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by EOS Intelligence EOS Intelligence No Comments

New EU Pharma Legislation: Is It a Win-win for All Stakeholders?

The revision of the EU pharmaceutical legislation represents a major achievement for the pharmaceutical sector within the European Health Union. The European Health Union, established in 2020 as a collaboration among EU member states, aims to effectively respond to health crises and improve healthcare systems across Europe. This revision provides an opportunity for the pharmaceutical sector to adapt to the demands of the 21st century, enabling greater flexibility and agility within the industry. The updated EU pharmaceutical legislation places a strong emphasis on patient-centered care, fostering innovation, and enhancing the competitiveness of the industry.

Limited market exclusivity to offer indirect opportunities to generic drug manufacturers

The COVID-19 crisis in 2020 raised a significant concern related to the accessibility and availability of life-saving medicines. The pandemic highlighted the significance of establishing effective incentives for the production of medicines to address medical needs during health emergencies.

Therefore, revised EU pharmaceutical legislation includes several rules and regulations to incentivize pharmaceutical companies to create a single market for medicines to ensure equal access to affordable and effective medicines across the EU. This is to be achieved through reducing the administrative burden by shortening authorization time, the duration required to review and grant approval for a new medicine, ensuring efficacy, safety, quality, and regulatory requirements. For example, the EU Commission will have 46 days instead of 67 days for authorization of medicine, whereas EMA (European Medicine Agency) will have 180 days instead of 240 days for the assessment of new medicine.

The new directive incentives are expected to help in improving access to medicines in all member states, in developing medicines for unmet medical needs, and in conducting comparative clinical trials (CCT). Comparative Clinical Trials are clinical research studies aimed at comparing the efficacy and safety of distinct medical treatments. Such trials usually entail two or more groups of participants, each receiving a different treatment in order to ascertain the more effective, safer treatment that offers better outcomes for a specific condition.

The legislation also focuses on maintaining the availability of generic drugs and biosimilars to help countries with more affordable and accessible medicines across the EU. It also aims to provide enhanced rules for the protection of the environment, such as mandatory ERA (environmental risk assessment) of medicines which focuses on discarding medicines properly by ensuring the minimization of environmental risks that are associated with the manufacturing, use, and disposal of medicine on the EU market, promoting innovation, and tackling antimicrobial resistance (AMR).

The revised pharmaceutical legislation introduces a shortened period of regulatory protection, reducing it from 10 to 8 years, in order to establish a unified market for new medicines. This protection encompasses 6 years of regulatory data protection and 2 years of market protection. Companies can also benefit from an additional 2 years of data protection if they launch their medicine in all 27 EU member states and an extra 6 months of protection if their medicine addresses unmet medical needs or undergoes comparative clinical trials.

The revised EU pharma legislation also includes provisions for 2 years of market exclusivity for pediatric medicines and 10 years of market exclusivity for orphan drugs. The limited market exclusivity for branded drug manufacturers is expected to give the generic medicine makers more opportunities for production, hence improving the affordability and accessibility of medicines across the EU.

New EU Pharma Legislation Is It a Win-win for All Stakeholders by EOS Intelligence

New EU Pharma Legislation: Is It a Win-win for All Stakeholders by EOS Intelligence

Assessing changes for the European Medicines Agency

The EMA is responsible for the evaluation and approval of new medicines while monitoring the safety and efficacy of the medicine. The revised EU pharmaceutical legislation has bestowed significant responsibilities upon the EMA. These responsibilities encompass expediting data assessments and providing enhanced scientific advice to pharmaceutical companies. The legislation has both positive and negative impact on the EMA.

On the positive side, it aims to harmonize regulatory processes across member states, leading to a more streamlined and efficient system. This is expected to improve the agency’s ability to assess medicines promptly, facilitating faster access to innovative treatments. Additionally, the legislation encourages collaboration among regulatory authorities and promotes international partnerships, which strengthen the EMA’s regulatory capacity and scientific expertise. Further, the new regime is likely to foster EMA to prepare a list of critical medicines and ensure their availability during shortages.

The challenges that EMA might face if the new pharma legislation is passed include increased workload and resource requirements, which may necessitate additional staff, expertise, and funding. Complex areas such as pricing, pharmacovigilance, data transparency, and reimbursement could pose difficulties, potentially leading to delays and discrepancies.

Balancing affordability and access to medicines while incentivizing pharmaceutical companies’ investment in R&D under strict regulations, health technology assessments, and data transparency could be a challenge. EMA might face obstacles in training, resource allocation, and maintaining regulatory consistency. Both positive and negative impact should be considered while implementing the revised legislation.

Overriding drug patents could ensure supply, albeit with challenges

Overriding a drug patent is a legal mechanism allowing governments to bypass the patent protection of medicines and medical technology during emergency situations.

Although it poses challenges to the original patent holder company, including implications on revenue streams, investments, and profitability, it enables the granting of compulsory licenses to generic drug manufacturers, which increases production and reduces prices, particularly during health emergencies, while still considering the rights and interest of patent holders (through compensation for the use of their invention during the emergency period). It also encourages voluntary licensing that allows generic manufacturers to produce and sell products with the patent holder’s permission while respecting patent rights, instead of overriding the patent as it is in compulsory licensing.

Amidst concerns pertaining to intellectual property (IP) rights and the fact that this move might potentially discourage pharma companies from investing in R&D initiatives, the revised EU pharmaceutical legislation proposes overriding drug patents, as it would enhance the availability of affordable and cost-effective medicines throughout the EU. The production of generic drugs and biosimilars is likely to help increase market competition, drive innovation, and introduce improved treatments across the EU, maintaining a competitive edge.

Overriding drug patents might also have ramifications on international trade and relationships, leading to disputes and strained ties between countries. While considering these laws, policymakers need to exercise caution to ensure both accessibility of medicines and adequate investments in R&D.

New EU pharma legislation to benefit Eastern European countries

The difference in access to medicines between Eastern and Western European countries is evident from the fact that from 2015 to 2017, EMA approved 104, 102, and 101 medicines for Germany, Austria, and Denmark, respectively, compared to only 24 in Poland, 16 in Lithuania, and 11 in Latvia. These distinct differences in the availability of medicines between Eastern and Western European countries could be attributed to factors such as stronger healthcare systems in the Western region, higher healthcare budgets, and a greater ability to negotiate pricing and reimbursement agreements with pharmaceutical companies.

Western European countries have relatively better funded and more advanced healthcare infrastructure, including clinics, hospitals, and specialized healthcare services compared to Eastern European countries. Western European countries have a larger capacity to invest in research and development and contribute to the development of new medicines.

Moreover, differences in national healthcare policies contribute to the variation in pharmaceutical benefits and outcomes. The presence of a robust and extensive pharmaceutical manufacturing industry in Western European countries allows for faster production and distribution of medical supplies. Consequently, Western European countries generally have better access to medicines and medical supplies compared to Eastern European countries.

The new EU pharmaceutical legislation helps Eastern European countries by reducing the exclusivity period of newly introduced drugs. This measure can prevent branded drug manufacturers from selling drugs exclusively to more affluent countries.

Moreover, according to experts, branded drug manufacturers are likely to only theoretically benefit from a competition-free market for 12 years because the majority of medicines launched by them are unlikely to meet all the new criteria in order to be granted this extended competition-free market access. This might compel branded medicine manufacturers to expand their sales base and sell in Eastern European countries as well to maximize their revenues.

New EU pharma legislation to spur a changing investment landscape

With the approval of new EU pharmaceutical legislation, it is expected that investment plans within the pharmaceutical sector will undergo significant changes. The regulatory changes, which aim to reduce the time and administration burden, could help in attracting lucrative investments by offering faster returns for pharmaceutical companies.

The new legislation can be expected to bring more investments in the R&D and manufacturing sectors by addressing critical healthcare challenges. Furthermore, the availability of generic and biosimilars would also help by creating opportunities for investment in the production/manufacturing of cost-effective medicines.

Moreover, enhancement in transparency and data sharing can also lead to increased collaboration and partnerships in R&D, attracting investments from the public and private sectors in the medical space.

However, investment plans could vary depending upon various factors such as intellectual property rights, market dynamics, competitive landscape, etc. Pharmaceutical companies need to assess new legislation in order to adjust their investment strategies to navigate potential challenges.

EOS Perspective

Analyzing the winning stakeholders of the revised EU pharma legislation could be challenging at this point in time owing to the fact that the new regime focuses on addressing issues of affordability and innovation across the EU which tend to be contradicting. These aims are to be achieved by incentivizing R&D and manufacturing sectors, enhancing market competition, and promoting collaboration.

It cannot be denied that there will be several challenges while enforcing these changes. A few of these challenges include maintaining intellectual property rights, marrying affordability with innovation, and addressing the specific needs of various patients in different countries. Specific resources and coordination will be required to overcome these hurdles. As a result, the success or failure of the EU pharmaceutical legislation for stakeholders will depend on the legislation’s actual implementation, adaptation to changing market dynamics, stakeholder engagement, as well as whether the balance between accessibility, affordability, and innovation while maintaining competitiveness is achieved and maintained in the long term.

by EOS Intelligence EOS Intelligence No Comments

Scarcity Breeds Innovation – The Rising Adoption of Health Tech in Africa

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Africa carries the world’s highest burden of disease and experiences a severe shortage of healthcare workers. Across the continent, accessibility to primary healthcare remains to be a major challenge. During the COVID-19 pandemic, several health tech companies emerged and offered new possibilities for improving healthcare access. Among these, telemedicine and drug distribution services were able to address the shortage of health workers and healthcare facilities across many countries. New health tech solutions such as remote health monitoring, hospital automation, and virtual health assistance that are backed by AI, IoT, and predictive analytics are proving to further improve health systems in terms of costs, access, and workload on health workers. Given the diversity in per capita income, infrastructure, and policies among African countries, it remains to be seen if health tech companies can overcome these challenges and expand their reach across the continent.

Africa is the second most populated continent with a population of 1.4 billion, growing three times faster than the global average. Amid the high population growth, Africa suffers from a high prevalence of diseases. Infectious diseases such as malaria and respiratory infections contribute to 80% of the total infectious disease burden, which indicates the sum of morbidity and mortality in the world. Non-communicable diseases such as cancer and diabetes accounted for about 50% of total deaths in 2022. High rates of urbanization also pose the threat of spreading communicable diseases such as COVID-19, Ebola, and monkey fever.

A region where healthcare must be well-accessible is indeed ill-equipped due to limited healthcare infrastructure and the shortage of healthcare workers. According to WHO, the average doctor-to-population ratio in Africa is about two doctors to 10,000 people, compared with 35.5 doctors to 10,000 people in the USA.

Poor infrastructure and lack of investments worsen the health systems. Healthcare expenditure (aggregate public healthcare spending) in African countries is 20-25 times lower than the healthcare expenditure in European countries. Governments here typically spend about 5% of GDP on healthcare, compared with 10% of GDP spent by European countries. Private investment in Africa is less than 25% of the total healthcare investments.

