How Valeant, Anthem, and chirping crickets suggest Saunders’ social contract is doomed

This piece originally appeared in the Timmerman Report.

When Allergan CEO Brent Saunders announced his manifesto on drug pricing at Allergan just after Labor Day, he was met with acclaim and approval (some examples here and here). He called for a return to the social contract between biopharma companies and patients. In his view, patients understood in the past that developing drugs was risky and cost a lot of time and money, and therefore patented drugs would be expensive. Drug companies, holding up their end of the social contract, felt an obligation above simple profit-making—that drugs are supposed to keep patients healthy or to get them back to that state. That meant pricing had to take into account the public good, not just profit maximizing, and be reasonable. Moving forward, Saunders announced that, among other things, Allergan would commit to value-based pricing and to limit price increases to no more than single-digit percentage hikes per year.

These are worthy and admirable goals. But I look at other recent events and can’t help feeling his effort is doomed. Continue reading

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How Distributed R&D Could Spark Entrepreneurship in Biopharma

This piece originally appeared in the Timmerman Report.

Remember the patent cliff and the general lack of new and innovative medicines in the industry pipeline? That was the big story of the past decade in biopharma. It caused a lot of searching for the next best way to organize R&D to improve productivity. One doesn’t hear that quite as often today. There are more innovative drugs both recently approved and moving forward through the pipelines of several biopharma.

The conversation these days has shifted toward drug pricing, and how the public is going to pay for some of these new, exciting drugs (the answer, in some cases, is maybe it can’t).

I don’t think the industry out of the woods yet. One of the main reasons drug prices have become such an issue is because even though there are new, innovative drugs, there aren’t enough of them. At the same time many of the drugs being approved are incrementally better but nevertheless being priced at a premium. And good reporting has made the public more aware of how many of our existing drugs are rising in price on a yearly basis. Especially in a time of little inflation, prices of most goods have not been going up at nearly the rate of pharmaceuticals.

Biopharma sits in a tough place. Analyses suggest the cost of developing a new drug has generally been doubling every nine years, which may be a by-product of some combination of the complexity of biology, our inability to predict which drugs will work, and the “better than the Beatles” problem. The question then is how to overcome these issues and increase the efficiency of developing new, innovative drugs. Without some kind of change, the industry is looking at a very difficult future in which price hikes run headlong into the wall of payers who finally say enough. Then what? Continue reading

Dealing with disruption: publishing houses and drug development

All opinions are my own and do not necessarily reflect those of Novo Nordisk.

I currently have about ten books strewn about my apartment, in various stages of being read.  Many I’ve been working through, on and off, for over a year.  And something that people keep asking me as they look around is, why don’t I just get a Kindle?  Part of the reason is that I’m cheap.  Also, I get a lot of my books from the library, and I get real pleasure from walking to the neighborhood library, checking out books, holding them and leafing through them, wandering up and down the aisles and also paying fines.  Lots of fines.  Which is okay, because the libraries need all the help they can get.  Although in counterpoint to that, a recent article from the Seattle Times described how in many ways libraries are still popular, even among younger people.

But I know that one day, probably pretty soon, I’ll succumb like a largemouth bass to the glowing lure of an electronic reader.  It makes too much sense.  I can still go the library, but it may be just for ideas of what I can purchase, or at least obtain electronically through the library’s ebook collection.  This is the literary world that the internet has enabled.  And it’s making life very difficult for the publishing houses.

When we talk about the changes technology enables, we know it’s messy.  There are disruptions, and there are often winners and losers.  Not because anyone is out to get anyone else, but just because environments select and support specific traits, and when those environments change, many of those traits no longer are adaptive.  We don’t have woolly mammoths because a combination of human hunting and warming climates most likely did them in; their environment changed.  The book publishing industry is in the middle of change due to new and different ways of marketing books, and to the rise of ebooks versus physical copies.

I’ve written before in this blog about drug development and how it can find parallels in other industries, and a recent article in WIRED really resonated.  Let me put down some quotes from the article, and see if they sound familiar:

“…awarding huge contracts for books that may not even be written yet creates tremendous risk.”  and “Predicting the success or failure of any given book is impossible.”  Hmm, replace books with “pre-clinical/early clinical stage drugs” and this is a familiar complaint by pharma.

“The publishing houses stay afloat only because the megahits pay for the flops, and there’s generally enough left over for profits.”  Yep, sounds familiar as a business plan.

“In the long term, what publishers have to fear the most may not be Amazon but an idea it has helped engender–that the only truly necessary players in the game are the author and the reader.”  To me, this speaks to the changing dynamic of drug development, where patient groups are using new internet tools to become more active players in the drug development process.

“The recently announced merger of the two biggest of the Big Six, Random House and Penguin, is widely seen as a move to build an entity that can stand up to Amazon’s market power.”  Now where have I seen mergers done as a business ploy before?

Drugs are not just like ebooks (although my post earlier this week did look at the concept of drugs as information). But drug development faces the same crisis of old ways of doing business not being sufficient to tackle new challenges brought about by changing environments.  In the case of drug development, the disruption is coming from the challenge of creating new, more effective drugs despite increasing regulatory requirements.  Can drug development learn anything from the problems the publishing houses are facing?

Unfortunately, as can be seen by the quotes above, so far the publishing industry doesn’t appear to have any new, magic bullet solutions that can teach the pharma business about dealing with disruption to old business models.   I suppose the key lesson, which many pharma and biotech already seem to be taking, is that adaptability is going to be a necessary component of business strategy moving forward.  Another possible lesson is that book publishers are having to ask what they’re really good at, and seeing how that can be adapted to a new world where authors have more power because they have new ways of reaching the reader.  Publishers are touting that they can provide the added value of savvy marketing and crackerjack editing to make themselves attractive to authors.  Even though we talk about social media as removing the need for traditional marketing, successful marketing is a skill however it’s accomplished, and a skill most authors don’t have and many don’t want to learn.

Pharma can similarly look at what they do best–clinical trials, sales and marketing–and possibly move out of the discovery part of things altogether.  It would be a radical change, but ignoring changing external factors and keeping the same business practices is unlikely to work in the long run.

Interestingly, in publishing I think the big winners when the dust settles might be…libraries!  While people want to buy books online, they still like to leaf through them.  You see the same phenomenon, by the way, with places like Best Buy.  People like to go see the physical item before hunching over their smartphone and doing one-click shopping.

This is leading to many bookstores becoming the de facto showroom for Amazon, and subsequently going out of business.  And when there are no neighborhood bookstores, people may turn even more to their local libraries.  There, they can not only see and leaf through books, but also talk to a friendly librarian without guilt and get recommendations.  One of the many things librarians excel at is navigating information and matching you up with the right book.  I wonder if we might eventually see librarians working on a partial commission basis, with you “tipping” them via Square or some other form of electronic money.  If we can download a song on impulse for 99 cents, wouldn’t we be willing to grant our librarians at least that much for helping us find the perfect novel?