Golden Age or Bubble?

It’s been a slow week for global health business news so I am digressing into an editorial to offer a contrast. As most pharma industry groupies know, this is the week for the year’s biggest investor confab- the 33rd Annual JP Morgan Healthcare Conference held in San Francisco. It’s a forum for biotech companies of all sizes to hawk their wares in hopes of lining up private funding, corporate deals, or even the big prize, a mega-IPO. In a FierceBiotech story yesterday, John Carroll, the newsletter’s editor-in-chief, characterized the mood at the meeting as “damn the biotech valuations and full speed ahead,” meaning that the big pharma companies will continue to pay huge prices for biotech’s product opportunities and venture capital firms will continue to fund the invention of those opportunities. All well and good until one asks what is supporting the valuations. Of course, it’s the bottom line, the likely revenue of those future products.

My view, as a rank amateur, is more skeptical. I see an industry focused on a narrow range of products (mostly in cancer treatment) for a single market (the US) and the assumption that society will pay any price for any drug. It’s been fairly easy for biotech executives to wave their hands and justify high prices for their products, still years from the market, since up to now payers, primarily the government-funded medical providers and the insurance companies, have paid any price. But the push back by payers on the pricing of the new anti-hepatitis C drugs has now succeeded and seems, to me anyway, to be just the beginning. As is well known, Gilead Sciences launched Solvadi with a list price of $84,000 per treatment course last spring (see my post, Blockbusting), a price less than the cost of the alternative cure, liver transplant and immuno-suppression. Perhaps less well known is that the launch of a competing drug (AbbVie’s Viekira Pak) has resulted in price war and successful negotiation of “substantial discounts” by at least one pharmacy benefit manager (PBM) as was reported this week by Bloomberg News. The story noted that a VP at the company said “he had never seen prices for a brand-name drug category plummet so quickly after a competing drug was introduced.” Further, two of the country’s largest PBMs, ExpressScripts and CVS Health, have also negotiated better-than-list prices for the new drugs and, according to stories in FiercePharma and Bloomberg Bloomberg this week, these companies intend to use the hep-C meds negotiations as a template for negotiations over the newest class of anti-cancer drugs and possibly other cancer drugs. As one biotech CEO was quoted: “We’re seeing payer activism for the first time … It’s changing all the dynamics.”

So will the next five years be the golden age for the industry as John Carroll quoted one exec at the JP Morgan meeting or a big deflation? Mr. Carroll ended his story, “Here’s hoping we don’t blow it,” and I am ending this story by noting, as I did in my BHG No. 6, that Gilead did not put all of its Solvadi eggs in the US market but has nonexclusively licensed it to Indian generic drug manufacturers, betting that availability and lower prices for the rest of the world will be good for its bottom line.

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