FRIDAY THOUGHT: With changes on the horizon for healthcare and drug pricing under attack pharma companies are going to have to cut expenses. In the past, cutting, costs meant layoffs, a lot of layoffs, and I could see this happening again.
How do pharma companies repay the costs of acquisitions while the prices of new drugs come under attack? If you think lowering CEO salaries are on the table you live in a fantasy world. In all likelihood, massive layoffs are coming to healthcare, including pharma companies.
Industry insider are fully aware that there are a lot of very talented and good people within pharma and biotech. We also know, unfortunately, that many of these people are the first to go in layoffs because corporate politics often is emphasized too much in who should say and who should go.
The biggest bucket in drug development is oncology. Currently, insurers are afraid to say “no” to any new cancer drug because of a backlash from patients. That is about to change. In the very near future, an insurer is going to come forward and say “the price of this drug is not justified by the patient benefit(s). It will probably lead to a backlash but a trend is emerging in which cancer patients don’t want to declare bankruptcy or burden family members with high health treatment costs.
For patients and their families, the costs associated with direct cancer care are staggering. In 2014 cancer patients paid nearly $4 billion out-of-pocket for cancer treatments. Cancer also represents a significant proportion of total U.S. health care spending.
In addition, a study led by researchers from University of Michigan has found that many cancer patients would like more help from their health care providers in addressing costs of treatment. The study involved more than 3,000 people who answered a survey, including 2,502 women with early-stage breast cancer, 370 surgeons, 306 medical oncologists, and 169 radiation oncologists. The study was published online July 23, 2018, in Cancer, a peer-reviewed journal published by the American Cancer Society.
What all this means is that drug companies are not going to be able to count on high cancer drug prices in the future. A forward-looking CEO is going to realize that expenses are going to have to be cut to keep Wall Street happy, and that means layoffs.
Drug companies are under pressure to curb expenses as R&D returns fall and competition rises. They’re finding some relief through consolidation, using M&A to build scale in select therapeutic areas while simultaneously shedding assets judged non-core. The dealmaking creates what companies call “synergies,” which is typically code for cost-cutting and further layoffs.