But Are Industry Leaders Keeping Pace?
Industry has the tools to bring more and far better treatments to more people faster than ever, with much lower R&D cost and very little selling needed for these targeted therapies – a perfect prescription for slashing prices for global access while preserving profits, argues Viren Mehta of Mehta Partners LLC.
Biopharma business is
fundamentally changing, but is the leadership keeping pace?
The US Business Roundtable last August redefined the purpose of a corporation to promote “an economy that serves all stakeholders, not just financial investors,” with 181 major CEOs as signatories, including half a dozen biopharma leaders. Meanwhile, in September, Harvard Business Review (HBR) published a study entitled The Top 20 Business Transformations of the Last Decade, which assessed around three objectives: achieving new growth, rejuvenating core, and sustaining financial performance. Unsurprisingly, it featured no biopharma companies, as biopharma – thanks to its complex and regulated structure – remains among the most profitable industries despite launching only a handful of new products of variable value.
This is about to change. As
we usher in a new decade this is a fine moment to reflect on the state of
biopharma, and the opportunities ahead – especially the opportunity to
transform the industry’s image and regain society’s trust. In 2019, the US FDA
approved nearly 50 new drugs for the third year in a row; about twice its
average over the past two decades. It is quite likely heading towards approving
over 100 new drug approvals annually, helping biopharma executives meet the
Business Round Table pledge of serving all stakeholders. This decade, biopharma
can ensure access to its products for every eligible patient globally while
remaining among the most profitable industries and earning the rank of the “Top
Business Transformation” of the coming decade.
Time For Change
It is timely to ponder this exciting opportunity, as the forces are converging for industry leaders to clear the decks for this positive new vision during the new decade.
The 2020s are sure to change the very character of the biopharma industry as we know it. Much of this change promises to be positive, shaped by innovation, greatly improving our quality of lives at a quickening pace.
The past decade by contrast brought only fitful progress: a
couple of dozen diseases came under control, and one, hepatitis C, is now
Looking ahead, rapid adoption of curative approaches, from gene
and cell therapy to antisense and mRNA to CRISPR genome editing, promises to
accelerate the number of cures. Even when not curative, new medicines will
be increasingly impactful in ameliorating the burden of disease.
Above all, science has matured to the point where discovering
and developing highly effective therapies will increasingly follow a template,
especially as the tools to identify, monitor, and treat patients make Phase II
studies the pivotal step, so that Phase III can be combined with Phase IV
studies, greatly reducing the time and cost of getting a new therapy to
patients. This template framework for innovation could not arrive too soon, as
countless therapeutic targets await effective therapies, and even more
importantly, tens if not hundreds of millions of patients beg for access to
effective treatments – as we are learning from hepatitis C cures in Egypt and
other emerging countries.
The regulators recognize this progress, are actively supporting innovative approaches, and are ramping up new product approvals. This in turn will free up biopharma managers to adopt normal, free-market business practices, in contrast with the past two decades when they have been forced to maximize the returns from the few therapies of varying benefits that they managed to bring to market. With the momentum of science, strong support from biopharma leadership can expand the annual new drug approval rate many times over – thereby enabling them to transform their business models as per the HBR study and fulfill the challenge that the US Business Roundtable has laid out for all managers to do right by all stakeholders, not just shareholders.
At least a fifth, and quite often a third of the biopharma cost structure is shaped by the regulatory environment, as evidenced by the range of R&D spending by large pharma and biotech companies. Therefore, positive regulatory trends – from Phase II studies becoming pivotal to more new drug approvals – offer an opportunity to bring drugs to market at a fraction of traditional cost. Charging much less for these highly effective if not curative therapies will expand the market by at least an order of magnitude, thereby not only greatly increasing patient access, but, thanks to the increased scale, still earning handsome profits. Being able to launch truly impactful therapies would eliminate another one-fifth to a third of industry’s costs over the next decade, again as evidenced by the amount the industry spends on selling and marketing, as only focused marketing would be needed and selling would be quite unnecessary.
What can biopharma managers accomplish with this prospect of cutting their costs in half?
- First, they will gain self-confidence. Rather than continuing to
support ways to keep self-serving barriers, the biopharma leadership can
actively support regulators and their governments to introduce a system where
highly effective therapies can reach the patients in single-digit number of
years at a cost of double-digit millions of dollars. The goal can justifiably
be well over a hundred new medicines reaching the patients each year.
- Second, as these therapies will address predefined and
well-informed patient populations, they can cease intensive selling efforts.
- Third, they can revamp drug discovery as a true partnership with
academia and the government to streamline costs further.
- Fourth, they can deploy some of this bounty with every regulator
and government for global screening programs to identify patient predisposition
around genetic and epigenetic profiles to ensure every eligible patient can be
reached with new therapies – thereby greatly expanding the market potential of
each therapy. In effect it would represent next-generation marketing to
create scale that would help slash drug pricing well beyond what R&D and
selling savings alone may justify; at the same time as maintaining biopharma’s
top profitability position.
- Fifth, they can streamline new drug development around data from these mass screenings, enabling regulators to approve therapies based on Phase II studies as standard practice, and diligently combine Phase III and IV as global post-marketing efforts to minimize patient risk, and provide robust justification for regulators to continue to accelerate the pace at which the expanding R&D pipeline reaches patients worldwide.
The transformational opportunities that the resulting virtuous circle will create is self-evident, and something that every biopharma manager can embrace, no matter how rabidly they have had to cling to the old business model in the “needy” environment.
The expanding flow of new product approvals removes this needy mindset that developed as a result of the past two decades’ poor new product flow, which forced pharmaceutical companies to recoup their costs with high prices.
Instead companies can adopt a visionary mindset to focus on the
positive range of opportunities to serve a much larger market of all the
eligible patients globally with much lower prices made possible by this sheer
scale. If they are successful, they will be embraced by society, and the
industry’s image will zoom to the top.
At the very least, adaptive pricing plans to reward the
countries that nurture innovation while respecting countries’ ability to pay
would make rapid penetration of global markets practical, and in the process
make biopharma an effective and successful ally of all patients globally.
Let us mark the new decade by reshaping the biopharma industry
around efficient and agile cost structures, and roll out an accelerating stream
of therapies at a price that every patient around the world would welcome.
This column originally appeared on Scrip
Biopharma Intelligence, Jan 27th, 2020.