I was recently in San Francisco attending the biggest US healthcare investor conference and there’s little doubt that the level of innovation in the pharma and biotech industries remains very high. Many new therapies are coming to market with more genuinely novel drugs in 2015 than at any time in the last 19 years. The long-term trend is also improving (see chart below).
The main focus at the conference though was on drug pricing in the US. Overall, healthcare costs are twice the OECD average as a percentage of GDP and drug pricing, despite being less than 15% of total healthcare spending, continues to be of concern since US Democrat candidate, Hillary Clinton suggested it should subject to government control. We highlighted this on The Equities Forum in September.
Industry participants were sceptical of the likelihood of pricing controls happening. However, pressures are emerging in the system. Commercial payers, such as health insurers, continue to push on price and are now looking to restrict use to strictly ‘on-label’ or FDA (Food & Drug Administration)-approved indications for new classes of drugs such as the new cholesterol lowering treatments from Amgen (Repatha) and Sanofi/Regeneron (Praluent). The largest independent pharmacy benefit manager in the US – Express Scrips – suggested that both commercial payers and drug manufacturers are willing to look at indication-based pricing in oncology.
There is also the opportunity to reduce costs in the future through the development of copies of complex biological drugs, so-called biosimilars. Not only will these reduce healthcare costs, they will also make revolutionary treatments accessible to a broader patient universe. Biosimilars have yet to gain meaningful traction in the US market, although all parties recognise that in time, they will.
With the overall US healthcare marketplace moving increasingly to value-based payments (see my blog, Winners and losers from Obama’s healthcare revolution, 15 Jan 2016), new drugs that offer clear benefits over existing therapies or those that address hitherto unmet needs will be paid for. Reimbursement will be appropriate to the benefits they offer in the indications where that benefit is demonstrable.
I came away from the conference more convinced than ever that investing in companies that understand this and invest their research & development and business development dollars accordingly, should prove profitable in the long run, as will avoiding those that have failed to grasp this essential fact.
 A biosimilar is a copy of an original biologic medical product that is manufactured by a different company. Biosimilars are officially approved versions of original ‘innovator’ products and can be manufactured when the original product’s patent expires.
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