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16/04/2024by EOS Intelligence EOS Intelligence No Comments

Anti-Obesity Drugs – Pharma Companies Race to Grab a Bite of the Pie

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For many years, bariatric surgery has been the go-to option for people struggling with obesity and obesity-induced conditions. However, for the last couple of years, another easier option has become available in the form of GLP-1-based weight loss drugs. This class of medicine mimics a hormone that helps reduce food intake and control appetite. These drugs have revolutionized the weight loss market, which was previously dominated by gimmicky and fad-based OTC solutions. Due to GLP-1’s proven effectiveness, there is soaring demand for these drugs, outstripping its current supply capacity. While only two players operate in this market, several leading drugmakers have been racing to develop their own version of the drug. Moreover, with additional proven merits of the drug beyond just weight loss, it has become more appealing for pharma players to invest in.

GLP-1 anti-obesity drugs make big waves in the pharmaceutical sector

Over the past few years, anti-obesity drugs have received immense attention from healthcare professionals, pharmaceutical companies, and the general public. A new class of medication that stands out is glucagon-like peptide-1 (GLP-1) agonists, traditionally used for treating Type 2 diabetes. But along with managing diabetes, these drugs also suppress appetite and lower calorie intake by mimicking the GLP-1 hormone (a gastrointestinal hormone), which causes the patient to feel fuller longer and thereby prevents overconsumption. Regular intake of such drugs is deemed to result in a weight loss of about 15-25% of body weight in obese people.

GLP-1 agonists received FDA approval as anti-obesity drugs in 2021. Given their promising results, the demand for these drugs has increased immensely. However, despite the patient’s high out-of-pocket price of US$1,000 plus, there are severe shortages in the market.

Anti-Obesity Drugs – Pharma Companies Race to Grab a Bite of the Pie by EOS Intelligence

Only two players operate in this highly-coveted market

The GLP-1-based medication is now marketed in two categories – one for managing diabetes and blood sugar levels and the other as a weight loss drug. The GLP-1-based weight loss drug market is highly consolidated, as only two players operate in this space. These are Denmark-based Novo Nordisk and US-based Eli Lilly.

Novo Nordisk, the market leader, received FDA approval for its weight loss injectable, Wegovy, in June 2021. This drug uses the same active ingredient as Novo Nordisk’s diabetes drugs, Ozempic and Rybelsus (oral); however, it has a different dosage and can also be used for weight loss in patients who do not have diabetes. That being said, Ozempic has also been used off-label for weight loss.

On the other hand, Eli Lilly’s injectable drug for weight loss, Zepbound, received FDA approval in November 2023. Eli Lilly’s glucose-dependent insulinotropic polypeptide – GIP/GLP-1 injectable drug for diabetes, Mounjaro, has the same composition and dosage as Zepbound and is often prescribed off-label for weight loss as well.

While Novo Nordisk’s drugs, which use semaglutide as an active ingredient, result in weight loss of about 13 to 22 lbs, the drugs by Eli Lilly have tirzepatide as an active ingredient. They are stated to result in a weight loss ranging between 15 and 28 lbs.

From a price-point perspective, Wegovy has an out-of-pocket cost of US$1,349 per month, compared to Zepbound, which has an out-of-pocket cost of US$1,060 per month. Thus, while Novo Nordisk’s Wegovy has the first-mover advantage, Eli Lilly’s Zepbound is considered more effective and better priced.

Currently, both weight loss drugs by Novo Nordisk and Eli Lilly come in the form of injectables. However, both companies are developing oral versions of the drug as they are easier to administer and more convenient to prescribe. They may also help ease supply constraints currently impacting the injectables. In June 2023, Novo Nordisk conducted Phase 3 trials for its once-daily oral Wegovy drug, according to which the drug helped obese adults lose about 15% of their body weight. Similarly, in June 2023, Eli Lilly conducted Phase 2 trials for its oral GLP-1 receptor for weight loss. The drug helped obese adults lose up to 14.7% of their body weight. Both companies are optimistic about the outcomes of their trials; however, the expected launch timelines for these drugs have yet to be determined.

Leading drugmakers race to compete in the growing anti-obesity drug market

Currently, Novo Nordisk and Eli Lilly are the only two players operating in this market. However, several other leading pharmaceutical players have joined the race and are working towards developing their own version of the drug, either through in-house R&D or through strategic acquisitions.

Moreover, they are targeting their research towards developing and marketing a new generation of GLP-1-based medications that are administered orally, are longer lasting, and have additional health benefits and limited side effects.

In February 2024, US-based biopharmaceutical company Amgen successfully completed a Phase 1 clinical trial for its GLP-1 agonist drug, MariTide. As per the trials, the drug produced a 14.5% weight loss in patients administered the highest dose. Moreover, the company claims that the trial indicates that patients may need to take less frequent doses of MariTide (compared with current competition), and the weight loss achieved stays significantly longer. The company has begun its Phase 2 trial, with results expected by late 2024.

In December 2023, Swiss-pharmaceutical giant Roche acquired US-based Carmot for US$3.1 billion (US$2.7 billion upfront cash and US$400 million on certain milestones). This acquisition has helped put Roche on the map for obesity drug development. Carmot has two GLP-1 agonist molecules for weight loss, which are currently being tested in the mid to advanced stages of clinical trials. The first drug, CT-388, is a once-weekly injectable and has completed Phase 1 clinical trial, while the other drug, CT-996, is an oral drug currently undergoing Phase 1 trials.

In November 2023, UK drugmaker AstraZeneca entered into an agreement with Shanghai-based Eccogene, wherein the former licensed an oral once-daily GLP-1 receptor agonist called ECC5004 for the treatment of obesity, Type 2 diabetes, and other cardiometabolic conditions. For this, AstraZeneca agreed to pay Eccogene an upfront fee of US$185 million for the drug and a further payment of US$1.83 billion in future clinical, regulatory, and commercial milestones and tiered royalties. The drug is currently in Phase 1 development, and the company hopes to enter Phase 2 of clinical studies by the end of 2024. In the past, AstraZeneca stopped the development of two GLP-1 agonist drugs that were being developed in-house. The development of an injectable called Cotadutide was halted in April 2023, and an oral drug called AZD0186 was halted in June 2023 after their respective Phase 2b and Phase 1 clinical trials did not yield the desired results.

Pfizer, one of the most active companies in this regard, has faced multiple failures in their endeavor to develop a competitive obesity drug. In 2020, it started a clinical trial for its GLP-1 agonist weight loss drug, Lotiglipron. However, in June 2023, the company stopped developing the drug after its Phase 1 and Phase 2 drug interaction studies indicated a rise in liver enzymes in patients who took the drug once a day. In 2021, the company simultaneously began working on another GLP-1 receptor agonist, Danuglipron, which was to be taken twice daily. While the Phase 2a trial for the drug in June 2023 showed promise, the company halted the development of the drug post its Phase 2b trial in December 2023. The drug was scrapped as, despite significant weight loss, the trial patients experienced high rates of common gastrointestinal and mechanism-based adverse side effects. The company is now conducting a pharmacokinetic study with a once-daily version of the Danuglipron drug that will provide guidance on future development plans.

Pfizer’s failure with these two drugs demonstrates the struggle the leading pharma companies face to develop a safe, effective, and tolerable GLP-1 agonist for weight loss.

GLP-1 agonist drugs have benefits beyond diabetes and weight loss

Despite multiple setbacks, leading pharma companies are investing heavily in this space, as they understand the potential of these drugs. While currently, GLP-1 agonists are poised as diabetes and weight loss drugs, they have far more benefits. Data from ongoing clinical trials and independent studies suggest that GLP-1 agonists also help improve cardiovascular health and kidney function and help treat addiction and dementia.

In March 2024, Novo Nordisk’s Wegovy received FDA approval for reducing the risk of serious cardiovascular complications in adults with obesity and heart disease. This is based on the results shared from the company’s three-phase trial SELECT, which indicated that Wegovy reduced patients’ risk of major cardiovascular problems by about 20% during the five-year trial period.

Similarly, in 2019, the company started another clinical trial, FLOW, to determine the impact of GLP-1 agonists on kidney function. As per the interim results in October 2023, the trial displayed that Ozempic (Wegovy’s diabetes counterpart) reduced the risk of kidney disease progression and kidney and cardiovascular death in diabetes patients by 24%. Given its success, the company has halted the trial at the interim stage.

An initial study conducted on animals in March 2023 reportedly showed positive results for curbing addictive tendencies, such as drinking and smoking, with Ozempic. Currently, two trials are being undertaken to validate the use of GLP-1 agonists in humans to manage drug and alcohol addiction. Given the testimonies from current users of the drug, it is indicative that the drug has been helping users curb their addictions.

In addition to this, several researchers are also suggesting that GLP-1 could be used in the treatment of dementia and other cognitive disorders. This is based on the claim that GLP-1 agonists reduce the build-up of two proteins, amyloid, and tau, in the brain. These two proteins are known to be responsible for Alzheimer’s disease, which is the most common form of dementia. In February 2022, a new trial at the University of Oxford was initiated to test people with high levels of amyloid and tau and at risk of developing dementia to determine if the use of GLP-1 agonists would result in a reduction in tau accumulation and brain inflammation. The interim results from the study have not yet been disclosed.

High prices and limited coverage pose as speedbumps for obesity drug adoption

While these obesity drugs have exploded in popularity in recent times and are only expected to grow further as their case use increases, they do have certain shortcomings and challenges that are important to address.

These drugs are known to cause several side effects, such as nausea, diarrhea, vomiting, constipation, and ulcers. They can also lead to severe complications, such as pancreatitis, in some extreme cases. While most of the common side effects of the drugs are manageable and justifiable given the risk-benefit ratio, one of the key issues with the drugs is that they need to be taken in perpetuity to keep the weight off. In other words, once a patient stops taking the drugs, the weight comes back. Given that these drugs are priced at more than US$1,000 per month at the moment, taking them constantly becomes a considerable challenge for patients.

