The Revolution Will be Small

We are at the beginning of a medical revolution.  We can now genetically engineer pigs who are immune to deadly diseases and (as I wrote elsewhere) we can cure two cancers.  Gurduant recently published its success rate for Gurduant360, a genetic therapy for lung cancer that it claims has a 92-100% success rate.  The Food and Drug Administration says it is reviewing more than 500 new drug applications involving gene therapy like Gurduant360.  Most of this is aimed at cancer.  A medical revolution is underway. But not happening in big pharma.

According to pharma-sponsored publications such as In Vivo, big pharma has a well-documented innovation crisis.  Small pharma makes the blockbuster drugs but big pharma that makes the profits.  That’s because instead of creating drugs or therapies, big pharma is “federating innovation”.  They are licensing and buying smaller companies’ inventions and then selling them for eye-popping prices.  Sometimes they act like venture capitalists (Johnson & Johnson), sometimes they provide smaller firms with the support they need such as legal, IT, and investment (Bayer), sometimes they provide real clinical data (Roche), and sometimes they couple the clinical data with analysis (Novartis).

Big pharma has become yet another middle man.  And this middle man charges a pretty penny.  Even worse, big pharma is terrible at coordinating (or “federating”) innovation.  Even though there has been an explosion in early-stage clinical trials, only 7% of all therapies reach Phase 3 or advanced stage. Congress passed Bayh-Dole in 1980 because only 5% of innovations were getting to the market.  Our innovation crisis has worsened.

Big pharma may be part of the problem.  Coordinating innovation, rewarding providers that achieve high levels of care (or invent revolutionary drugs and therapies) is what government (not big pharma) is built for.  We don’t normally think of government as coordinating private companies.  Depending on your ideology, you may think of government as either the regulator (red tape) or the one that enforces a level playing field. Ideology aside however, government’s main role in our economy is that of a market actor.

Take healthcare.  Government pays for 64 percent of all healthcare provided in America.  It contracts with hospitals, clinics, and universities.  It bears risks private actors are unwilling to take.  It makes healthcare available to the poor, the elderly, and those with disabilities and it invests in cutting edge (and hence unproven) technologies.  Like using our own blood cells to cure cancer for example.

And government (unlike pharma) is good at coordinating various private companies to fulfill missions society deems critical.  It is thus entirely possible that government could better and cheaper “federate the innovation” needed to cure cancer.  If government were to subsidize smaller biotech companies and make legal, IT and clinical data resources available to them, the resulting therapies could be sold at approximately 1/3 of the price charged by big pharma.  This would mean that most (if not all) commercial insurers would be able to cover the new treatments in at least some circumstances.  It would also mean that the smaller pharmaceutical companies would get the funds they need to remain independent and thus create more therapies.  The more therapies there are, the cheaper any single therapy should be.

For that to happen business and government cultures will need to change.  For even as most American executives understand that there is significant value to working with the government, most are not very good at it.  The ones that excel at it are like big pharma.  They don’t create anything but talk a great game and so win the bids.  For its part, government needs to learn how to score proposals that are propose quality but are not written in the “right language”.  This isn’t something that can happen overnight.

Still, at a time when in part thanks to crony capitalism, we have had 152 drug price increases in two months, isn’t it at least worth a try?

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