New Pharma Business Model: Prizes, Not Patents, for Innovative Drugs

A BMJ articled titled "Pharmaceutical research and development: what do we get for all that money?" was roundly criticized by Rich Meyer of World of DTC Marketing blog and Derek Lowe of In the Pipeline blog. Both have both ripped into the central premise of the BMJ article; specifically critiquing these statements made by the authors: (1) the "widely touted innovation crisis in pharmaceuticals is a myth" and (2) for every dollar pharmaceutical companies spend on "basic research, $19 goes toward promotion and marketing."

Meyer (here) tackles #2 using data from Lilly (ie, see this chart embedded below), whereas Derek tackles #1 (here).

Source: worldofdtcmarketing.com via Pharma on Pinterest

Everyone fools around with the numbers to reach their desired pre-ordained conclusions. I have blogged about this many times. First, I wrote about differing estimates of pharma's expenditures on total marketing, not just direct-to-consumer (DTC) spending, which was used to create the above chart of dollars spent on advertising vs. sales. I've also compared this to how much the industry spends on research (see, for example, "Promotion vs. R&Deja vu all over again!").

My conclusion: The drug industry spends approximately the same on marketing as it does on research. So, can't we all agree to that and just get along?

If you actually read the BMJ article, you might be surprised to learn that the authors' goal seems to be to promote a NEW business model for the pharmaceutical industry:

"We should consider new ways of rewarding [drug industry] innovation directly, such as through the large cash prizes envisioned in US Senate Bill 1137, rather than through the high prices generated by patent protection," said the authors.

I was intrigued to learn that a US Senate Bill has been proposed -- although long tabled -- that actually seriously proposed getting rid of patent protection for new drugs as an incentive for innovation. Here's how the BMJ authors describe what SB 1137 proposes:

"The bill proposes the collection of several billion dollars a year from all federal and non-federal health reimbursement and insurance programmes, and a committee would award prizes in proportion to how well new drugs fulfilled unmet clinical needs and constituted real therapeutic gains. Without patents new drugs are immediately open to generic competition, lowering prices, while at the same time innovators are rewarded quickly to innovate again."

The authors assure us that the approach advocated by SB 1137 "would save countries billions in healthcare costs and produce real gains in people’s health."

Maybe so, but I seriously doubt that prizes awarded by a government committee (ie, "Board of Trustees for the Fund for Medical Innovation Prizes") would be more effective than the profit motive or less prone to corruption than the industry's cozy relationship with the FDA (ie, drug industry "users fees" directly cover the majority of FDA's drug approval expenses).

SB 1137 also calls for 5 percent of the prize rewards fund (ie, 5% of about $80 BILLION or about $4 billion -- the approximate amount pharma spends each year on DTC advertising) to be distributed to those who "provide open access to knowledge, data, materials, and technologies." The bill claims that such "new open source business models... will induce greater access to useful knowledge, data, materials, and technologies."

That's interesting because I recently talked to people at Lilly -- not the same people who created the above chart -- about an "open access" project they are launching for innovative pharma research (see "Crowd Sourced Creative Commons Drug Information").

Pfizer, World's Most Innovative Drug Company - Not!

Pfizer is the world's most "innovative" drug company, not in terms of developing new drugs to treat, for example, high cholesterol -- which it failed at spectacularly (see "Why Pfizer Flopped"), but at keeping old drugs on the market beyond their patent expiration date and competing with generic drug companies. I am referring, of course, to its efforts to keep Lipitor on the market competing with generic versions after Lipitor's Nov 30, 2011, expiry date. Lipitor Won't Go Gentle Into that Good Generic Night! as I commented on in a previous Pharma Marketing Blog post (see poem here).

The first phase of Pfizer's innovative "Save Lipitor" plan was an unprecedented level of direct-to-consumer (DTC) marketing of Lipitor. In 2010, Pfizer was the biggest DTC spender -- it's $967.5 million DTC budget for that year was more than double the DTC spend of its closest rival, Eli Lilly (see "Double Dip in DTC Spending Plus 33% Drop in Internet Display Ad Spending!"). Of that amount, approximately $251 million was spent to advertise Lipitor to consumers. An additional $410 million was spend promoting Lipitor to physicians ($1500 of which went to "wining and dining" my physician; see "Physician Bailout: On Average, Pharma Pays Every US Physician Over $750 Per Year") and supplying free samples (see chart below).