Moreover, considered as ‘vanity-use’, these drugs are currently not covered by most medical insurance policies, and thus, patients have to pay for them out-of-pocket. While several employers in the USA are considering including these drugs in their health plans, they are still debating their merit. Employers acknowledge the benefits of these drugs as they help employees who battle with obesity improve their health and, in turn, improve overall performance and employee satisfaction. However, high costs and long-term use act as definite barriers, which make both employers and insurers reluctant to cover these drugs.

Insurers are slowly warming up to the inclusion of GLP-1 drugs in their plans

In March 2024, leading insurance company Cigna stated that it would expand insurance coverage to include weight loss drugs but would limit how much health plans and employers spend on the drug each year. As per Cigna’s benefits management unit, Evernorth Health Services, spending increases for these weight loss and diabetes drugs would be limited to a maximum of 15% annually. The plan offers a financial guarantee and enables employers and health plans to have greater predictability and control over their GLP-1 spending by offering clients (employers) a guarantee that the cost of weight loss and diabetes drugs would not increase by more than 15% annually.

As a part of the effort to limit how much employers spend on GLP-1-based drugs annually, Evernorth has entered into an agreement with Novo Nordisk and Eli Lilly. However, the details of the agreement have not been disclosed.

While this is a good start, the drug would need better coverage by many other insurance players to reach a wider audience.

EOS Perspective

Given that about 12% of the global population and more than 40% of the American population grapple with obesity (as per WHO and 2022 statistics by the National Institute of Diabetes and Digestive and Kidney Diseases, USA, respectively), weight loss drug manufacturers Novo Nordisk and Eli Lilly are sitting on pharma goldmines. The weight loss drugs market, expected to reach US$100 billion by 2030, is poised as one of the most promising sectors for the pharma sector. Thus, it is no surprise that several leading players are investing heavily to join Novo Nordisk and Eli Lilly at the top, either through in-house R&D or through acquisitions.

However, developing these drugs proves to be challenging for drugmakers, as evidenced by the failures of several companies in creating their own versions. We can expect the sector to consolidate further as larger pharma companies look to acquire niche players with their trials being in advanced stages.

Moreover, in a bid to find their footing in this promising sector, pharma players are trying to develop advanced versions of the drug that have benefits beyond just weight loss and offer long-term benefits. This is also because, at the moment, these drugs are not approved by most insurance companies, which makes them extremely expensive for the wider population to afford. This, in turn, is withholding these drugs from becoming mainstream and is thereby preventing them from tapping into their true growth potential. That being said, Wegovy’s recent FDA approval for reducing cardiac complications in people with obesity and heart disease will likely tip the insurers’ coverage scales. Insurance companies are likely to cover the drug in the near future.

Since no other drug in the market offers proven cardiac benefits along with weight loss (including Eli Lilly’s), it is safe to say that Novo Nordisk is way ahead in the race and will dominate the market for the foreseeable future. Thus, to be able to compete in the market, it is not enough for drugmakers to develop obesity drugs offering just weight benefits. They would need to develop drugs that offer higher efficiency or additional therapeutic benefits along with weight loss and price them competitively.

11/04/2024by EOS Intelligence EOS Intelligence No Comments

PFA – A Potential Paradigm Shift in Atrial Fibrillation Ablation Landscape

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Pulsed Field Ablation (PFA) is an emerging technology for treating atrial fibrillation (AFib), a form of irregular heartbeat affecting 40 million heart patients worldwide as of 2023. As the prevalence of AFib is increasing, all eyes are on this novel, minimally invasive technology that offers improved effectiveness, safety, and shorter procedure and recovery time compared to the existing thermal ablation procedures.

PFA applies short, high-voltage pulses of energy to cardiac tissue and is proven to be more precise and safe than the thermal ablation methods, which come with the risk of damaging collateral tissues.

A clinical trial conducted by Medtronic across North America, Europe, Australia, and Japan during 2022-2023 revealed that the efficacy performance of its PFA system PulseSelect stood at 66% in paroxysmal and 55% in persistent AFib patients against the pre-specified performance goals of >50% (paroxysmal) and >40% (persistent). Performance goals were set based on multiple studies conducted on thermal ablation procedures that evaluated efficacy based on the freedom from acute procedural failure and arrhythmia recurrence in one year.

Despite promising results, the first-generation PFA technology still needs improvement in targeting the tissue of interest, and players in the field are developing supportive systems such as mapping systems to improve performance.

PFA emerges as a better alternative to conventional ablation methods

PFA is viewed as the best evolution within the electrophysiology (EP) space (comprises ablation catheters, diagnostic catheters, laboratory devices, and access systems used to treat arrhythmia). The tissue-targeting approach of PFA overcomes the drawbacks of thermal ablation methods, such as extensive scarring and the risks of injuring nearby organs. Along with improving clinical outcomes, this transformative technology will significantly improve patient experience and reduce the cost of care by lowering procedure and recovery time.

Being safer than other ablation methods, PFA is set to become the preferred modality

Only about 2% of the eligible patients with AFib globally and 15% of the eligible patients in the USA were treated with ablation as of February 2023, according to a MedTech analyst at Bank of America. This is because thermal ablation comes with the risk of damaging nearby issues, which can lead to damage to the esophagus, phrenic nerve, and pulmonary veins.

A study published by the European Heart Rhythm Association in January 2024 comparing the outcomes of PFA and thermal ablations stated that the risk of injury from PFA was 3.4% compared to 5.5% in thermal ablation. PFA, being safer than thermal ablation, can be expected to reach many more eligible patients. After the launch of Boston Scientific’s Farapulse in Europe in January 2021, 38,000 AFib patients were treated there with the Farapulse PFA system during 2022-2023, compared to 2,000 patients Farapulse treated in 2021. Moreover, Boston Scientific predicts the global AFib ablation market will grow from US$5 billion in 2023 to US$11 billion in 2028, driven by the increase in the number of PFA procedures.

The growing adoption indicates that PFA has the potential to become the preferred method for treating AFib over the existing treatments, such as thermal catheter ablation and surgical ablation procedures.

Initial clinical trials indicate PFA results in better patient outcomes

With this new technology, patients will experience an improved quality of life with a significantly lower risk of complications and post-procedural discomfort.

This finds evidence in some of the studies performed by the industry. In January 2024, the European Heart Rhythm Association published a study comparing the performance of Boston Scientific’s Farapulse PFA system against thermal ablation systems in 1,572 patients across Europe. The study showed that 85% of patients who underwent PFA experienced overall freedom from AFib after one year, compared to 77% of patients who underwent thermal ablation procedures.

Reduced time of post-procedure care is PFA’s major advantage

With a duration of about 2 hours, the PFA procedure is shorter than thermal ablation, which takes 3-4 hours. More importantly, PFA requires a few hours of hospitalization post the procedure, while thermal ablation is typically associated with one day of hospitalization after the procedure.

Shorter hospital stays improve patient experience by minimizing stress and discomfort from longer hospitalization hours. They also enable faster scheduling, as hospitals can perform more procedures and minimize scheduling delays.

As PFA does not require in-patient admissions, PFA procedures will not be disrupted by hospital bed shortages. This is a considerable advantage, as many developed countries such as the USA and the UK lack adequate hospital bed capacity. As of 2021, there were 2.8 hospital beds per 1,000 population in the USA and 2.4 in the UK, below the WHO’s recommendation of 3.4 beds per 1,000 population.

Moreover, reducing the length of hospital stays yields significant cost savings for patients as well as the payers. Reducing a hospital stay by a day or several hours translates to savings that cannot be ignored. For instance, in the USA, the average cost of per-hour hospital observation is US$600 in 2024, as per the healthcare pricing transparency platform Turquoise Health. The average cost of per-day hospitalization was US$2,883 in 2021, as per a study by the Kaiser Family Foundation (Medicare patients are eligible for $1,632 reimbursement). In the UK, the average cost of per-hour hospital observation is US$100, and the cost of per-day hospitalization is US$442 as of 2022, according to the National Health Service.

Short learning curve and procedure time facilitate performing more procedures

A short learning curve equips more cardiologists and trainees with the skills required to perform and support the procedure faster. Cardiologists typically get comfortable with PFA procedures after 5-10 cases, which allows to expand the pool of specialists performing this treatment relatively quickly and easily. This, in turn, can significantly improve PFA accessibility.

As the shortage of physicians continues to worsen globally, particularly in the USA, which represented 50% of the ablation market in 2023, PFA can play a crucial role in facilitating an increase in the number of procedures performed at a hospital within the same timeframe. With an expected shortage of 120,000 cardiologists in the USA by 2030, according to a 2021 report by the Association of American Medical Colleges, performing quicker procedures can help to partially offset the lack of specialists. Since PFA takes 30-50% less time than conventional ablation methods, it has the potential to significantly increase the number of procedures performed.

MedTech companies grow their ablation market share by offering PFA devices

With increased health screening efforts that detect more patients with arrhythmias, the number of cardiac ablation procedures performed globally doubled between 2013 and 2023 to reach about 650,000 procedures in 2023.

Boston Scientific expects the global AFib ablation market to more than double to US$11 billion during 2023-2028, with PFA predicted to grow to more than 80% of procedures (from under 5% in 2023). PFA technology is expected to be adopted quickly. As seen in Europe, PFA devices were launched in 2021, and already about 12% of the ablation procedures in the region in 2023 were done using PFA technology.

J&J, Medtronic, and Boston Scientific take the lead in the PFA field

Eyeing the potential of this emerging market, MedTech giants such as Johnson&Johnson (J&J), Medtronic, and Boston Scientific (accounting for 55%, 10%, and 5% share of the global thermal ablation market in 2023, respectively) have entered the market with their newly developed PFA devices. Being early entrants, these companies have the potential to expand their market shares in the cardiac ablation market by grabbing shares from thermal ablation procedures.

