Rohan Kulkarni — Life Sciences Practice Leader, HFS Research[00:21]
Greetings, and welcome to HFS Unfiltered. My name is Rohan Kulkarni, and I lead the life sciences practice here. I’m joined this morning by Paul Watson of Hitachi. Paul, good morning.
Paul Watson — Healthcare and Life Sciences Industry Lead, Hitachi Digital Services[00:21]
Good morning. So — Paul Watson. I lead the healthcare and life sciences industry at Hitachi Digital Services. I also play a role with Hitachi’s group marketing and sales division, which looks after our top strategic accounts at a group level. So, do you want to kick us off?
Rohan Kulkarni — Life Sciences Practice Leader, HFS Research[00:49]
Yeah. I’m really interested to get your perspective. Obviously there’s a big shakeup in US markets, and particularly in life sciences. All the forecasts show a significant amount of money — over $1 trillion — being lost within pharma and biopharma over the next 10 years. How do you think the market’s going to respond to that?
Paul Watson — Healthcare and Life Sciences Industry Lead, Hitachi Digital Services[01:14]
You’re spot on. It’s unprecedented headwinds for the life sciences market in general. The estimates are anywhere between $1.01 and $1.5 trillion in revenue losses over the next 10 years. Nothing of this magnitude has ever been something the leaders within the industry have experienced before, and based on a lot of our research, indications are that they’re not quite prepared. Having said that, there are about three different ways the industry can begin to mitigate these challenges. The first is around new markets. Traditionally there’s been a bias toward the North American and Western European markets; enterprises will need to look at other markets whose populations are continuing to grow — whether India, China, Southeast Asia, or even Africa — where disease prevalence is also increasing and the population is aging. Those are prime conditions to help life sciences mitigate some of their challenges. The second option is new distribution channels. Across the spectrum of complexity, the US is probably the most complex in terms of getting product from the manufacturer to the consumer, so a new channel such as going direct-to-consumer is going to be particularly encouraging. We saw some of that movement earlier this week with “TrumpRx,” where Pfizer and the new administration came to an agreement to distribute certain medications directly from TrumpRx.gov. And the last thing I’d call out — and you and I have chatted about this a little — is disease-condition-specific, closed-loop models, where the pharma or med-device company owns that disease end to end. A good example would be diabetes: they have clinicians who help with diagnosis, products that manage the disease, and nutritionists and diabetic educators who can wrap their arms around that patient to prevent disease, delay its onset, and — assuming the disease still occurs — manage it in a much more proactive manner. Some of these will help them mitigate the revenue challenges. Well, what do you think? You talk to them every day.
Rohan Kulkarni — Life Sciences Practice Leader, HFS Research[03:47]
I think they’re certainly looking at how they build agility globally — everything from core systems, networks, and infrastructure to their strategies for investment outside their traditional markets. If I look at where they’re focusing their attention, it’s on laying the foundations at this stage. The more interesting topics you introduced — the more holistic business model — are very early days, and that’s a huge, fundamental change in the way these companies do business today. Evolving business models, new partnerships, and new types of supply chain are going to be really big challenges for them to overcome. And this leads into the regulatory landscape. There’s an argument to be made that some of the changes the new administration has been forcing on the way the US deals with medications are getting less and less inclusive. There used to be the notion that the FDA was the gold standard in terms of regulations, but more and more countries — whether for national security, nationalism, or a different approach to science — may start regulating on their own rather than looking to the US. Are you beginning to get a similar sense, and how do you think life sciences will address these challenges?
Paul Watson — Healthcare and Life Sciences Industry Lead, Hitachi Digital Services[05:40]
I think it’s a natural response. They see an element of distrust or a weakening of those regulatory systems, and the barriers the US changes are putting in place for access to different markets. You’re naturally going to see those regulatory systems evolve — I don’t know whether on an individual-country basis or through more regional collaboration, where certain European counterparts form new standards and regulations, or enforce them more and reduce the adoption of FDA standards. But it’s only going to introduce a lot of complexity for the manufacturers. How will they manage the various hurdles they’re going to have to move through? How do they keep an eye on the regulations as they change and evolve over time? Thinking about how they can move through that process in a more automated or more supported way — using things like AI and last-mile technologies to monitor, adapt, and prepare — is going to be increasingly important.
