New markets, new models for old pharma

One of the most knowledgeable healthcare economists, Scott Gottlieb (M.D.) of AEI has weighed in on big pharma’s dying business models. While no Pollyanna, Dr. Gottlieb finds the glass surprisingly half full — while (as he often does) identifying areas where the FDA is a barrier to innovation.

Writing at the WSJ (and the AEI website) Dr. Gottlieb summarizes the success and limitations of the old business model. The former was represented by Lipitor, which earned $13b/year at its peak. The latter “mostly involved screening millions of random compounds against a molecular target.”

However, he argues that big pharma is learning the proper lessons from the end of their traditional models.

Lesson number one is to use a biological (rather than scattershot chemical) approach:

They took advantage of new science that allowed drug discovery to become a much more targeted endeavor—focused around precise information about the molecular fingerprints of disease.

In this kind of "rational" discovery process, size matters less than precision. Drugs are designed around the individual biological receptor they're targeting rather than being screened out of a library of random compounds. Deploying bigger tools no longer counts as much as having concentrated expertise in the particular pathway that causes a disease.

The next lesson has to do with the organization of innovation:

[B]ig bureaucracies were hostile to the kind of risk-taking and scientific focus needed to do good research. At most companies, the majority of new drugs are discovered by a handful of scientists with repeated successes. There's something unanticipated in drug research that can't be industrialized.

In recent years, pharmaceutical companies started to carve up their sprawling research enterprises into smaller, more focused teams. The right size of a research team is now said to be 20-40 people. To get at new science early, drug makers rely on collaborations with academic research teams and licensing deals with smaller biotech outfits.

(We call the latter process “open innovation”).

The final point is one that been often remarked over the past few years. Drug companies shouldn’t try for incremental improvements for conditions that have been treated in the past 30 years, but instead try to address other conditions (like Alzheimer’s) which lack an effective theraphy.

As a success story for the new, improved big pharma, Dr. Gottlieb cites Pfizer bringing Crizotinib (a lung cancer therapy) to market in 6 years instead of 10-15. Still, he points to the role of the FDA as increasing the costs and delaying the availability of therapies, by increasing the length of trials and the cost per patient.

While various regulatory reforms have been proposed, “none has been meaningfully advanced.” He concludes:

Drug makers are renewing themselves by realizing that their research success wasn't tied to the scale of those endeavors, but their precision. Today, the continuation of these scientific advances depends on their regulators reaching a similar understanding.

HIPAA vs. preventive medicine

This is finals week for the fall semester at KGI. Teams from our first year Medical Devices course (ALS 320 in KGI-speak) are presenting their technical and business analysis of why the world needs a specific new medical diagnostic test.

As an aside, one of the teams made a persuasive case the compliance and liability issues associated with HIPAA will deter (and possibly prevent) the adoption of new technologies for preventative medicine.

The specific context was monitoring of diabetics, of the most expensive chronic conditions in the United States. (I didn’t write down the statistics, but this article estimates diabetes directly accounts for 10% of healthcare spending, or more than $90 billion/year).

The students suggested that the health impacts of diabetes could be reduced through computerized monitoring of various symptoms — not just glucose, but hypertension and other effects as well. (Disclaimer: I am not an MD not do I play one on TV). One product they pointed to was the Withings blood pressure monitor, which uploads data to your iPhone, iPad or iPod Touch and can be manually emailed to your doctor.

The idea is that if data were gathered and stored in the EHR, then it would be possible to catch problems well before a regularly scheduled test. Getting these widely deployed would probably take a HMO (like Kaiser) or hospital group that is caring for diabetics on a long term basis.

However, the security implications of such as system are daunting. Yes, a firm or nonprofit needs to be diligent in avoiding security breaches that compromise patient privacy. However, a data breach (of the source that seem routine nowadays) could lead to government fines or even a lawsuit.

A regulatory barrier like this could be a dealbreaker for efforts such as San Diego’s wireless health initiatives. This chilling effect seems a perfect example of the law of unintended consequences.

How to solve the problem? One way is that the Federal government can’t be fined or sued under HIPAA. Does this mean that these approaches for data monitoring to support preventative health have to wait until the Feds are innovative enough to try this approach? (Or private insurance is out of business and we all are covered by the Feds anyway?)