Boston Scientific was the first company to commercialize PFA devices with the launch of the Farapulse PFA system in Europe in January 2021. Boston Scientific enjoyed a two-year monopoly in the European market until Medtronic launched an integrated mapping and PFA system called Affera in March 2023. Later, the company launched another PFA system, PulseSelect, in December 2023. In February 2024, J&J’s Varipulse PFA system also received approval in Europe.

In the USA, Medtronic was the first company to receive FDA approval for its PFA system PulseSelect in December 2023, followed by Boston Scientific in January 2024. Medtronic also received FDA approval for Affera in March 2024.

J&J is the only company with a presence in Asia, as the company received approval for its PFA system in Japan in January 2024. Abbott is currently conducting clinical trials for its PFA system Volt in Australia and expects to start clinical trials in the USA this year.

The companies work to enhance and improve their systems. For instance, Medtronic’s integrated mapping and PFA system Affera offers enhanced procedure performance supported by real-time mapping. The integrated system includes an ablation catheter Sphere-9 and mapping software to facilitate real-time mapping. Sphere-9 catheter can perform high-density mapping and ablation simultaneously to allow cardiologists to deliver wide-area focal ablation lesions quickly. Affera can also work with the PulseSelect PFA system to provide real-time mapping. Similarly, J&J has a 3D mapping system called Carto 3 (in the market since 2009), which integrates well with its PFA system and generates real-time 3D mapping that aids in better cell targeting. Boston Scientific has not developed an exclusive mapping system for its PFA system, however, the company claims that any catheter mapping system will work well with Farapulse.

Comparing the PFA systems’ performance in the clinical trials, all systems, including Boston Scientific’s Farapulse, Medtronic’s PulseSelect, Medtronic’s Affera, and J&J’s Varipulse proved to be effective in over 70% of patients in terms of freedom from arrhythmia recurrence in one year.

Currently, PFA devices are only available in the USA, Europe, and Japan, with Boston Scientific dominating in Europe. Boston Scientific has witnessed high adoption rates in Europe so far, and the company has been able to serve 40,000 patients in three years since its entry into the European market in 2021. The company expects an overall organic sales growth of 8-10% during 2024-2026, driven by its PFA devices. Medtronic and J&J have just launched their PFA systems in the USA and Europe, and how these companies perform has yet to be seen. Analysts from BTIG financial services firm predict that Medtronic’s PulseSelect will secure 9% and Boston Scientific’s Farapulse will secure 14% of the cardiac ablation market (which comprises PFA and two other forms of thermal ablation procedures – radiofrequency and cryoablation) in the USA by 2025.

With competent technologies, the market is expected to witness stiff competition from these companies. Analysts from BTIG financial services firm predict that by 2027, PFA will grab 48% of the US cardiac ablation market, while the radiofrequency ablation market will have a 42% share and cryoablation a 10% share. The expected PFA’s 48% market share is likely to be split amongst the leading PFA systems – Boston Scientific’s Farapulse, J&J’s Varipulse, Medtronic’s PulseSelect, and Medtronic’s Affera, at 16%, 13%, 10%,7%, respectively, followed by others with 2% share.

While these companies have already entered the PFA space, Abbott’s wait-and-see approach to PFA may backfire on its performance in the EP market. The company aims to commercialize its PFA system Volt in the USA by 2027 or 2028. However, PFA’s fast adoption threatens Abbott’s US$1.9 billion EP business and its 15% global thermal ablation market share (as of 2023). Growing PFA adoption could also threaten Abbott’s diagnostic catheter and mapping systems, as healthcare providers using PFA systems would prefer buying mapping systems linked to PFA.

New entrants to drive innovation and further improve PFA technology

Apart from the large players, there are a few smaller players, such as Canada-based Kardium, US-based Adagio Medical, and US-based Pulse Biosciences, that are developing PFA systems. These companies are investing in improving the PFA using nanotechnology and supportive systems such as 3D mapping systems. For instance, Pulse Biosciences developed Nanosecond PFA (nsPFA) technology that uses superfast nanosecond pulses of electrical energy that can regulate cell death, which spares adjacent noncellular tissue. The company expects FDA approval for this system in 2024.

EOS Perspective

Over the years, MedTech companies have been actively pursuing the development of minimally invasive procedures that have shorter recovery periods, offer improved patient outcomes and reduced post-procedure discomfort. As the limitations of the existing ablation methods became apparent, PFA poses a vast growth potential, as it is a safer, more convenient, and more effective alternative.

On the other hand, the pulsed-field waveform is significantly more complex than the energy modalities that preceded it, with numerous variables determining the dose targeted at the tissues and the quality of the resulting lesion. While a variety of PFA systems have demonstrated effective ablation procedures, these systems have yet to advance in overcoming all limitations of targeting the tissue of interest and rare but potentially serious complications.

In the coming years, we can expect companies to develop multiple catheter configurations that allow cardiologists to configure the energy delivery to achieve the desired energy dose and lesions. This includes the development of multi-configurable ablation catheters that can shift shapes to create circular, linear, or focal ablation lesions without performing catheter exchanges.

As the technology advances, we can expect PFA to dominate the AFib ablation market and democratize AFib ablation procedures by improving accessibility to all eligible patients.

21/03/2024by EOS Intelligence EOS Intelligence No Comments

Digital Therapeutics: The Future of Healthcare?

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Although the COVID-19 pandemic seems to be done with its rampage, many people still opt to access all kinds of services, including healthcare, from the comfort of their homes. As this trend is expected to continue, the global digital therapeutics market, with its projected growth at a 20% CAGR from 2022 to 2035, is one important sector healthcare firms should focus on right now.

Digital therapeutics (DTx) are digital health interventions or software applications that are clinically validated and designed to treat or manage medical conditions. They can be used alone or in conjunction with traditional medical treatments.

The Digital Therapeutics Alliance categorizes DTx products into three types: disease treatment, disease management, and health improvement.

Examples of DTx include a solution to manage chronic musculoskeletal pain developed by Kaia Health, a biotechnology company in New York. This motion analysis tool assesses and guides patients’ progress during physical therapy and tailors treatment to individual requirements.

Similarly, Clickotine from Click Therapeutics, a company also based in New York, uses AI to help people with nicotine addiction. This solution offers a personalized plan fully integrated with eight weeks of nicotine replacement therapy, including options such as gum, patches, or lozenges. It tracks critical aspects such as daily cigarette counts, craving triggers, craving times, etc. A trial study conducted by the company in 2016 claimed that 45% of Clickotine users were able to quit smoking.

Adoption of DTx is taking off amid increased investments

The commercial development of DTx started around 2015 and, since then, has grown into a global market of considerable size. The total value of global DTx start-ups was estimated at a whopping US$31 billion in 2022, according to a 2022 report published by Dealroom, an Amsterdam-based firm offering data and insights about start-ups and tech ecosystems, in partnership with MTIP (a Swiss-based private equity firm), Inkef (an Amsterdam-based early-stage venture investment firm), and Speedinvest (an Austrian early-stage investor).

The number of people using DTx solutions is expected to increase over the next few years, according to a 2022 report by Juniper Research, a UK-based research firm. The study found that there were 7 million DTx users in the USA in 2020, a number expected to rise to around 40 million in 2026.

This increase can be attributed to the fact that DTx solutions are highly accessible and distributable due to an increase in the use of smartphones. A 2021 report published by Pew Research Center, a US-based think tank, found that 87% of Americans owned a smartphone in 2021, compared to 35% in 2011. With this, more people will be able to access medical care without having to spend more on hospital visits.

DTx applications have also been attracting numerous investors owing to the applications’ cost-effectiveness, ease of distribution, and better accessibility. According to the same 2022 report published by Dealroom, global venture capital funding in DTx witnessed a fourfold increase in 2022 compared to 2017.

All these studies reveal that, despite certain challenges, the DTx applications hold the promise of developing into a practical and affordable means of treating illnesses and conditions that impact large numbers of people.

Regulatory pitfalls present a major roadblock to DTx adoption

One main challenge DTx companies face is the regulatory environment. All DTx products must comply with the regulations of regional agencies such as the FDA, HIPAA, HITECH, etc.

Many US firms initially faced regulatory obstacles and payer resistance around product reimbursement. Before 2017, the US FDA classified DTx solutions as a SaMD (Software as a Medical Device) and, therefore, made them subject to risk assessment (low, medium, or high). Due to this, DTx solutions needed premarket approval and rigorous clinical trial results to get approval.

This has improved with the introduction of the Digital Health Innovation Action Plan by the FDA in 2017. According to the new plan, the FDA will first consider the company producing the solution. If the producer has demonstrated quality and excellence, it can market lower-risk devices with a streamlined premarket review. Post-market surveillance and data collection are also done to evaluate product efficiency.

Similarly, in the EU, DTx is controlled by national competent authorities and governed by the European Regulation on Medical Devices 2017/745 (MDR). However, no specific framework indicates the evidence required for assessing the performance or quality of DTx solutions or their production standards. This means that the member states may interpret the dossier requirements differently, leading to a fractured regulatory environment.

The COVID-19 pandemic has provided companies with some regulatory flexibility, leading to an increase in venture capital funding. In 2020, the federal government in the USA issued a new rule allowing healthcare practitioners to treat patients across state lines, including the use of digital medicine. This can increase access to healthcare, especially in rural areas, and physicians will be able to offer timely care to their patients traveling in a different state.

The FDA has also loosened regulations during COVID-19, particularly for mental health products, with the Digital Health Innovation Action Plan. This was to ensure that patients received timely care even from their homes while reducing the burden on hospitals. It waived certain regulatory obligations, such as the need to file a 510(k) premarket notification during the COVID-19 pandemic. The 510(k) is a submission indicating that a new medical device is similar to something already approved by the FDA (a predicate device) to ensure safety and efficiency. However, finding suitable comparables can be highly challenging in the case of DTx, which is dynamically evolving. This can result in misunderstandings or overlooking of critical aspects of these solutions, leading to uncertainty and delays in the approval process. The waiver of this regulation offers DTx companies some relief in the future.

