Remember me?
Back in the mid-80s, when the Sony Walkman was a cassette player, companies like Upjohn, Parke-Davis, and Schering-Plough were well known in the pharmaceutical community.
These names, and many others, are now lost, thanks largely to M&A.
Some communities where these companies were based survived, while others have suffered economically. But, the industry rolls on, albeit with fewer companies…fewer drug discoveries at the industrial level…and (arguably) less innovation.
Nostalgia set in when we learned that Purdue Pharma is likely to file for bankruptcy in light of the significant liabilities from hundreds of lawsuits stemming from their opioid marketing practices. Their ex-US company, Mundipharma, is also likely to be divested. (Update: Purdue filed)
Perhaps smelling blood in the water, Oklahoma recently won a trial in which several Johnson and Johnson subsidiaries “…caused exponentially increasing rates of addiction, overdose deaths, and babies born exposed to opioids.”
We are not in any position to judge the legitimacy of this or any other legal rulings.
But, we do agree with comments made by many others that the opioid crisis is tragic, complex, and difficult to blame on any one company or even group of individuals (like prescribers, distributors, pharmacies, etc.).
But in situations like this, it’s facile to target pharma companies. So it is likely that other pharma companies will face similar legal challenges.
What we also find troubling is the continued shrinkage of our industry.
It is difficult to quantify this statement. After all, what exactly do we mean by “shrinkage?”
The total number of companies?
The total number of listed companies?
The total number of profitable companies (both private and public)?
The total number of employees?
Other metric?
In our view, fewer large companies, whether through bankruptcy or M&A, is not a healthy trend for our ecosystem.
Admittedly, back in the 80s, our industry was not nearly as innovative as it is today.
Back then, developing and launching marginally superior brands in well established classes was the norm. The end result was mechanisms of action (beta blockers, NSAIDs, cephalosporins, flouroquinolones), with 4-7 brands all competing against each other for share.
Several trends changed all of this:
Quality Generics – There was a time when many prescribers had their doubts about the quality of generic drugs. Today, this is no longer the case (but do they really have a choice?). While generics capture a growing portion of the Rx market, prices continue to drop.
In response, many generic companies are trying (and largely failing) to move into “complex generics” in order to maintain margin. But with branded revenue falling to near zero upon generic entry, the days of seven beta blockers is largely gone, making it impossible for many companies to succeed without much more radical innovation.
Maturing VC Industry – Beginning with Genentech, the venture capital industry has demonstrated that it could generate above average returns by investing in early-stage “biotech” companies. This has fueled the emergence of thousands of innovative companies over the years. Some successful; some not.
Multinationals with the resources to in-license, develop, and commercialize innovation at scale will be fine, as long as they can leverage external innovation. But companies who cannot innovate (either internally or via licensing/M&A) will struggle.
Buyer Power – Back in the day, Brand Managers could get reimbursement and annual 5% price increases just simply by rolling out of bed in the morning. Today, while Payers are increasingly willing (begrudgingly, perhaps) to pay for innovation, marginally innovative products pay the price, so to speak. The dreaded “Tier Three” moniker is not an insurmountable hurdle, especially with efficient sales and marketing. But poor (or non-existent) reimbursement makes it nearly impossible for marginal brands to succeed.
To their credit, the BD team at Purdue / Mundipharma remained busy. According to MedTrack, Purdue announced 22 Partnerships between early 2016 and August, 2019.
Recognizing the need to diversify away from Pain, partnerships were announced in a variety of therapeutic areas and indications, such as interstitial cystitis, oncology (both therapies and supportive care), and dermatology.
If Purdue did not exist, would these partnerships be executed by other companies? We will never know.
But with so few companies left that are focused on therapeutic areas like pain and dermatology (especially “topical” dermatology), it is entirely possible that some of these drug candidates would never make it to market without a partnership.
Would their investors be willing to continue financing these companies through approval and the development of a sales and marketing infrastructure? Who knows.
Regardless, the fact remains that fewer companies with development and sales infrastructures that operate at scale are becoming increasingly rare. This is unlikely to bother companies in popular therapeutic areas or technologies, like oncology, gene therapy, and rare/orphan disease.
However, as long as these trends continue, it will remain difficult for companies (and their investors) to innovate in therapeutic areas which demand either development scale or marketing scale…to the detriment of us all.