The Future of Big Pharma

the future of big pharma
Artificial intelligence, smart pills, stem cell research, gene therapy, telemedicine, robotics, low-cost genomic sequencing, and phone apps—there’s brightness on the horizon when it comes to medical technology. The crystal ball gets cloudy, however, when it comes to the future of the pharmaceutical industry in the United States and Europe. A March article on the front page of The New York Times had the ominous title: “Drug Firms Face Billions in Losses in ’11 as Patents End.”

The crux of the concern is that more than 10 blockbuster drugs—generating annual sales close to $50 billion—will see their patents expire this year, resulting in cheaper generic drugs flooding the market and undercutting companies’ profits. Currently 75 percent of all U.S. prescriptions are for generic drugs, which are low price and low profit for the industry.

“When a brand-name drug goes off patent, its generic counterpart sells for 80 percent less. So it’s a significant hit on the market. That’s what Pfizer is going to be seeing when Lipitor goes off patent this year, for example,” says Deirdre Parsons, a third-year master’s student in public health and public policy. Parsons works with the Berkeley Center for Health Technology (BCHT) at the School of Public Health.

In addition to the patent issue, many drug companies have struggled with failed drug trials, there are not as many drugs in the research pipelines, and fewer drugs are being approved by the Food and Drug Administration. More than 150,000 positions have been cut in the industry in the past three years, including jobs in research and development.

Does the shaky future of profitability in the pharmaceutical industry mean bad news for the public’s health? James C. Robinson PhD, MPH ‘81, the School’s Leonard D. Schaeffer Professor of Health Economics and director of BCHT, has concerns. “In public health, some think profits are suspect,” Robinson says. “Everyone wants to lower the cost of health care and the cost of drugs in particular. But the reality is there is no free lunch. There are so many diseases out there that don’t currently have much in the way of treatment options: breast cancer, HIV, multiple sclerosis, Alzheimer’s, to name several. And the drugs of the future are developed from research investments that are financed by profits today.”
Government gets in the game
As profit margins continue to shrink, so does the industry investment into research and development. And yet there is increased demand, not only for drugs that treat currently hard-to-treat diseases, but also for more effective antibiotics to combat antibiotic-resistant bacteria and less expensive antivirals to treat flu outbreaks. But if the pharmaceutical companies stop funding research—or only fund development of drugs with the most profit potential—who will fill the gap?

The U.S. government is concerned enough about the slowing pace of drug development that the National Institute of Health (NIH) is planning to get into R&D funding and launch a new center for drug development, to be up and running by October 2011. For the fiscal year 2011, President Obama also proposed boosted funding for NIH for biomedical research, with a special emphasis on “bold and innovative” cancer research. The money would facilitate 30 new drug trials and double the number of therapies and vaccines in clinical trials by 2016.

Will this government-run drug research be effective? “I’m not sure the government has what it takes for successful drug development,” says Robinson. “Can you imagine a government agency that has a project that fails nine times, and comes looking for money for a tenth time? It’s not going to happen. And yet the drug companies do this all the time; they call it diversifying their investments.”

“I wonder if they’ll be able to set the research priorities correctly,” adds Parsons. “Will it be politically motivated, based on a senator’s son having XYZ disease? On the other hand, the current model of being driven by market forces isn’t necessarily any less arbitrary.”
Curious about costs
Insurance companies, the U.S. and European governments, and consumers all put pressure on the pharmaceutical companies to lower drug prices. “I think payers and providers are putting much more scrutiny on the treatments that they will cover,” says Erika Heaton MBA, MPH ‘11. “I think Big Pharma really needs to rethink their model in general—their portfolios, their culture, how they structure their sales teams. It’s gotten to the point where it needs to evolve to be successful in the future.”

Deirdre Parsons, Erika Heaton, and James Robinson

Heaton spent a summer working for Genentech in its Avastin brand marketing group, where she looked at the value proposition of biopharmaceuticals to customers. Prior to coming to Berkeley, Heaton worked in health policy and strategy consulting in Washington, D.C., most recently for the advisory firm Avalere Health. “I think it’s interesting that even with a field like oncology, you see biotech and pharmaceutical companies really thinking more about the value of their products,” she says. “What are the criteria that different customers consider when they’re making a decision about value?”

