Macro Drivers for Future Pharma Success
“Big pharma will go through a faster change process in the next 20 years.”
The success of the pharmaceutical industry over the next ten years is going to depend on its ability to deal with some macro drivers that are dominant. Some companies will succeed and others will lag based on their ability to recognize and adapt to these forces.
First, big drug companies are going to have to lower prices or at least limit increases to inflation. This will be true whether or not Obamacare survives. Most major categories have or will have good generic alternatives. Many new drugs do not offer quantum advantages over older drugs which cost much less. In the Obamacare scenario, it will be government that forces lower prices through outright price negotiation or through comparative effectiveness research. If free market Republicans scrap Obamacare for more consumer control over their health care spending, we will see consumer forces push prices down. After all if I pay most of the drug cost through health savings accounts, rather than my employer through insurance, we will see a switch to generics. Justifying branded premiums will be harder and will require real evidence of greater safety or effectiveness.
In either case, prices will be forced down. That means drug companies will have to look for higher volume at lower prices. They will do what Pfizer is planning to do with Lipitor when it goes off patent. They will price to be competitive with generics. Some volume at much lower prices is much more profitable than zero volume at higher prices. In other words, drug companies need to realize that their best chance of success is to provide more value to more people. We clearly need more people to treat their high cholesterol, diabetes, blood pressure and other chronic categories. Providing cheaper drugs makes it possible to make more money even at a lower price per pill.
The second macro trend is providing baby boomers with medications to slow down their aging process both on the inside and outside. That means companies that deal effectively with appearance and vanity drugs have a huge market opportunity. While we all want to be healthy in terms of our internal organs, we value as much our exterior appearance. As Billy Crystal said, imitating Fernando Lamas, “It is better to look good than to feel good.” The boomer is not willing to age gracefully. Boomers are looking for treatments that slow down heart disease, cancer, diabetes, weight gain and arthritis. They do not accept that they will look and feel like their grandparents did. In fact, boomers may be willing to spend much of their kid’s inheritance delaying their inevitable decline. That will be true whether or not these drugs are fully covered by insurance. Never underestimate the self centered attitude of the baby boom generation. Sacrifice is not something in the DNA of this generation of which I am a member.
Third, drug companies are going to become more like micro breweries producing a wider variety of medicines. The idea that one drug can deal with problems of the masses is going to be less prevalent. Genomics will get us solutions that are much more targeted based on discovering what works best for us personally. That will reduce the ability to shotgun a big drug across a mass population hoping it works for a fraction of those taking it. Drugs will be selected based on gene typing and that means lower revenue per drug. With less major blockbusters likely drug companies will increasingly use contract R&D deals and depend less on their own labs. That makes more nimble drug companies more important. I expect to see fewer acquisitions and more research partnerships. That also means DTC will need to be more targeted as smaller markets emerge. This trend will create many more opportunities for start-up companies in both R&D and media.
Whatever happens I am strongly convinced that big pharma will go through a significant and faster change process in the next 20 years than the last 20. Today, drug companies look very similar to those in the 1990’s. I think, however, they will be hardly recognizable in 2031 to what we see today.
Bob Ehrlich, Chairman
DTC Perspectives, Inc.