Merck: The Future of Care Is Personal
Written by Adam Grisolia and Blake Verdonk
The global pharmaceutical industry is leaving over $600B on the table. Medication non-compliance, defined as patients failing to comply with prescriptions, is a significant health issue resulting in worsened patient conditions and forfeited revenues for pharmaceutical companies. This presents an opportunity for pharmaceutical companies to create a material difference by improving patient well-being, differentiating from competitors, and capturing lost sales.
The core functions of the pharmaceutical industry are to research, develop, manufacture, and market medications to treat and prevent illnesses. Patent protection is necessary in this industry to incentivize the discovery of novel therapies despite their high research and development (R&D) costs. However, patent expiration eventually allows any competitor to recreate generic equivalents and eliminate the drug inventor’s monopoly. Therefore, ensuring patients take their prescribed doses of medication is a necessary component for boosting per-patient revenue during the patent protection period. In particular, improving compliance in patients with chronic conditions translates to a greater number of doses consumed over the lifetime of the patient. One study found that as many as 40 to 50 percent of patients with chronic conditions struggle with medication non-compliance.
In addition to the estimated $630 billion of forfeited revenues, medication non-compliance leads to worsening patient condition and higher rates of patients relapsing into illness. In the United States alone, an estimated 125,000 people die annually from otherwise treatable ailments as a result of non-compliance. With improved support, patients can improve compliance, resulting in improved patient outcomes and quality of life.
Merck Pharmaceuticals: Pushing the Boundaries of Personal Care
Merck & Co., Inc (Merck) is a major multinational pharmaceutical company with experience in several therapeutic areas including oncology, infectious diseases, and cardio-metabolic disorders. In 2020, Merck reported $48 billion in revenue; however, its market share of the prescription drug market is expected to shrink from 4.7 percent to 3.8 percent between 2019 and 2026. In recent years, Merck has increased its focus on specialty drugs, which have higher margins but are generally more complex at every stage of production.
Science and Compliance
Medication non-compliance is largely driven by treatment complexity and a lack of motivation or education. While patient support programs exist, more must be done to assist patients throughout their care journey and address the causes of non-compliance. Furthermore, many therapies involve an exercise regime or a lifestyle change, which can be difficult for patients to maintain. The use of wearable technology can help address several causes of non-compliance, including reminding patients when or how to take medication. During the COVID-19 pandemic, $30 billion has been invested into digital health to improve access to care and reduce inequities. Furthermore, the rapid speed to market of COVID-19 vaccines has improved the brand awareness of large pharmaceutical players, presenting an opportunity to capitalize on an improved reputation and introduce innovative medication management programs. Data suggests that medication management improves as people closely track their daily activity, with goal setting, reminders, and some degree of gamification all proven to increase compliance among users of wearables. A study conducted by Capital Medical University in Beijing observed that among patients with arrhythmias, compliance rose from 62.5 percent to 77.8 percent with wearable users.
Relying on a customized wearable provides several advantages for patients. A customized wearable can utilize sensors to collect data on condition-specific metrics and receive real-time medication reminders and activity prompts. For diabetics, Hb1Ac levels (a measure of average blood sugar) could be estimated using temperature and heart rate sensors in wearables. This promotes compliance and can provide additional data on therapeutic response, enabling physicians to update dosage or lifestyle changes as needed.
Perks for Merck
The pharmaceutical industry value chain includes three main steps: manufacturing, distribution, and dispensing. Large drug developers like Merck lie within the manufacturing sphere. Once manufactured, distributors deliver medications from manufacturers to retail pharmacies, hospitals, and physician’s offices. The final stage of dispensing includes patient counseling and verifying dosages.
In single-payer markets, a type of universal healthcare where costs of essential care for all residents are covered by a public fund, and among individuals with prescription drug coverage, an increased consumption of drugs results in increased refills because the patient does not bear the full cost of the medication. Greater refills ultimately translate into greater demand for manufacturers, culminating in higher sales.
Merck’s venture into wearables to improve compliance will also position itself as a firm that supports patient well-being. Merck can promote its associated wearable support program which would encourage physicians to prescribe Merck therapies with higher demonstrated levels of compliance when compared against competitor therapeutics. As a result, Merck can realize increased sales from both new and existing patients.
