A brightening outlook for pharma

I’ve always disliked the phrases “inflection point” or “turning point” because, most of the time, the claim doesn’t stand up to close analysis—a trend that gets recognized as being a clear change has usually been under way for a considerable while before it gets publicized as one of these “turning” moments.

Nevertheless, as the 2014 calendar year winds up, the US bio/pharma industry finds itself in a substantially different—and better—place than a year ago. When the books close on the year, the industry is likely to find itself having experienced double-digit growth, which hasn’t happened for at least the past 10 years. (And during that period, in 2012, sales went down for one year, by a percentage point—something that hadn’t happened in the 50+ years that IMS Health has been tracking drug sales.)

There is a hue and cry right now over escalating drug prices—especially the new launches in the past year and within that, Gilead Sciences’ Sovaldi, the “$1,000 pill.” (There are considerably more expensive treatments—but for smaller patient populations. And there are less expensive drugs, but are needed for chronic care for, in some cases, the lifetime of the patient. Sovaldi has the advantage, over those, of requiring 12 weeks or less of therapy—provided the patient correctly uses the drug.)

A more troubling pricing trend is rising generic prices which, in a more rational market economy, should be flat or declining. I’ve looked on this as a combination of too much consolidation among generic makers and distributors, in combination with the ongoing issue of drug shortages. A better-functioning market would have more generic makers entering as prices go up; and drug shortages would have been addressed much more rapidly—and fixed. Other commentators have jumped on FDA’s increased vigilance for drug quality as an impediment—but I’d much rather deal with a market where the quality of life-saving drugs is assured, and then we talk about pricing, rather than the reverse.

Another key transition—starting to take shape, but not yet “arrived”—is the traceability (aka “track and trace”) requirement codified by the Drug Supply Chain Security Act of 2013, and set to be partially in force in January, with later deadlines extending into the 2020s. This program, likely to cost several tens of billions of dollars over the next 5-7 years, is not cheap. And most of the industry, while signing the checks for implementations, still look on it as a regulatory compliance expense and little else. But the modernization it will bring to the entire pharmaceutical supply chain—including into direct patient care by healthcare providers—will garner benefits to all participants in healthcare. Nor should it be overlooked that the entire industrialized world (and many developing nations) are moving in this direction. This isn’t a case of overzealous US regulation; this is a case of bringing the industry into the 21st century. If anything, it’s overdue.

Getting back to the money and budgeting issue: 2014 will also be a year where drug sales were boosted by the Affordable Care Act, bringing millions of uninsured patients into better healthcare. Critics of the pharma industry have talked about the “deal” the pharma industry made in the late 2000s to support Obamacare as part of a payoff—support Obamacare and sell more drugs—but it’s wrong to single out this industry as being the sole, or even primary, beneficiary. Keep in mind that a) drugs remain 10-11% of the US healthcare dollar; and b) the debate is still ongoing whether the Affordable Care Act is the direct cause of the moderation in healthcare cost growth we’re enjoying today (the Affordable Care Act is about a lot more than providing healthcare coverage for the uninsured.) Meanwhile, for many reasons including the pharma industry, America is a healthier place today than in the recent past.