Economics taboo in life sciences

It is considered impolite at best to ask life sciences companies about their cost structure and pricing strategies. Life sciences executives can often appear naive, incognizant and uncaring about the basic economics of their industry. They appear to exclusively and superficially target profit maximization and wholly propriety IP development and protection; ironic given the greater goals of healthcare. Life sciences as an industry seems to be at least twenty years behind the high tech industries such as computing and communications in terms of understanding and delivering economic value to a wide audience of end consumers, and in terms of openness and collaboration.

Fixed and variable costs, pricing strategies and quantitative aspects of customer demand are much more known and openly shared and discussed by companies in the high tech industries. That critical piece of entrepreneurialism, understanding the specific economic value of a product or service to the end consumer is absent in life sciences. The problem of course is the “third party pays” dynamic in life sciences where a third party, insurers, pays for services consumed by patients. If patients knew, or perhaps were even paying, prices, their behavior would likely be much more rational, and so too would health services offering have to be much more rational. Price is not discussed and is rarely even available at the doctor’s office.

Water, the new oil

The $300 billion worldwide water industry is thought of as a policy area and an energy area, but not as a technology area. Every industry is really now a technology industry. Now is still an early phase of the water industry and there appears to be a lot of low-hanging fruit room for improvement such as reducing the 25-33% leakage that can occur in transport canals and pipe systems. Before looking at technology, the current focal points of improvement are reclamation, hydrologic models and conservation incentives.

Desalination and other Technology
There has not been a lot of recent improvement in desalination technology, and it remains expensive, 25 times the cost of traditionally piped water in some markets. The main reason for it remaining expensive is the high energy cost as a key input, so it is seen as an energy problem not a water solution. Solar, wind and other energy solutions could improve this. Advances in membrane filtration for reverse osmosis and developing other desalination mechanisms such as synthetic bacteria could shift the economics.

Hydrologic Models and Reclamation
Hydrologic models are the main focus of current improvement to better manage surface and ground water and to reclaim rainwater. Surface and ground water can be stored conjunctively and transported between storage mechanisms using such tools as aquifer injection wells and recharge ponds. Rainwater can be reclaimed for direct use (irrigation for example) and for reservoir supply.

Pricing and Metering
Another low-hanging fruit solution would be the widespread metering of water consumption. Some anecdotal studies have shown consumption dropping by a third with the advent of metering and that water is price elastic, usage declines when price increases. Removing or reducing discounted water as a farm subsidy could drive conservation as true costs are experienced by users. Water markets could further encourage conservation-oriented agricultural use and make prices more transparent and accurate as water market participants are attracted. Tools like the Drought Monitor could help authorities shift water supply around a fungible national grid.