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.

Bytes from the Info-stream (No. 1)

Although I haven’t taken the time necessary for any original thinking recently, I have been tapping the info-stream for items relevant to the business of global health. Here is a brief summary of several stories I have noted over the past few weeks (mostly from the Fierce newsletters) and a bit of commentary.

In early July, FierceBiotech reported that Newton, MA-based AesRx was purchased by the health care giant, Baxter, for an undisclosed amount (FB AesRx story). AesRx is developing a molecule to prevent the sickleling of red blood cells and mitigate the effects of the genetically-caused sickle cell disease, which, as I noted my post, Still Neglected, is a major contributor to childhood mortality in Africa, possibly great than HIV. The good news is that apparently Baxter will continue the candidate drug’s development, but, given that Baxter seems to have little to no interest in emerging markets, it is not clear if the company will market the drug, if approved, in Africa.

Various concerned parties in the US are now waking up to a health care challenge that is common is the rest of the world: drugs, especially new ones, are priced beyond the ability of a society to pay for them (see my post, The Price is Right). Recently a Senate committee sent a letter to the CEO of Gilead requesting justification for the pricing of its new HCV drug, Sovaldi, and noted the potential for conflict of interest by physicians who were both writing treatment guidelines and consulting for Gilead (FP Sovaldi story). Also recently, Fierce reported that the managers of the Arkansas Medicaid program may be restricting access to Vertex’s cystic fibrosis drug, Kalydeco, in part due to its cost ($300k per year for treatment, FP Kalydeco story). FB provided this quote from the original Wall Street Journal article: “We have this public health mentality that all people have to be cured no matter what the cost, and also let the innovators charge whatever they want,” Matt Salo, executive director of the National Association of Medicaid Directors, told the WSJ. “Those are fine theories independently, but when you combine them together in a finite budget environment, it’s not sustainable.” As stated by an executive of CVS Caremark, major pharmacy chain, in a recent JAMA editorial, it is time to price drugs appropriately: “Effective approaches to control costs for high-priced medications need to be developed and evaluated to ensure broad, equitable, and appropriate use of these new interventions in an already stressed health care system.”

A new report on the market for biosimilar drugs (generic biological drugs) noted that it may top $35 million in the year 2020, growing at a CAGR of 60.8% from 2014 to 2020, in part, driven by sales in the developing world, especially China and India (FB press release and author summary). As I have noted in several posts (e.g., Biosimilar Fever) this growing market is a major opportunity for companies, both US and rest-of-the world.

Finally, some good news on the development of drugs for neglected diseases. The Global TB Alliance, a NYC-based product development program, reported that a new combination of three already-approved drugs (two antibacterials and pyrazinamide, a standard first-line treatment) yielded a 72% cure rate in TB-infected AIDS patients in a Phase II trial (FB TB story).   The combo is compatible with standard HIV therapies, works more quickly than current therapy (important for decreasing the chance of the development of resistance), and will likely be one-tenth the cost of current therapy. For more on TB drug development, see my post, Mix and Match.

The Price is Right Replay

Here is another post from the vault, September 26, 2013 to be exact.

When a pharmaceutical company puts a price tag on a new drug it will sell in the US, it employs more art than science. Its launch team considers the prices of competing products, the acceptability of the price to reimbursers like Medicare, the perception of value by the prescribing physicians, and other factors with the goal of maximizing revenues during the period of patent exclusivity. This is a sound strategy since those revenues, with the revenues of a handful of other drugs the company sells, need to cover the substantial cost of R and D, manufacturing, regulatory compliance, lobbying, shareholder dividends, and fat salaries of its senior managers. In the EU countries, national health care agencies evaluate the cost and benefit of new drugs before approving use so a company needs to provide more objective measures of the value of its product. Apparently, the more objective approach results in lower prices; according to a 2011 European Parliament study cited by a recent Reuters article, prices of drugs in the EU are about half of those in the US. Outside the US and EU, companies typically employ “tiered pricing,” setting lower prices in low- and middle-income countries that generally reflect the ability of (some) patients or national health agencies to pay. Needless to say, not everyone who needs drugs can afford them. I recently found two studies of the pricing of drugs for these rest-of-world markets that offered interesting conclusions and alternatives to tiered pricing aimed at improving accessibility to medicines.