Digital Therapeutics – The Future of Healthcare by EOS Intelligence

Patient health literacy is a hurdle in the adoption of DTx solutions

A survey by the National Assessment of Adult Literacy (NAAL) in 2003 has shown that only 12% of Americans possess proficient health literacy skills, making them able to find and understand information related to their health. This lack of awareness among patients can also impede the ease of applying DTx products.

Patient experience is also crucial for the acceleration of DTx adoption. Older patients unfamiliar with using technological gadgets can find it difficult to adopt DTx solutions. However, a 2022 AMA survey has shown that 90% of people over the age of 50 in the USA recognize some benefit from digital health tools.

Similarly, a survey conducted by the Pew Research Center in 2021 indicated an increase in the use of smartphones and the internet among older people in the USA, driven by the pandemic. Older adults are using technological applications for activities such as entertainment, banking, shopping, etc., even after the pandemic, a 2021 survey by AARP Research, a US-based NPO, shows. This indicates that there is scope for an increase in adoption.

Many companies are now trying to increase patient involvement by using gamification, aiming at patient groups for whom DTx use is likely to be more challenging (e.g., older population, children). DTx developers include game-like elements or mechanics into a DTx solution, such as tasks, rewards, badges, points, and leaderboards. An example is US-based Akili Interactive’s EndeavorRx, a prescription DTx aimed at enhancing attention function in children with ADHD aged 8 to 12. It uses an interactive mobile video game to assist children in improving their attention skills and adjusting to their performance levels. The game’s sensory stimuli and motor challenges also help kids multitask and tune out distractions.

Payer reluctance affects many DTx products

Although the number of DTX products on the market increases, payers’ reluctance to cover their costs to the patient can also slow down adoption. The coverage of DTx solutions is limited, even when they are FDA-approved. Only 25% of payers are currently willing to cover prescription DTx solutions, according to a 2022 survey by MMIT, a Pennsylvania-based market data provider, which involved 16 payers.

Akili Interactive’s EndeavorRx is one such solution facing insurance coverage issues. Elevance Health (previously Anthem) denied coverage for EndeavorRx, deeming it medically unnecessary, while Aetna, another insurance provider, considers it experimental and investigational.

A study released by Health Affairs, a health policy research journal, in November 2023 has shown that only two of the twenty FDA-approved prescription DTx solutions on the market have undergone rigorous evidence-based evaluation. This means that no authoritative results indicating the benefits of these solutions for various population demographics are available, making many payers skeptical of their medical claims.

DTx offers solutions for managing multiple conditions

Over the past few years, several prominent players have emerged in the DTx landscape. Around 59% of the DTx market is concentrated in the North American region and 28% in Europe.

Top players, such as Akili Interactive and Big Health, both US-based firms, focus on offering products for managing mental health illnesses, mostly management of anxiety, depression, and stress, according to a report published in 2023 (based on data until September 2022) by Roots Analysis, an India-based pharma/biotech market research firm. With about 970 million people suffering from mental health conditions globally (according to the WHO), the potential user pool is enormous, offering growth opportunities for DTx solutions developed to address mental illnesses and, over time, driving the growth of the DTx market as a whole.

Many top companies also focus on solutions offering pain management and treatment for chronic conditions such as diabetes, obstructive pulmonary disease, and musculoskeletal disorders. An example is US-based Omada’s pain management solution, Omada MSK. This application guides patients through various customized exercises and records their movements, which are then assessed by a licensed physical therapist (PT), who can make recommendations for improvement. It also has a tool that utilizes computer vision technology to help PTs virtually assess a patient’s movement and range of motion, allowing them to make necessary changes in the therapy.

Similarly, several DTx solutions on the market now focus specifically on diabetes, which affects around 537 million adults globally. Some top companies focus on the previously unmet needs of conventional methods, such as weight management or preventing prediabetes, to help with overall diabetes treatment. US-based Omada’s solution, Omada Prediabetes, comes with a weight scale pre-connected to the app, and the weight is added to the app as soon as the patient steps on the scale. A dedicated health coach assesses the patient’s weight, creates a customized plan, and monitors the patient’s progress. In other similar DTx solutions for diabetes, an app can also give insulin dose recommendations based on the patient’s blood glucose levels.

DTx can serve in a range of other conditions, including major depressive disorder, autism spectrum disorder, and multiple sclerosis, to name a few.

The DTx landscape is rife with development

The DTx business landscape has recently seen many developments, from acquisitions to product launches. One of them was Big Health’s acquisition of Limbix, a California-based DTx firm, in July 2023 to bolster its portfolio, including SparkRx, a treatment for adolescents dealing with depression and anxiety. Similarly, in June 2023, Kaia Health launched Angela, a HIPAA-compliant, AI-powered voice-based digital care assistant, to serve as a companion and guide, enhancing the physical therapy experience for patients.

In another development, BehaVR, a DTx company headquartered in Kentucky, and Fern Health, a digital chronic pain management program, merged their companies in November 2023 to create a novel pain management DTx solution that addresses both pain and fear caused by chronic diseases. With this merger, they launched RealizedCare, an app designed to offer a comprehensive solution that collaborates with health plans, employers, and value-based providers to treat a range of behavioral and mental health conditions. This solution provides clinicians with immersive programs specifically designed for in-clinic use. It is initially focusing on chronic pain.

Bankruptcy of Pear and lessons for the industry

However, the most shocking development in the DTx market was the bankruptcy of Pear Therapeutics in 2023. The remains of this once-prominent company were purchased by four other companies for a total of US$6.05 million at an auction. Pear was a big name in the industry since its inception in 2013. It introduced numerous products such as reSET, reSET-O, and Somryst for treating substance use disorder, opioid use disorder, and chronic insomnia, respectively. It was also the first company to receive FDA approval for a mobile app aimed at treating substance use disorders.

Though the company announced layoffs of nearly 20% of its workforce in November 2022, its management expressed optimism about the company’s growth and reduced operating expenses in the third quarter. But in April 2023, the company filed for bankruptcy.

The demise of Pear has opened the eyes of industry experts to the challenges faced by DTx players. Certain issues were unique to Pear itself, such as the comparatively higher prices of its products and the focus on treating challenging conditions such as substance use disorders. However, the bankruptcy of Pear also brings attention to the obstacles that can be faced by any other DTx company. One crucial roadblock is that physicians and payers still approach these products with caution. Additionally, achieving profitability for DTx might be challenging for all types of players, particularly for small start-ups lacking substantial market influence. The bankruptcy of Pear and the challenges it faced can be used by budding DTx companies as a road map as they navigate this complex sector.

EOS Perspective

DTx is all set to revolutionize the medical industry, with a 2020 McKinsey report suggesting it could potentially alleviate the global disease burden by up to 10% by 2040. Given the impact of emerging treatments on stakeholders, pharmaceutical and healthcare companies should consider expanding their portfolio to include DTx solutions.

With telehealth companies seeing good growth in the pandemic and post-pandemic years, an increase in investment can be expected as they are uniquely placed to support prescription DTx. With the growth of the digital health industry, prominent telehealth providers may also choose to acquire DTx businesses or create their own in-house DTx solutions.

Read our related Perspective:
 COVID-19 Outbreak Boosts the Use of Telehealth Services

An increase in industry M&A activities can be expected in the next few years, with growing incidences of chronic illnesses, improved technology penetration across all age groups, and a maturing market. Big names such as Bayer, Novartis, and Sanofi are also entering into partnerships with DTx companies, indicating a bright future for the sector.

Mental health and behavioral therapy are great fields to branch out for companies starting in the DTx landscape, especially in this post-pandemic era. Demand for such services is likely to be sustained, considering the National Institute of Mental Health Disorders estimates that one in four adults in the USA suffers from a diagnosable mental illness, with many suffering from multiple conditions.

Similarly, diseases such as diabetes, cancer, heart, and respiratory ailments are on the rise. Healthcare companies can effectively address these medical areas through the use of DTx applications, providing personalized care for patients. This approach has the potential to manage not only chronic conditions such as diabetes but also terminal illnesses such as cancer.

Many DTx players will likely focus on areas with unmet needs, including pediatrics and metabolic disorders. With seven DTx-based diabetic management solutions already receiving 510(k) clearance as of December 2022, it can be expected that more products addressing the treatment gaps might flood the market.

The DTx industry is gradually maturing and has been receiving significant investments in recent years (US$8 billion in 2022). While experts view it as a profitable market, hesitation remains, particularly following the bankruptcy of Pear Therapeutics.

Nevertheless, due to the COVID-19 pandemic and subsequent lockdown measures, technology adoption among older adults has increased significantly. Hence, strategic investments in DTx by pharmaceutical and healthcare companies, taking into account market conditions, can expect to establish a stronger presence in this industry in the future.

06/03/2024by EOS Intelligence EOS Intelligence No Comments

Soaring Healthcare Costs in the USA: Is Greed Winning Over Welfare?

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Americans have been struggling with access to affordable healthcare for years, with thousands of stories of an unexpected illness driving a patient to bankruptcy. Meanwhile, the USA spends much more than European nations on healthcare but covers the smallest percentage of the healthcare costs. Wasteful spending, excessive administrative costs, no limit to medicines prices, lack of a single unified interface system, and passive attitude by the government are all building blocks of a wall separating Americans from the quality and affordable healthcare system expected from any developed country.

According to a 2020 article published by Harvard, the annual cost of healthcare in the USA was around US$3.5 trillion, of which around 33% is believed to have been squandered. Simultaneously, healthcare costs are soaring, contributing significantly to several issues around the delivery and affordability of healthcare in the USA. The same Harvard article revealed that about 40-44% of Americans decided to omit or postpone medical treatment, tests, or care owing to their high costs. Although the USA has the highest national healthcare expenditure, the country registers one of the lowest life expectancies among the developed economies. Additionally, around 10% of the population does not have health insurance.

