The pharma industry is in a pickle. It is losing all its friends and handing over sticks to its enemies. In the last few weeks:
Novartis lost a major patent dispute in India
Merck was denied an injunction against a generic Januvia
South Africa announced plans to tighten its patenting requirements to deny IP protection to incremental innovations, often used by drug companies to “evergreen” their patents
Germany extended the application of its much-hated pricing formula to the country’s most popular drugs
100 leading oncologists have risen against drug prices, accusing the industry of having lost its moral compass, and demanding major price cuts
All this adds up to a giant pushback against the astronomical drug prices that are becoming commonplace. It seems that price tags of $100,000 or above are becoming the norm. Of 12 cancer drugs approved in 2012, 11 cost more than that. As more drugs are offered at that level and their sponsors get away with it, it seems to set a floor that emboldens drug companies to push the envelope. They are badly misjudging the brewing anger.
The industry’s standard defense has been to run warm-hearted stories about the wonders of biomedical innovation, and to point out that drugs represent only 10% of healthcare costs. Both arguments miss the point. Everyone loves biomedical innovation, but the industry’s annual output of 25 to 35 new drugs is a lousy return for its $135 billion R&D spending. And pointing out that there is a worst culprit on the block is no comfort to patients getting stuck with a $20,000 co-pay.
Perhaps the mood would be different if the industry was a model of efficiency, but this is hardly the case. Examples of massive waste are on display everywhere: Pfizer wants to flatten a 750,000-square-foot facility in Groton, CT, and won’t entertain proposals for alternative uses. Lilly writes off over $100 million for a half-built insulin plant in Virginia, only to restart the project a few years later in Indiana. AstraZeneca shutters its R&D labs at Alderley Park and goes on to spend $500 million on a new facility in Cambridge.
For American patients, what must be called executive incompetence is part and parcel of drug unaffordability. And every product recall and billion dollar fine compounds the anger, not to mention the oversized compensation of the CEOs responsible for this mess.
It is ironic that Novartis is the focus of the latest outcry, as it has done more than its share to champion innovation. Ten years ago, as uninspired CEOs unleashed six sigma onto their scientists, Novartis was the only company to denounce the ineptitude of regimenting science and basing R&D investment on bogus forecasts and NPV calculations. It broke ranks with its peers, and returned to its scientists the freedom to pursue unfettered breakthrough innovation. It is now the company that derives by far the greatest percentage of its sales from new products. Perhaps this gives it an opportunity to make history again.
What if it decided to abandon the industry’s pricing madness, and make its drugs affordable? Wall Street would probably not like it, but it would like even less the devastation it would wreck on its competitors, half of which have been weakened by years of poor leadership, and can ill-afford to follow suit. We have lost 6 big pharma since 2000, and are likely to lose another 3 or 4 within the next few years. Pricing leadership from Novartis would give its products choice placement on formularies, and speed the demise of drugs that can no longer compete. It would also help wring out the enormous waste that undermines the industry. Mr. Jimenez has vowed to control R&D costs. Noble goal, but easier said than done. Perhaps the imperative of heading off a clash with society can help him win over the skeptics and muster the support he needs to keep Novartis in the vanguard of transformational change, for our collective benefit.