Thursday, November 20, 2008

Arguing by Analogy: What Pharma Can Learn from the Car Business

We’re well aware that arguments by analogy are often fallacious but it’s been difficult for this blogger to watch the CEOs of the American automakers plead for a government loan and not see important analogies between what led them to the witness table in front of the Senate Banking committee and current issues in the pharmaceutical business.

Three basic points:

1) Thanks to their own inefficiency, shortsightedness and inability to deal with a labor and infrastructure problem largely of their own making, Detroit carmakers built themselves to supply a market, gas guzzling cars, that is disappearing. It’s difficult to believe that the same management and union groups which got them into this mess are going to be able to do the radical restructuring that will get them out of it.

2) A nimbler set of competitors ran straight through the hole in the Detroit defenses to create markets for small fuel-efficient cars, particularly hybrids, that should have been Detroit’s by right but which they by and large ignored or relegated to fig-leafing SUVs into merely moderate gas hogs.

3) Granted GM, Ford and Chrysler can make it through the next year (GM’s got roughly $60 billion more in debts than in assets; it’s burned through $9.7 billion in cash in the first three quarters of 2008 and, with about $16 billion cash remaining, will be flat bust before 2009 is over) the big hope is technology – in particular, the electric car (GM’s Volt).

Big Pharma has likewise shackled itself to a market – primary care -- that most of us know in our gut, and IMS can demonstrate with data, is shrinking. Primary-care medicines still make lots of money; SUVs don’t. But given the number of new primary-care drugs that have fallen out of the clinic on their own, fallen afoul of regulators, or been yanked off the market or sharply restricted in their use (e.g., Galvus, Zelnorm, Avandia, Pristiq), and the number of drugs that are losing patent protection by 2012, it’s not got long to thrive. If you call this thriving.

Big Pharma’s versions of Detroit’s nimbler competitors: companies who set themselves up to go after specialist markets – Gilead, Genzyme, Celgene, Amgen, Genentech and Biogen Idec (indeed, Gilead and Celgene started out with molecules Big Pharma could’ve had). First mistake: Big Pharma’s blindness to the value of niche markets (blind because they weren’t structured to take profitable advantage of them, self-mandated to find drugs that could support primary-care commercial and development organizations rather than new medical needs). Second mistake: unwillingness to adopt a new technology – protein therapeutics, a nice parallel to Detroit’s blindness to hybrid engines.

As for electric engine technology: think biomarkers. As with batteries, the technological hurdles to an effective companion diagnostic are gigantic; so are the regulatory and business challenges. So far, we haven’t known enough to really make effective therapy-directing diagnostics. But just as electric cars could transform the worldwide car market (and with it, the worldwide political landscape…without a war), markers could allow drugmakers (or whoever controls the biomarker) an almost incontrovertible argument against recalcitrant payors who, by and large, now determine the success of a drug’s launch.

You still hear arguments that Pharmas shouldn’t pursue biomarkers because they’ll limit markets. You hear even more arguments about the need to continue to focus on primary care. What if we come up with another Januvia, they say? We say: if you come up with another Januvia, great. It ain’t all that tough to hire a sales force, if and when you need it.

It all sounds a little bit like that other notion we’re hearing about, even as the car makers beg Congress for a bailout: now that gas prices have tumbled back nearly to where they’d been before things went crazy, maybe the car companies can get by on the old strategy – still appealing to some apparently unquenchable American desire to drive cars too big for their own good?

Not the right lesson. For the car companies or Big Pharma.


Anonymous said...

Terrible analogy. And the assessment of the automakers' trouble is crude and simplistic. Let's get back to comparing pharma to the Phillies.

bnjammin said...

Interesting analogy -- although its limited (by things which you are probably already aware of). The problem with bio/pharma is that, while gas prices have gone down (helping gas guzzler manufacturers), I don't see a similar trend helping bio/pharma "return to the good ol' days".

And maybe I'm missing something here, but I fail to see how biomarkers will save an industry that is dependent on blockbusters and M&A for growth?

The only solution I see for bio/pharma is a radical revamp of their business model to drive new innovation and new levels of drug success. Just changing market focus will not save them. Adopting and developing new PK/SAR tools, combined with some type of "open-source" strategy to share knowledge strikes me as the way forward, but even I'm skeptical...

Anonymous said...

Actually, bnjammin, depending on the indication, things like biomarkers could be game changing.

From a purely economic viewpoint, a drug (or, in a broader sense, any medical therapy) is only as good as its overall cost/benefit ratio. What is the benefit to the 'consumer' versus what are the 'costs' (where cost is not just financial.)

Many things factor into this equation. Obviously, it is very important to know how likely the treatment is to 'cure' the patient (however that is defined), or at least prolong his productive lifespan/aliviate his suffering, etc. etc.

On the other hand, we would like to know what the side effect profile is, and what the various costs and risks are.

Now, all else being equal, the more overall net benefit a treatment has TO A GIVEN PATIENT, the more valuable it is TO THAT PARTICULAR PATIENT. Because, at the end of the day, it is individuals we are treating.

Unfortunately, while clinical trials have been somewhat useful to answer the aggregate question (given a certain population, identified by the trial's entry criteria, how valuable, on average, is the treatment to be to that population?), it is far less helpful to identify the cost/benefit for any given individual. And we know from quite a lot of empirical evidence that this can vary considerably.

So, if the medical industry can do a better job maximizing the cost/benefit for individuals, then they can increase the value of what they are selling.

And, in a way, there is an analogy with Detroit. For years, they've been focus on giving people what they thought they wanted, rather than figuring out what people really needed, long term. And then finding a way to convince people of the wisdom of this--even if it took fuel economy mandates, taxes or whatever to get them there.

Yes, some people would have cried about it, but when I was a child, I also cried when my doctor gave me a vaccination...but those tears were a small price to pay for the overall benefit to myself and society!

Anonymous said...

Roger, what's the source of the extra cash required to pay the docs for the extra work and the extra testing required to implement individualized therapy? I have been under the impression that our medical system has been strapped for sometime now.