This problem is so deep-rooted and widespread that the issue of healthcare costs was referred to as the “tapeworm of American economic competitiveness” by investor Warren Buffet. Almost 67% of the US population wishes the federal government to regulate healthcare prices in the country. Yet, despite it being such a grave problem, the US government does not seem to be taking any (visibly) constructive measures to resolve it. While significant political aspects are certainly at play, a deep dive into the cost drivers of the US healthcare system might shed some light on the complexity of this issue.

Soaring Healthcare Costs in the USA – Is Greed Winning Over Welfare by EOS Intelligence

Healthcare administrative costs hold the lion’s share of total healthcare expenditure

One of the major components of healthcare costs in the USA is the annual cost of healthcare administration at US$1,055 per capita, according to a 2021 estimation by the Peterson Foundation. The US spending on healthcare administrative purposes is by far the highest globally. Compared with Germany, the second-highest spender on healthcare administration at US$306 per capita, the stark difference of US$749 per capita speaks volumes about the current situation in the USA. The country also registers the world’s highest share of administrative costs in total healthcare costs, at around 15-30% annually. Wasteful administrative spending is estimated to contribute about half of that share (7.5% to 15% of the country’s total healthcare spending), translating to anywhere from US$285 billion to US$570 billion in 2019.

The USA spent around US$950 billion in 2019 on healthcare administration, which translates to 25% of the national healthcare expenditure (NHE) that year. A significant part of the excessive administrative expenditure is billing and insurance-related costs (BIR), including overhead costs for medical billing and services such as claim submission, claim reconciliation, and payment processing. Profits made by the insurance companies account for the highest share of BIR costs. Healthcare providers also get part of these administrative costs for note-taking and record-keeping during the medical billing process. According to an article published by Harvard in 2020, there are occupations in US healthcare that do not exist elsewhere, such as medical-record coding to claim-submission specialists. Further, the article claims that in other countries, such as Germany and Switzerland, where multiple payers and private providers exist, healthcare administration costs less than 50% of the USA equivalent.

As per 2019 McKinsey research, the USA could decrease healthcare administrative expenditure by 30% through automation and streamlining of the BIR processes. Claims processing software enables automation of BIR processes, however, only 15% of US hospitals employ such software, as per Definitive Healthcare tech data.

Healthcare services costs, including physicians’ salaries, empty patients’ pockets

A 2018 JAMA study revealed that physician salaries in the USA were higher than in other developed countries. A survey by Medscape in 2021 revealed that physicians earned the most in the USA compared to other developed countries. On average, the annual income of physicians in the USA was US$316,000, followed by Germany (US$183,000) and the UK (US$138,000).

As per 2019 Commonwealth Fund research, Americans are much less likely to consult a doctor in case of a health issue, at half the rate compared to other developed countries. This can be attributed to the fact that the cost of healthcare services is considerably higher in the USA vis-à-vis other developed nations. According to a 2017 report, the average cost of a coronary artery bypass graft (CABG) surgery in the USA was US$78,100, whereas the same procedure cost only US$11,700 in the Netherlands. While the procedure cost is already far lower, in the Netherlands, patients will likely have the procedure cost fully covered by insurance without any co-payment. The USA also reported higher costs for outpatient procedures such as MRI scans and colonoscopies compared with other developed countries.

Skyrocketing prescription drug prices further inflate healthcare costs

As per OECD, in 2019, the average spending on prescription drugs by an American was about US$1,126 per capita, which was over double that in other developed nations. As per CMS, prescription drug spending in the USA by the federal government is expected to grow by 6.1% through 2027.

The growth in prescription drug spending could be attributed to increased focus on specialty pharmaceuticals and precision medicine. Specialty medicines are experimental therapies for treating cancers, autoimmune diseases, or chronic conditions. Some specialty medicines employ genetic data to provide highly targeted, personalized therapy. Owing to the complex nature of these drugs, they are generally expensive to develop and distribute.

For instance, a novel specialty drug called Hemgenix to treat hemophilia B is the most expensive drug ever approved by the FDA. The price of a single infusion of this gene therapy is around US$3.5 million. No healthcare providers have submitted a claim for Hemgenix so far in 2023.

Apart from specialty medicines, pricing strategies for drugs in general play a significant role in soaring healthcare costs in the USA. Drug producers set a list price based on their product’s estimated value, and the price list can be increased by the producers as they see fit. In the USA, there are few regulations to curb producers from increasing drug prices in this way.

Chronic diseases add fuel to the fire of escalating healthcare costs

As per the CDC, six out of ten adults in the USA have a chronic disease or condition. The most common chronic diseases or conditions in the USA include heart disease, stroke, cancer, diabetes, chronic kidney disease, and chronic obstructive pulmonary disease (COPD). Furthermore, according to 2022 research published in the National Library of Medicine, of the population 50 years and older, the number with at least one chronic disease is estimated to increase by 99.5% from 71.522 million in 2020 to 142.66 million by 2050.

There is a robust correlation between the prevalence of chronic diseases and rising healthcare costs. As per a report from the American Action Forum, the USA spends about US$3.7 trillion annually for the treatment of chronic health diseases and the consequent loss of economic productivity. Routine office visits, prescriptions, outpatient treatments, or emergency care account for most of this healthcare spending in the USA.

Expanding geriatric population contributes to rising healthcare costs

According to the US Census Bureau, 21% of the US population is expected to be 65 years or older by 2030. The growing aging population is expected to drive healthcare costs in the USA in two ways: through Medicare enrollment growth and the increase in the prevalence of more complex and chronic conditions. Medicare had over 65 million beneficiaries as of March 2023, a number that is expected to increase by 2030 dramatically. This enrollment growth will impact NHE since Medicare is a publicly funded program. As per the CMS, in 2020, the USA spent US$900.8 billion on Medicare, and the CMS expects that Medicare spending will surge by 7.6% annually through 2028.

The elderly population is vulnerable to chronic conditions such as hypertension, high cholesterol, diabetes, coronary heart disease, and Alzheimer’s disease, among others. According to the National Council on Aging, 80% of older Americans have a chronic condition, and 77% of older adults have two or more chronic conditions. These chronic conditions will require ongoing treatment or long-term care at a nursing home or assisted living facility. These outcomes will account for increasing healthcare costs and overall national healthcare expenditure in the USA.

Greed over welfare

Corporate avarice is another factor said to be responsible for the rising healthcare costs in the USA. Insulin list price in the USA is 10 times higher than that in Canada. Not only pharma companies but also renowned hospitals charge more for the same service compared with less renowned hospitals. This applies to various services, from complex surgeries to simple X-rays.

Price regulation is the only solution to this problem that could be implemented with enough political will. The US state of Maryland has introduced this regulation for hospital services, while most European countries have regulated the prices of pharmaceuticals. However, implementing price regulation would mean that the compensation of the top management executives or the CXOs would decline, or the budget for R&D would reduce. This causes much resistance among top management executives to arrive at a constructive decision of choosing between self or service. However, the fact that patients delay treatment because of rising prices speaks strongly in favor of introducing at least some level of price regulation.

EOS Perspective

Standardization is one of the key ways to decrease administrative costs. Just for comparison purposes, checking out of a grocery store is easy because all products possess bar codes, and all credit card machines are the same or uniform. Similarly, mobile banking and inter-banking are straightforward since the Federal Reserve has set standards for how banks should interface with each other.

However, the American healthcare system has been immune to such a standardization. Every health insurer needs a different bar-code-equivalent and payment-systems submission. In addition, it is tough to send electronic medical records (EMRs) from one hospital to another because there is no mandate by the federal government for them to be in compatible formats. Additionally, this lack of standardization benefits many healthcare providers, as they strive to avoid the interchange of EMRs to prevent patients from switching doctors.

Standardization is possible only when prominent stakeholders are involved in it, agree to it, and decide they need it. The largest stakeholder in the US healthcare system is the federal government. Buying capacity and administrative control to compel payers and providers to adopt billing and interface rules to standardize the process lies within the federal government’s responsibilities.

Similarly, a price cap regulation needs to be brought about in the pharmaceutical sector. Price regulation is the only way to lower the prices of prescription drugs. Apart from this, the federal government needs to implement price cap regulation in healthcare services such as X-rays, MRIs, CT scans, etc.

It is the government that should introduce regulations that put caps on drugs and services prices, at least in certain product and service groups. It is the government that should establish the infrastructure to materialize standardization and introduce a deadline by which all interactions must be standardized.

However, to date, the federal government only considers providing insurance – particularly Medicare and Medicaid – to people as its role rather than looking out for the entire healthcare system as a unit. This mentality needs to change if healthcare costs are to be brought down.

CVS Moves to Home-based Care with Acquisition of Signify Health by EOS Intelligence

28/11/2023by EOS Intelligence EOS Intelligence No Comments

Commentary: CVS Moves to Home-based Care with Acquisition of Signify Health

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Retail health companies increasingly invest in primary care, particularly home-based care, with patients demanding low-cost and convenient care delivery. The recent acquisition of home healthcare company Signify Health by retail health giant CVS Health highlights the industry’s growing interest in home-based care.

There is an increased demand for at-home healthcare services and health assessments, especially after the COVID-19 pandemic changed customer preferences towards access to convenient at-home services.

At-home care can bring down expenses by reducing hospital visits and detecting health problems in advance. A study published by the US Agency for Healthcare Research and Quality in April 2021 indicated that at-home patient care could reduce hospital expenses by 32% and hospital readmission rate (within six months after discharge) by 52%. The study claimed that patients receiving at-home care were less exposed to other illnesses, and this kind of care provided consistent attention, which resulted in better management of chronic diseases and prevention of health problems, reducing hospital readmissions. Apart from lowering the overall cost of care, healthcare providers are also incentivized to lower readmission rates under Medicare incentive programs, and hence, many healthcare companies have realized the potential of investing in at-home services.

