The digital revolution has transformed the way leading Pharma companies are driving innovation. To leverage the potential of the growing mHealth app market, companies are now using four channels to identify, evaluate, integrate and benefit from digital health solutions: 1) internal app publishing, 2) accelerator or incubator programs, 3) venture fund investments, and 4) direct partnerships. The 2nd edition Pharma App Benchmarking 2017 Report shows that the internal app publishing still plays the biggest role in adopting the digital innovation in Pharma, yet it has a limited success.
By the end of 2020, the total mHealth Market revenue growth will reach $31.3 billion. (For more key mHealth market insights read the latest “mHealth App Market Sizing 2015-2020” report). To take advantage of this attractive market, foster innovation and further evolve their digital health business success, Pharma companies are using four main channels: internal / own app publishing, accelerator / incubator programs, venture fund investments and direct partnerships. But do they really bring a financial success or Pharma companies need to rethink their digital health innovation strategies?
In our latest blog post “Chances of leading Pharma companies producing a successful app has decreased from 2.0% (2014) to 0.5% (2016)”, we saw that some of the major findings in the recently published 2nd edition Pharma App Benchmarking 2017 report show that only 0.5% of all apps published by the leading 12 Pharma companies have managed to achieve annual downloads of over 100K, the user retention is still an issue for Pharma app publishers and the financial benefits are limited.
Although currently Pharma companies are favouring the internal/own app publishing channel, they haven’t found yet the right mix and tool to drive successfully the digital health innovation. This applies not only to their own app publishing activities, but also to the way they are making use of channels to partner with 3rd party digital health innovators through accelerator / incubator programs, venture fund investments and direct partnerships. Let’s look at the four main channels used by Pharma to drive and adopt digital health innovation, as well as why Pharma companies need to rethink their digital app strategies and business models to stay competitive and succeed in this ever-changing digital health market.
The four main channels to identify, evaluate, integrate and benefit from digital health solutions used by Pharma companies are own app publishing, accelerator / incubator programs, venture investments and direct partnerships. Each channel has its own strengths and is used during a different stage of the digital health adoption; however, as depicted in the above graph, Pharma hasn’t found yet the right mix to maximize the benefits. The benefit / success is low.
Internal App Publishing
This is the most widely used channel to drive digital innovation, while supporting the overall business in Pharma during the identification and the evaluation stages of a new business opportunity. As the apps are being developed for the company units the integration of apps into the business and operating model is normally high. However, the benefit that Pharma is getting out of their own app publishing activities is low, with a few exceptions. For example, the internal app publishing activities of Johnson & Johnson have been well above average in comparison to other leading Pharma companies. The GSK’s own app publishing activities continue to raise their portfolio size on both iOS and Android platforms. Their app portfolio is unique for the amount of interest paid to children’s health (31% of apps in their app portfolio target children), particularly oral health. Another top player here is Roche. The company has been highly active adding an impressive 116 apps to their app portfolio, reaching 141 apps in Q1 2017.
The internal app publishing is mainly built around the core products of the Pharma companies and not around the actual market demand. And this is the main challenge faced by the companies and the key reason why this channel can’t bring a financial success. The novel digital apps must take into consideration the target audience’s needs and the real market demand.
Accelerator / Incubator
Accelerator / incubator is designed to accelerate the growth of a new business through seed / early-stage investment. The programs core is to help and ensure a constant flow of successful digital health novel ideas and market driven solutions that can be adopted by the Pharma to benefit their own products and services in the future. So far, seven of the twelve Pharma companies showcased in the report have developed their own internal accelerator / incubator programs. Bayer is renowned in the world of digital health for its Grants4 accelerator program. Roche is also no stranger to using accelerators to source digital innovation. Accelerator programs such as OneStart and QB3 are examples of accelerators that Roche is in partnership with.
Although very popular among the Pharma companies, this channel is good during the identification and validation stages of a digital business process, and with a low impact during the integration and the benefit stages. There is a need to invest more time and efforts in the integration process to maximise benefits, otherwise Pharma companies will not benefit enough from 3rd party innovation.
At present, out of the twelve leading Pharma companies, eleven have invested through their venture fund/s into a digital health company. Digital health investments recorded by Pharma venture funds are often in excess of $5-10M. One of the companies that is actively investing into start-up digital health companies is Johnson & Johnson through its venture arm, Johnson & Johnson Innovation. Another key player in this channel is Merck. Merck’s most active venture arm Merck Global Health Innovation Fund has been responsible for a series of venture investments ranging between $2.5-52.5M into 12 digital health companies from 2014-Q1 2017
Venture investments can help in screening and evaluating digital opportunities, but the challenge comes with the integration of new digital health solutions into Pharma’s core business. The success is limited and companies need to rethink their digital app strategies and shift digital project responsibilities through parallel competencies aligned with their services.
The fourth channel used by the Pharma companies is a direct partnership. Although they are not very common, some direct partnerships between Pharma companies and digital health companies do exist. They are mainly in the areas of Marketing, distribution, device manufacture and data analytics. In this case Pharma tend to partner with already established and well-known digital health companies. Having mostly a PR impact, the financial and ROI effect of these partnerships will likely be seen in a few years.
While some progress has been made by the leading Pharma companies in relation to these driving digital health innovation channels and they are not solely relying on their own app publishing activities to drive their mobile health strategies, but are using 3rd parties to engage with digital health innovators in order to establish efficient ways to leverage innovation; success has been limited. Pharma companies haven’t found yet the right mix of channels – right investment strategies to not only access innovation, but also to increase their digital health revenues and market share.
To dive deeper into the current state of Pharma’s internal app publishing and 3rd party channels for sourcing digital health innovation growing, learn more about the 10 main app categories of Pharma and how can companies further evolve their digital health strategies, download our 2017 Pharma App Benchmarking Report. Would you agree that the four channels used by Pharma are not bringing the ROI and the right mix is yet to be found to succeed in the digital health app market? Join the discussion and share your experience with us.