In the first (Moon et al. 2011), the authors studied drug prices and the effect of entry of generic competing drugs for five cases: HIV antiretrovirals, artemisinin combination therapies for malaria, drug-resistant tuberculosis drugs, liposomal amphotericin B for visceral leishmaniasis, and pneumococcal vaccines. While acknowledging the difficulty of comparing complex situations, the authors found that “when markets were sizeable and multiple sources of production were available, tiered pricing performed poorly compared to competitive production in generating reliable and sustained price reductions.” They also noted that tiered pricing contributed to short term, improved access “when markets were small, highly uncertain, where production capacity was limited, or there was a time delay to overcoming barriers to competition.” To achieve long term equitable or affordable pricing, the authors recommended that governments of low- and middle-income countries encourage the growth of a domestic pharmaceutical industry, make public sector purchases at negotiated prices, and set reimbursement policies based on public health benefit and overall cost savings. To increase competition, they also advocated governments issuing compulsory licensing of patented products and that companies license their products more widely, participate in patent pools, and scale back patent coverage and enforcement in ROW countries. However, they also noted “such a system will only work in the long term if markets are large enough and alternate solutions for financing R&D can be implemented.” Unfortunately, with the biotech/pharmaceutical industry under pressure to increase R and D productivity and justify prices to skeptical reimbursers, its interest and support for alternatives is limited.

In the second article (Dow and Mora 2012), the authors used publicly available data to estimate the economic burden of viral disease, dengue fever, and the maximum potential market for a new dengue drug and, building on their findings, propose an alternative to the tiered pricing approach. Dengue is a mosquito-borne viral disease that infects approximately 100 million persons annually in the endemic tropical and subtropical countries, one-quarter of whom suffer debilitating symptoms and need medical attention and 3-6% advance to the deadly hemorrhagic shock syndrome. There is no specific drug therapy but several vaccines are in development (CDC Dengue). Utilizing data on the costs of treating dengue fever patients in eight countries collected by others (Suaya et al. 2009) and adjusting for unreported cases, the authors calculated a global cost of $1.7 billion and a per case cost of about $300. Then, after accounting for the introduction of a dengue vaccine and subsequent reduction in cases beginning in 2020, the authors proposed an alternative in which, during a temporary period of market exclusivity for a new dengue drug, individual countries would agree to pay 50% of the per-case equivalent of economic costs saved through its use. Depending on drug effectiveness and cost of medical and indirect costs and lost productivity in specific countries, the prices for treating a case would be $13–$239, and the maximum potential market for a such a drug would be about US $338 million annually. To me, this analysis presented a sound economic rationale for countries to use a new drug, for a company and its investors to expect an attractive return on investment, and for an approach to fair pricing based on economic burden and drug effectiveness. Of course, two unknown potential torpedoes to this approach are the cost of developing a dengue drug and how countries will pay for the drug. For the former, I posit that if the exclusivity period is five years and the desired ROI is five times cost, then the cost may be around $300 million which is not unrealistic. The latter is part of the continuing struggle to provide basic worldwide health care.

Interestingly, the estimates of Dow and Mora may be under-estimates; researchers reported in a recent letter to the journal Nature that the incidence of dengue is closer to 390 million per year, further increasing the market potential of a drug (Bhatt et al. 2013). Also interestingly, Dow is the CEO of 60° Pharmaceuticals LLC, a company founded in 2010 with a “mission to discover, develop and distribute new medicines for neglected tropical diseases … while also providing an economic return.” The company has a preclinical dengue drug program (60 Degrees) and I hope to learn more.

What is needed to advance the Dow-Mora approach? More data on the economic burden of diseases are needed, and I suggest the Global Disease Burden program of the University of Washington’s Institute for Health Metrics and Evaluation add the cost of care to their data collection and evaluation (GBD). Then regulatory agencies need to encourage the marketing groups of the multi-national pharmaceutical companies to use the data to justify the prices of their new drugs, first in the high-income countries and then in the rest of the world.

