Patients Are Taking the Driver's Seat in Healthcare

Erin Wright (0:01)

Welcome to Thoughts on the Market. I'm Erin Wright, US Healthcare Services Analyst at Morgan Stanley.

Terence Flynn (0:06)

And I'm Terrence Flynn, Morgan Stanley's US BioPharma Analyst.

Erin Wright (0:10)

Today, how the consumer is moving into the driver's seat across healthcare.

It's Flynn Day, September 14th at 7 a.m. We're recording in New York City where Morgan Stanley's 24th Annual Healthcare Conference is happening this week. One of the biggest shifts we're seeing across the industry is patients gaining more choice, transparency and control over how they access care and medicine. You can already see it in everyday behavior.

In our Alpha Wise survey earlier this year, 34 percent of US consumers said that they'd chosen to take a voluntary wellness lab test in the past three years, and roughly two-thirds already own a wearable are planned to buy one. And now we're seeing the same trend reshaping how people buy medicine and choose care. So, Terrence, let's start with BioPharma. For years, direct-to-consumer pharma meant advertising and nudging people to ask your doctor about what particular treatment is best for them. What's different this time around? And what's different in this next wave of direct access?

Terence Flynn (1:12)

Yep, absolutely. Thanks, Erin. So for most of the industry's history, the patient sat at the end of the value chain and had really limited control over the product, the price or the route through which the drug was obtained.

Manufacturers marketed to doctors and consumers, but the transaction was itself intermediated. So we think that's starting to change here. It's no longer simply about more consumer advertising or another cash pay discount. There's a parallel access infrastructure that's building here, where the patient can increasingly start the initiation of the treatment journey themselves, obtain a prescription often digitally through a telehealth provider, and then fill this prescription through other nontraditional channels. And so there really is a shift in the model that we're starting to see here. But again, we're not talking about replacing insurance here. We're talking about areas where friction is high and where a cash pay price is viable.

Erin Wright (2:06)

So obesity has been the clearest proof point, as we are seeing patients asking providers about GLP-1s. Where else are we seeing this?

Terence Flynn (2:14)

Yeah. So manufacturers are actually already selling over 25 branded drugs directly to patients at cash prices.

Now, the common features of these drug classes are that they're self-administered. So essentially, the patient can start and stay on treatment. And where there is limited in-person infrastructure that's needed. And where, as I mentioned, you have a lower price point or a coverage gap, meaning traditional insurance coverage doesn't exist. Now, we're seeing this in large chronic categories. You mentioned obesity. Another one is migraine headaches. There are also other areas that are amenable to telehealth. So think oral PCSK9 therapies, topical dermatology, non-opioid pain. So again, we think as more self-administered products launched, you're going to see the addressable DTC pool expand.

Erin Wright (3:04)

And ultimately, what does this reveal about patient demand and gaps in reimbursement?

Terence Flynn (3:09)

Yeah, I think GLP-1s, as you mentioned, Erin, provided the first proof point here that this new DTC model could actually be viable. And really, the reason for that is that the US employer coverage base right now, only about 50% cover these obesity medications. And so for the other 50%, you have a gap in coverage. And that's really why people are seeking other channels for coverage. And so again, that really created this opening here for this new model. And so again, that's another consideration when you think about other medicines that could go through these channels is you have to think about the insurance coverage situation. And so for some areas like oncology, for example, insurance coverage is going to be very high. And so those wouldn't be amenable to a DTC approach.

Erin Wright (3:53)

So Terrence, your analysis points to roughly $26 billion peak US opportunity.

What makes a certain therapeutic well suited for direct to consumer? And where is the opportunity most concentrated?

Terence Flynn (4:06)

Yeah, so there are really four variables that we considered. The first is self-administration. So as I mentioned, you have to be able to administer the medicine yourself, meaning you don't have to go into the physician or the hospital for an injection, for example. The second is that the diagnosis doesn't need an in-person confirmation. So think of something like a biopsy or something. So you'd have to be able to diagnose, as I said, over a remote telehealth channel. The third would be something that is a lower price point. Obviously, they're, like we mentioned, the GLP-1 medicines are at a different price point versus oncology medicines. And then the last one would be any kind of legal restriction. So sometimes FDA has a lot of restrictions around who can prescribe a medicine. These are called REMS. And so any medicine that had restrictions like that obviously would not be amenable to DTC.