Pharma strategies for 2020 take a hit

by Daniel R. Hoffman, Ph.D.

A study by the federal government's Centers for Medicare and Medicaid Services reported last week that by 2021, health care spending will consume 20 percent of this country's GDP. Even people with good health insurance that includes a prescription drug benefit should not remain blasé about these escalating costs because more policies are changing to shared risk coverage. Under that sort of system, out-of-pocket costs are not limited to standard deductibles and co-payments. They also include a percentage of a drug's total cost.

If rising health care costs will eventually squeeze the public here and in other developed countries to demand some form of price controls, the pharmaceutical industry believes it already has the matter covered. Pharma is doing two things to retain profitability amidst lackluster new products and a stiffening price resistance among payers. The first trend involves adopting an orphan drug strategy across many therapeutic areas. That would mean per patient costs for each medication will range from $50,000 to $250,000 per year. In other words, if someone can afford to pay $10,000 to $50,000 per year for his/her medication, life can continue. Otherwise, dignum morte. One segment of 60 Minutes is about all it should take to cook that goose.

Secondly, the rapidly industrializing economies in China, India, Brazil and several other countries, each with a growing middle class, have inspired pharma to focus more of their drug development, production and marketing efforts there.

If five- and six-figure annual costs for each medication seem likely to provoke some form of backlash in the advanced countries, pharma's wise men (or more precisely, the 30-year olds at overpaid consultancies) believe that rising living standards in the emerging countries will save the next decade and make it as profitable as the 1980s and '90s. The only problem, however, is that the imperialist tactics used by Britain, France, Germany, Russia and the U.S. in the 19th century won't work in the 21st.

For example, last month the government in India granted a local company, Natco Pharma, a "compulsory license" — the technical term for breaking a drug's patent — to produce a generic version of Bayer's cancer drug, Nexavar. Making that product a generic effectively cut its monthly cost in India from $500 to $125. Then the chairman of Cipla Ltd., one of India's major pharma companies, encouraged the government there to extend compulsory licensing to many more drugs. If the ministers comply, Cipla intends to supply those lower-priced versions to countries in Africa and elsewhere.

Not to be outdone, China amended its patent laws to make compulsory licensing easier. The government's Intellectual Property Office announced a May 1 revision that enables officials to issue compulsory licenses for domestic pharmas. Local firms may apply for compulsory licenses in cases of either state emergencies, "unusual circumstances" or "the interests of the public." The new rules also allow Chinese companies that receive such licensing to request additional rights for exporting their generic versions of patented drugs. Would-be exporters in China need merely demonstrate that "reasons of public health" warrant it.

The emerging countries, it appears, will not idly accept the pharma-medical complex's economic squeeze. Moreover, they won't just express their consternation with a mere Boxer Rebellion or a salt strike. Instead they will seize the rights to publicly vital property and use it to undercut U.S. and European pharmas in the world's markets.

Once again, pharmas need to either gin up the science or think of something else.

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