Headed East Replay

Recently, I read an interview with Omar Ishrak, CEO of Medtronics, one of the largest medical device companies, in which he said that the company’s emerging market strategy was working but not yielding the goal of a 20% growth rate (it was 10% in 2014, Massdevice interview). Medtronics’ tough road reminded me of a post I put up in March 2013 on medtech companies’ strategies for entering the Chinese market. Here is a replay of that post with a bit of an update at the end.

A couple weeks ago I summarized an Economic Times article on India’s booming medical device industry that now comprises about 700 companies with $5.2 billion in revenues (“Indian Kathi”). The other big medtech boomer is China, that, according to a recent McKinsey report (McKinsey report), has a medical products market four times as large at $20 billion as of 2011. So, I appreciated several insights into that country’s health care/medtech business provided by Stephen Stevens in a posting at (Simpson blog). Some of his points were:

  • while 90% of the country’s 1.3 billion citizens are covered by a government insurance program that provides for basic care, access for 900 million rural Chinese is a problem;
  • co-pays are high, 20-60% per procedure depending on the relative wealth of the patient’s location and 50 to 70% for medical device, imported and domestic, respectively;
  • the government is starting to control device prices by pooling procurement for national or regional providers;
  • domestic companies are competing with foreign companies on price with complex equipment like ultrasound machines priced at 20-35% less, devices like stents 20-50% less, and consumables as much as 65% less; however, foreign companies still garner 60-70% of device spending;
  • domestic companies are also competing on product quality with a few companies making the jump to the highly-regulated the US and EU markets; and
  • with the increase in access to high-quality, affordable products and government spending on health care, the annual growth in the number of procedures performed is in the teens.

The author also pointed out that several of the larger foreign companies (mentioned are Zimmer, Medtronic, and Stryker) have moved beyond just selling their products and have made strategic acquisitions of Chinese companies to obtain existing low-price product lines and access to lower-cost manufacturing, and he posited that these assets will be useful in entering and competing in other emerging markets.

Doing some positing on my own, I wondered if I were heading a US- and technology-based growth stage company with a novel diagnostics platform, what would my China strategy be? The authors of the McKinsey report implied that diagnostics, especially those that are low-cost and give patients actionable information, may be a good fit with the evolving Chinese market. The report noted that the country is becoming more urban and elderly and more middle class (defined as annual incomes of $7000-27000) with the 30% of total population in 2005 growing to 75% in 2020, hence giving individuals more money and motivation to spend on their health. Moreover, “many highly prevalent and burdensome conditions (such as cancer, depression, and respiratory illness) remain under diagnosed and under treated.”

Based on my admittedly superficial research, I’d say the big multinational diagnostic companies (the test providers like Hoffmann-La Roche and Becton, Dickinson and the service providers like Quest Diagnostics) are not good partners for my company since they have substantial investment in proprietary platforms and are cautious about doing business in China. A counter-example though is Alere, a company I wrote about last week (“Dx Rock Stars” ) that has four ventures in China, covering R and D, manufacturing, and sales (Alere China). A second category of potential partners are the major domestic companies and I found several: Auto Bio, Tecom Science Corp., and ChemClin/China Medical Devices. Without investing in a market research and analysis report, I can’t say which of these have an interest in new technology, have a competitive position, or are even accessible to contact from the US. One up-and-coming domestic company I noted is Kindstar Global, formerly Wuhan Kindstar Diagnostics (Kindstar), which provides central laboratory services to hospitals. Kindstar, as reported by Businessweek (Businessweek article), was founded in 2003, now has 2000 hospitals as customers, and has raised more than $20 million in local and foreign venture capital. One challenge for the company was the lack of a national service to shuttle samples so it built its own network that now engages half its 1000 employees. Part of its growth plan is to expand the number of tests it offers, in part through a licensing deal with the Mayo Clinic’s Medical Laboratories subsidiary.

A company I found that seems poised to enter China that both technology- and US-based is True Diagnostics (True). True “specializes in providing accurate, economical and easy-to-use advanced rapid in vitro immunodiagnostic test systems” using a lateral flow format and a reader to provide quantitative data (True press kit). While the company has about 60 tests in development, only two are approved for sale (tests for PSA and TSH) and it has a manufacturer each in mainland China and Taiwan. Of course, True itself is in the hunt for a corporate partner to adopt its platform so unless it offered a the right manufacturing capability and distribution channels it may not be a good partner for my company.