Parsons thinks a lot about drug pricing and cost sharing as well. After earning her master’s degree in molecular genetics and microbiology at Duke University, she was a policy management consultant with the Pharmaceutical Research and Development practice at Accenture. This experience prompted her to ask larger questions about the industry as a whole when she came to Berkeley.

“The biggest question I had when helping out these pharmaceutical companies was, ‘Okay, you make drugs that cost ten to fifteen thousand dollars a year. Who is paying for that and how is that even being supported?’” she explains. “And is that really the driver of health care cost? That’s the easiest finger to point, at the pharmaceutical companies, so I came to Berkeley to find out, ‘Is that true or not?’”

She joined Robinson in his work at BCHT because the center looks at the balance between innovation and access. At BCHT, she is currently looking at rheumatoid arthritis as a test case to understand the effect of insurance benefit design on utilization of high-cost specialty drugs.

“Is there any indication that increase in patient cost sharing affects utilization? And does that affect health outcomes?” Parsons asks. “There hasn’t been conclusive research done on these high-cost drugs that are targeting sicker patients. It could be that because the alternative to taking the drugs is often either severe pain or death, the patients will be more tolerant of increased cost sharing.”

Preliminary results from the BCHT project on cost sharing for rheumatoid arthritis, a collaboration with the California Public Employee Retirement System, indicates that cost sharing does very substantially affect which biotech drugs physicians prescribe and patients use.
Behemoths and biotechs
Parsons sees the current trend of pharmaceutical giants merging with leaner biotechnology companies as a possible alternative that can help ramp up the development of treatment options. As a summer intern in the Managed Care and Customer Operations unit at Genentech at a time when the Bay Area-based biopharmaceutical company had just undergone a merger with Roche, she had an inside look into this phenomenon.

“Genentech prides itself on its R&D and its creativity around developing drugs. That’s their bread and butter,” says Parsons. “For the pharmaceutical companies, they see their bread and butter as marketing. When you have these two industries merging with two different points of view, it makes you wonder where things are going. Are they still trying to target those patients that really need these drugs? Are they looking for new drugs? Or are they just trying to find drugs that will have the greatest number of sales?”

Still, she thinks the behemoth drug companies can learn from the more streamlined biotech companies. “The pharmaceutical companies are going through a complete transformation, an identity crisis,” she says. “I think they need to look more like the biotechs, which are a little leaner and sharper and thinking two steps ahead. They are working more closely with the academic institutions and the patient populations.”

Another big trend in Big Pharma is the increasing focus on specialty or boutique drugs that target small populations with specific rare diseases, like many cancers. Advances in genetics and genomics have resulted in the development of biologics—targeted therapeutics that hone in on a disease without affecting healthy cells and tissues. “One example would be Herceptin, which is a targeted therapy for a certain type of breast cancer with a certain type of gene mutation,” says Heaton. She believes the increased focus on personalized medicine is a positive development for the pharmaceutical industry.

“I think there are benefits to the model of personalized or targeted therapies, understanding in R&D what are the patient targets and the right subpopulations where the drugs are most effective,” she says. “There are costs savings there because you’re not treating a wide population, and you have a better chance of FDA approval because of the stronger efficacy in trial stage.”
The problem of side effects
Savings are good, because an estimate of the cost to develop a marketable product is $1 billion or more. But even after Phase III drug trials, where the drugs are tested on humans, and FDA approval, companies are still not assured of profits. Professor Nick Jewell, a biostatistician with more than 30 years of experience analyzing the results of drug trials, has served as an expert witness in personal injury and securities litigation against major drug companies.

“When you get a pharmaceutical company where something starts to go wrong in the sense that an adverse effect appears, often it’s not apparent in drug development work, because drug development trials are usually fairly small,” says Jewell. “Even the large trials for efficacy, which may contain hundreds or thousands of patients, will not have enough information to detect a rare adverse effect, like myocardial infarction or a rare cancer.”

Jewell was involved in personal injury litigation for the drug, Vioxx, which was being developed by Merck as a pain reliever that—the manufacturer hoped—would not have the same gastrointestinal side effects as aspirin and other widely used anti-inflammatory medications. The drug was approved by the FDA in 1999, but was withdrawn from the market over concerns about increased risk of heart attack and stroke associated with long-term, high-dosage use.

