Groupthink

My news stream was light on global health items this week so I am revisiting a post I wrote last March. In “Herd Wisdom”, I commented on an editorial by John Carroll of FierceBiotech in which he noted the major pharmaceutical companies are now concentrating their research and development efforts on a few diseases (indications), apparently to reduce R and D risk but with the possible unintended consequence of increasing their market and competitor risk (“Assessing the Crowd Effect”). He referred to a Wall Street Journal editorial and an unpublished investment bank report on the big pharmaceutical companies. The latter found that big pharma is spending one-third of its R and D budget on the indications of oncology (cancer) and inflammation although drugs for these indications are likely to account for only 17% of projected sales. The point is that big pharma, by focusing on indications with less risky and less expensive development efforts, is heading for lower profits when their “not-much-different-than-all-the-other” drugs hit the market. Mr. Carroll: this concentration “could set the stage for a migration [by the more innovative companies] to lonelier diseases or drug theories, where true pioneers can be years ahead of the next competing therapy.”

I went on to note a number of other rubrics of the big pharma herd wisdom including the belief that there is no market and will never be one for new drugs to treat the diseases of poverty that afflict a large percentage of humankind. As one may have noticed over the past four years in this blog, I have applied my small voice to refuting this, and anyone who is interested may read my rants in “Playing the Long Game”, “Missing the Boat”, “A Rare Request”, and “Throwing Darts”. So what is my point? If the major pharmaceutical companies are plowing one-third of their current R and D spend (or $17 billion based on a $50 billion annual spend) into drugs that are projected to capture 17% of all sales (or $54 billion if one assumes annual US drug sales of $320 billion) (an approximate 1:3.2 ratio), I think at least one of the major pharma companies would find it an acceptable risk to put $100 million each year into R and D on a neglected disease with the assumption that eventually it would yield a drug with a $320 million market. That seems reasonable to me, given the company would likely have no competition and number of potential patients is in the tens or even hundreds of millions. The only barrier is that the world needs to find a way to pay for the new drug in the next five to ten years, the time it takes to develop it.

What about those paragons of “innovation,” the venture-capital-funded biotech companies? Unfortunately, the VC/biotech world with its even shorter-term view than the pharma companies also sees no value in products for global health. In my previous post, I mentioned Mark Levin, a founding partner of the local venture capital firm, Third Rock (Tech Review feature story). Third Rock is known as a non-traditional VC firm, emphasizing early-stage investments in novel ideas vetted by its science team and acting more like an incubator than an investor (FierceBiotech article). And it has been successful as indicated by its raising of $1.3 billion in capital since 2007 and funding 35 companies (Third Rock Ventures). The company was even called a “game changer” in a Boston Globe article this June. According to the Technology Review article, Mr. Levin will back companies addressing challenging indications (like amyotrophic lateral sclerosis or ALS), can spot what will be an important product in five to ten years, is personally wealthy, and is “extraordinarily empathetic.” I wonder what he thinks, or if he has thought, about the investment potential of a start-up aimed at a global health disease (Ebola?) and if such a company could be a game-changer. I’m not holding my breath.

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