Clocking in Garmin
Garmin is a multinational GPS navigation and wearable technology company with experience in the healthcare space through their app, Garmin Health, that provides partner companies with access to the data generated by wearables. Garmin has also previously collaborated with Merck on The Heartrate Project, which helps hypertensive patients with lifestyle changes. The Garmin Venu SQ smartwatch is capable of tracking heart rate, respiration rate, skin temperature, blood oxygen saturation, sleep, and hydration along with sending reminder notifications. These features have valuable applications for healthcare, and the watch can be redesigned with simpler user interfaces to access biometric data, create goal setting features enabling gamification, and communicate important messages and notifications.
The Pharma Garm-int
Merck should partner with Garmin to offer a patient support solution with the use of wearables that improves medication compliance, monitors key health indicators, and improves patient outcomes. Garmin has the necessary technology with its current line of wearables to track health metrics and trigger reminders. This partnership provides Garmin with an opportunity to strengthen its position in the health-focused wearables market. Through the suggested partnership, Merck will finance the wearable production and Garmin will be responsible for the delivery of wearables to patients. This program should be piloted with existing patient support programs for Januvia, a medication used to treat type-2 diabetes. Should it demonstrate improved patient outcomes and increased refills, the program should then be expanded to other chronic conditions.
This solution also provides a competitive advantage for Merck since doctors may be interested in accessing indicators of patient health that could be measurable through the wearable. When promoting therapies to physicians, Merck can advertise the strength of their patient support program, which would incentivize doctors to prescribe regimes manufactured by Merck. On the other hand, Garmin would benefit from this partnership through increased sales from orders associated with Merck therapies and gain credibility and expertise in healthcare as Merck’s chosen wearable provider. As for the patient, the wearable provides them with valuable health information and reinforces proper medication use. Therefore, such a partnership would generate immense value for all three parties.
Januvia: A Watch Worth Watching
As of 2017, over 450 million individuals worldwide were living with type 2 diabetes, a condition characterized by insulin resistance resulting in hyperglycemia. Diabetes is associated with a variety of complications including heart disease, stroke, and atherosclerosis. Diabetes management is largely patient driven, involving healthy eating and active living.
Januvia is a prescription pill developed by Merck to help type 2 diabetes patients lower their blood sugar, working alongside diet and exercise. Treatments for chronic conditions like diabetes typically have poorer compliance. Furthermore, the multi-faceted treatment regime of Januvia, including medication and lifestyle changes, make it a strong candidate for a wearable support program to improve compliance. The customizability of wearables would also allow for the integration of health sensors to monitor physiological responses.
Merck-in it Work
The Garmin Venu SQ smartwatch focuses on health and wellness, has a simple and fashionable design, and a moderate price of $218. Januvia’s high treatment price, large market size, and use for a chronic disease make it an excellent candidate for a wearables support program. Based on a contribution analysis that assumes Merck purchases and provides the Garmin Venu SQ to each Januvia patient at roughly $218, and using Januvia’s average selling price of $554 per month, a return on investment of 83 percent per patient is realized with only one additional month’s refill. Assuming Januvia has a margin of 72 percent, which is in line with Merck’s overall margin, each additional one-month refill results in roughly $399 of extra profit. Given that Januvia is still under patent protection, an estimate using a company-wide average gross margin of 72 percent is likely conservative.
Merck should capitalize on this opportunity while patent protection remains to maximize ROI on the cost of research and development incurred to create this drug. This program with Januvia will act as a pilot for Merck to assess the feasibility and potential to expand to other drugs. Based on an estimated industry’s forfeit rate of 59 percent, non-compliance represents up to a $22 billion opportunity for Merck.
Rising interest in digital health, improved public perception of pharma, and a declining market share make this a unique moment for Merck to take bold action. A wearables partnership with Garmin will enable Merck to capture forfeited revenue, differentiate from competitors, and support long-term patient well-being. The future of care is personal, and a Merck-Garmin partnership offers an innovative and individualized solution to tackling patient non-compliance.