Rohan Kulkarni — Life Sciences Practice Leader, HFS Research[07:04]
Let me add a couple of thoughts on that. Generally speaking, life sciences will probably have to consider multi-jurisdictional commercialization strategies. They do a lot of that today, but this is probably going to be put on steroids because of the newer regulatory aspect. The second piece is the last-mile layer, which is going to be about models that anticipate and react to submissions a whole lot faster and much more accurately. And the last thing I want to call out: we did some research in this space earlier in the year and found that 80% of life-science companies — around 67 surveyed — indicated that a great lesson coming out of the pandemic was deglobalization. More and more of them are beginning to deglobalize their operations, which leans into a more diffuse regulatory landscape. As a consequence, there are going to be challenges balancing at-scale operations against regional regulatory needs. It’s going to be very tricky.
Paul Watson — Healthcare and Life Sciences Industry Lead, Hitachi Digital Services[08:29]
Yeah, it’s a balancing act. I was talking to some companies yesterday who have a decentralized model, but it also introduces fragmentation from an IT and digital perspective. Their ability to look at a global landscape through a single lens — to leverage their critical assets, like clinical data sets for research, and have that centralization but decentralization at the same time — is going to be really important to enable them to be agile, and to adapt and be specific to the markets they’re operating in.
Rohan Kulkarni — Life Sciences Practice Leader, HFS Research[09:25]
Hitachi is a huge global company; you do all kinds of interesting things. My sense is that you’re in a bit of a pole position in terms of bringing capabilities across the multiple enterprises that are part of the group — almost full-stack — to help pharma, med-device, and biotech companies build factories, operationalize those factories, take products to market, and provide the entire technology services surrounding that. Do you think that’s something more and more enterprises will be looking to you for going forward?
Paul Watson — Healthcare and Life Sciences Industry Lead, Hitachi Digital Services[10:05]
Yeah, I think so. These changes affect the whole downstream supply chain and partnerships. Our business has been very strong in certain markets — in our domestic market in Japan we’ve been operating for many decades now, building plants and bioreactors and strong partnerships with the Japanese pharma companies. We’ve seen those companies evolve gradually and move into international markets, but the challenge is there for us as well: how do we adapt and scale our capabilities, which may be more central to one region, and how do we engage and move with our customers? We’ve seen a lot of investment from Hitachi building capability outside its traditional markets, and a lot of investment into the US. With the recent acquisition of Castle Hill Technologies, we’re looking at plant process optimization specifically in the pharma industry. So it’s now about how we bring that industrial side of Hitachi and make it agile and available to support globalization and the move into different markets for our customers. Innovation is going to play a key role. I certainly see huge investments in deep tech — whether for creating digital scalability and agility, or more specifically around advancing research and drug development — thinking about how they can effectively conduct that research and ensure it supports different geographic regions as they move through the value chain. The last thing from our perspective is that acceleration: how do you scale up quickly? There’s a big move toward the industrial metaverse and digital twins for the commissioning process — almost simulating the commissioning and scale-up process to maximize yield and throughput of those facilities — because time to market is going to be critical. And how you do that at scale in multiple geographies is going to be a vital part of the answer to addressing these challenges in the industry.
Rohan Kulkarni — Life Sciences Practice Leader, HFS Research[12:24]
You’re in a position to elevate the role of a traditional service provider to being a co-innovator at global scale. By bringing this disparate but inclusive set of capabilities together, your ability to operate and collaborate at higher levels within the enterprise will probably let you manage those risks in a much better manner. One of the things I’m sure you recognize is that the revenue challenges I mentioned earlier are a function of the end of the blockbuster regime, the patent cliff, and the US government beginning to negotiate prices for Medicare. All of these forces are coming together, and in that context life sciences are going to need credible global partners with that entire suite of capabilities to manage risk in a much more optimal manner than they have in the past.
Paul Watson — Healthcare and Life Sciences Industry Lead, Hitachi Digital Services[13:43]
I think you’re exactly right — it’s about partnership, and about how you co-innovate. That’s been Hitachi’s heritage for over 100 years now: advancing through the introduction of new technology, new levels of automation, and new levels of intelligence to move industry forward in a way that benefits society. Establishing that kind of partnership at a strategic level is going to be a key part of solving this challenge. Some challenges are too big for any one company — probably too big for Hitachi and our customers alone. It’s about how you then create that ecosystem, which enables you to have that agility and flexibility, but also the capability to go and execute at that kind of scale.
Rohan Kulkarni — Life Sciences Practice Leader, HFS Research[14:40]
I guess the key word is an ecosystem — a partner ecosystem. Fascinating conversation, Paul. Really appreciate it. Thank you very much.
Paul Watson — Healthcare and Life Sciences Industry Lead, Hitachi Digital Services[14:44]
Thank you.