If my company’s tests were simple enough for home use, another way to enter the Chinese market is by offering over-the-counter kits, those in which a sample is taken and sent to a lab for processing or read by the user. I’m sure there are regulatory/approval challenges, but, given the growing middle class, internet access, and need, an on-line or OTC kit business may be viable. The best known tests widely available in the US are for pregnancy, ovulation, and glucose monitoring, but tests are also sold for infectious disease like HIV and hepatitis C and cholesterol, anemia, allergy, and cancer screening (see list of tests as of 2009 in a Pharmacy Times article). A few model companies are:

  • Quick Check Health, a start-up based in Minnesota;
  • Mode Diagnostics, a UK start-up; and
  • BioIQ  that includes in-home tests as one of its services for “enabling clients to measurably achieve their optimal health improvement goals.”

Yes, there is gold in them thar Eastern hills but good partners, planning, and luck will be needed to find it.

[Update on True Diagnostics: the company recently announced a marketing agreement with Merck KGaA for its thyroid stimulating hormone (TSH) test in China, an important step in positioning the company’s tests for wide use within the Chinese health care system (True Diagnostics press release).]

Trickle Down Again

On Monday, Andrew Witty, CEO of GlaxoSmithKline (GSK), the UK-based pharmaceutical company, announced a substantial strategy (in funding and scope) for Africa. Speaking at the 5th EU-Africa Business Forum in Brussels, he outlined plans that commit $216 million over five years to several efforts: improving non-communicable disease, pharmaceutical science, engineering, and logistics research at African institutions; expanding GSK distribution and manufacturing capabilities; and supporting community healthcare worker training. Lots of details were provided in the company press release, and the announcement got some press in FiercePharmaManufacturing and Reuters (thanks to a alert reader for finding this). The announcement of GSK’s strategy for Africa reminded me of report on the efforts of major pharmaceutical companies to expand their presence and sales in emerging markets. Here is what I wrote about the report last October.

Another thing the editors of the Fierce newsletters do well, in addition to aggregating important news stories for the pharma/biotech/medtech industries, is the synthesis and analysis of those stories to yield a bigger picture. Last week Tracy Staton of FiercePharma reported on the “Top 10 Drugmakers in Emerging Markets” (FP report) that provided some interesting numbers and insight into the emerging market strategies of the multinational pharma companies (MNCs). I should note that in the context of the report, emerging markets (EM) are those in countries other than the US, the EU (mostly), and Japan (usually) and represent broadly the low and middle income countries as defined by the World Bank (nice graphic at ChartsBin). With apologies to Ms. Staton, here’s my overview of her report followed by my take on the role of MNCs in improving global health.

First, here’s a tabular presentation of some key data ranked by the company’s share of total revenues derived from sales in the EM:

MNC EM Share of Total Revenue (%) Recent Annual EM Revenue ($B) Annual EM Revenue Growth (%) EM Country Focus
Bayer 33 8 8-15 China, India, SE Asia, Latin America, Africa, Mideast
Sanofi 32 15 10 China, Mideast
Merck KGaA 29 2 13 China, Latin America, Mideast
GlaxoSmithKline 26 11 20-76 China, India, Africa, Mexico, Russia
Novartis 24 14 Russia, SE Asia, Mideast
Johnson and Johnson 23 17 China, India, Brazil
Novo Nordisk 22 3 ~20 China, Mideast, SE Asia, Africa
AstraZeneca 21 6 4 China, Russia, SE Asia
Pfizer 20 12 Russia, China
Roche 20 10 ~15 China, India, Mexico, Russia, Brazil

Second, here’s a summary of the strategies these MNCs have been using to build their share in the EM.

Bayer: marketing of country-specific drugs, training of physicians and hospital managers (more than 4,500 in rural China in 2012).

Sanofi: putting manufacturing sites in emerging countries (more than 40), training of physicians, acquiring EM vaccine and generics companies, selling EM-specific brands at lower prices, funding public health initiatives including with capital investment, training doctors, e.g., in India (100,000), China (10,000), and Morocco.

