must, therefore, push forward to maximize the excellent potential of the BioRegion of Catalonia, shown in this report, which guarantees the progress and the future of our country.