One example of this was CVS Health’s acquisition of home health company Signify Health, completed in March 2023, for a total value of US$8 billion. Signify’s network of 10,000 clinicians, nationwide healthcare providers, and proprietary analytics and technology platforms is expected to help CVS extend its at-home health business. Adding Signify’s capabilities, such as at-home healthcare services, health assessments, patient data analytics, Accountable Care Organization (ACO) management, and provider enablement solutions, is likely to strengthen CVS’s abilities to offer better accessibility to services, improved patient-provider connectivity, better coordination of services, and improved quality of services.

CVS increases focus on the Medicare population with at-home health offerings

Looking at the recent acquisitions in the healthcare industry, it can be seen that major players in the retail health space, such as CVS Health, Amazon, Walgreens, Walmart, Dollar General, and Best Buy, are acquiring companies to strengthen their capabilities in offering primary care. These retail health companies are trying to tap into the growing demand for consumer-centric care. In particular, there is an increased focus on senior citizens and patients with chronic diseases.

Almost 19% of the US population is covered under Medicare plans, making it one of the most lucrative segments. In 2022, McKinsey estimated that, by 2025, up to US$265 billion worth of healthcare services provided to traditional Medicare and Medicare Advantage beneficiaries by traditional primary care facilities could potentially navigate to at-home healthcare providers offering at-home health services and virtual primary care services. Retail health companies view primary care services offered at home, traditionally dominated by independent clinics, as an opportunity to enter the healthcare delivery segment. CVS is also heading in the same direction.

CVS Health began expanding beyond its pharmacy services by acquiring health insurance company Aetna in 2018. Aetna is the fourth-largest Medicare Advantage plan, with 3.3 million enrollees in 2023.

In recent years, CVS Health has made significant efforts in building value-based care capabilities. Apart from acquiring Signify Health, which also includes Signify’s Caravan ACO business, the company acquired Medicare-focused primary care provider Oak Street Health in May 2023. These acquisitions indicate CVS’s increasing focus on enhancing healthcare services for the Medicare population.

Read our related Perspective:

Retail Health Clinics Eye a Larger Piece of the US Primary Care Market

Signify’s acquisition brings CVS closer to its aim to become a full-service health provider

With the acquisition of Signify Health, CVS should be able to enter the at-home healthcare space in addition to its existing 9,900 retail drugstores and 1,100 MinuteClinics. CVS now has the capabilities to fulfill patient needs across the entire care spectrum, operating as a payer, a pharmacy benefit manager, an ACO manager, a chain of medical clinics, a network of primary care centers, and a home-based care provider, becoming a full-service healthcare provider.

This means CVS can make it simpler for patients and providers to navigate the complex healthcare system by centralizing services, as all these healthcare activities are performed under the same company. For instance, CVS can offer Medicare Advantage programs to patients, provide home visits, prescribe medicines, which can be delivered by CVS pharmacy, and track patients’ medication intake, which helps in making pharmacy reconciliations and offering follow-up care by primary care centers if needed. CVS can be able to access accurate and real-time data updates from all patient activities, which would improve care coordination and navigation of healthcare services for patients with real-time data sharing with providers.

CVS-Signify synergies can amplify companies’ growth and capabilities

CVS is enhancing digital capabilities to improve interoperability of electronic health records (EHRs) and enable remote patient monitoring. The company has already developed digital capabilities such as automated messaging on prescriptions, appointments, and vaccinations. CVS can integrate these digital capabilities into Signify’s systems to streamline communication between providers and patients.

CVS is expected to make use of Signify’s home care services to introduce at-home health assessments, which is a highly-demanded service by customers. Signify provided over 2.3 million unique at-home health assessments in 2022 and has witnessed a 16% year-on-year increase in the number of at-home assessments in Q2 2023. Using CVS’s nationwide primary care capabilities, Signify Health is likely to be able to expand its reach in the at-home health assessment space.

Signify’s technological capabilities are likely to strengthen CVS’s position in the market as customers appreciate increased convenience, such as remote patient monitoring, data-driven health predictions, and better navigation through the health systems. CVS can also benefit from Signify’s technological capabilities, such as provider enablement tools that would help manage population health, turnkey analytics, and practice improvement solutions to help providers transition to a value-based reimbursement model and improve the quality of care.

Furthermore, CVS also offers payer-agnostic solutions such as virtual primary care and pharmacy benefits management (CVS Caremark). CVS Caremark has the largest market share in the US pharmacy benefits manager market, with a 33% share in 2022. Signify’s client network of 50 health plan clients, including government, other payers, and private employers, can help CVS expand its payer-agnostic solutions to a diverse set of health plan and employer clients.

EOS Perspective

CVS outbid its rivals, such as Amazon, UnitedHealth Group, and Option Care Health to acquire Signify. Having acquired one of the most sought-after home healthcare companies, CVS has strengthened its position in terms of its expanded capabilities, such as primary care, home health, at-home health assessments, and provider enablement solutions. The company has the benefit of a large customer base, being the largest pharmacy chain in the US in 2022, which will help it expand its primary care and at-home services quickly. It will be interesting to see how CVS would be able to direct 8 million senior citizens who walk into CVS pharmacy stores annually to Oak Street clinics for a wellness visit or encourage them to schedule a home visit via Signify.

However, the competitors, especially the Medicare Advantage competitors, are not lagging behind. The largest Medicare Advantage Plan, UnitedHealth Group, boasting 8.9 million Medicare Advantage enrollees in 2023, announced the acquisition of two home health companies, LHC Group and Amedisys, this year. Humana, the second largest Medicare Advantage Plan with 5.5 million enrollees in 2023, acquired a stake in Kindred at Home in 2021.

Similar to CVS, UnitedHealth Group and Humana also own pharmacy and provider capabilities (including clinic-based, at-home, and telehealth). All three companies are on the task of deriving synergies among the different businesses they own with the aim to improve patient outcomes and reduce overall costs. To outperform the strong competition, the winning company needs to keep focusing on improving healthcare accessibility and patient experience, as well as catering to the evolving consumer needs.

11/07/2019by EOS Intelligence EOS Intelligence No Comments

Africa’s Fintech Market Striding into New Product Segments

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Fintech is certainly not a new concept in the African region. More than that: Africa has been a global leader in mobile money transfer services for some time. The market continues to evolve and the regional fintech players are now moving beyond just basic payment services to offer extended services, such as credit scoring, agricultural finance, etc. With Africa being significantly unbanked and still lacking financial infrastructure, fintech industry is at a unique position to bridge the gap between consumer needs and available financial solutions.

The African subcontinent is much behind many economies when it comes to financial inclusion and banking infrastructure owing to low levels of investment, under-developed infrastructure, and low financial literacy ratio. As per World Bank estimates, only about 20% of the population in the sub-Saharan African region have a bank account as compared with 92% of the population in advanced economies and 38% in low-middle income economies.

This gap in the formal banking footprint has been largely plugged by the fintech sector in Africa, especially with regards to mobile payments. While in the developed economies, the fintech sector focuses on disrupting the incumbent banking system by offering better services and lower costs, in Africa it has the advantage of building and developing financial infrastructure. This is clear in the uptake of mobile fintech by the African population, making Africa a global leader in mobile payments and money transfers.

While in the developed economies, the fintech sector focuses on disrupting the incumbent banking system by offering better services and lower costs, in Africa it has the advantage of building and developing financial infrastructure.

However, mobile payments have simply been the first phase in the development of digital finance in Africa. The penetration and mass acceptance of mobile wallets have opened doors for the next phase of digital financial services in Africa. These include lending and insurance, agricultural finance, and wealth management.

Moreover, owing to the success achieved by mobile wallets, global investors are keenly investing in fintech start-ups that are innovating in the sector. For instance, Venture capital firm, Village Capital, partnered with Paypal to set up a program named Fintech Africa 2018. The program aims to support start-ups across Kenya, Nigeria, South Africa, Ghana, Uganda, Rwanda, and Tanzania, which provide financial services beyond mobile payments (especially in the field of insurtech, alternative credit scoring, and fintech solutions for agriculture, energy, education, and health).

Agricultural finance

Agriculture is the livelihood of more than half of Africa’s workforce, however, due to limited access to finance and technologies, most farmers operate much below their potential capabilities. Due to this, Africa homes about 60% of the world’s non-cultivated tillable land.

However, in recent years, several established fintech players as well as start-ups have built solutions to provide financial support to the region’s agricultural sector.

In late 2018, Africa’s leading mobile wallet company, Cellulant, launched Agrikore, a blockchain-based digital-payment, contracting, and marketplace system that connects small farmers with large commercial customers. The company started its operations from Nigeria and is expected to commence business in Kenya in the second half of 2019.

Under their business model, when a large commercial order is placed on the platform, it is automatically broken into smaller quantities and shared with farmers on the platform (based on their capacity and proximity). Once the farmer accepts the order for the set quantity offered to him, the platform connects the farmer with registered transporters, quality inspectors, etc., who all log their activities on the blockchain and are paid through Cellulant’s digital wallets. All this is done on a blockchain to ensure transparency.

Another Nigeria-based company, Farmcrowdy, has been revolutionizing financing in Nigeria’s local agriculture sector by connecting small-scale farmers with farm sponsors (from Nigeria as well as other regions), who invest in farm cycles. Farmers benefit by receiving advice and training on best agriculture practices in addition to the financial support. Sponsors and farmers receive a pre-set percentage of the profits on the harvest in that cycle. In December 2017, the company received US$1 million seed investment from a group of venture capitalists including Cox Enterprises, Techstars Ventures, Social Capital, Hallett Capital, and Right-Side Capital, as well as five angel investors.

In addition to these, there are several other players, such as Kenya-based Twiga Foods (that connects rural farmers to urban retailers in an informal market), Kenya-based Tulaa (that provides famers with access to inputs such as seeds and fertilizers, as well as to finance, and markets through an m-commerce marketplace), Kenya-based, FarmDrive (that helps small farmers access credit from local banks through the use of data analytics), etc.