Further, healthcare infrastructure is unevenly distributed. Professional healthcare services are concentrated in urban areas, leaving 56% of the rural population unable to access proper healthcare. There are severe gaps in the number of healthcare units, diagnostic centers, and the supply of medical devices and drugs. Countries such as Zambia, Malawi, and Angola are placed below the rank of 180 among 190 countries ranked by the WHO in terms of health systems. Low spending power and poor national health insurance schemes discourage people from using healthcare services.

Health tech solutions’ potential to fill the healthcare system gaps

As the prevailing health systems are inadequate, there is a strong need for digital solutions to address these gaps. Health tech solutions can significantly improve the access to healthcare services (consultation, diagnosis, and treatment) and supply of medical devices and drugs.

Health tech solutions can significantly improve the access to healthcare services (consultation, diagnosis, and treatment) and supply of medical devices and drugs.

For instance, Mobihealth, a UK-based digital health platform founded in 2017, is revolutionizing access to healthcare across Africa through its telemedicine app, which connects patients to over 100,000 physicians from various parts of the world for video consultations. The app has significantly (by over 60%) reduced hospital congestion.

Another example is the use of drones in Malawi to monitor mosquito breeding grounds and deliver urgent medical supplies. This project, which was introduced by UNICEF in 2017, has helped to curb the spread of malaria, which typically affects the people living in such areas at least 2-3 times a year.

MomConnect, a platform launched in 2014 by the Department of Health in South Africa, is helping millions of expectant mothers by providing essential information through a digital health desk.

While these are some of the pioneers in the health-tech industry, new companies such as Zuri Health, a telemedicine company founded in Kenya in 2020, and Ingress Healthcare, a doctor appointment booking platform launched in South Africa in 2019, are also strengthening the healthcare sector. A study published by WHO in 2020 indicated that telemedicine could reduce mortality rates by about 30% in Africa.

The rapid rise of health tech transforming the African healthcare landscape

Digital health solutions started to emerge during the late 2000’s in Africa. Wisepill, a South African smart pill box manufacturing company established in 2007, is one of the earliest African health tech success stories. The company developed smart storage containers that alert users on their mobile devices when they forget to take their medication. The product is widely used in South Africa and Uganda.

The industry gained momentum during the COVID-19 pandemic, with the emergence of several health tech companies offering remote health services. The market experienced about 300% increase in demand for remote healthcare services such as telemedicine, health monitoring, and medicine distribution.

According to WHO, the COVID pandemic resulted in the development of over 120 health tech innovations in Africa. Some of the health tech start-ups that emerged during the pandemic include Zuri Health (Kenya), Waspito (Cameroon), and Ilara Health (Kenya). Several established companies also developed specific solutions to tackle the spread of COVID-19 and increase their user base. For instance, Redbird, a Ghanaian health monitoring company founded in 2018, gained user attention by launching a COVID-19 symptom tracker during the pandemic. The company continues to provide remote health monitoring services for other ailments, such as diabetes and hypertension, which require regular health check-ups. Patients can visit the nearest pharmacy instead of a far-away hospital to conduct tests, and results will be regularly updated on their platform to track changes.

Scarcity Breeds Innovation – The Rising Adoption of Health Tech in Africa by EOS Intelligence

Start-ups offering advanced solutions based on AI and IoT have been also emerging successfully in recent years. For instance, Ilara Health, a Kenya-based company, founded during the COVID-19 pandemic, is providing affordable diagnostic services to rural population using AI-powered diagnostic devices.

With growing internet penetration (40% across Africa as of 2022) and a rise in investments, tech entrepreneurs are now able to develop solutions and expand their reach. For instance, mPharma, a Ghana-based pharmacy stock management company founded in 2013, is improving medicine supply by making prescription drugs easily accessible and affordable across nine countries in Africa. The company raised a US$35 million investment in January 2022 and is building a network of pharmacies and virtual clinics across the continent.

Currently, 42 out of 54 African countries have national eHealth strategies to support digital health initiatives. However, the maximum number of health tech companies are concentrated in countries such as South Africa, Nigeria, Egypt, and Kenya, which have the highest per capita pharma spending in the continent. Nigeria and South Africa jointly account for 46% of health tech start-ups in Africa. Telemedicine is the most offered service by start-ups founded in the past five years, especially during the COVID-19 pandemic. Some of the most popular telemedicine start-ups include Babylon Health (Rwanda), Vezeeta (Egypt), DRO Health (Nigeria), and Zuri Health (Kenya).

Other most offered services include medicine distribution, hospital/pharmacy management, and online booking and appointments. Medicine distribution start-ups have an immense impact on minimizing the prevalence of counterfeit medication by offering tech-enabled alternatives to sourcing medication from open drug markets. Many physical retail pharmacy chains, such as Goodlife Pharmacy (Kenya), HealthPlus (Nigeria), and MedPlus (Nigeria), are launching online pharmacy operations leveraging their established logistics infrastructure. Hospitals are increasingly adopting automation tools to streamline their operations. Electronic Medical Record (EMR) management tools offered by Helium Health, a provider of hospital automation tools based in Nigeria are widely adopted in six African countries.

Medicine distribution start-ups have an immense impact on minimizing the prevalence of counterfeit medication by offering tech-enabled alternatives to sourcing medication from open drug markets.

For any start-up in Africa, the key to success is to provide scalable, affordable, and accessible digital health solutions. Low-cost subscription plans offered by Mobihealth (a UK-based telehealth company founded in 2018) and Cardo Health (a Sweden-based telehealth company founded in 2021) are at least 50% more affordable than the average doctor consultation fee of US$25 in Africa. Telemedicine platforms such as Reliance HMO (Nigeria) and Rocket Health (Uganda) offer affordable health insurance that covers all medical expenses. Some governments have also taken initiatives in partnering with health tech companies to provide affordable healthcare to their people. For instance, the Rwandan government partnered with a digital health platform called Babylon Health in 2018 to deliver low-cost healthcare to the population of Rwanda. Babylon Health is able to reach the majority of the population through simple SMS codes.

Government support and Public-Private Partnerships (PPPs)

With a mission to have a digital-first universal primary care (a nationwide program that provides primary care through digital tools), the Rwandan government is setting an example by collaborating with Babylon Health, a telemedicine service that offers online consultations, appointments, and treatments.

As part of nationwide digitization efforts, the government has established broadband infrastructure that reaches 90% population of the country. Apart from this, the country has a robust health insurance named Mutuelle de Santé, which reaches more than 90% of the population. In December 2022, the government of Ghana launched a nationwide e-pharmacy platform to regulate and support digital pharmacies. Similarly, in Uganda, the government implemented a national e-health policy that recognizes the potential of technology in the healthcare sector.

MomConnect, a mobile initiative launched by the South African government with the support of Johnson and Johnson in 2014 for educating expectant and new mothers, is another example of a successful PPP. However, apart from a few countries in the region, there are not enough initiatives undertaken by the governments to improve health systems.

Private and foreign investments

In 2021, health tech start-ups in Africa raised US$392 million. The sustainability of investments became a concern when the investments dropped to US$189 million in 2022 amid the global decline in start-up funding.

However, experts predict that the investment flow will improve in 2023. Recently, in March 2023, South African e-health startup Envisionit Deep AI raised US$1.65 million from New GX Ventures SA, a South African-based venture capital company. Nigerian e-health company, Famasi, is also amongst the start-ups that raised investments during the first quarter of 2023. The company offers doorstep delivery of medicines and flexible payment plans for medicine bills.

The companies that have raised investments in recent years offer mostly telemedicine and distribution services and are based in South Africa, Nigeria, Egypt, and Kenya. That being said, start-ups in the space of wearable devices, AI, and IoT are also gaining the attention of investors. Vitls, a South African-based wearable device developer, raised US$1.3 million in funding in November 2022.

Africa-based incubators and accelerators, such as Villgro, The Baobab Network, and GrowthAfrica Accelerator, are also supporting e-health start-ups with funding and technical guidance. Villgro has launched a US$30 million fund for health tech start-ups in March 2023. Google has also committed US$4 million to fund health tech start-ups in Africa in 2023.

Digital future for healthcare in Africa

There were over 1,700 health tech start-ups in Africa as of January 2023, compared with about 1,200 start-ups in 2020. The rapid emergence of health tech companies is addressing long-running challenges of health systems and are offering tailored solutions to meet the specific needs of the African market.

Mobile penetration is higher than internet penetration, and health tech companies are encouraged to use SMS messaging to promote healthcare access. However, Africa is expected to have at least 65% internet penetration by 2025. With growing awareness of the benefits of health tech solutions, tech companies would be able to address new markets, especially in rural areas.

Companies that offer new technologies such as AI chatbots, drones, wearable devices for remote patient monitoring, hospital automation systems, e-learning platforms for health workers, the Internet of Medical Things (IoMT), and predictive analytics are expected to gain more attention in the coming years. Digitally enabled, locally-led innovations will have a huge impact on tackling the availability, affordability, and quality of health products and services.

Digitally enabled, locally-led innovations will have a huge impact on tackling the availability, affordability, and quality of health products and services.

Challenges faced by the health tech sector  

While the African health tech industry has significantly evolved over the last few years, there are still significant challenges with regard to infrastructure, computer literacy, costs, and adaptability.

For instance, in Africa, only private hospitals have switched to digital records. Many hospitals still operate without computer systems or internet connections. About 40% of the population are internet users, with countries such as Nigeria, Egypt, South Africa, Morocco, Ghana, Kenya, and Algeria being the ones with the highest number of internet users (60-80% of the population). However, 23 countries in Africa still have low internet penetration (less than 25%). This is the major reason why tech companies concentrate in the continent’s largest tech hubs.

On the other hand, the majority of the rural population prefers face-to-face contact due to the lack of digital literacy. Electricity and internet connectivity are yet to reach all parts of the region and the cost of the internet is a burden for many people. Low-spending power is a challenge, as people refuse to undergo medical treatment due to a lack of insurance schemes to cover their medical expenses. Insurance schemes provided in Africa only cover 60% of their healthcare expenses. Even though health tech solutions bring medical costs down, these services still remain unaffordable for people in low-income countries. Therefore, start-ups do not prefer to establish or expand their services in such regions.

Another hurdle tech companies face is the diversity of languages in Africa. Africa is home to one-third of the world’s languages and has over 1,000 languages. This makes it difficult for companies to customize content to reach all populations.

Amidst all these challenges, there is very little support from the governments. The companies face unfavorable policies and regulations that hinder the implementation of digital solutions. Only 8% of African countries have online pharmacy regulations. In Nigeria, regulatory guidelines for online pharmacies only came into effect in January 2022, and there are still unresolved concerns around its implementation.

Lack of public investment and comprehensive government support also discourage the local players. Public initiatives are rare in providing funding, research support, and regulatory approval for technology innovations in the health sector. Private investment flow is low for start-ups in this sector compared to other industries. Health tech start-ups raised a total investment of US$189 million in 2022, which is not even 10% of the total investments raised by start-ups in other sectors in Africa. Also, funding is favored towards the ones established in high-income countries. Founders who don’t have ties to high-income countries struggle to raise funds.

