Drug Prices Issue & Pharma La-La Land


Pharma business is complicated. It is a laborious task to explain it to anybody outside of the industry. Yet, the topic of the drug pricing seems to be relevant to everyone. We all deal with illness at some point in our life, either because we get sick or our family members or friends do. Recently some bad actors in the pharma industry (Turing, Mylan) caused a lot of discussions on the drug pricing and negativity around pharma business. Is that deserved? 

Pharma industry deals with a lot of drug development risks and uncertainties and a lot of sunk costs because of the failed investments. I realize that explaining those risks does not solve the problem of rapacious pricing. Thus the industry has to search for more long-term solutions how to sort it out. Prices are just a secondary effect of the industry’s inability to develop new drugs in sufficient quantities to sustain a market and meeting the needs of patients. It is reported that FDA has only approved 17 drugs in 2016 and many predict the start of a new drought.

That productivity decline can be contributed to a couple of factors such: increased business growth model by licensing and M&A and shifting the focus from traditional R&D areas like diabetes, cardiovascular and antibacterial research to oncology and rear diseases.

USA pays more than its fair share of supporting global R&D (pricing is not regulated at this point leaving pharma a lot of pricing freedom). However, it is possible that this will change in the coming years. As this occurs, industry revenues may drop, and less money will be available for R&D investment, thereby resulting in the fewer research programs being pursued and substantial job loss.

The only possible rescue is to increase pharma productivity. Once this is achieved, one can assume more drugs will become available, mean more competition and more variety and better treatments.  Competitive pressure may result in pharma pricing the drugs proportionally to the benefit for the healthcare and the patients.

The question is how to increase that productivity? One of the ways is to continue developing collaborations with academia and biotechnology companies. In order to boost pharma productivity further, significant effort has to be made to increase the volume of future collaborations. Currently one can predict rather average future productivity based on 2016 number of FDA approved molecules.

What could be the alternative?

A word of warning: Let’s forget for the moment about free market rules. Let’s think a solution that may just make some people amused and some people staggered (in my defense: I was born in a former communistic country).

Let’s imagine a hypothetical pharma La-La Land. Where the global pharmaceutical market is regulated by a global council governance body (FDA, EMA, PMDA merged together). Land, where pharma/biotech companies are competing for the contracts to deliver a specific target/drug candidate in a very specific therapeutic area and/or indication to the guarding governance body. Means company X is selected to work on targets Y, e.g. in oncology (as the only one among many bidding for the contract) and company Z is chosen to work on target B, mainly in cardiology, etc. It is public knowledge, who works on what in both discovery and development. Big pharma with their particular therapeutic area focus works intensively with biotech and academia to bring more new targets and proposed molecules for development and recommends those targets to the global governance body. Governance body selects the company for specific target/drug development based on some type of objective criteria list (expertise level, availability of relevant resources, access to appropriate technology, etc.) and selects a winner through public bid defenses and hearings.

That particular novel industry operating model means that companies no longer take investors money to deliver same ‘me-too’ drugs over and over again. They do not waste the capital and intellectual brainpower of their employees. It means that incredibly smart group of scientist and developers could work with narrow focus and deliver drugs that make the most promise and do not duplicate efforts of others (how much anti-PD-L1 or anti-PD-1 we have on the market now? Is that really an innovation?). And wow, that market share of almost 100%? Would not that make the drug cheaper instantly? Once you have an almost whole market, you can go down with your price. Sure, again, I am simplifying the whole hypothetical and very complicated topic. I do not take into account the country-specific regulations, company portfolio risks that would still exist, drug access issues to those treatments in developing countries, etc.

Yes, that setup would lead to the monopoly of some pharma giants, in some cases. But same time, one has to consider that pharma is aiming to dominate the market in particular therapeutic spaces as part of their commercial portfolio strategies already. Thus I do not necessarily see that approach being wrong from the business perspective. I recognize that some readers may regard the above idea as an absurd. We need however to start thinking outside of the box and try to find other long-term solutions for the drug price problem. I do not believe pricing control is enough. Pharma industry is struggling with slow innovation and general stagnation,  in consequence delivering similar drug products. This is a significant waste of resources that also contributes to insane price increases. This is and will be an ongoing problem for the patients, payors, governance bodies, health insurance providers.

The free-market does work for majorly of industries. For pharma, it leads to waste of time and energy from humanity perspective (so many ‘me-too drugs’ and no real innovation). Medicines are critical for safeguarding people’s health and lives. Medicinal products are not chocolate bars or cleaning products; thus the market rules have to be somewhat different.

We should see soon how the pricing situation evolves in the USA soon – I will be watching it carefully.

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