Clash of the Titans

Public Market Update: Average Sector Performance

Let’s first take a look at the HealthTech market.

HealthTech has clearly caught the flu as evidenced by all the red in this month’s chart, and definitely could use some TLC; here’s one perspective to consider.

Healthcare may be seeing negative downstream effects of advancements elsewhere. Case in point: Ozempic/Wegovy/Mounjaro.

These medications have shown resounding results with diabetes control and weight loss by slowing the digestive process and making you feel full longer. They also help tamper down cravings, so you eat less.

Obesity is often a cause for diabetes (and other chronic illnesses) and with the weight loss effects, could eliminate diabetes altogether. Due to this information, some fast food chains and junk food brands have suffered stock losses.

It’s possible we’re also seeing HealthTech companies experiencing downstream effects of the success of these medications.

Examples of this would be companies that develop tech for continuous glucose monitoring, and companies that make breathing machines for patients with sleep apnea (common in the obese population). These medications could directly affect their customer segment.

Just some food (the healthy kind) for thought.

Articles Worth Reading

Clash of the Titans: Government vs Industry on Drug Pricing

We have an interesting system for drug development in this country.

🏢 Government funding drives preliminary research for drug development

👨‍🔬 Big Pharma uses the information to further research towards clinical trials and FDA approval (AND the government helps)

It’s an intertwined complex network of relationships that allow the U.S. to fund, research, create, and test medications and ultimately bring them to market.

It’s a common assumption that Big Pharma drives this massive drug development vehicle. However, a study out of Bentley University actually found that spending between industry and government is comparable ($1.6B vs $1.7B, respectively)

The incentives and goals for each may differ. Industry wants to find a drug that they can bring to market and effectively provide treatment (and drive profits); government wants to stockpile a library of information, regardless if a drug’s development is successful.

With all the money thrown into the ring to develop prescription medications, it’s easy to see how and why the cost of new medications on the market can be sky-high. However, these high costs can also prohibit patients from getting the treatment they really need.

In comes the Inflation Reduction Act which contains provisions for allowing government to negotiate drug pricing with Big Pharma.

As you can imagine, there’s been plenty of pushback and outcry over this. While well-intended, there are some downstream consequences of this bill:

The IRA has listed 10 drugs to start negotiations; time will tell how it all plays out.

Related content: Roadblocks to Effective Value-Based Healthcare

Opinion

An Expert Perspective

Soaring drug costs in America have long been a national crisis that affects each and every one of us. Imagine being told you have a devastating disease like cancer and you need to pay ridiculous out of pocket costs for medicines that could be the difference between life or death.

But…Is it fair to lay the blame entirely at the feet of the pharmaceutical industry?

Pharma companies have undeniably contributed to the escalating healthcare costs we witness today, but a whole host of other players, especially PBMs (pharmacy benefit manager), have a vested interest in maintaining the status quo and keeping the system as nebulous as possible to navigate. 

While I’m far from gung-ho on the sector, which is ultimately profit driven, it’s important to remember that these companies also play a significant role in drug development.

A price negotiation between government and pharma could either make things better as intended, or inadvertently make them worse. However, I strongly believe that the government should have some say in the prices of therapies it helped developed. We’re the last Western country where the government takes a hands off approach to drug pricing! Yet, prescription drugs accounted for only 12% of healthcare spending in 2019, which means going after pharma companies instead of tackling the broader inefficiencies in healthcare delivery is a bit like ‘missing the forest for the trees.’

The first-time negotiations for the 10 selected drugs isn’t even the biggest issue keeping the industry up at night - these drugs are approaching patent expiry, resulting in a relatively modest revenue impact.

Rather, one of the most problematic aspects of the IRA is that it exempts small molecule (i.e., synthetic) drugs from negotiation for 9 years after they hit the market while giving more complex biologics 13 years. This will disincentivize development of small molecules, even though they are cheaper to produce, easier for patients to take, and cost the system less overall. Plus, the IRA may deter the development of treatments for rare/orphan diseases, which affect 1 in 30 Americans, as not all orphan dugs will be exempt from price controls.

The ramifications of the IRA are unfolding in real time, as pharma companies are now:

To put it into perspective, one study from the University of Chicago estimated that there would be 79 fewer small molecule drugs over the next 20 years as a result of the bill.

Scientific innovation in the U.S. has given us miracle drugs for everything from cancer to weight loss. While we can endlessly discuss the financial repercussions of the IRA jeopardizing this innovation, there's a human aspect to all of this that's getting drowned out by the noise. Ultimately, it’s the very patients that the IRA claims to support who will bear the brunt of a well-intentioned but poorly conceived piece of legislation.

—Areesha Saif (Biopharma Consultant)