EOS Perspective

The emergence of tech health can be referred to as a necessary rise to deal with perennial gaps in the African healthcare system. Undoubtedly, many of these successful companies could transform the health sector, making quality health services available to the mass population. The pandemic has spurred the adoption of digital health, and the trend experienced during the pandemic continues to grow with the developments in the use of advanced technologies such as AI and IoT. Telemedicine and distribution have been the fastest-growing sectors driven by the demand for remote healthcare services during the pandemic. Home-based care is likely to keep gaining momentum with the development of advanced solutions for remote health monitoring and diagnostic services.

Home-based care is likely to keep gaining momentum with the development of advanced solutions for remote health monitoring and diagnostic services.

With the increasing internet penetration and acceptance of digital healthcare, health tech companies are likely to be able to expand their reach to rural areas. Right policies, PPPs, and infrastructure development are expected to catalyze the health tech adoption in Africa. Companies that offer advanced technologies such as IoT-enabled integrated medical devices, AI chatbots, drones, wearable devices for remote patient monitoring, hospital automation systems, e-learning platforms for health workers, and predictive analytics for health monitoring are expected to emerge successfully in the coming years.

by EOS Intelligence EOS Intelligence No Comments

Powering Healthcare Diagnostics with AI: a Pipe Dream or Reality

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The growing paucity of radiologists across the globe is alarming. The availability of radiologists is extremely disproportionate globally. To illustrate this, Massachusetts General Hospital in Boston, USA, had 126 radiologists, while the entire country of Liberia had two radiologists, and 14 countries in the African continent did not have a single radiologist, as of 2015. This leads to a crucial question – how to address this global unmet demand for radiologists and diagnostic professionals?

Increasing capital investment signals rising interest in AI in healthcare diagnostics

The global market for Artificial Intelligence (AI) in healthcare diagnostics is forecast to grow at a CAGR of 8.3%, from US$513.3 million in 2019 to US$825.9 million in 2025, according to Frost & Sullivan’s report from 2021. This growth in the healthcare diagnostics AI market is attributed to the increased demand for diagnostic tests due to the rising prevalence of novel diseases and fast-track approvals from regulatory authorities to use AI-powered technologies for preliminary diagnosis.

Imaging Diagnostics, also known as Medical Imaging is one of the key areas of healthcare diagnostics that is most interesting in exploring AI implementation. From 2013 to 2018, over 70 firms in the imaging diagnostics AI sector secured equity funding spanning 119 investment deals and have progressed towards commercial beginnings, thanks to quick approvals from respective regulatory bodies.

Between 2015 and 2021, US$3.5 billion was secured by AI-enabled imaging diagnostics firms (specialized in developing AI-powered solutions) globally for 290 investment deals, as per Signify Research. More than 200 firms (specialized in developing AI-powered solutions) globally were building AI-based solutions for imaging diagnostics, between 2015 and 2021.

The value of global investments in imaging diagnostics AI in 2020 was approximately 8.8% of the global investments in healthcare AI. The corresponding figure in 2019 was 10.2%. The sector is seeing considerable investment at a global level, with Asia-based firms (specialized in developing AI-powered solutions) having secured around US$1.5 billion, Americas-based companies raising US$1.2 billion, and EMEA-based firms securing over US$600 million between 2015 and 2021.

As per a survey conducted by the American College of Radiology in 2020 involving 1,427 US-based radiologists, 30% of respondents said that they used AI in some form in their clinical practice. This might seem like a meager adoption rate of AI amongst US radiologists. However, considering that five years earlier, there were hardly any radiologists in the USA using AI in their clinical practice, the figure illustrates a considerable surge in AI adoption here.

However, the adoption of AI in healthcare diagnostics is faced with several challenges such as high implementation costs, lack of high-quality diagnostic data, data privacy issues, patient safety, cybersecurity concerns, fear of job replacement, and trust issues. The question that remains is whether these challenges are considerable enough to hinder the widespread implementation of AI in healthcare diagnostics.

Powering Healthcare Diagnostics with AIPowering Healthcare Diagnostics with AI

AI advantages help answer the needs in healthcare diagnostics

Several advantages such as improved correctness in disease detection and diagnosis, reduced scope of medical and diagnosis errors, improved access to diagnosis in areas where radiologists are unavailable, and increased workflow and efficacy drive the surge in the demand for AI-powered solutions in healthcare diagnostics.

One of the biggest benefits of AI in healthcare diagnostics is improved correctness in disease detection and diagnosis. According to a 2017 study conducted by two radiologists from the Thomas Jefferson University Hospital, AI could detect lesions caused by tuberculosis in chest X-rays with an accuracy rate of 96%. Beth Israel Deaconess Medical Center in Boston, Massachusetts uses AI to scan images and detect blood diseases with a 95% accuracy rate. There are numerous similar pieces of evidence supporting the AI’s ability to offer improved levels of correctness in disease detection and diagnosis.

A major benefit offered by AI in healthcare diagnostics is the reduced scope of medical and diagnosis errors. Medical and diagnosis errors are among the top 10 causes of death globally, according to WHO. Taking this into consideration, minimizing medical errors with the help of AI is one of the most promising benefits of diagnostics AI. AI is capable of cutting medical and diagnosis errors by 30% to 40% (trimming down the treatment costs by 50%), according to Frost & Sullivan’s report from 2016. With the implementation of AI, diagnostic errors can be reduced by 50% in the next five years starting from 2021, according to Suchi Saria, Founder and CEO, Bayesian Health and Director, Machine Learning and Healthcare Lab, Johns Hopkins University.

Another benefit that has been noticed is improved access to diagnosis in areas where there is a shortage of radiologists and other diagnostic professionals. The paucity of radiologists is a global trend. To cite a few examples, there is one radiologist for: 31,707 people in Mexico (2017), 14,634 people in Japan (2012), 130,000 people in India (2014), 6,827 people in the USA (2021), 15,665 people in the UK (2020).

AI has the ability to modify the way radiologists operate. It could change their active approach toward diagnosis to a proactive approach. To elucidate this, instead of just examining the particular condition for which the patient requested medical intervention, AI is likely to enable radiologists to find other conditions that remain undiagnosed or even conditions the patient is unaware of. In a post-COVID-19 era, AI is likely to reduce the backlogs in low-emergency situations. Thus, the technology can help bridge the gap created due to radiologist shortage and improve the access to diagnosis of patients to a drastic extent.

Further, AI helps in improving the workflow and efficacy of healthcare diagnostic processes. On average at any point in time, more than 300,000 medical images are waiting to be read by a radiologist in the UK for more than 30 days. The use of AI will enable radiologists to focus on identifying dangerous conditions rather than spend more time verifying non-disease conditions. Thus, the use of AI will help minimize such delays in anomaly detection in medical images and improve workflow and efficacy levels. To illustrate this, an AI algorithm named CheXNeXt, developed in a Stanford University study in 2018 could read chest X-rays for 14 distinct pathologies. Not only could the algorithm achieve the same level of precision as the radiologists, but it could also read the images in less than two minutes while the radiologists could read them in an average of four hours.

Black-box AI: A source of challenges to AI implementation in healthcare diagnostics

The black-box nature of AI means that with most AI-powered tools, only the input and output are visible but the innards between them are not visible or knowable. The root cause of many challenges for AI implementation in healthcare diagnostics is AI’s innate character of the black box.

One of the primary impediments is tracking and evaluating the decision-making process of the AI system in case of a negative result or outcome of AI algorithms. That is to say, it is not possible to detect the fundamental cause of the negative outcome within the AI system because of the black-box nature of AI. Therefore, it becomes difficult to avoid such occurrences of negative outcomes in the future.

The second encumbrance caused by the black-box nature of AI is the trust issues of clinicians that are hesitant to use AI applications because they do not completely comprehend the technology. Patients are also expected to not have faith in the AI tools because they are less forgiving of machine errors as opposed to human errors.

Further, several financial, technological, and psychological challenges while implementing AI in healthcare diagnostics are also associated with the black-box nature of the technology.

Financial challenges

High implementation costs

According to a 2020 survey conducted by Definitive Healthcare, a leading player in healthcare commercial intelligence, cost continues to be the most prominent encumbrance in AI implementation in diagnostics. Approximately 55% of the respondents who do not use AI pointed out that cost is the biggest challenge in AI implementation.

The cost of a bespoke AI system can be between US$20,000 to US$1 million, as per Analytics Insights, while the cost of the minimum viable product (a product with sufficient features to lure early adopters and verify a product idea ahead of time in the product development cycle) can be between US$8,000 and US$15,000. Other factors that also decide the total cost of AI are the costs of hiring and training skilled labor. The cost of data scientists and engineers ranges from US$550 to US$1,100 per day depending on their skills and experience levels, while the cost of a software engineer (to develop applications, dashboards, etc.) ranges between US$600 and US$1,500 per day.

It can be gauged from these figures that the total cost of AI implementation is high enough for the stakeholders to ponder upon the decision of whether to adopt the technology, especially if they are not fully aware of the benefits it might bring and if they are working with ongoing budget constraints, not infrequent in healthcare institutions.

Technological challenges

Overall paucity of availability of high-quality diagnostic data

High-quality diagnostic and medical datasets are a prerequisite for the testing of AI models. Because of the highly disintegrated nature of medical and diagnostic data, it becomes extremely difficult for data scientists to procure the data for testing AI algorithms. To put it in simple terms, patient records and diagnostic images are fragmented across myriad electronic health records (EHRs) and software platforms which makes it hard for the AI developer to use the data.

Data privacy concerns

AI developers must be open about the quality of the data used and any limitations of the software being employed, without risking cybersecurity and without breaching intellectual property concerns. Large-scale implementation of AI will lead to higher vulnerability of the existing cloud or on-premise infrastructure to both physical and cyber attacks leading to security breaches of critical healthcare diagnostic information. Targets in this space such as diagnostic tools and medical devices can be compromised by malware or software viruses. Compromised data and algorithms will result in errors in diagnosis and consequently inaccurate recommendations of treatment thereby causing stakeholders to refrain from using AI in healthcare diagnostics.

Patient safety

One of the foremost challenges for AI in healthcare diagnostics is patient safety. To achieve better patient safety, developers of AI algorithms must ensure the credibility, rationality, and transparency of the underlying datasets. Patient safety depends on the performance of AI which in turn depends on the quality of the training data. The better the quality of the data, the better will be the performance of the AI algorithms resulting in higher patient safety.

Mental and psychological challenges

Fear of job substitution

A survey published in March 2021 by European Radiology, the official journal of the European Society of Radiology, involving 1,041 respondents (83% of them were based in European countries) found that 38% of residents and radiologists are worried about their jobs being cut by AI. However, 48% of the respondents were more enterprising and unbiased towards AI. The fear of substitution could be attributed to the fact that those having restricted knowledge of AI are not completely educated about its shortcomings and consider their skillset to be less up-to-date than the technology. Because of this lack of awareness, they fail to realize that radiologists are instrumental in developing, testing, and implementing AI into clinical practice.

Trust issues

Trusting AI systems is crucial for the profitable implementation of AI into diagnostic practice. It is of foremost importance that the patient is made aware of the data processing and open dialogues must be encouraged to foster trust. Openness or transparency that forges confidence and reliability among patients and clinicians is instrumental in the success of AI in clinical practice.