Merck KGaA: pricing products to fit the budgets of a growing middle class, partnering with local/regional pharmas to make and sell its own and generic drugs; building local sales forces (30% of all employees are in EM).

GSK: discounting of all products in the EM with focus on low margin and high volume, increasing local employees (37% of its employees work in EM).

Novartis: partnering with governments; undertaking local manufacturing, public health projects, and clinical trials; discounting of patented products; running a management development program.

JnJ: setting up local R&D and manufacturing centers, partnering with local companies for new products and regional local products, selling inexpensive devices (e.g., cheap glucose monitors), conducting physician training, investing in improving management and operations.

Novo: undertaking public health work in education, screening, access to care (e.g., mobile clinics); discounted pricing; physician training (50,000 in China); mobile clinics; continuing production of inexpensive generic substitutes to its patented products; increasing local manufacturing, R&D, and sales and marketing.

AstraZeneca: conducting local hiring (47% of all employees are in the EM) and local acquisitions and partners.

Pfizer: selling a mix of branded generics and patented drugs, making deals for local acquisitions and partners.

Roche: with insurer Swiss Re offering health care coverage through five insurers in China, engaging local partners to make and sell its patented drugs at discounted prices, providing oncologist and pathologist training.

Third, here are my spins. The MNCs are serious about building their EM revenues which account for 20-30% of total revenues for some companies, an important contribution to their bottom lines considering that EM products have lower profit margins than non-EM products. The MNCs are using a variety of strategies to increase their EM sales, including the traditional one of ramping up the number of sales people to those that increase the capacity of the health care system like doctor training, public health projects, and sponsoring insurance. The MNCs are spending a substantial amount of money on their emerging market effort, most directly in the EM countries. My guesstimate on the total aggregate spend of these ten companies is $78 billion per year based on this hand-waving: according to the FB report, the total aggregate revenue is $98 billion and assuming that 20% of this disappears as corporate profit margin (20% is the industry average reported by Yahoo Biz) and assuming the remaining revenues are applied to the companies’ EM efforts, one ends up with $78.4 billion spent per year. Granted some of this doesn’t build capacity or the local economy (like company administrative spending) and some may be pernicious (like bribes, although I think the Chinese government is over-estimating the amounts of MNC bribery) and it is aimed at the mid and upper economic strata, the MNC spending compares favorably to the $28 billion spent in 2012 for “development assistance for health” by government aid agencies, multilateral donors, private foundations, and charities according to Institute for Health Metrics and Evaluation at the University of Washington (IHME press release). Clearly, the latter is vitally important in addressing desperate needs that companies (and unfortunately, local governments) are not now addressing on their own, but, in terms of improving health care in the rest of the world over the long term and in an economically sustainable way, the MNC effort is important.

What effect will the MNC EM effort have on health care for those at the bottom of the economic pyramid? I am guessing that by building their EM market share by improving access to and use of their products the MNCs will improve the overall health care system and general economic conditions to the point where, like in the EU, Japan, and the US (where 30% of the population gets its health care through the government), governments will be able to subsidize care for those at the bottom. Not a trickle or a downpour, more like a steady rain.


Last week, I caught up with Derek Brine, who manages the testing program of MIT’s Comprehensive Initiative on Technology Evaluation as its associate director (CITE), to learn about CITE’s progress.  I should note that Derek is also an entrepreneur having started a company in Kenya that sells a nutritional supplement derived from locally grown plant and that I was on his mentoring team.  I wrote a post that mentioned the start-up of CITE in December 2012 (“Walk the Talk”) and here’s the background.  CITE is funded through the USAID’s Higher Education Solutions Network (HESN) which is dispersing $137 million over five years to seven university-based “development labs” to harness “the ingenuity and passion of university students, researchers, faculty, and their innovative partners to incubate, catalyze and scale science and tech-based solutions to the world’s most challenging development problems” (MIT CITE Fact Sheet).  MIT is getting $25 million over five years for CITE and an International Development Innovation Network whose goal is “to establish and nurture a global network of local innovators using technology to address issues facing people living in poverty” (IDIN).  According to Derek, the share is about 40/60.

