Some Evidence that Big Pharma Has Lost Its Innovation Mojo

Think quickly when I say "innovation" in relation to healthcare. What types of organizations come quickly to your mind. Hospitals? No. The pharmaceutical industry? No. I personally think of sectors such as medical devices, molecular diagnostics, genomics, medical imaging, biotech. Well, recent trends in the market cap of various healthcare sectors bear out this conclusion (see: The Net Innovation Trend), Below is an excerpt from the article making this point, including pie charts illustrating the comparative value of sectors for 2000 compared to 2008:

The relative absence of innovation set against a bloated cost structure has led to a rapid decline in value of large-cap pharmaceuticals, from nearly two-thirds of the market cap of healthcare in 2000 to less than one-third today. Over the past eight years, the pharmaceuticals sector has lost a stunning $593 billion (-65%) in market cap while the two sectors with innovation—biotech and med tech—have each added $71 billion (+46%) and $19 billion (+6%) in market cap, respectively....Generic drugs have also fared well (+$27 billion or +139% in market cap) as generics represent a low-cost solution to high drug costs. Furthermore, the generic companies have aggressively launched generics “at risk” or negotiating settlements with large-cap companies.

Here's a definition for "at-risk generic drugs" mentioned in this excerpt, a reflection of the extent to which the generic drug manufacturing companies, some of them off-shore, are willing to take risks in the pursuit of new products:

"At-risk" generic launches refer to generic pharmaceuticals that are approved by FDA based on the review of an abbreviated new drug application (ANDA) and are subsequently launched while patent litigation is ongoing. Launching these generics is risky because they can be pulled from the market if courts determine that patents protecting a branded reference product are violated or infringed, thus allowing the brand company to seek triple monetary damages.

If you share my belief that Big Pharma has lots its ability to innovate, the logical next question is why this has occurred. I think that the answer is multifactorial. First of all and as noted in the quote above, the industry has a "bloated cost structure" with too many layers of bureaucracy and too many mouths to feeds. In its quest for profits, it keeps shedding/outsourcing the costly, but key, development and manufacturing components (see: CROs Continue to Prosper; Benefits of Big Pharma Outsourcing). What the executives really want to sell to you is foot powder (see: Why Drug Companies Want to Sell You Foot Powder). Accordingly, the companies devote their resources to marketing rather than scientific discovery and clinical trials (see: Drug Company Emphasis on Marketing an Unfavorable Shift for Consumers). By way of contrast, listen to a lecture from a scientist from smaller company with a focus on, say, molecular diagnostics or genomics. You will hear much less about blockbuster products, marketing, and reimbursement and much more about the scientific basis for the company's R&D efforts.

Where does all of this leave us? Well from my point of view, it reinforces my idea that we are entering the golden era of diagnostics (see: Interpreting the Tea Leaves: Ten Trends in Healthcare, Lab Medicine, and Pathology Informatics; slide #30). The most complex and sophisticated part of the workup of a patient with a complex disease such as cancer is arriving at the diagnosis. This process will increasingly involve the interpretation of both serum and tissue biomarkers and various types of medical imaging. Once the diagnosis is arrived at, the appropriate treatment will be determined by referring to a table of available drugs with dosages and treatment cycles. And where will our "new" drugs come from. Largely from small, innovative drugs companies with a scientific culture and emphasis on a small number of products.

Comments

[Outsourcing Philippines]

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