EOS Perspective

With trust in AI amongst clinicians and patients, its adoption in healthcare diagnostics can be achieved at a more rapid pace. Lack of it breeds fear of job replacement by the technology amongst clinicians. Further, scarcity of awareness of AI’s true potential as well as its limitations also threatens diagnostic professionals from getting replaced by the technology. Therefore, to fully understand the capabilities of AI in healthcare diagnostics, clinicians and patients must learn about and trust the technology.

With the multitude and variety of challenges for AI implementation in healthcare diagnostics, its importance in technology becomes all the more critical. The benefits of AI are likely to accelerate the pace of adoption and thereby realize the true potential of AI in terms of saving clinicians’ time by streamlining how they operate, improving diagnosis, minimizing errors, maximizing efficacy, reducing redundancies, and delivering reliable diagnostic results. To power healthcare diagnostics with AI, it is important to view AI as an opportunity rather than a threat. This in turn will set AI in diagnostics on its path from pipe dream to reality.

by EOS Intelligence EOS Intelligence No Comments

Diagnostics Gain Spotlight amid Coronavirus Outbreak

It took 60 days for global COVID-19 infections to reach 100,000, but this figure doubled in the following 12-14 days, and the addition of next 100,000 cases took only 3 more days. Because of highly contagious nature of the novel coronavirus, testing became essential to keep the epidemic under control. As a result, there was a spike in global demand for coronavirus testing kits. As per McKinsey’s estimates, in May 2020, global demand for coronavirus testing was 14 million to 16 million per week, but less than 10 million tests were being conducted.

Industry was quick to respond to the rise in demand

The widespread outbreak of coronavirus required the manufacturers to develop and launch new testing kits in large volumes in a short duration of time. Diagnostics kit suppliers responded promptly to this spike in demand by developing new coronavirus testing kits. Roche Diagnostics, for instance, developed coronavirus test in about six weeks – such diagnostic tests generally take 18 months or more to reach regulatory review stage. In 2020, Roche developed a total of 15 solutions for coronavirus diagnosis.

Governments across the world eased up regulatory procedures for manufacturers in order to allow rapid development and commercialization of the coronavirus testing kits. This paved way for many companies to quickly launch new products to the market. For instance, a Korean firm, Seegene, developed coronavirus testing kit in two weeks and got approval from Korea Centers for Disease Control and Prevention (KCDC) in another two weeks’ time. Such approvals generally take more than six months in Korea.

Furthermore, standard regulatory process for approval of diagnostic kits in the USA typically take several months, but considering the public health emergency in the event of pandemic, the FDA issued emergency use authorizations to expedite the process of bringing coronavirus test kits to the market. Emergency use authorizations are like interim approvals provided on the basis of sufficient evidence to suggest a diagnostics test is effective and the benefits outweighs potential risks.

By the end of 2020, the FDA granted emergency use authorization to 225 diagnostic tests for coronavirus detection, including test kits developed by Abbott Laboratories, Roche, Cepheid, Clinomics, Princeton BioMeditech, UPenn, Inno Diagnostics, Ipsum Diagnostics, Co-Diagnostics, QIAGEN, DiaSorin, BioMérieux, and Humanigen.

Leading companies with adequate resources quickly ramped up their production capacity by multifold in line with the rising demand. For instance, a US-based firm, Thermo Fisher Scientific, increased the global production of coronavirus test kits from 50,000 per week in January 2020 to 10 million per week by June 2020. In 2020, Roche spent CHF 137 million (~US$149 million) to ramp up production capacity and supply chain for all COVID-19-related testing products.

Some companies also received government grants and private investment to scale up their production capacity. For instance, in July 2020, BD (Becton, Dickinson and Company) received a US$24 million investment from the US government to scale up production of coronavirus test kits by 50%, thereby, enabling the company to produce 12 million test kits per month by the end of February 2021.

The pandemic encouraged the shift towards decentralizing diagnostics

While the test kit manufacturers were trying to achieve round the clock production to meet the demand, they struggled with global supply chain disruptions which were also induced by the pandemic.

Coronavirus testing requires several components including specialized chemicals and laboratory testing equipment. Roche, for example, manufactures coronavirus tests in the USA but procures components of the test kit from different countries. One of the important components of test kits is reagent, a specialized liquid used for the identification of coronavirus. Roche produces these reagents mainly in Germany and few other production sites located across the world.

Further, the test kits are often compatible only with company’s own testing equipment and systems. For instance, the Roche cobas SARS-CoV-2 test kit runs on the cobas 6800 or 8800 systems. The cobas 8800 system includes approximately 23,000 components which are procured from different parts of the world. In addition to this, the production involves 101 sub-assemblies and accumulated assembly time of about 450 hours each. Final production of these instruments from Roche takes place in Switzerland.

Manufacturing of a coronavirus testing kit involves complex supply chain. Spread of coronavirus forced countries to implement extreme measures including lockdowns and trade restrictions which impacted the supply chain of test kit manufacturers. Producing all the testing components and equipment at one place is near to impossible. For instance, the production of reagents involves highly sophisticated and sensitive processes, and thus, setting up a new production site to manufacture reagents on a large scale would take several months. Setting up a new production site and streamlining the procurement for such testing equipment and systems would take several years. Hence, the diagnostics firms upped their R&D activities in an effort to develop tests that could be conducted without sophisticated laboratory systems and equipment.

Moreover, the high demand for testing compelled the diagnostics practices to evolve far beyond the traditional laboratory-based business model. The need for community testing during the pandemic that challenged the operational capabilities of hospitals and diagnostics labs dictated the importance of decentralizing diagnostics for improved patient care. This gave rise to increased demand for point-of-care testing.

The two most widely used diagnostic tests for coronavirus detection are Reverse Transcription Polymerase Chain Reaction (RT-PCR) and Antigen tests. RT-PCR test detect viral RNA in samples from the upper and lower respiratory tract, while antigen test is used to detect viral proteins in samples.

RT-PCR test is considered gold standard for coronavirus detection since the accuracy and reliability is high compared to Antigen test. However, RT-PCR test needs to be processed in a laboratory-setting and had turnaround time of several hours. Hence, there was a need for development of RT-PCR tests that could give faster results without the support of laboratory equipment.

On March 18, 2020, Abbott announced the launch of their first coronavirus test kit that was compatible with their system ‘m2000 RealTime’ which processed 470 tests in 24 hours and another ‘Alinity m’ system with capacity to run 1,080 tests in a 24-hour period. Since there was demand for more portable and fast testing solution, on March 30, 2020, Abbott launched a RT-PCR point-of-care test that ran on ID NOW system, which is the size of a small toaster. The test delivers results in 13 minutes or less. The test price is in the range of ~US$100.

Further, despite the limitations of accuracy and reliability, in some cases antigen test is preferred because there is no requirement of a lab specialist to conduct this test, thus making it less expensive, and the result is available in a few minutes. The industry saw an opportunity here and quickly developed rapid antigen tests that can be conducted at home without any assistance. For instance, in December 2020, the US FDA granted emergency use authorization to an Australia-based firm Ellume’s antigen test (priced at ~US$30) as first over-the-counter at-home diagnostic test for coronavirus detection. Soon after, Abbott also received emergency use authorization from FDA for its at-home rapid antigen test (priced at US$25) giving results in 15 minutes.

Other countries around the world also followed the suit by extending official authorization to the home-based tests for coronavirus detection. For instance, in February 2021, Germany’s Federal Institute for Drugs and Medical Devices (BfArM) granted special approval for the first time to antigen home-test kits developed by US-based Healgen Scientific as well as China-based firms Xiamen Boson Biotech and Hangzhou Laihe Biotech.

Diagnostics Gain Spotlight amidst Coronavirus Outbreak by EOS Intelligence

Coronavirus crisis accelerated innovation in the field of diagnostics

In a united fight against the pandemic, governments, private sector, as well as NGOs and philanthropists across the world stepped forward to raise funds to bolster R&D efforts in coronavirus diagnostics. As per data compiled by Policy Cures Research (an Australian firm engaged in global health R&D data collection and analysis), from January 2020 to September 2020, funds worth over US$800 million were committed for coronavirus diagnostics R&D. The firm also indicated that 450+ coronavirus diagnostics products were in R&D pipeline since January 2020 to December 2020.

With firms looking to capitalize on exponentially rising demand for coronavirus testing, the development of new diagnostics technologies beyond conventionally used tests (i.e., RT-PCR and antigen tests) picked up significantly.

For instance, in May 2020, the FDA granted an emergency use authorization to first ever CRISPR-based rapid test kit developed by Sherlock Biosciences. CRISPR, an acronym for Clustered Regularly Interspaced Short Palindromic Repeats, is a gene editing technology which allows to alter the DNA. Sherlock’s rapid test is a paper-strip test (like a pregnancy test) which can be conducted at point-of-care and does not require any additional equipment for processing of the test. The test works by programming a CRISPR enzyme to release a detectable signal in presence of genetic signature for coronavirus.

In March 2020, US-based Surgisphere launched a smartphone app using Artificial Intelligence algorithms to detect coronavirus infection. This app confirms diagnosis by integrating the findings of chest CT scan and laboratory tests with clinical symptoms and exposure history. Preliminary studies found that the tool can detect coronavirus infection with 95.5% accuracy.

Further, application of nanotechnology for diagnosis of coronavirus infection is also underway. Canada-based Sona Nanotech developed a rapid antigen test using gold nanoparticles. This is a strip test that can be conducted at point-of-care and gives result in 15 minutes. Research is in progress to develop wearable sensors using nanoparticles for detection of coronavirus. In January 2021, University of California San Diego received US$1.3 million from the National Institutes of Health to develop a test strip containing nanoparticle that change color in presence of coronavirus. This test strip can be attached on a mask and used to detect coronavirus in a user’s breath or saliva.

Innovation wave was not limited to development of different types of tests but also expanded to consumables. For instance, in March 2020, HP (a company manufacturing 3D printers) teamed up with Beth Israel Deaconess Medical Center (a teaching hospital of Harvard Medical School) to develop 3D printed nasopharyngeal swab (typically used to collect sample for coronavirus testing) and within 35 days the clinically validated swab was ready for use. By May 2020, these swabs were commercially available for the US market following the FDA approval. In June 2020, a Belgium-based 3D printing service provider, ZiggZagg, began to plan large-scale production of swabs on their fleet of HP 3D printers. By October 2020, the company had 3D-printed over 700,000 swabs for the Belgian market.

EOS Perspective

A market research firm, The Business Research Company, estimated that the global COVID-19 rapid test kits market was expected to reach a value of US$14.94 billion in 2020. Due to worldwide vaccination drive, the market is expected to decline at a rate of -54.9%, to reach US$1.37 billion in 2023.

Though the demand for coronavirus tests is expected to diminish eventually, it has supported rapid development of diagnostics infrastructure which will remain. In India, for example, only one laboratory was performing molecular assays for COVID-19 in January 2020. The COVID-19 pandemic has shifted that balance. By May 2020, some 600 Indian RT-PCR laboratories had been set up in an effort to help manage the pandemic, thousand-fold increasing testing capacity. The additional capacity will likely remain in place as the pandemic subsides, leaving the RT-PCR assay as the dominant method for diagnosing most viral infections in India in the future.