CITE has two main tasks:  developing the methodology for evaluating technologies (or products? a big difference, see below) and conducting evaluations along the three axes of suitability (is the product needed by the intended user and will it work as intended), scalability (can the product be provided and used widely), and sustainability (can the product be provided over the long term) (CITE Evaluation).  The intended clients of the evaluations are agencies that purchase products for deployment to low- and middle-income consumers in the developing world or for disaster relief.  Examples are donor-country development agencies like USAID; recipient-county government agencies; non-governmental organizations, e.g., Partners in Health and Oxfam; and relief organizations such as Mercy Corps (the latter three are listed as CITE Partners).  As noted by Derek, CITE may be thought of as a Consumers Union/Report for international development, and its first pilot review, on solar-powered lighting, will come out in February.  Other categories of products that may be reviewed are cook stoves, water filtration devices, agricultural equipment like pumps, small tractors, and rototillers, and disaster relief items.  Medical devices are not likely to be reviewed or at least not diagnostics, said Derek, since WHO has a review program (c.f., WHO Dx Prequalification).  Over the long term, CITE product reviews will help build a marketplace, initially among institutions and eventually among consumers, and that will encourage companies (and investors) to develop appropriate and affordable products for the currently under-served bottom-of-the-pyramid markets.

Of course, being a start-up enterprise, CITE has a number of challenges to meet.  As Derek pointed out, developing the testing protocols is difficult because CITE does not have direct access to the ultimate users who are defined and determined by the purchasing group (Consumers Union relies heavily on feedback from its members).  CITE also needs to gain credibility and recognition among its prospective customers, the government agencies responsible for product supervision in the countries where the products will be used, and any in-country consumer advocacy groups.  It will need to maintain its independence by not partnering with any group or company that may be perceived as pushing its view or product and generate funds to build out the testing apparatus that is needed.  Also there are no accepted performance standards for most products.  The solar lights are an exception in that an International Finance Corp./World Bank-backed group, called Lighting Africa, has developed standards as part of its push to “catalyze markets for modern off-grid lighting” (see its Minimum Performance Standards at Lighting Africa).  Derek also said testing products is time-consuming so the methods they design need to be simple.

A basic problem that concerns me (and that Derek noted) is finding products to test.  Although one of CITE’s founding assumptions is “there is an abundance of technological solutions” (MIT CITE Fact Sheet), there seemed not to be the recognition that a prototype is not a product and testing a prototype that may not be manufacturable, has no price, and cannot be purchased is not helpful.  I noted this problem in my earlier post and mentioned two on-line marketplaces where products aimed developing world consumers could be found- Kopernik, with whom CITE is working, and Maternova.  I took another look at both and found that Kopernik has about 70 products spread over 15 categories but only 8 with four or more products to test:  solar lights (15), water purifiers (12), stoves (8), solar chargers (5), drip irrigators (4), radios (4), and non-solar lights (4).  Maternova lists 38 natal/maternal products, but all are unique so no comparisons can be made.  I am guessing another source of products is within the developing countries, those that already that have found acceptance and utility among consumers but due to price, features, or distribution have not reached a wider market, but don’t know.

In any case at CITE, progress on a process for assessing suitability is being made.  What about evaluating scalability and sustainability?  Derek and I did not discuss these directly, but my thinking is that these are basic questions in forming a company and should be answered no differenly for technologies/products reviewed by CITE.  At the Venture Mentoring Service (as well as at the many other entrepreneurial support groups at MIT), we encourage the venture principals to have a plan for manufacture, marketing, distribution, and funding through start-up and launch until break-even and revenues.  We pressure-test that plan and provide advice on improving it.  It is not clear to me if CITE will be taking this approach and reviewing the business plans of the companies (or groups) of the products under evaluation, or what approach it will be taking.  In my quick look at the bios of the faculty/staff and research assistants (a large group, 11 of the former and 15 of the latter), I found very few with company start-up, product development, or business experience.  They do have a wide range of experience, much of it in international development, and I am interested to see how they apply it to “to identify the bottlenecks that prevent products from achieving measureable impact” (About CITE).

