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Let There Be Drugs

Updated: Jul 20, 2023

"If you're going to be in the pharmaceuticals business, you should be willing to take them."


"Pretty much all the drugs I prescribe are addictive and dangerous."

House MD


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In 2008, there wasn’t a whole lot of innovation happening in therapeutics. Two of the top ten drugs in 2008 were for GERD/acid reflux. One of those was Prevacid, which was only two years away from going off-patent at that point, and the other was Nexium, which was just Prilosec minus an isomer. Two drugs from the top ten were reuptake inhibitor antidepressants and another was an antipsychotic-- in hindsight, we can see that those didn’t work worth a s***. Another one, Oxycontin, was the opposite of those-- it was really, really efficacious and has sadly left no one with any doubt whatsoever about how it made it into the top ten. Lastly, the number one best-selling drug in 2007 was the statin drug Lipitor, which had already been patented for fifteen years and on the market for eleven. The whole top ten in 2008 was for old technologies, some with questionable efficacy, that failed to address truly severe conditions and unmet clinical needs.


Then came the Affordable Care Act (ACA) of 2010. It provided essential prescription drug coverage to millions, and it spawned a golden age of innovative drug development in the United States. …I call it a golden age, but I understand why some people call it a profit-driven venture capital orgy.


Romans of the Decadence (1847), by Thomas Couture, parody. Photo illustration by Darrow.


Some of the most important elements of the ACA were what was left out. The Department of Health and Human Services (HHS) was not given the right to negotiate prescription drug prices on behalf of public payers; the so-called noninterference clause of the Medicare Modernization Act expressly prohibits the HHS from negotiating the prices of prescription drugs covered by Medicare Part D.


Nor did the ACA alter certain reimbursement policies or allow the HHS to use cost-effectiveness analysis to determine coverage, reimbursement or incentive programs.


At this point, nobody’s even surprised by these exclusions. No rights to negotiate price or to otherwise put a limit on price? That’s just what we’ve come to expect of a plan that Congress expected to be funded by taxpayers. Some may argue that those were “missed opportunities” that fueled an environment of permissive pricing, but that’s not accurate. They were exclusions that weren’t missed at all; they were bought and paid for by the pharmaceutical industry. Nevertheless, it is ironic that the socialization of our healthcare system resulted in rapid-fire innovation and a 50% increase in new drug approvals spurred by a massive influx of entrepreneurialism and venture capital.


Journal of Family Medicine and Primary Care; 2020 Jan; 9(1): 105–114.

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Healthcare is an integral part of the global economy that impacts every individual, and after thirteen years of rapid expansion following the ACA in 2010, the life sciences sector has become the single largest sector in the healthcare industry.


Breakthroughs across scientific disciplines have enabled new therapeutic candidates to be developed more quickly, efficiently and precisely, and since the ACA, innovation has increasingly occurred at biotech startups rather than large pharma companies. It is these companies that saw their funding increase more than 5X between 2012 and 2020 as investors sought to capitalize on aging demographics and the rising prevalence of chronic disease. …Without government price caps.


In 2017, the Food and Drug Administration (FDA) approved forty-six new molecular entities-- the largest number in more than two decades-- and 2018 and 2019 were also highly productive in terms of new drug development.


Unfortunately, we can’t have our cake and eat it, too. The ACA-- Obamacare, which was passed by a Democratic House, Senate and President— forced Americans to buy health insurance and provided taxpayer funding for those with pre-existing conditions; it was essentially a socialist law. However, the cost of health insurance has skyrocketed over the last thirteen years and many of the newest and most innovative drugs now come with million dollar price tags, so many on the political left-- and let’s be honest, on the right as well-- now lament the high cost of healthcare generally and of therapeutics specifically. I personally see the ACA as a total disaster, but its supporters should all be clapping themselves on the back for having spurred such a period of radical innovation. It costs an average of nine years and a billion dollars to get a drug product to market. It is not a business for the faint of heart, and the law clearly inspired a lot of entrepreneurial chutzpah that led to a lot of great medicine. It’s the law’s greatest feature.


In stark contrast to 2008, the ten top-selling drugs of 2020 were all highly novel treatment approaches with substantial clinical benefit for some of the most severe and pervasive health conditions known to the human condition, such as a multitude of cancers, rheumatoid arthritis, atrial fibrillation, macular degeneration and HIV. Six out of the ten top-selling drugs of 2020, including all of the top three, were specialty biologics with virtually zero therapeutic competition, and the other four were small molecules.


The sustained growth in biotech funding and research since the ACA has led to a proliferation of scientific publications and new patents, with breakthroughs in everything from genetics to immunology to cell biology, while technological advancements such as artificial intelligence (AI) are leading to faster drug development timelines and the creation of more personalized therapeutics. Advancements in the understanding of disease are converging with multidisciplinary innovation and enabling the development of futuristic Star Trek drug platforms designed to solve unmet medical needs.


Smaller biotechs have proven to be more specialized and agile than large pharma-- and perhaps a little more flexible in their negotiations with key centers of innovation (i.e. universities)-- and that appears to have given them a leg up in the development of drugs from concept to clinic. The cost of launching a life sciences startup and developing new intellectual property has fallen as technology and processes have improved-- similar to how cloud computing and SaaS products have reduced the cost to launch a tech startup. However, while it now costs less to launch a new company and establish an initial proof of concept, it requires more capital than ever to conduct clinical trials, and navigating the ever-changing regulatory approval process hasn’t gotten any easier, unless you’re, say, Pfizer, and developing, say, a vaccine…


As upfront costs have gone down and longer term capital requirements have intensified, we’ve started to see more and more instances where VC financing is proving to be insufficient to meet the needs of any given life science startup. As a result, we believe merger and acquisition activity in the sector will increase and expect a new wave of handoffs from biotech startups to big pharma in a race to get a very large number of promising current drug candidates across the regulatory finish line.





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