Furthermore, with surge in demand for the coronavirus testing, the provision of diagnostic services expanded beyond the purview of hospitals and laboratories. Mobile testing facilities and drive-through testing sites propped up with development of point-of-care diagnostics. For instance, Walgreens, one of the largest pharmacy chains in the USA, offer coronavirus drive-thru testing at 6,000+ locations across the country. Further, there is high-demand for home-based testing.

Diagnostics firms riding high on the COVID-19 gains have been actively scouting opportunities to strengthen their positioning in the market and prepare for the post-pandemic world. High demand for COVID-19 test kits boosted the revenues of diagnostic companies, with Roche, Thermo Fisher, PerkinElmer, Hologic, and DiaSorin among the companies benefiting. With strong balance sheet, these companies went on with M&A flurry to advance their diagnostic portfolio and other core business verticals.

As the virus originated in China, the country was better prepared and first to develop relevant detection mechanisms. By the time the virus spread to the other parts of the world, Chinese companies were ready to export detection kits globally. Coronavirus outbreak helped China to penetrate major markets such as EU and the USA in which the indigenous diagnostics companies traditionally had a stronger hold. China was a net importer of diagnostic reagents and test kits in 2019. But in 2020, after the outbreak of coronavirus, China ramped up its production capacity of diagnostic reagents and test kits, and as a result its export growth increased by more than 500% and the country became a net exporter of diagnostic reagents and test kits by the end of 2020.

This indicates that the outbreak of the pandemic has shifted the market dynamics on many fronts. As the pandemic slowly subsides, some of these shifts might partially revert, however, the way testing is performed is likely to remain.

by EOS Intelligence EOS Intelligence No Comments

Indian Pharma Needs to Reinforce Supply Chain Capabilities

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COVID-19 has emphasized the importance of a strong healthcare and pharmaceutical ecosystem for India. The constant demand for drugs and the expectation to deliver them in time put a lot of pressure on pharma supply chains, highlighting several challenges and shortcomings. At the same time, the Indian pharma sector seems to have benefited from the situation as well, as the pandemic unlocked new avenues of growth. To seize new opportunities, the Indian pharma sector should now focus on increasing manufacturing capacity, investing in R&D capabilities, developing world-class infrastructure, and strengthening its supply chain network.

Challenging times for the Indian pharma sector

With the coronavirus wreaking havoc, the Indian pharmaceutical sector was shaken, and the pandemic inflicted several challenges on the industry.

The key challenge faced by pharmaceutical companies has been the shortage of key raw materials for manufacturing drugs. India imports 60% of APIs (Active Pharmaceutical Ingredients) and DIs (Drug Intermediates), and nearly 70% of this demand is met by Chinese companies (as of July 2020). This reliance on importing cheaper raw materials from countries such as China is a result of a lack of tax incentives, the high cost of utilities, and low import duties in India.

India’s dependence on China has affected the supply of essential APIs. The recent pandemic has magnified this problem, and in order to meet the increasing demand, Indian pharma manufacturers need to strengthen their supply chain strategies by working with multiple API suppliers, both domestic as well as international.

Another concern has been the increased raw materials and logistics costs. Between January and June 2020, the production costs at the Chinese suppliers increased due to the implementation of safety and hygiene measures thus increasing the overall cost of APIs and other materials imported by India by an average of 25%. Logistics prices also went up during the same period, with the cost of shipping a container from China to India increasing to an average of US$ 1,250, up from US$ 750. Additionally, air freight charges also went up from US$ 2/kg to US$ 5-6/kg.

Furthermore, restrictions on movement of products and other goods also posed a problem for pharma supply chain. Even though the sector was exempted from these restrictions, delays in the delivery of drugs were registered. These delays have been largely contributed to by the complexity of various processes and their elements (from raw material procurement to procuring casing and other packaging material – all of which come from different locations to the final assembly point, and their delivery can be exposed to delays at each stage). While logistics companies tried to make product deliveries on time, they were restrained by limited workforce and movement restrictions (that required clearance at every step).

Moreover, due to panic buying, scarcity of OTC and generic drugs was also observed.

Government’s push to make India self-reliant

The government has undertaken steps to strengthen the pharma sector and announced several schemes and policies to boost domestic pharma manufacturing.

To reduce import dependence on APIs and boost domestic manufacturing, the government approved a US$ 971.6 million (INR 69.4 billion) Production Linked Incentive (PLI) Scheme in March 2020 to promote domestic manufacturing of APIs and KSMs (Key Starting Materials)/DIs. Under the scheme, financial incentives ranging from 5% to 20% of incremental sales will be given to selected manufacturers of 41 critical bulk drugs (of the identified 53 APIs for which the country is heavily dependent on imports). This includes aid for fermentation-based products from FY2023–2024 to FY2028–2029 and for chemical-synthesis-based products from FY2022–2023 to FY2027–2028. It is expected that the scheme will result in incremental sales of US$ 649.6 million (INR 464 billion) and generate a large number of employment opportunities.

Moreover, in November 2020, a new PLI Scheme (referred to as PLI 2.0) for the promotion of domestic manufacturing of pharmaceutical products was announced, wherein US$ 210 million (INR 150 billion) were allotted for pharma goods manufacturers based on their Global Manufacturing Revenue (GMR). Financial incentives ranging from 3% to 10% of incremental sales will be given to manufacturers (classified under Group A – having GMR of pharmaceutical goods of at least US$ 700 million (INR 50 billion), Group B – having GMR between US$ 70 million (INR 5 billion) and US$ 700 million (INR 50 billion), and Group C – having GMR less than US$ 70 million (INR 5 billion). The objective of the scheme is to promote production of high-value products, increase the value addition in exports, and improve the availability of a wider range of affordable medicines for local consumers. The initiative is likely to create 100,000 (20,000 direct and 80,000 indirect) jobs while generating total incremental sales of US$ 41,160 million (INR 2,940 billion) and total incremental exports of US$ 27,440 million (INR 1,960 billion) during six years from FY2022-2023 to FY2027-2028.

Another scheme, named Promotion of Bulk Drug Parks, was announced by the government in March 2020 to attain self-reliance. Under the plan, funds worth US$ 420 million (INR 30 billion) were allotted for setting up three bulk drug parks between 2020 and 2025. This initiative aims at reducing the manufacturing cost as well as the dependency on importing bulk drugs from other countries. Financial assistance will be given to selected bulk drug parks to the extent of 70% of the project cost of common infrastructure facilities (for north-eastern regions and states in the mountainous areas, the assistance will be 90%). The aid per bulk Drug Park will be limited to US$ 140 million (INR 10 billion).

Furthermore, to end reliance on China, Indian pharma companies are also taking steps to strengthen their operations and manufacturing capabilities with regard to pharmaceutical ingredients. For instance, Cipla Ltd. (Mumbai-based pharmaceutical company) launched the “API re-imagination” program in 2020 to expand its manufacturing capacity by using government incentive schemes.

The announcement of the above schemes is a show of intent by the government towards building a self-sufficient pharma sector in India. It will be interesting to see how much pharma players stand to gain from these potentially game-changing initiatives. However, only time will tell if these policies are good enough for the industry stakeholders or will these schemes not be plentiful enough to truly help the manufacturers.

Indian Pharma Needs to Reinforce Supply Chain Capabilities by EOS Intelligence

Investment in API and intermediaries’ sub-sectors on the rise

Since the outbreak of COVID-19, Indian pharmaceutical companies (that deal particularly with the manufacturing of APIs, vaccine-related products, and bulk pharma chemicals) have been attracting huge investment from private equity firms. This is happening mainly because of two reasons. Firstly, the occurrence of the second wave of COVID-19 in India has increased the demand for medicines (including demand for self-care, nutritional, and preventive pharma products to boost immunity), and secondly, pharma companies across North America and Europe are shifting their manufacturing sites from China to India (to reduce dependency on a single source). Indian companies received an investment worth US$ 1.5 billion from private equity firms during FY2020-2021 (since the coronavirus outbreak), and the investment is expected to reach US$ 3-4 billion in FY2021-2022.

Some of the major deals that happened in this space included Carlyle Group (US-based private equity firm) buying a 20% stake in Piramal Pharma (Mumbai-based pharma company) for US$ 490 million in June 2020 and a 74% stake in SeQuent Scientific (India-based pharmaceutical company) for US$ 210 million in May 2020. Further, KKR & Co. (US-based global investment company) purchased a 54% controlling stake in J.B. Chemicals & Pharmaceuticals Ltd. (Mumbai-based pharmaceutical company) for nearly US$ 410 million in July 2020. Another example is Advent International (US-based private equity firm) acquiring stakes in RA Chem Pharma (Hyderabad-based pharmaceutical company) for US$ 128 million in July 2020.

From a capital perspective, COVID-19 acted as an investment accelerant that will keep the market open for opportunistic deals for many years to come. In the current scenario, investment firms are re-evaluating the pharma landscape and looking to invest in innovative ideas and products that help them grow. It is highly likely that in the coming months if the right opportunity strikes, the investment firms will not be deterred from going ahead with novel deal structures. This could include arrangements such as both parties sharing equal risk and rewards, a for-profit partnership wherein the investor specifically focuses on enhancing the digital-marketing capabilities of the pharma company (rather than sticking to just acquiring a certain share or merging with an existing company) and being open to taking more risk if needed.

Partnerships expected to increase

The pandemic has led pharma companies to rethink their operational and business strategies. For long-term sustainability, players analyze their market position, partnering with other industry stakeholders for better market penetration and value creation for their customers.

In November 2020, Indian Immunologicals Ltd. (Hyderabad-based vaccine company) announced that the company would invest US$ 10.5 million (INR 0.75 billion) in a new viral antigen manufacturing plant based in Telangana that would cater to the need for vaccines for diseases such as dengue, zika, varicella, and COVID-19 (in April 2021, the company announced a research collaboration agreement with the Griffith University, Australia to develop a vaccine for the coronavirus).

Furthermore, Jubilant Life Sciences Ltd. (Noida-based pharma company) entered into a non-exclusive licensing agreement with Gilead Sciences (a US-based biopharmaceutical company), granting it the right to register, manufacture, and sell Remdesivir (Gilead Sciences’ drug currently used as a potential therapy for COVID-19) in India (along with other 126 countries).

In February 2021, to scale up the biopharma ecosystem, the state government of Telangana partnered with Cytiva (earlier GE Healthcare Life Sciences) to open a new Fast Trak lab in Hyderabad. This facility will enable the biopharma companies in the region to improve and increase production efficiency, reduce operational costs, and make products available in the market quicker.

Future ripe for new opportunities

The pandemic has opened a stream of opportunities for India’s pharma sector which are expected to drive the growth of the sector in the long term.

China’s supply disruption and increased raw material costs have forced global pharma companies to reduce dependence on China. As an alternative, the companies either set up new API manufacturing plants (which is time-consuming) or turn to existing European or US drug manufacturers to help them meet their requirements. However, both options are capitally draining, and there is a need to find a cost-efficient solution. This presents a huge opportunity for the Indian API sector, which is also a key earnings growth driver for pharma manufacturers.