One Trillion Plus

That’s a big number and it is also the total amount to be spent globally on medicines in 2014 as estimated by the Institute for Healthcare Informatics, a subsidiary of the for-profit pharmaceutical and health care information company, IMS Health.  In its just-released report, “Global Use of Medicines:  Outlook Through 2017” (IMS report), the Institute provided a readable summary of trends and drivers for those interested in global pharmaceutical business.  Using the multiple data streams of the parent company, the authors forecasted a modest growth rate of about 3% with higher rates of growth outside the major market countries.  In the mature market countries, defined as having have health care spending of more than $100 per capita, they gave growth forecasts of 0% (Spain) to 5% (South Korea), and in the “pharmerging” market countries (less than $100 per capita) rates of 5% (Turkey) to 15% (China).  The report also noted the geographic distribution of spending between the major markets of the US/EU/Japan and the rest of the world (ROW) will be approaching 50/50 in 2014-17.  The authors reported their forecasts are more uncertain than those of the past and prepared three alternative scenarios to attempt to bracket the uncertainty.  Here is my abstract of their key observations:

  • cost containment and slow economic recovery in Europe will limit spending on meds there;
  • remodeling of the health care system in the US will affect spending but the direction and magnitude are uncertain in part due to the unpredictable political situation;
  • in the major market countries, medicines for cancer, rare diseases, and diabetes will have an increase in their share of the spending;
  • in the ROW countries, increases in government investment in health care and the number of out-of-pocket payers will drive the increase in spending with an emphasis on generic meds; and
  • while new medicines in the pipeline will significantly improve treatment of a number of diseases that have the large impacts on health in both major market and ROW countries (heart disease, stroke, lower respiratory infections), the pipeline is lacking for meds for diseases like malaria, tuberculosis, neonatal sepsis, and diarrhea that have major impacts in the ROW (HIV treatment is an exception).

Not surprising is that I found the Institute’s big picture confirmed my bias that the future of the pharma industry depends on its ability to meet ROW needs.  The report also provides an economic and social framework against which to evaluate the actions and plans of the major global health actors- governments, multi-lateral funding groups, unilateral funders, and companies (multinationals and regionals).  As regular readers know, my themes are that to improve global health governments and funding groups should be building countries’ health care systems (including payers like insurance, regulatory and approval agencies, and delivery infrastructure; see my posts, “From Bad to Worse” and “Victory!”) and companies should be building their abilities to sell existing meds affordably and inventing new ones for unmet needs (e.g., my posts, “Playing the Long Game”  and “Trickle Down”).

Speaking of ROW strategies for companies, in a recent interview, Andrew Witty, CEO of the big pharma, GlaxoSmithKline (GSK), spoke of GSK’s strategy for India, an important pharmerging market, and gave advice to the industry.  As reported by the Economic Times of India (Economic Times article) and noted in FiercePharma (FiercePharma article), he said that he understands the need for the Indian government’s controls on drug prices and its attempt to increase competition by deceasing patent protection, but he also noted that the government should take a less adversarial position with big pharma companies.  He was quoted as saying that “there are alternative ways to achieve” cost savings, “and having a good dialogue may create positive ways to do it.”  To succeed in the ROW markets, he said that companies need operate in the “real world,” look at the long term, and come up with competitive and efficient business models.  Along the lines of the last point, during the same visit to India, he announced GSK’s intent to add to its multi-million dollar investment in expanding manufacturing capability in India by building a $135 million facility, likely in Bangalore (FiercePharmaManufacturing article).  In addition to having the capacity to produce upwards of nine billion doses of meds per year, the factory will utilize “continuous processing” technology to reduce waste and cost and will be the second of its kind for GSK, the first being a $50 million plant being built in Singapore.  It is interesting that GSK chose southeast Asia for the new plants, not Europe or China, and that Witty stated in an earnings call earlier this year that its commitment to this technology will result in very significant improvement in efficiency and reduction in costs, both capital and operating (also a FiercePharmaManufacturing article).  Close behind GSK is Novartis.  Starting in 2007, Novartis has been the sponsor of a 10-year, $65 million collaborative program on continuous processing at MIT and last year demonstrated a process that integrated several new chemical processes and equipment and could make a higher-quality drug faster and with less waste (Technology Review article).  Novartis’s CEO has said that the company will build a continuous processing facility by 2015 but not where.