Thread by @HenryJOncology

I will now proceed to go on a #tweetrant / #tweetorial with regards to #Pharmaceutical #biotech pricing (focus on #cancer).

Very timely, also see @WSJ wsj.com/articles/big-p… on price hikes.

For the record, no #COI / #FCOI. Feel free to contribute to this discussion.

https://twitter.com/ASCOPost/status/1080497697247789057

Lets look at the problem from the @PhRMA / business perspective. And lets suppose you are a wonderful company, started by wonderful people who just want to make the world a better place (I know, not real, but stay with me for a minute).

You start with a great idea / or pipeline platform and start selling this concept to #VC #VentureCapital, and lets assume that this is actually a really good idea. What is the needed return on investment to make this worth while. A: further R&D must exceed the cost of capital.

How much is the pharmaceutical industry's cost of capital for clinical research of novel drugs? Annual returns on #research must be more than 20.7%, 8.2% and 13.6% annually through phase 1,2,3 to make it worthwhile.

ascopubs.org/doi/abs/10.120…

That's a high return because of the high probability of failure in #oncology drug development. And when a drug fails, it usually fails HARD (IDO @Incyte anyone...). So, what can you do? Answer, sell out to someone with a low COC ASAP to have an easier time financing.

Much easier to #finance manage binary outcomes when you have a large portfolio to smooth out the returns. @NYUStern estimates are 8%-10% (total market = approx 5%), which are certainly because it would be dominated by the large players people.stern.nyu.edu/adamodar/New_H…

But even #bigpharma needs to recover its COC. But there is a problem returns on R&D are falling hard via @Deloitte from 10.1% in 2010 (that's acceptable), to 5.5% in 2014 (that's worrisome) to 1.9% in 2018 (yikes!!!!).

www2.deloitte.com/uk/en/pages/li…

So what do you do??? Answer: GET OUT OF THE R&D BUSINESS!!!

And there is no reason to think that this is fabricated, since this is the kind of information that investors use. As an investor, would you give money to someone who would give you a 2% return instead of 10%? NO!

So what can you do #pharma? Buy growth! Big pharma can raise capital at 8-10% and use it to invest companies that are expected to produce 2-3x that return. Hence, constant mergers and acquisitions ($JUNO, $KITE, $ARIAD, $TESARO ect).

But you still have a problem... you can't buy enough to eliminate all non-diversifiable #risk. It would cost way to much (one major purchase is billions) and it would raise your own COC. And if you get it wrong.... @Celgene lost 14B in market cap this year!

So re-examine the business. COC>cost R&D, so should not be investing more there. I have said for years, #bigpharma is in the #marketing and #manufacturing business! And the best way to grow is to market hard and increase the price.

And so you say problem solved! Just figure out ways to reduce price! Negotiation, price increase limits, ect ect @VincentRK @peterbachmd @C_Garthwaite @amitabhchandra2. But wait!!!

Remember the small company that started this whole thing? The one needing #VentureCapital they need to be able to generate huge % returns (20% in phase 1 and 24% of total value before going to 1st in-human). They are the ones driving innovation.

And if such an investment cannot generate the returns required, they will not receive the necessary funding. I would actually call it a catastrophe for innovation, since the return on R&D is so ridiculously low for big companies.

But its not all #doomandgloom. This tweet discussion points to the solution! Spoiler: its not reducing safety standards @FDAOncology @US_FDA or using more surrogate endpoints or creating worse trials that dont collect data... (that stuff makes no sense).

Its about reducing the barriers for small companies to bring drugs to market themselves.
1. Make the process easy to follow (not by providing worse data).
2. Level the playing field post-launch (eliminate drug advertising).
3. Facilitate manufacturing partnerships (import drug)

4. Facilitate smaller companies access to capital #markets. (this is probably most important)

To summarize: price increases are a symptom of a broken model of #drugdevelopment and #BigPharma and #finance. We need real solutions not just stuff that makes us feel good.

/fin