India is among the leading global producers of cost-effective generic medicines. Now, there is a need to diversify the product offerings by focusing on complex generics and biosimilars. With the guidance of the United States Food & Drug Administration (USFDA) in identifying the most appropriate methodology for developing complex generic drugs, Indian pharma companies such as Dr. Reddy’s, Zydus, Glenmark, Aurobindo, Torrent, Lupin, Cipla, Sun, and Cadila are working on their product pipeline of complex generics. Currently, the space has limited competition and offers higher margins (in comparison to generic drugs), thus presenting a lucrative opportunity for Indian players to explore and grow.

Similarly, biosimilars (referred to as similar biologics in India) are another area where Indian companies have not been faring too well in international markets, mainly due to the non-alignment of Indian regulatory guidelines with the guidelines in other markets (mainly in Europe and the USA). The government had already revised the guidelines of similar biologics (done in 2016, which provided an efficient regulatory pathway for manufacturing processes assuring safety and efficacy with quality as per cGMP (Current Good Manufacturing Practice regulations enforced by the FDA)) and introduced industry-institute initiatives (such as ‘National Bio-Pharma Mission’, launched in 2017 to accelerate biopharmaceutical development, including biosimilars, among others) to improve the situation. But now, with the intensified need for improved healthcare systems and more effective medicines, COVID-19 has presented Indian companies with an opportunity to shape their biosimilar landscape.

India holds a strong position as a key destination for outsourcing research activities. While it has been a preferred location for global pharma companies to set up R&D plants for a number of years now, becoming an outsourcing hub for pharma research is another growth area that is yet to be explored to its full potential.

EOS Perspective

Currently, the Indian pharma industry is at an interesting crossroads wherein the industry responded to the unprecedented situation with agility and persistence. The pandemic presented several opportunities and challenges for the industry and unsurprisingly, had a positive impact on the sector. The pandemic acted as a catalyst for change and investment for the pharma sector, which also responded to the challenges by adjusting to the new normal that furthered new opportunities.

In the past few months, COVID-19 has led the government to reassess the country’s pharmaceutical manufacturing capabilities and led them to take steps to make India self-sufficient. As an immediate measure, the country has been reviewing its business policies (for the ease of doing business and to attract more investment) and pharma companies recalibrating their business models, and some success has been achieved. The government should also be mindful that, in the long run, success will only be achieved when industry stakeholders are presented with a business environment (in the form of incentives, tax subsidies, low rates of interest on bank loans, utilities such as electricity and water at discounted rates, and transparent business policies, etc.) that is conducive for growth.

Moving forward, the Indian pharma companies need to be adaptive and flexible. While the sector has been resilient to the effects of the coronavirus pandemic, companies need to focus on risk management as well. Moreover, with continuous capital flowing into the sector, there is an opportunity for firms to not just broaden their scope of innovation but also to invest in critical therapeutic areas.

To emerge as a winner post-pandemic, the Indian pharma industry needs to focus on its strengths and propel full steam in the direction of opportunities presented by COVID-19.

*All currency conversions as on 20th May, 2021, 1 INR = 0.014 US$

by EOS Intelligence EOS Intelligence No Comments

COVID-19 Outbreak Boosts the Use of Telehealth Services

Telehealth is one of the few sectors that have benefited from the coronavirus outbreak. Telehealth services have been around since 1950s, however, they were perceived as a nice-to-have alternative to conventional delivery of healthcare services and thus largely underutilized. COVID-19 pandemic has proved to be a game changer for the industry. Since social distancing became a necessary measure to curb the risk of COVID-19 transmission, telehealth emerged as a viable option to offer uninterrupted healthcare without physical contact. Towards the end of 2020, Deloitte predicted that virtual consultations would account for 5% of total visits to doctor in the world in 2021, up from 1% in 2019. To put this into perspective, in 2019, doctor’s visits in OECD-36 countries totaled 8.5 billion, worth approximately US$500 billion. 5% of this would result in about 400 million teleconsultations and over US$25 billion in value (if doctors earn the same for teleconsultations as for in-person visits).

Telehealth services uptake during the pandemic varied by region

While the adoption of telehealth services has increased across the globe, the growth rate varied by region depending upon factors such as technology and infrastructure, consumer awareness and willingness, government regulations, insurance policies, etc.

In the USA, world’s largest telehealth market which accounted for 40% of the global share in 2019, the growth over the years was steady but incremental mainly because of regulatory constraints and stringent insurance policies.

In response to the pandemic, the US government health insurance plans (Medicare, Medicaid, etc.) as well as private insurers expanded their coverage for telehealth services. As a result, telehealth accounted for 43.5% of all US Medicare primary care visits in April 2020, compared with just 0.1% before the pandemic. US Centers for Disease Control and Prevention indicated that the number of telehealth visits increased by 154% during the last week of March 2020, compared with the same period in 2019, primarily due to policy changes and public health guidance on telehealth during the pandemic. Considering unprecedented rise in demand for telehealth services during the times of pandemic, in April 2020, Forrester (a research and consulting firm) revised their estimation for virtual general medical care visits in the USA from 36 million to 200 million for the year 2020.

UK and France have been the dominating countries in the European telehealth market. Telehealth services’ growth momentum due to COVID-19 pandemic in these countries is likely to continue because of conducive environmental factors such as established ecosystem, favorable regulatory framework, reimbursement policies, and consumer readiness. UK’s National Health Service revealed that 48% of GP consultations in May 2020 were carried out remotely over the telephone, compared with 14% in February of the same year. Teleconsultations in France increased from 40,000 in February 2020 to 611,000 in March 2020.

Growth of telehealth market in Switzerland, Germany, and Austria has been comparatively slow as these countries have more decentralized healthcare systems in contrast to UK or France. For instance, McKinsey’s survey of over 1,000 consumers from Germany, conducted in November 2020, showed that only 2% respondents started or increased usage of telehealth services since COVID-19 outbreak.

In countries such as Greece and Czech Republic, telehealth platforms were launched for the first time during the pandemic. Ireland had telehealth platforms before COVID-19, but the adoption of the telehealth services even after pandemic remains moderate because of lack of favorable regulatory framework.

COVID-19 Outbreak Boosts the Use of Telehealth Services

China and India are among the fastest growing telehealth markets in Asia. The number of telehealth providers in China increased from less than 150 to nearly 600 between late 2019 and early 2020. Telehealth platforms in India are witnessing increased interest from both patients as well as doctors. India’s leading health-tech firm, Practo, reported that 50 million people opted for teleconsultations through its platform between March 2020 and May 2020, representing 500% growth in teleconsultations during this time. 1mg Technologies, another telehealth service provider in India, indicated that between March 2020 and July 2020 nearly 10,000 doctors showed interest in signing up with the platform to offer teleconsultations. The company had only 150 doctors onboard until March 2020.

Japan, which is one of the largest healthcare markets, lagged in remote healthcare services because of stringent legislative policies. Remote consultations were allowed only for recurring patients and for limited number of ailments. Following the spike in COVID-19 cases, Japan temporarily eased restrictions on telehealth by allowing doctors to conduct first-time consultation online. Japan health ministry indicated that about 15% or 16,100 Japanese medical institutions (excluding dentists), offered telehealth services by July 2020. This shows phenomenal growth as in July 2018 only 970 of such Japanese healthcare institutions offered telehealth services.

In South Korea, telehealth was banned before COVID-19. This ban was lifted temporarily during the pandemic, but the long-term growth of telehealth in South Korea will depend on how the regulatory framework is shaped in the post-COVID era.

Vietnam also joined the telehealth upsurge as the country’s first telehealth app (developed by the Vietnamese multinational telecommunications company, Viettel) was launched amidst corona virus outbreak in April 2020.

Industry stakeholders seek to capitalize on telehealth boom

Healthcare providers have turned to telehealth to compensate for cancelled in-person consultations due to COVID-19 outbreak. This has encouraged providers to scale up their telehealth capabilities. For instance, over 56,000 doctors in France started teleconsultations by July 2020, as compared with only a few thousands at the beginning of the year.

Healthcare providers are not the only players looking to capitalize on the increase in demand for telehealth services. Other industry participants such as insurers and pharmacies are also exploring this segment.

In the USA, leading insurers such as Cigna, United Health, Aetna, Anthem, and Humana are partnering with telehealth providers to capitalize on the spurt in virtual healthcare demand. For instance, in February 2021, Cigna announced plans to acquire MDLive, Florida-based telehealth firm serving 60 million people across the USA, with a view to bring telehealth services in-house and reduce the patient-provider accessibility gap. Pharmacy giants Walgreens and CVS also extended access to telehealth services during COVID-19 crisis. In March 2021, a US-based digital retail pharmacy NowRx expanded into telehealth to provide care for HIV patients in California.

Since telehealth primarily encompasses delivery of healthcare services through digital and telecommunications platforms, telecoms and cable operators are uniquely positioned to organically expand in to telehealth space. Telecoms have the opportunity to expand in healthcare space by delivering telehealth as a value-added service. In October 2020, CommScope, an infrastructure solutions provider for communications networks, estimated that telehealth has the potential to create US$50 billion per year revenue opportunity for internet and telecom service providers in the USA.

Moreover, leading technology firms including Amazon, Microsoft, Salesforce, Tencent, Alibaba, and Alphabet are also investing in or considering to invest in telehealth. For instance, in January 2020, Alibaba launched an online coronavirus clinic, to offer remote assistance to patients across China.

Telehealth startups are mushrooming across the world and raking in millions in investment. Mercom Capital Group indicated that, in 2020, telehealth attracted nearly US$4.3 billion in venture funding. This represents 139% year-on-year increase compared to US$1.8 billion in 2019 implying that COVID-19 outbreak was the key driver behind the increased investment in telehealth.

Since everyone is trying to grab a piece of the growing telehealth market cake, this has led to flurry of M&A deals. Mercom Capital Group recorded 23 M&A transactions in telehealth space in 2020, up from 14 transactions in 2019.

EOS Perspective

COVID-19 outbreak worked as a catalyst resulting in dramatic increase in telehealth services utilization; whether this growth will continue in the long term, remains a question. This growth of telehealth market is primarily demand-driven. Thus, to sustain the growth momentum it would be imperative to overcome the challenges faced by the industry before the pandemic.

Ambiguous and often changing regulatory framework remains one of the biggest hindrances to telehealth. In order to tackle the spread of coronavirus, many countries temporarily relaxed their regulations for telehealth. However, it remains unknown whether countries will pull back the relaxations once the pandemic is over. Moreover, telehealth opens up doors for cross-border provision of healthcare services. This calls for development for a universal law for telehealth which is acceptable worldwide.

Further, the market will also largely depend on how the reimbursement policies evolve in the future. Historically, in many countries, reimbursement for teleconsultations has been lower than for in-person consultations. During the pandemic, the reimbursement amount was leveled in order to encourage adoption of telehealth. This proved to be a strong incentive driving the surge in telehealth. Post the pandemic, if the policies are changed again offering lower reimbursement for teleconsultations as compared with in-person visits, this could impact the growth momentum.

Data security and privacy concerns have long been debated as some of the biggest barriers for telehealth worldwide. Development of more secure platforms using technologies such as blockchain, AI, and Secure Access Service Edge (SASE) networks could potentially address these issues in future. Further applications of blockchain are being explored to improve operational transparency, increase protection of health records, and detect fraud related to patients’ insurance claims as well as physician credentials.

