It's a bad economic argument. No prices, not for drugs nor airplanes nor anything else, are set to recover the cost of R&D.
That's a stupid argument. The fact that an R&D effort cost a lot of money is absolutely no justification whatsoever for a
high price for the product. On the other hand, having high prices and high contribution from drugs is, in fact, a very good
argument for driving R&D. But it's the high prices that drive the R&D, not the R&D that drives the high prices.
How should pharma companies prepare for this "normal market?"
The first thing you've got to do is make sure you're creating value. And it starts with value-driven R&D—and the honest-to-God
truth is it's commercially driven R&D.
The other aspect of value-based R&D, other than just thinking in commercial terms, is also thinking in terms of a disease
franchise strategy. A lot of pharma companies decide what they're going to be in based on what comes out of the lab. You miss
a huge number of synergies in terms of capturing the value in your product portfolio.
Pharma companies need to have disease franchise strategies that drive where they invest their R&D budgets, which compounds
they choose to in-license, and which companies they acquire. When a drug comes out of their R&D pipeline that doesn't fit
in one of those franchises, they should sell it.
The second thing that you need to focus on in this more value-based world is competitive strategy. Merck took this route when
it lowered the price of Zocor to compete with generic simvastatin. Pharma is getting nailed by generics, even before patents
expire, and a handful of companies are starting to think about their competitive strategy.
Everybody knows that the first generic is always the most profitable. Pharma can take advantage of that. For instance, a pharma
company can allow the launch of a generic version about six months before the end of a patent—either through a generic subsidiary
or a standard licensing agreement. That generic is going to get a huge advantage, but the pharma company can also benefit
from the ability to collect royalty payments.
Do you think a pathway for biogeneric approvals will accelerate the number of these agreements?
Yes. When it's so difficult to make a product, biologics companies will still be able to make an enormous amount of money.
The best thing in the world for them to do would be to say, "We think there should be competition, but we're going to charge
every one of those competitors a license fee for the access to our technology and how to make the product."
Are those kinds of discussions actually happening today?
In biologics, I don't know. They are certainly happening in Big Pharma. Big Pharma is thinking about how they'll capture a
portion of the generic value or what strategies they can take to just discourage people from wanting to come in with a generic
in the first place.
How will R&D change in response to pricing pressures?
When companies are rolling out new products, they've got to be able to communicate their value. Historically, they've communicated
only the differentiation. Communicating the differentiation is different than communicating the value.
For example, take Sanofi-Aventis's obesity drug Acomplia. Everybody knows that obesity is costing the healthcare system a
fortune. Sanofi-Aventis is emphasizing that this drug is going to save a lot of money on healthcare expenditures in the long-term.
But payers want to know how much money and where. And the problem is they don't want to start paying for a drug until they
have outcomes data.