Aligning organizational cultures, regulatory regimes, and business models

Pharma companies, akin to their involvement with biotech firms, are keen to collaborate with DTx start-ups to enrich their pipeline with complementary digital health technologies. In collaborations between biotech and pharma, large pharma corporates bring their expertise in clinical research, regulatory approval processes, reimbursement procedures, and product promotion for medicinal products.

With DTx the situation is different: digital therapies are also new to pharma. In addition, the regulatory environment is different: software with a medical purpose usually qualifies a medical device and is subject to the applicable requirements, i.e., in the EU the Medical Devices Regulation (MDR). So eventually, (only?) big pharma can bring its market presence, promotional capacities, expertise, and financial resources within the health care ecosystem. In this way, the collaboration between pharma and DTx companies is structurally different from biotech/pharma cooperations.

Navigating differences in organizational cultures

Pharma companies and DTx start-ups often have contrasting organizational cultures and approaches due to their divergent origins in the pharmaceutical and tech industries, respectively. The pharma industry are accustomed to operating in a highly regulated environment with a focus on safety, efficacy, and extensive clinical trials and very long product cycles. In contrast, start-ups from the software development sector traditionally prioritize agility, iterative development, and user-centric design.

These differences can lead to challenges in collaboration, as pharma companies may feel uncomfortable with the regulatory environment surrounding software medical devices. Similarly, DTx start-ups may lack experience with the specific regulatory requirements of the health care industry. Bridging these gaps can be achieved through open communication, shared understanding, and a willingness to learn from one another's expertise. Collaborative efforts should aim to blend the strengths of both sectors to ensure regulatory compliance without stifling innovation.

Health data

The use of health data is expanding beyond traditional clinical development, encompassing the entire lifecycle from research and development to commercialization but also real world data (RWD). This shift brings forth diverse data health projects with varying partner/vendor relationships. Whether it's an AI drug discovery collaboration or procuring AI-driven services, each project demands careful consideration of the partner's expertise and the type of data involved. Moreover, the emergence of new players in the space, including data and data science providers, introduces evolving business models that may conflict with industry norms.

Identifying a robust business model for DTx

One of the critical challenges in the DTx – but also general digital health – landscape is identifying a robust business model that generates sufficient revenue. Unlike traditional pharmaceuticals, DTx solutions often operate with different pricing concepts and – if at all available – reimbursement mechanisms, as our team has also discussed here. This poses a unique challenge for both pharma companies and DTx start-ups.

Pharma companies are accustomed to revenue models based on sales of physical products and may find it challenging to understand the specifics of the respective DTx and to potential revenue models. On the other hand, DTx start-ups may have unclear and vague concepts of actual revenue streams.

To address this challenge, collaborations should prioritize business model exploration and identification. Both parties can work together to identify the most viable revenue streams, whether through subscriptions, partnerships with telemedicine providers, insurers, or other innovative approaches.

Next steps

The evolving landscape of health care presents opportunities for collaborations between pharma companies and DTx start-ups. Both parties need to navigate the challenges posed by differences in organizational cultures and regulatory regimes but also to identify robust business models to ensure the success of their collaborations in the evolving landscape of health care.

Please contact the authors or the Hogan Lovells attorneys with whom you regularly work to discuss your specific collaboration needs.

This is an article in our 2023 series, “Life Sciences Transactional Insights,” which aims to provide key practical takeaways for our transactional colleagues by anticipating the needs of their regulatory, intellectual property, and business stakeholders. Our dedicated team of life sciences and health care licensing and commercial transactions lawyers understand the challenges and opportunities that strategic alliances and other partnering relationships present. We draw on the depth of our life sciences practice and work seamlessly with our regulatory experts to provide unparalleled transactional support. Ensure you are subscribed to Hogan Lovells Engage to receive our insights.

Authored by Arne Thiermann.