It is believed that the risk of misdiagnosis increases with telehealth as compared to in-person visits. This risk can be significantly reduced by integration of remote patient monitoring technologies with teleconsultations. IoT-enabled remote care monitoring technologies have been evolving by leaps and bounds. Teleconsultations carried out in conjunction with data collated from smart wearable devices can potentially help to cut down misdiagnoses.

Telehealth has become the new normal amidst coronavirus outbreak. While the telehealth market growth in the next 2-3 years could be attributed to pandemic crisis, the future will depend on how the regulatory framework will shape up and whether the industry will be able to tackle the challenges related to the technology implementation.

by EOS Intelligence EOS Intelligence No Comments

Blockchain: a Frontline Warrior in Battling COVID-19 Pandemic

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SARS-COV-2 has brought the world to a standstill. Technology and its creative uses have been playing a pivotal role in sustaining lives during the pandemic as well as combating the crisis. One such technology that has been at the forefront of the pandemic is blockchain. From mitigating supply chain issues with medicines and protection gear to facilitating transparency in donations to effectively tracking the spread of the virus and protecting patient privacy, blockchain technology is being applied across the spectrum to contain and manage the outbreak.

The current pandemic has brought to light many inefficiencies and limitations of the existing global healthcare systems, wherein governments across the globe are grappling to control the outbreak, challenged by the lack of a unified, interconnected, and trusted network to share data and track cases. Blockchain has several inherent properties, such as decentralized ledger, transparency, and immutability, that make it suitable for handling and managing various aspects of containing the pandemic.

Outbreak tracking

Global health authorities and governments across the globe are having a hard time gathering authentic data regarding tests and patient numbers, hospital beds, recoveries, etc. Currently, most of the data circulating is disparate and comes from multiple sources, such as hospitals, labs, the public, and media, instead of one authorized source. This is extremely damaging since it results in the creation of a great amount of inaccurate and duplicate data, which, if trusted, makes the process of tracking and containment both time-consuming and ineffective. This is counter-productive to the management of a disease that is as fast-spreading as COVID-19.

Blockchain technology can come into play in effectively tackling this issue. Owing to its distributed and immutable nature, blockchain can provide a feasible solution for tracking the outbreak. Blockchain-based apps facilitate organizations across the globe to form a single connected network where data can be shared in real time and securely. Moreover, since data stored in the blockchain is immutable, it is protected against unauthorized changes, and its distributed nature ensures protection against fraudulent data (since each entry requires consensus algorithms and smart contracts). Lastly, blockchain efficiently manages high volumes of data (as in the cases of the COVID-19 pandemic) on a real-time basis, which cannot be managed using human resources.

However, in addition to these factors, the aspect that stands out the most and makes the blockchain technology ideal for monitoring and managing outbreak-related information is the level of privacy it offers. People do not wish for their information to be shared publicly or be used for other purposes. Thus, it is a challenge to get patients to collaborate with governments and healthcare institutions to share information regarding their condition and wellness. For instance, the Israeli government recently permitted healthcare institutions to track citizens’ mobile phones to control the spread of coronavirus. This has raised concerns from human rights organizations as citizens are not comfortable with sharing their personal information.

Since blockchain uses a distributed ledger, which ensures accountability and transparency with regard to access to its stored data, the information shared through blockchain cannot be extracted or misused. Moreover, information stored in a blockchain cannot be hacked. This encourages patients to share information regarding their condition, symptoms, location, and underlying health conditions without fear of the information being misused or shared with any third party.

Furthermore, information shared by patients in a blockchain network may not only be used for tracking the outbreak but also facilitate health centers’ study of the disease characteristics and patterns to develop treatment and solutions.

For instance, WHO has been using a blockchain-based data streaming platform, called MiPasa, which facilitates the sharing of information amongst need-to-know organizations such as state authorities and health officials. The platform is built on top of Hyperledger Fabric and partners with IBM for blockchain and cloud platforms. The application cross-references siloed location data with health information to track and prevent the spread of the outbreak, all while protecting patient privacy.

In another example, an Atlanta-based developer of blockchain-enabled healthcare applications, Acoer, developed an application called HashLog, which allows real-time logging and data visualization of the spread of the infection. HashLog provides real-time updates on the spread of the disease by tracking the movement of infected people to identify potential outbreaks and prevent further spread. The application uses the Hedera Hashgraph distributed ledger technology, and each entry is recorded through a verified hash reference on the ledger, ensuring that the data is correct.

Donations

In addition to tracking and preventing outbreaks, blockchain also plays an important role in securing donations. From hospitals and state authorities with insufficient funds for medical supplies to economically weaker sections of the population losing sources of income due to lockdown, the current pandemic has displaced a huge number of people across the globe. Thus, in such times, donations play a critical role in sustaining livelihoods and providing healthcare supplies to the affected people. However, given the fraud associated with donations in recent times, lack of trust is a common factor affecting the success of donations. Several individuals want to help and donate, however, are discouraged due to fear of their money being misused.

For instance in India, the government and police warned citizens against several fake relief schemes that have been floating in the name of COVID-19 relief, some even mirroring the Prime Ministers Relief Fund. These kinds of activities deter willing people from donating.

Blockchain technology can be used to effectively combat this issue. Since all transactions in the blockchain are secure, transparent, and traceable, donors can track their funds and see where they are utilized. This gives confidence to donors that their funds are being used for the exact purpose that they intended.

One such example is Hangzhou-based blockchain startup Hyperchain, which built a blockchain-based donation tracking platform for supporting government and hospitals (such as Tangshan People’s Hospital, Jiayu People’s Hospital, and Xiantao No. 1 People’s Hospital) in the donation process. The platform has attracted more than US$2 million in donations.

 

Blockchain a Frontline Warrior in Battling Coronavirus Pandemic by EOS Intelligence

Supply chain tracking

Blockchain technology has been deemed extremely useful in managing and tracing the supply chain in several sectors as retail (for more insights on this, read our article Blockchain Paving Its Way into Retail Industry). However, given the current pandemic, the technology can also utilize similar functionalities and play a significant role in tracking of medical supplies.

Given the pace of the spread of COVID-19, authorities and healthcare organizations across the globe have faced a shortage of medical supplies, such as masks, sanitizers, PPE kits, ventilators, testing equipment, as well as some medicines. This drastic increase in demand has resulted in the distribution of a large number of counterfeit and faulty products. Blockchain technology can play a significant role to combat this. Given the data provenance in blockchain and its immutable nature, it is possible to identify and trace back every touchpoint of the medical supplies to ensure its authenticity.

In addition to filtering counterfeit products, blockchain also helps streamline the supply chain process to ensure hospitals and doctors secure timely supplies to treat patients. Blockchain can provide real-time updates regarding demand so that medical manufacturers can adjust production levels accordingly. In addition, it can help fast-track supply chain contracts through the use of smart contracts and facilitate faster payments, thereby improving overall efficiency.

In February 2020, China-based AliPay, along with the Zhejiang Provincial Health Commission and the Economy and Information Technology Department, launched a blockchain-based platform to facilitate the tracking of medical supplies required for fighting SARS-COV-2. The platform has improved trust within the medical supply chain since it records and tracks the entire provenance of preventive supplies, including masks, gloves, and PPE kits.

Apart from the medical supply chain, blockchain can also help limit supply chain disruptions faced by several other industries due to lockdowns in several parts of the world. However, companies that are using blockchain for managing their supply chain have an advantage as they have better visibility into their complete supply chain and thereby can identify points of disruption in a timely manner.

Avoiding future pandemics

Blockchain is on the front line for fighting the current pandemic, but it also has the potential to prevent future disease outbreaks. Most of the current healthcare surveillance systems across the globe are outdated and lack the required timeliness and efficiency in sharing information with local as well as international health enforcement organizations. Moreover, sometimes there is a question of deliberate delay in the sharing of critical information.

To this effect, blockchain-based health surveillance systems can help mitigate future outbreaks. Since they operate on a decentralized ledger, the surveillance data is transparently available to health organizations across the globe in a real-time manner, without the fear of any political disruptions. Timely knowledge of a potential outbreak is the first and most critical step in preventing a similar situation in the future.

In addition to the above-mentioned applications, blockchain companies, along with institutions, are developing creative solutions that help reduce challenges faced by people due to COVID-19 in their day-to-day lives. For instance, Toronto-based blockchain company Emerge launched a public safety app called Civitas, which assists citizens and local authorities across Latin America. This app matches one’s official ID to confidential medical records stored in the blockchain to identify whether the person is allowed to leave the house or not. Thus, the app allows police to verify if the person has travel permission just on the basis of their government ID and without gaining access to the person’s medical records. The app also determines the safest time and day for going out for essentials for people who are experiencing COVID-like symptoms.

Moreover, as discussed in our previous article (Blockchain Scores Well in the Education Sector), blockchain is also extremely useful in the virtual education scenario, which is now the new way of schooling for a large part of students across the globe.

EOS Perspective

Blockchain technology has several inherent properties that make it ideal for helping to manage and combat the current pandemic. Its decentralized, traceable, and immutable properties make it especially desirable for managing contact tracing and outbreak tracking, which are critical in handling a pandemic efficiently. Moreover, the benefits of blockchain are further amplified when used alongside other technologies, such as artificial intelligence, cloud computing, and big data.

However, despite its several uses, the issue of scalability plagues blockchain adaption at a larger scale. Blockchain is still a nascent technology and lacks high-level scalability. With COVID-19 affecting most of the world, the current blockchain companies do not have the level of scalability to provide all-encompassing global-level solutions.

Furthermore, blockchain technology does not operate alone, and it needs to be configured with the operating legacy system of companies and other stakeholders. However, most legacy systems are relatively old and, therefore, do not support blockchain technology. Updating or reconfiguring a legacy system is a tedious process (both in terms of time and money), and companies may not want to tie up resources for that at the current time.

Given these drawbacks, blockchain may not be deployed at a global-scale level during this pandemic, however, its inherent benefits have made companies, authorities, and global health organizations ponder, explore, and evaluate its potential in managing such situations in the future. While the COVID-19 pandemic has caught the world largely unprepared, organizations and companies across the globe are gearing up to ensure this history is not repeated, and blockchain technology has emerged as a critical part of the solution.

by EOS Intelligence EOS Intelligence No Comments

The Smoke around Legal Cannabis

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Till date, 31 countries and 41 states in the USA either legalized cannabis in various forms, including making it legal for medical or recreational use, or decriminalized it while still maintaining its illegal status. Few countries are preparing to legalize or decriminalize the use of marijuana for all purposes while many countries are still debating over the legalization of this plant only for medical and not for recreational use. With the rise in education about cannabis and its benefits for humans, economies, and culture, chances of positive changes in laws around cannabis are growing across the world. As legalizing cannabis is still a topic of debate with variety of business, political, and cultural views involved, we are looking at how the legalization of cannabis might impact the economy and businesses in the countries taking the step towards less restrictive approach to handling the issue.

Cannabis – a controversial medicinal plant

Cannabis or marijuana plant and its alleged benefits and risks for human body have been a difficult topic of debate amongst law makers, medical professionals, researchers, economists, politicians, and (of course) cannabis users. In many parts of the world, it still has negative connotations with a narcotic drug, due to presence of psychoactive substance tetrahydrocannabinol (THC) which brings an intoxicating effect to human mind.