While most ventures in this space are currently based in Nigeria and Kenya, the sector is expected to grow significantly in the near future and is likely to expand into other parts of Africa as well.

In terms of expected trends in services development, with growing number of solutions and in turn apps, it is likely that consumers will tilt towards all-inclusive offerings, i.e. apps that provide solutions across the entire agricultural value chain.

Alternative credit scoring and lending

Large number of Africans have limited access to finance and formal lending options. Since there is a limited number of bank accounts in use, most people do not have a formal credit history and the cost of credit risk assessment remains high. Due to this, large portion of the population resorts to peer-to-peer lending or loans from Savings and Credit Cooperative Organizations (SACCOs), usually at rates higher than the market rate.

Fintech sector has been working towards reducing the cost of credit risk assessment through the use of big data and machine learning. It uses information about a person’s mobile phone usage, payment data, and several other such parameters, which are available in abundance, to calculate credit score for the individual.

Several companies, such as Branch International, have been following a similar model, wherein, through their app, they analyze the information on customer’s phone to assess their credit worthiness. On similar lines, Tala (which currently operates in Kenya), collates about 10,000 data points on a customer’s mobile phone to determine the user’s credit score.

Fintech sector has been working towards reducing the cost of credit risk assessment through the use of big data and machine learning. It uses information about a person’s mobile phone usage, payment data, and several other such parameters, which are available in abundance, to calculate credit score for the individual.

Other business models include a crowdfunding platform, on which individuals from across the world can offer small loans to local African entrepreneurs. Kiva, a global crowd lending platform, has been partnering with several companies across Africa over the past decade (such as Zoona for Zambia and Malawi in 2012) for providing financial support to entrepreneurs. Kiva vets the entrepreneurs eligible for the loan and the loan is repaid over a period of time. Post that lenders can either withdraw the amount or retain it with the company to support another entrepreneur.

Currently, about 20% of all fintech start-ups in Africa are focusing on lending solutions, with investors backing them with significant amount of funding. This is primarily due to a growing demand for financing in Africa. Moreover, limited barriers with regards to regulations for digital lending start-ups also make it easy for companies to enter this space and test the market before investing large sums of money or entering into a partnership with a bank.

This may change in the long run, however, with regulators increasingly monitoring this growing sector. For instance, in March 2018, the Kenyan government published a draft bill under which digital lenders will be licensed by a new Financial Markets Conduct Authority and lenders will be bound by interest rate caps that are set by the authority.

Insurance and wealth management

Apart from agriculture financing and credit scoring and lending, there are several digital start-ups in the space of insurance and wealth management. There are limited traditional solutions for insurance and wealth management in Africa, a fact that presents significant potential for growth in these categories.

South Africa’s Pineapple Insurance is a leading player in the insurtech space. The company operates as a decentralized peer-to-peer insurance company wherein members take a picture of the product they want to insure and the company uses artificial intelligence to calculate an appropriate premium. The premium is stored in the member’s Pineapple wallet and when a claim is paid out, a proportionate amount is withdrawn from the wallets of all the members in that category. Moreover, members can withdraw unused premium deposits at the end of every year making the process completely transparent.

In addition to Pineapple Insurance, there are several other companies that are making waves in the insurtech sector. These include, South-Africa based Naked Insurance (which uses artificial intelligence to offer low cost car insurance), Kenya-based GrassRoots Bim (which leverages mobile technology to develop insurance solutions for the mass market), and Tanzania-based Jamii Africa (which offers mobile micro-health insurance for the informal sector). Companies such as Piggybank.ng in Nigeria and Uplus in Rwanda, also provide digital solutions for savings and wealth management.

Apart from these fintech solutions, a lot of innovations are also taking place in the payments space. Several companies are working towards extending the reach of Africa’s mobile payment solutions. For example, a leading Kenyan mobile payment company, DPO Group, partnered with MasterCard to launch a virtual card that can be topped with mobile money by the end of 2019. The card has a 16-digit number, an expiry date, and a security code similar to a debit card, thereby facilitating transactions beyond Kenya, with rest of the word as well.

EOS Perspective

There is an immense opportunity in the fintech space in Africa at the moment. Most start-ups are currently operating in Kenya, South Africa, and Nigeria, and are expected to move to other parts of the continent once they have achieved certain scalability and outside investment. Having said that, foreign investors are also keenly observing movement in this space and are on the lookout for fresh concepts that have the capability to build new offerings as well disrupt existing financial solutions.

At the same time, with the industry being relatively new, many of its aspects remain unknown, a fact that increases risk of investing in the sector. Currently, a lot of these solutions depend heavily on data (especially through mobile usage). However, there are increasing regulations regarding data privacy across the globe and over the course of time, this trend is also expected to reach Africa.

Moreover, direct regulations regarding the fintech sector may also impact the business of several new players. Currently the companies are evolving fast and the regulators are playing catch-up, however, once the industry becomes seasoned, clear regulations are expected to ensure safety of the money involved. Fintech companies are also vulnerable to risks arising from online fraud, hacking, data breaches, etc., and regulations are extremely important to keep these in check as well.

While the sector enjoys limited scrutiny at the moment, entry and operations may not be as simplistic in the long run as they seem now. Despite this, the sector is expected to prosper and witness further innovation that will drive it into new territories to satisfy the currently unmet financial needs of the African population.

06/03/2019by EOS Intelligence EOS Intelligence No Comments

Slowly but Surely – Insurance Realizes AI’s Value

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Several sectors, such as banking, F&B, automotive, and healthcare have seen major transformations at the hands of artificial intelligence (AI) ‒ we discussed benefits of AI in fast food industry in our previous article – Artificial Intelligence Finds its Way into Your Favorite Fast Food Chain in November 2017. AI has become an integral part of a large number of industries, providing new solutions and facilitating greater back-end efficiency as well as customer engagement and management. Insurance sector, on the other hand, has been largely slow to react to this disruptive trend. In 2017, only about 1.3% of insurance companies invested in AI (as compared with 32% insurance companies that invested in software and information technologies). However, this is expected to change as insurance companies have begun to realize the untapped potential that AI unearths in all aspects of their business, i.e. policy pricing, customer purchase experience, application processing and underwriting, and claim settlement.

Insurance industry has been one of the sectors that have operated in their traditional form for several decades, without undergoing much of substantial transformation. This is also one of the reasons why the insurance sector has been relatively late in jumping on the AI bandwagon.

Artificial intelligence, which has significantly transformed the way several industries such as automotive, healthcare, and manufacturing operate, also presents a host of benefits to the insurance sector. Moreover, it is expected to drive savings not only for insurance companies but also brokers and policy holders.

Streamlining internal processes

AI has the ability to streamline several internal processes within insurance companies. There is a host of duplicating business operations in the insurance sector. Automation and digitization can result in about 40% cost cutting, and this can be achieved by automating about 30% of the operations.

This can be seen in the case of Fukoku Mutual Life Insurance. In 2017, this Tokyo-based insurance company replaced 34 employees with IBM’s Watson Explorer AI system that can calculate payouts to policyholders in faster and more precise manner. The company expects to boost productivity by 30% and is expected to save close to US$1.26 million (JPY 140 million) in the first year of operations. To put this in a perspective, the AI system cost the company, US$1.8 million (JPY 200 million), and its maintenance is expected to cost US$130,000 (JPY 15 million) per year. Therefore, Fukoku seems optimistic about achieving its return on investment within less than two years of installing the AI system.

In addition to providing automation of processes, AI can bring out disruptive transformation throughout the insurance value chain. Some of the most substantial benefits of using AI in the insurance sector are expected to be seen in policy pricing, offering of personalized insurance plans, as well as claim management.

Policy pricing

Traditionally, insurance companies used to price their policies by creating risk pools based on statistical sampling, thereby all insurance policies were based on proxy data.

AI is transforming this by moving policy pricing analysis from proxy data to real-time source data. Internet of Things (IoT) device sensors, such as telematics and wearable sensor data, enable insurance firms to price coverage based on real events and real-time data of the individuals that they are insuring.

An example of this is usage-based or pay-per-mile auto insurance, wherein a telematics sensor box (a black box for a car), is installed into a car to track information such as speed, driving distances, breaking habits, and other qualitative and quantitative driving data. Using this data, insurance companies can offer a customized policy to the car owner, charging lower premium from safe drivers or offering less-used cars the pay-per-mile option. It also helps insurance companies charge suitable premium from reckless drivers and long-distance drivers.

In February 2017, UK-based mobile network brand, O2, expanded into the auto insurance space with a telematics product called the O2 Drive. The device tracks different aspects of a user’s driving habits and offers discounts and personalized insurance policies based on it. The company is positioning its products to attract teen and young drivers as they are most likely to be open to sharing their driving data.

In addition to auto insurance, IoT devices such as wearable devices and smart home solutions also help in setting policy pricing in health and home insurance. US-based Beam Insurance Services uses a smart toothbrush to offer dental insurance. The company uses data accrued from the smart toothbrush, such as number of times a person brushes their teeth, duration of brushing, etc., to offer a personalized insurance policy. It claims to offer up to 25% lower rates in comparison with its competitors.

In another example, UK-based Neos Ventures offers IoT-powered home insurance based on a smart home monitoring and emergency assistance device. The device and its accompanying app helps users reduce instances of fire and water-based damages as well as break-ins and thefts. The premise of the company is that if they can successfully reduce the chances of any mishaps, they can offer cheaper premiums to the insured.

While IoT devices can greatly personalize insurance pricing, the largest caveat to the success of this pricing mechanism remains that customers must be willing to share their personal data with insurance providers to attain savings in the form of lower premium. As per Deloitte – EMEA Insurance Data Analytics Study 2017, about 40% of customers surveyed seemed open to track their behavior and share the data with insurers for more accurate premiums for health insurance, while 38% and 48% customers were open to tracking and sharing data in case of home and auto insurance, respectively.

