The current pharma business model is unsustainable

Wall Street wants growth, as do investors, but that may be impossible for pharmaceutical companies. In pharma, growth depends on new products with hefty price tags when over 80% of voters want lower costs for their prescription drugs.

Biogen’s failure should be a warning to other pharma companies. They relied so much on a new drug that they tried to market a product with bad science behind it. Now Biogen is a shell of a company selling off assets to survive. It should be a warning to other pharma companies.

The pharma industry is a giant behemoth that needs new drugs to survive and grow. The era of “me too” drugs is coming to an end. Rather than investing more in R&D, most pharma companies feel its more cost-effective to buy small biotech companies developing unique molecules that can find a market niche.

The biggest battle arena by far is oncology. According to JAMA, “in a cross-sectional study, between May 1, 2016, and May 31, 2021, there were 207 cancer drug approvals in oncology and malignant hematology. Of these therapies, 14% displaced cancer therapies that were previously approved and considered to be the standard of care for their indication; most therapies (42%) were approved as later-line drugs in the second-, third-, or later-line settings.”

The U.S. oncology therapeutics market has reached $71 billion. Although COVID-19 has slowed the growth of drug sales, the oncology market’s total growth is driven by the targeted drugs in oncology. COVID-19 has not impacted the number of launches in the oncology space, as 2020 and 2021 have seen similar rates of drug launches as in 2019.

While that sounds encouraging, most cancer drugs launched between 2009 and 2014 cost more than USD 100,000 annually. More recently developed agents, such as CAR T-cell therapy, may cost almost USD 500,000 annually. The monthly cost of many anticancer drugs greatly exceeds most household incomes, including those in the United States.

ASH Clinical News takes it a step further. “there is an inconvenient truth when it comes to the cost of new cancer therapies in the United States: The median U.S. household income from 2009 to 2013 was $53,046, according to the United States Census Bureau, but many of the most recently approved anticancer treatments approved by the United States Food and Drug Administration (FDA) are priced well above $100,000 per year. The average American with cancer can do the math and come to the same conclusion that some oncology experts are coming to: Cancer drugs are priced too high.”

Why are the costs so high? The simple explanation is “profits.” Pharma CEOs are compensated on how their products earn money. Pharma companies are spending a lot of money and buying up smaller biotech companies that show any promise of developing new drugs. This leads to a question; “where does it end?”

The pharma company of the future is leaner than the ones of today and relies more on science and less on marketing. Their future model includes helping HCPs rather than trying to sell to them. For DTC, the model will become one of collaboration with patients as they help them navigate the complex system of American healthcare. CEOs will be compensated for keeping costs low and a score on the organization’s innovation.

To achieve this vision, the matrix organization, which slows innovation and changes market conditions, will be replaced by employees who understand and share the company’s vision. Ineffective salespeople will be replaced by online detailing or messaging. DTC commercials will be replaced by unbranded ads that look to engage patients and caregivers by forming a relationship based on making them more intelligent about their treatments.

The challenge to this evolution is short-term thinking CEOs looking to cash in and retire before the heavy lifting is required.