In many countries, cannabis has been treated similarly to other chemical drugs, such as cocaine, heroin, etc., in terms of its legal status, by banning from legal cultivation, purchase, or selling for any purpose. However, there has been a continuous development in spreading awareness by the medical professionals, researchers, and scientists on the benefits of using cannabis for medical purposes. This has been followed by voices being raised on people’s right to legalized cannabis also for recreational purposes, comparing it with alcohol and tobacco, which are claimed to have far worse impact on human health, yet are enjoying legal status in many countries.

In addition to this, many economists too are coming forward in favor of legalizing cannabis to bring a boost to economies. As a result of such strong petitions, more and more countries are considering legalization of cannabis and the future might see countries such as USA (including all 50 states), Mexico, New Zealand, The Netherlands, Columbia, France, Spain, Italy, Czech Republic, Jamaica, and Portugal legalizing the plant for all purposes, along with legalization of personal cultivation of cannabis with an aim of bringing cure or relief to several diseases, helping to control healthcare costs, curbing illegal drug businesses, and stimulating country’s economy through adding another taxable business activity.

The Smoke around Legal Cannabis

Countries signal green light for marijuana

The league of countries with full legalization of cannabis for all purposes is still a small, two-member club, which was most recently entered by Canada (in October 2018) with more than 100 legal cannabis retail stores running across the country. After Uruguay that started this league in December 2013, Canada is the second country in the world to completely legalize cannabis, and it does not seem that the club will expand any time soon.

The USA are considering to gradually legalize cannabis for recreational use along with medical use. As of November 2018, The District of Columbia and 10 states including Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington have legalized the recreational use of cannabis. An addition of 30 states along with US territories of Puerto Rico and Guam allow the use of cannabis only for medical purposes.

Amongst the European countries, none of them has legalized smoking cannabis or using it for recreational purposes yet, but there are several countries which have legalized the medical use of cannabis under a treatment process, while also decriminalizing the use of cannabis for recreational purposes. Malta, Greece, Luxemburg, and Denmark are amongst the European countries that legalized medical cannabis in 2018 adding to the group of other European countries such as Italy, Norway, Poland, The Netherlands, France, Spain, Slovenia, to name a few.

Some Asian countries are also moving towards legalizing cannabis but exclusively for medical purposes and that too with strict policies. Recently, in November 2018, Thailand legalized medical marijuana, but with very stringent rules to get access to marijuana plants. Also, in November 2018, South Korea became the second Asian country to legalize medical cannabis, while Malaysia is expected to be the third nation to fall into this group. Interestingly though, India, known to be the origin of cannabis sativa plant, has not legalized the use of cannabis for any purpose yet, although the country runs a huge illegal trade of marijuana as well as hashish (a drug made of cannabis resin). There are many petitions already submitted by various Indian economists and politicians in favor of legalizing cannabis for use in cancer patients and even hemp cultivation for horticulture use, but due to changing political environment in India, the petitions are still pending to be considered by the relevant law-making bodies.

Cannabis business – boom in economies

According to a report published in 2018 by Brightfield Group, with the on-going trend of countries moving towards legalizing cannabis, the global legal cannabis market is expected to reach US$ 31.4 billion by the end of 2021, owing to the growing adoption of medical cannabis in treatment or relief in a range of diseases and ailments, such as cancer, mental disorders, chronic pains, and others.

Apart from medical applications, the recreational use of cannabis too has led to a continuous rise in sales of cannabis for direct and indirect use, thus giving a push to retail businesses as well as tourism sector in countries that moved towards legalization. As a result of the rise in sales, governments of these countries and states have registered increased tax revenues and a boost to local economies. For instance, California that legalized cannabis for recreational use in January 2018, generated US$74.2 million of tax revenue during second quarter, with a rise of 22% over the first quarter. In another, more hypothetical example, according to a report by Canada’s Parliamentary Budget Officer, Canada could generate US$463.74 million in tax revenue by 2021 if the projections of nearly 734 metric tons of legal cannabis to be consumed by that year are correct.

Similarly, according to a study by New Frontier Data, if cannabis was legalized in all American states, it would generate a combined US$131.8 billion in federal tax revenue between 2017 and 2025, considering 15% retail sales tax, payroll deductions, and business tax revenue. In fact, according to a research study by Ameri Research Inc. in 2017, in the USA, tax revenues from legal cannabis are now comparable with revenues from other products, such as draft beer and e-cigarettes, a fact highlighting the recent growth of sales in legal cannabis market in the USA.

Apart from tax revenue generation, creating new business opportunities is also one of the reasons for countries to seriously consider legalization of cannabis. States such as Colorado, for example, have registered some 431,997 new business entities between 2014 and 2017. In 2017, it also experienced a 17.7% rise in employment over 2016 with 17,281 full-time equivalent jobs. Also, in 2017, across the USA, there were 9,397 active licenses with slightly more than 3,000 licenses active in Colorado. These licenses were made active for cannabis businesses dealing with cultivation, manufacturing, retailing, distributing, delivering, and even lab testing that generated 121,000 jobs in 2017 across the District of Columbia plus 10 US states. This number is expected to reach 1.1 million jobs by 2025, if cannabis is legalized in all 50 states, across all ends of cannabis industry supply chain, from farmers to transporters to sellers.

It is expected that through legalization of cannabis, several countries, especially Mexico, USA, and Canada, are also expected to witness significant drop in illicit activities related to drugs industry. According to a study by Deloitte in 2018, cannabis users in Canada are willing and in fact looking forward to pay more for legal purchase of cannabis grown and processed under federal laws and sold through legal channels rather than going for illegal drug purchase options. This goes hand in hand with Canadian government’s hopes to crack down on illegal drug trade while also finding new sources of stimulation to the country’s economy.

Impact of legal cannabis market on other business sectors

The emergence of legal cannabis market has raised many business opportunities in various sectors such as retail, food and beverages, real estate, and even tobacco and alcohol industry.

Amongst these sectors, real estate has been developing strongly in many countries allowing for legal cannabis for medical as well as recreational use. Properties and facilities that are well-suited for cannabis-related operations are experiencing rise in industrial rents and sales price premiums owing to the rise in demand for warehouses, industrial and storage facilities, agricultural, and other properties.

In Canada, legalization of growing and sales of recreational cannabis has fueled a six-fold surge in plant-growing facilities to 8.7 million square feet in 2018 according to data from Altus Group, Canadian real estate company. Aurora Cannabis, one of Canada’s leading cannabis companies, has already started its project for cultivation of cannabis in a new 8 million square feet facility in 2018. Canopy Growth, market leader in cannabis industry of Canada, has announced plans in October 2018 to develop 3 million square feet of greenhouse space in British Columbia through October 2019, which will be more than double its production surface as of 2018. With the legalization of cannabis, the demand is also rising for commercial real estate thus giving an opportunity for struggling retailers to make a move into a new market. Alberta, where cannabis industry is fully private, has experienced a sharp surge in demand for 1,200 to 3,000 square feet retail real estate to set up cannabis shops and dispensaries in malls and street-front locations.

Similarly, within the USA, Colorado, experienced a rise in real estate sector through increase in housing values by about 6% owing to increasing development in retail sector through legal cannabis pharmacies, dispensaries, cafés, and retail shops. Going beyond real estate, the retail industry is also likely to receive a push thanks to opportunities in auxiliary businesses such as accessory shops, cannabis cafés, weed gardening products stores, bakeries, and candy shops, contributing to rising demand for retail locations.

The impact of cannabis legalization is visible also in food and beverage industry thanks to new products such as cannabis-infused edibles such as cakes, candies, and drinks. In 2017, California reported sales of US$180 million of edibles, whereas Colorado has seen about a 60% rise in edibles sales volume (with 11.1 million edibles unites been sold in the same year). The future of food and beverage industry with cannabis-infused edibles is projected to be promising due to the benefits of cannabis plant for using it in food products. According to a food and beverage industry expert, Sylvian Charlebois, cannabis offers good nutrients (proteins, vitamin E and C, to name a few), hence for food products manufacturers looking for new avenues of growth, cannabis could be deemed the next ‘superfood’.

On the other hand, the legalization of cannabis has affected alcohol industry due to the emerging inclination of people towards choosing the “green high” over alcoholic drinks.

According to a study by Deloitte in 2018, in Canada, cannabis is likely to be increasingly perceived as a substitute to beer, spirits, and wine which could negatively impact the alcoholic beverages-related revenues for governments, liquor companies, and retailers. This is already observed in the USA, where a joint recent research study of 10 years conducted by two US-based universities, namely University of Connecticut, Storrs and Georgia University, Atlanta in cooperation with Universidad del Pacifico in Peru, has suggested that the counties located in medical marijuana states showed almost a 15% decline in monthly alcohol sales between 2006 and 2015.

At the same time, some industry experts believe that since it is part of American and European food culture to drink alcoholic drinks such as beer and wine with food, the legalization of cannabis is not going to affect the demand for such food-complementing alcoholic drinks. In fact, cannabis legalization is also coming out to be a stepping stone for large alcohol brands to enter the cannabis industry with cannabis-infused alcoholic beverages, mostly through mergers and acquisitions with leading cannabis growing companies. In August 2018, New-York based Constellation Brands acquired more that 50% stake of Ontario-based Canopy Growth for US$4.0 billion, the largest investment registered in cannabis industry so far. The received investment is believed to help Canopy Growth strengthen and expand its leadership position in Canada and other countries with legalized cannabis. It is expected that in the future, other alcohol industry leaders will also consider getting involved in cannabis industry in order to expand through cannabis-infused drinks, creating a new segment of products with combination of alcohol and cannabis.

EOS Perspective

The benefits of cannabis on human body in diseases such as cancer, acute and chronic pains, or neurological and mental illness, have resulted in a growing count of countries legalizing use of cannabis. On the other hand, the legalizing of cannabis for recreational purpose is still receiving mixed views by industry experts and public opinions in several countries. The only way to make this experiment work, is to follow the steps of those countries that have legalized recreational cannabis and are simultaneously focusing on implementing a completely regulated system to scrutinize the whole supply chain in order to curb illegal drug activities and over-dose of cannabis by the users.

For this purpose, the leaders – Uruguay and Canada – have created systems of registration cards with a specific limit to purchase a quantity of cannabis for recreational use per month. As a result of this, the situation is expected to be under control and authorities believe that this will help in curbing illegal trade activities while keeping check on personal consumption of cannabis.

It is also recommended to consider the fact that legalization of cannabis for recreational and medical purposes is likely to reduce the use of other, more harmful and addictive drugs, as well as curb (at least to some extent) the over-consumption of alcohol that is associated with serious health hazards and many deaths, generating huge social burden and healthcare costs in many countries.

Considering all these factors, the success of legalizing cannabis for all purposes in any country depends on how the processes across cultivation, distribution, retail, all the way to the end buyer is regulated and scrutinized by the law makers and law enforcers of the country. There surely are both pros and cons of legalizing cannabis but with solid work towards improved awareness, and, more importantly, a regulated system with proper (enforced) laws, it can give the countries a boost to their economies along with rise in employment, better medical treatments, and decline in illegal drug activities.

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