Just a week or so ago, I learned that Pfizer reached a deal with several PBMs -- middlemen between drug companies (the sellers) and insurers and employers that sponsor insurance plans (the buyers) -- that would compel many drugstores to block prescriptions for a generic version of Lipitor (see "Occupy Pfizer! Protest It's Deal to Block Sales of Generic Lipitor! #OccupyPFE").

Now, according to this WSJ article, Pfizer is planning to sell Lipitor at generic prices directly to patients. "If successful," says the WSJ, "the risky move could rewrite the industry's playbook for selling medicines." So, THAT's the "Playbook" Pfizer is writing (see back story on that here).

All this sounds like good news for patients like me who have been advised by their physicians to switch to Lipitor because "it's a second generation statin that will be available in generic form." But wait! First of all, my drug plan has to be in cahoots with Pfizer to offer it to me at the generic price (actually, to request pharmacies and PBMs it works with to NOT substitute a true generic version of Lipitor when my doc writes "Lipitor" on the script).

But the savings will not be passed on to employers who will pay higher rates to keep Lipitor on their plans' formularies. What are employers likely to do in that case? They'll pass the added expense on to their employees by requiring them to contribute more to their health coverage!

Channeling Steve Jobs to Solve Pharma's Innovator's Dilemma

There's a lot of buzz about pharma's current lack of innovative new products in the "pipeline" and what needs to be done about it.

"Innovation" itself is such a buzz word these days that AstraZeneca decided to sponsor an international "Innovation Survey" to find out "it means to different people and how valuable they thought it was to society" (see here).

When drug executives talk about innovation, they often use phrases like "drive value for our stakeholders and our business" as the focus of innovation.

Who are pharma's "stakeholders" and what drives value for business? Mostly investors.

Today, more than ever, pharmaceutical companies are fixated on profits and have lost the vision of the founder of Merck (George Merck) who said "We try to remember that medicine is for the patient. We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they will never fail to appear. The better we have remembered that, the larger they have been."

That sentiment sounds a lot like what Steve Jobs believed. Regarding how he turned Apple around after 1996, Jobs said "My passion has been to build an enduring company where people were motivated to make great products. The products, not the profits, were the motivation. Sculley [who replaced Steve Jobs as Apple's CEO for a short time] flipped these priorities to where the goal was to make money. It's a subtle difference, but it ends up meaning everything" (see "Steve Jobs Solved the Innovator's Dilemma").

The book Innovator's Dilemma by Clay Christensen was on Jobs' reading list. What's interesting to James Allworth, Fellow at the Forum for Growth and Innovation at Harvard Business School, is that Jobs "solved the conundrum." Aliworth noted that the causal mechanism at the heart of the Innovator's Dilemma is the pursuit of profit. "The best professional managers — doing all the right things and following all the best advice — lead their companies all the way to the top of their markets in that pursuit... only to fall straight off the edge of a cliff after getting there," says Aliworth. By flipping Apple's priorities away from profit and back to great products, Jobs took Apple from three months away from bankruptcy, to one of the most valuable and influential companies in the world.

I'm finding a lot of writings about Steve Jobs, whose management style and vision are being studied and applied to other industries. Here are some examples related to the pharmaceutical sector:

• "A Steve Jobs Lesson for Pharma", 
• "The Essential Steve Jobs for Today’s Pharmaceutical Executive", and 
• "What Pharma Did NOT Learn from Steve Jobs"

Adapting the learnings from Steve Jobs' career to the pharmaceutical industry may even be a "hot" enough topic to warrant at least a Pharma Marketing Talk podcast discussion or a Twitter chat. Who knows, it may even be worthy of a full industry conference! What do you think?

Ad Execs Not Viewed as Innovative By Americans Says AstraZeneca Survey

Sorry to break this to you, but Americans don't think advertising executives are very innovative. This is according to the AstraZeneca Innovation Survey (find it here).

"By carrying out this survey we sought to shed some light on what innovation means to people around the world and whether they believe it is valuable to society as a whole," said David Brennan, AZ CEO.

The survey shows that Americans think advertising executives are only as innovative as teachers, but much less innovative than doctors, artists, engineers, or scientists (see chart below; click on image for a larger view).

But in the "emerging" nations of India and China -- where pharma pins its hopes for the future of sales -- advertising executives are seen as much more innovative than doctors and somewhat more innovative than musicians.

I'm thinking of starting up an Indo-Asian edition of Pharma Marketing News!