“Me-too” Products Won’t Do It Anymore

By guest blogger Daniel Hoffman:

Subordinates to the pharmaceutical industry’s top executives worry about the declining chances of making huge profits from new products. This situation represents a change from years past, when new products that were clinically indistinguishable from older competitors could enjoy big margins from even small market shares. For decades the industry justified the profits it made from these "me-too" products by saying that they were necessary to fund research on compounds that could actually advance the standards of care. The mantra was, “It takes the me-too’s to develop the breakthroughs.”

That was then. Now insurers, employers, governments and other, third-party payers have to control costs in an economy where one out of every six dollars in America’s GDP goes for healthcare. One way of doing that, when it comes to drugs, is by making cheaper generics the first line of therapy and obliging new brands to demonstrate better outcomes that justify higher prices. The trend is called “comparative drug effectiveness.”

Philippe Burnham of West Caldwell, New Jersey, spent 25 years in pharmaceutical sales and marketing. He now consults for the industry and he described the situation this way. “Not only do new products have to advance the standards of care beyond what the older ones offer, but they also have be more competitively priced. The old days where you could be the fifth beta-blocker or the twenty-third anti-inflammatory and still make a pile of dough are gone.”

While it will take some time for pharmaceutical companies to adjust to this new reality, overall it’s not a bad thing. For too long the industry benefitted from a situation of patent protection and a “gatekeeper system” that separates people who select medications from those who use it and those who pay for it. That setup amounted to a taxpayer-funded monopoly. The result has been that the US pays two to three times per person what other countries pay for medications while our health outcomes put us well below many European nations. The emerging trend means that for pharmaceutical companies to succeed, they will have to perform the way their counterparts in other industries do – offer better products at competitive prices. That's what a competitive market is all about.

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