Skip to content
Link copied to clipboard

Pharma's "Vision" for the Future or Three Blind Mice?

Last month the pharma columnist at Forbes, Matthew Herper, wrote that after "talking to executives around the drug industry," most are pursuing one of the following three alternative scenarios: The blockbuster model, the expanded orphan strategy and the access model. Here, I offer up some insight into each of these "visions" of the future:

By Daniel R. Hoffman, Ph.D.

Last month the pharma columnist at Forbes, Matthew Herper, wrote that after "talking to executives around the drug industry," most are pursuing one of the following three alternative scenarios: The blockbuster model, the expanded orphan strategy and the access model. Here, I offer up some insight into each of these "visions" of the future:

1) The blockbuster model.  Three or four years after it became conventional wisdom in pharma that the blockbuster model was dead, Herper now claims that "many executives still hold to basically this model." He's probably correct and, as much as anything, that fact reveals the dearth of innovative thinking and the CYA behavior in pharma's C-suites.

Basically any intent on pharma's part to persist with the blockbuster model would require deploying several elements that no longer exist or are rapidly fading.

First off, a blockbuster model requires an underlying science that can consistently develop new products to substantially advance the various standards of care.  For at least ten years, however, the commonly invoked phrase around pharma has been that the industry already "picked the low-hanging fruit" from medicinal chemistry and no new scientific paradigm has emerged to replace it.

Second, pharmas must be able to demonstrate that their new products confer cost-effective advantages over existing, lower-priced alternatives.  Payers must acknowledge such materially relevant improvements and show a willingness to pay for them.  In fact the opposite trend has been emerging over the last several years.  Meta-analyses, database reviews and similar studies have disparaged the supposed superiority of many new products and the overall effect has thwarted the ability of pharmas to favorably differentiate their new compounds.

Finally, a blockbuster model requires a pharma megacorporation with a ubiquitous marketing machine.  Pfizer, Merck and GSK earlier this decade were operative examples that relied on what economist Joseph Stiglitz termed "an asymmetric information advantage over their customers."  Both components of that situation have now faded into the sunset.   Pharma's customer base no longer consists primarily of individual physicians who are poorly informed about drugs, readily accessible to promotions and indifferent to prescription prices.  Lacking true breakthrough drugs, the pharmas can no longer sustain their large base of fixed costs.   Their "Red Armies of reps" and "hundreds of bench chemists, typing away in a random effort to produce Shakespeare," just eat into earnings.

2)  Diamond hunting.  Herper here describes a strategy that I have previously referred to as an "expanded orphan strategy."  Basically the idea is the opposite of the blockbuster approach.  Instead of producing a medication that tens of millions of people will use, the expanded orphan strategy seeks to develop drugs that are useful for only a small number of patients that lack an adequate therapy.  In return for keeping these people alive, the pharmas charge them (or more correctly, their insurers) an exorbitant price.

The expanded orphan strategy has two problems.  The first is that some pharmas just slap the "breakthrough" label on new products with negligible improvements over cheaper alternatives.  By doing this they feel payers will be obliged to cover the staggering costs of $100,000 per patient per year.  But payers, for their part, are increasingly likely to tell pharmas to take a hike if such drugs lack compelling evidence of efficacy or safety

One property of these quasi-orphan drugs is that they are highly targeted therapies, meaning they typically target only one of several pathways that occur with insidious diseases.  For that reason, targeted therapies often create spectacular results for six months.  Then after the disease reroutes itself through other physiological pathways, it comes roaring back in a more menacing form than ever.  The most productive solution consists of combining several targeted therapies into one regimen that may even include one or two older drugs.  Unfortunately the costs for such quasi-orphan "cocktails" would be prohibitive.

Then there's the fact that pharmas with targeted products, according to the UK's Guardian, refuse to pay for clinical trials that combine "their drugs with those of their competitors."  Market competition often means just that, market competition, and to hell with developing an effective cure if it means a "freeloading" competitor will benefit.

So the diamond strategy is beset by problems if its high-priced drugs fail to deliver.  But it also has another problem if its proponents actually develop some wonder drugs.  In the latter case some countries will institute price controls and even compulsory licensing (i.e., breaking patents).  Just last month, for example, the National Pharmaceutical Pricing body in India, the crown jewel of pharma's emerging global markets, decided to place price controls on 348 branded drugs that it deemed "essential."

3)  The Access Model.  According to Herper, this third model has not been implemented or even formalized because no one has figured out how it can work.  Basically one might term this the Blockbuster Model for emerging countries.  The idea involves developing primary care products at affordable prices for emerging global markets.  In other words, it  consists of turning pharma into a high volume, low margin business.  The example of India cited above probably explains why neither the C-suite "kings" that Herper interviewed this year, their horses or their men have been able to put this model together.

Now it is fair to assume that the senior managers sampled by Herper are at least of average intelligence.  It was their overwhelming ambition and self-regard, however, that brought them to their exalted positions.  They displayed these qualities in a series of small, wily, safe-playing tactical maneuvers.  It is precisely this proven ability for personal advancement and remuneration that guarantees they will not develop strategies for effectively dealing with the environment where pharma will find itself during the next several years.

What the big. swinging uprights of the C-suite fear is that if they were to put into practice such a strategy, earnings might suffer for a few years, dividends and stock buybacks would decline, stock prices would trail the market and they'd either get fired or a hedgefund would take the company away from them.  Never mind that such a restructured pharma would be more efficient, develop better drugs and, yes, return higher profits.  Drugs, marketing and customers are all incidental to the central purpose of enriching and preserving top managers and their key boardroom supporters.  These top one percenters are not only the industry's primary beneficiaries, they are it principal purpose.  Everything else represents interchangeable ornaments on the tree.