“These effects don’t tend to show up until after the drug gets on the market, when a lot of people start taking the drug, data starts to come in, and statisticians get involved,” says Jewell. “I was involved in trying to assess the evidence for the negative impact of Vioxx and, to some extent, when could the company reasonably have known there was a problem.”

When looking at documents that have come out of the industry in particular cases that have resulted in lawsuits, Jewell has seen some problems with marketing departments driving the interpretation of pharmaceutical company-sponsored clinical studies, too often misleading patients and doctors. “I am a terrific supporter of the pharmaceutical industry in general,” Jewell says. “If you need a drug to help you with a medical problem, you want somebody to develop that drug. But I would say that the evidence that I’m seeing indicates that postmarketing there’s been a big push in drug companies to increase profits. And that has led, in my view, to compromises in the public safety.”

This compromise is in part because an increased focus on marketing can lead drug companies to try to increase a consumer population beyond the bounds of their studies. “Instead of accepting that maybe the drug can only be used with a real confidence in a subgroup of a population, which runs against profits,” says Jewell, “you want to expand demand for the drug to people who aren’t as sick or who are suffering from a different condition. You want to not only capture all the market in a certain segment of the population; you want to increase the market itself. You want to sell it to other countries. You say, ‘Maybe this drug isn’t just a pain killer; maybe it also treats colon cancer.’ That’s what happened with Vioxx.”

Jewell believes carefully limiting a drug with known rare side effects to only a population whose risk for those side effects is relatively low, the drug companies might avoid potential harm to patients and also lawsuits. “The science and the public good should drive the ship,” he says. “And there’s nothing wrong with producing reasonable profits—that’s been the history of the pharmaceutical industry. But in the last twenty or thirty years, maybe we’ve gone too far. Good science requires transparency— even when the studies are sponsored by drug makers.”
A shortage of science
Many companies do focus on good science and the needs of the populations they seek to treat. “Working for Genentech over the summer, I found that they really focus on patients and the public health side,” says Heaton. “You can’t think of these companies as corporations that aren’t focused on public health, even though they are for profit.” But it can still be a challenge for them to discover when new drugs are causing harm.

“Good statistical methods for assessing drug safety issues quickly are important, but they’re difficult,” Jewell says. “Post-marketing, you’re not doing trials so much anymore; you’re just collecting data on people that are taking the drugs. They’re sick; they sometimes suffer heart attacks or some other adverse event. Trying to sift through that mass of data and see that there’s a signal here that the drug is actually increasing the risk—it’s a challenge for statisticians to do that effectively.”

Pharmaceutical and biotechnology companies employ a large number of biostatisticians to design trials and analyze clinical trial and post-marketing data. For example, Amgen, a biotech company in Southern California, employs more than 100 PhD level biostatisticians. But, says Jewell, there is a critical shortage of trained biostatisticians for the drug industry to employ.quote

In California, there are only two major biostatistics programs, at UC Berkeley and UCLA, which together graduate only 12 to 20 students a year.

“You can tell there’s a problem,” says Jewell. “With the genomics revolution, there’s just a huge demand for our students and we aren’t able to produce them because we don’t have the resources. I think we’re headed for a world where more and more of the work is going to be done by people not trained to do it.”

How big of a problem is it? “If I said to you, ‘More and more brain surgeries are going to be done by people who are not trained,’ you’d think, ‘Oh my gosh!’” Jewell says. “That’s what’s happening in biostatistics, and it’s a nationwide problem.”

Although the many challenges facing the pharmaceutical industry and the patient population it serves seem daunting, there remains opportunity for change and growth moving forward. “There are a lot of innovative and interesting thinking happening across the industry right now,” says Heaton. “Not just in R&D; I think they are doing interesting work to support patients’ initiatives as well.”

Heaton sees value in social media, blogs, and e-marketing as ways of opening communication between drug companies, physicians, and patients. Parsons is very intrigued by emerging nonprofit pharmaceutical companies attempting to meet currently unmet healthcare needs, such as Medicine360 in San Francisco. The outcome of all these changes and trends remains to be seen, but there’s no doubt that there are interesting times ahead for the industry and for public health.end of line

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