Customer purchase experience and underwriting of applications

The relationship between an insurance agent and the customer is an extremely important one for insurance companies. Many times the customer is dissatisfied with its interaction/experience with the insurance agent as they feel that the agent does not have their best interest at heart or the agent is not available for them as and when required.

This issue is effectively addressed with the use of AI-powered chatbots or virtual assistants. Advanced chatbots use image recognition and social data to personalize sales conversations and provide a better customer experience. Thus, agents and insurance representatives are being replaced by chatbots, which deliver faster and more efficient customer experience.

ZhongAn, a China-based pure online insurance company uses chatbots for 97% of its customer queries without any human involvement. It also uses AI to offer innovative insurance products, such as cracked mobile screen insurance. It uses image recognition technology to detect whether the image shows the mobile screen is cracked or intact. It can also decipher if the picture has been photoshopped or altered to ensure the claim is genuine. Since its inception in 2013, the company has sold about 8 billion policies to 500 million customers (these include cracked mobile insurance as well as the company’s other popular products).

To blend the human experience with chatbots, companies have started branding their chatbots with human names. New York-based P2P insurance company, Lemonade, uses exclusively chatbots named Maya and Jim to interact with customers and create personalized insurance options in less than a minute within the Lemonade app. The chatbots Maya and Jim are alter-egos of the company’s real-life employees with the same names.

Similarly, in December 2016, ICICI Lombard General Insurance launched a chatbot called MyRA. Within six months of operations the virtual assistance platform sold 750 policies without any human intervention, while it was used by 60,000 consumers for queries.

In addition to elevating customer’s purchase experience, AI also helps in reducing insurance underwriting/processing time and ensuring higher quality. The underwriting process traditionally has a range of manual tasks that make the process slow and also prone to human errors. However, AI helps achieve quicker and more reliable data analysis. AI tools such as Machine Learning and Natural Language Processing (NLP) help underwriters scan a customer’s social profile to gather important data, trends, and behavioral patterns that can result in more accurate assessment of the application.

New-York based Haven Life (a subsidiary of MassMutual), leverages AI technology to underwrite its life insurance policies. It requires its customers to submit a 30-question application (which is more conversational in nature as compared with the detailed traditional life insurance forms) and upload few documents such as medical records, motor vehicle driving records, etc. The AI technology analyzes the provided information along with historical life insurance data and asks additional questions if required. In several cases, it also offers coverage without the mandated medical test. Through AI, the company has reduced its underwriting time from the typical 1-2 weeks to as low as 20 minutes.

Claim management

AI can play a significant role in two of the most critical aspects of claim management, i.e. the time to settle a claim and fraud detection.

The time to settle a claim is one of the performance metrics that customers care most about. Using AI, companies can expedite the claim process. Chatbots are used to address the First Notice of Loss (FNOL), wherein customers submit their claims by sending pictures of the damaged goods along with answering few questions. The chatbot then processes the claim and assesses the extent of loss and its authenticity, to determine the correct amount for claim settlement.

Lemonade set a world record in December 2016 by settling a claim using its AI bot, Jim, in only three seconds. The AI bot reviewed the claim, cross-referenced it against the policy, ran several anti-fraud algorithms, approved the claim, sent wiring instructions to the bank, and informed the customer in the three-second window.

Another interesting area of application is in agriculture, where machine learning can also help quickly analyze claims (pertaining to loss spread over a wide area) using satellite imaging, which would otherwise take humans significantly greater time and costs to ascertain.

As mentioned earlier, AI can bring massive savings to insurance firms by reducing fraudulent claims. As per US-based Coalition Against Insurance Fraud (CAIF) estimates, insurance carriers lose about US$80 billion annually in fraudulent claims. AI technologies provide insurance firms with real-time data to identify duplicate and inflated claims as well as fake diagnoses.

In addition, many companies use AI to run algorithms on historical data to identify sequences and patterns of fraudulent claims to identify traits and trends that may be missed by the human eye during the initial stages of claim processing.

According to CAIF, in November 2016, about 75% of insurance firms used automated fraud detection systems to detect false claims. Paris-based Shift Technologies is one of the leading players in this domain, claiming to have a 250% better fraud identification rate as compared with the market average. The company had analyzed more than 100 million claims from its inception in 2013 up till October 2017.

EOS Perspective

There is no denying that AI has the capability to transform the insurance industry (as it has transformed many other industries). Although, initially slow at reacting to the AI trend, insurance companies have realized its potential.

As per an April 2017 Accenture survey, about 79% of the insurance executives believed that AI will revolutionize the way insurers gain information from and interact with their customers. This is also visible in the recent level of investments made in AI by the insurance sector. TCS’s Global Trend Study on AI 2017 stated that the insurance sector outspent all the other 12 sectors surveyed (including travel, consumer packaged goods, hospitality, media, etc.) by investing an average of US$124 million annually in AI systems. The cross industry average of the 13 sectors stood at US$70 million.

Thus, it is very important for insurance players to get on board the AI trend now. Since they are already late (in comparison to some other industries) in reacting to the trend, it is critical that they adapt to it to remain relevant and competitive.

However, the key barrier to AI implementation are the complex and outdated legacy systems that hold back innovation and digitization. The companies that do not manage to implement tech innovations in their legacy systems due to high cost might just be acting penny wise, pound foolish.

24/11/2016by EOS Intelligence EOS Intelligence No Comments

Commercial Drones Poised to Be the Next Disruptive Technology?

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While drones have been around for decades, the commercial use of this technology is a fairly new concept for various businesses. The rise of commercial drones in the recent years triggered high hopes for incorporating such technology in a range of sectors. However, a lot of preparatory work is required for the market to evolve and for the technology to be incorporated in businesses’ operations.

Initially reserved for military use, unmanned autonomous vehicles or drones are now being considered for the commercial marketplace. In recent years, commercial drones have witnessed significant product innovations and are now being utilized in various industries. Equipped with cameras, commercial drones are used for mapping, delivery, inspection, and surveillance. Valued at US$ 609 million in 2014, the market is forecasted to reach US$ 4.8 billion by 2020. These machines now have the potential to transform the traditional business models by including a range of opportunities across various industries including infrastructure, agriculture, insurance, security, etc.

Infrastructure

An increased usage of commercial drones has been witnessed in the infrastructure industry. Commercial drones are cheaper than manned aircraft and have the ability to gather data more precise and faster than human surveyors. This helps the construction workers to track the work progress with a higher degree of accuracy. Further, drone monitoring of construction sites enables workers to keep a check on material storage and handling, thereby preventing wastage of materials. While the use of commercial drones in the infrastructure industry will not have any effect on employment, it is likely to reduce overtime costs by keeping a track of the construction progress and eliminating rework or fixes.

Agriculture

In agriculture, farmers use commercial drones to reduce their dependence on extra resources required to produce crops. Drones have the ability to survey fields, spray pesticides, and also collect data required in reviewing crops, with data collection being their most promising utility. This saves farmer’s time and money required to evaluate acres of land manually and also helps in getting timely information about the status of their fields to improve crop health. Commercial drones, thus, help overcome a huge challenge in farming, i.e., limited efficiency in monitoring huge areas of land. The use of commercial drones in agriculture is likely to lead to farming becoming data-driven, leading to better productivity and yield.

Transport

Commercial drones are also increasingly used in the transport industry, particularly for the delivery of goods in the e-commerce sector. Retailers such as Amazon and Walmart have been focusing on setting up the infrastructure required for delivering products to customers. Drone delivery is now considered central to Amazon’s long term shipping plan, and is likely to modify the company’s cost structure. The introduction of Amazon Prime Air, Amazon’s drone delivery system, is likely to lower the cost of a same-day small package delivery to US$ 1. In addition, convenience store chain, 7 Eleven, and fast food chain, Domino’s Pizza, recently partnered with Flirtey, a drone delivery company, to initiate the delivery of food to customers. The companies believe that drone deliveries will help them cut down their delivery cost and save traffic time to offer efficient delivery services.

Insurance

The insurance sector is also an early adopter of the drone technology. Commercial drones are being used to record details about a location or building to gather useful information for risks assessment and claims processing. With the ability to view difficult angles, take high resolution photos and videos, and easy portability, commercial drones can enter places such as burned out homes or chemical spills more easily than insurance adjusters, thus, saving insurance adjusters from entering potentially dangerous areas. Drones can also speed up the surveying process and save costs by covering large areas of the property in a short span of time, thereby employing lower number of adjusters. In addition, drones are useful in monitoring areas prone to natural disasters, making it easier for national government working with insurance companies to prepare for catastrophe and prevent damage and casualties. For instance, in January 2016, Aviva PLC, an insurance company, deployed drones to survey flood damage in the UK. The drones were used to provide a macro view of the area and guide the company’s staff on the ground. While it is too early to say whether commercial drones will be able to replace insurance adjusters, they are already used to speed up the inspection process and offer more detailed property data.

EOS Perspective

The drone technology has started to a find its home in the commercial sector. Various industries have initiated the adoption of drones with a view to increase efficiency, lower operational costs, speed up several links within the supply chain, and obtain valuable information. In the near future, the commercial drones industry is likely to gain more traction, particularly by large scale industries such as agriculture and infrastructure. This, coupled with the ongoing technological innovations such as better sensor technology, seamless software function, better integration, etc., is likely to boost the commercial demand for such machines.

Having said that, the industry will need to overcome certain regulatory challenges to go beyond the currently nascent stage of development. While on the one hand, the development of the regulatory framework has sparked hopes for industries willing to adopt the drone technology, on the other hand, the stringent rules regarding the usage of such technology are likely to cool down the industries’ enthusiasm to some extent. However, though the initial set of rules is restrictive in nature, it is believed, that the regulations might change once the industries exhibit drones operations in a safely manner. For instance, the rule regarding the weight limit might start accepting waivers in certain categories, thereby prompting the regulators to alter the ruling. While it is clear that in its stage of infancy, the commercial drones industry is expected to face regulatory uncertainty, in the long run, with a possible evolving regulatory regime, the business potential of the commercial drones could be game-changing.

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