Precision medicine: a deep breakthrough in life sciences paradigm

Bioscience - Lost in Translation? How precision medicine closes the innovation gap

It is not so easy to translate knowledge into practice, and this is the case of biosciences into clinical applications. However, recently this trend is accelerating and precision medicine is emerging. A new book gives us the highlights to understand precisely what's going on: Bioscience - Lost in Translation? How precision medicine closes the innovation gap.

Richard Barker (the author of 2030 - The future of medicine) says:

The classic definition of diseases has been in terms of the symptoms they cause and/ or where in the body they appear. This was the best that medicine could do when external observation of the patient was the only or primary means of diagnosing disease. The  powerful new tools of molecular biology are reinterpreting disease in terms of aberrant,
defective, or unbalanced molecular mechanisms at the cellular, organ, or organism level. Molecular level diagnosis becomes a real possibility. Such an approach brings effective therapy immediately closer. Molecular diagnostics can separate diseases with similar symptoms but different underlying causes— and often suggest a different starting point for intervention.

If this is so, what should we do?

The seven changes of mindset and of practice are:
1. Advance the molecular definition of disease and the application of systems biology. We need a more decisive move from a classic definition of diseases— in terms of the symptoms they cause and/ or where in the body they appear— to a definition in terms of aberrant, defective, or unbalanced molecular mechanisms at the cellular level. And we need to marry this with a recognition that singular target- based innovation rarely works: we need a systems biology approach.

2. Partner academia and industry in more collaborative, impact- oriented research. We need to extend the ‘open innovation’ approach in which academia and companies invest together and share IP. We need to define new pre- or non- competitive spaces, especially in work on disease mechanisms and disease models. And we need to provide for new types of links and incentives to break down the barriers between these two worlds. 

3. Move decisively to a more adaptive approach to development, trial and approval design. We need to build on successful experiments in more flexible trial design, development pathways, and regulatory appraisal to a globally accepted adaptive approach. This involves collaborative design of the evidence package needed to secure approval and reimbursement, and greater teamwork through the process. 

4. Create new reward and financing vehicles for leading edge innovation. We need to move from reward systems based purely on unit sales of products, irrespective of outcome, to rewarding innovators for positive outcomes, patient by patient. We also need to design financing mechanisms that bridge between cost- effectiveness and affordability. We must be able to accommodate high- cost precision therapies that offer cures and so generate long- term returns for the system.

5. Engineer tools and systems for faster and better innovation adoption and adherence. We need to move from reliance solely on promotion to doctors and passive patient participation to a disciplined approach to establishing new pathways of care. These will be based on modern behavioural science, clinical decision support, and other digital technologies.

6. Develop an infrastructure for real- world data- driven learning. We now have the opportunity to study in large populations how lifestyle and treatment choices lead
to outcomes, learning from every patient as if in a clinical trial. New analytical tools will empower this.

7. Bring patients into the mainstream of decision- making and engage them  hole heartedly throughout the process. It is time to move from a process and mindset in which patients are regarded as passive subjects for clinical trials and recipients of products and procedures. Their input and engagement needs to be sought along the whole innovation chain: on treatment benefits, acceptable risks, optimal clinical trial design, adherence support, and outcomes.

Highly recommended.

Drug pricing overhaul

 Pricing for Medicine Innovation: A Regulatory Approach to Support Drug Development and Patient Access

The message:

We introduce a regulatory approach we term “Pricing for Medicine Innovation” (PMI), which departs dramatically from the market-equilibrium assumptions of conventional (neoclassical) economics. The PMI approach recognizes the centrality of collective investments by government agencies and business firms in the productive capabilities that underpin the drug development process. PMI specifies the conditions under which, at the firm level, drug pricing can support both sustained investment in these capabilities and improved patient access. PMI can advance both of these objectives simultaneously by regulating not just the level of corporate profit but also its allocation to reinvestment in the drug development process. PMI suggests that although price caps are likely to improve drug affordability, there remain two potential issues with this pricing approach. Firstly, in an innovation system where a company’s sales revenue is the source of its finance for further drug development, price caps may deprive a firm of the means to invest in innovation. Secondly, even with adequate profits available for investment in innovation, a firm that is run to maximize shareholder value will tend to use those profits to fund distributions to shareholders rather than for investment in drug innovation. We argue that, if implemented properly, PMI could both improve the affordability of medicines and enhance the innovative performance of pharmaceutical companies.

 David Hockney

Rewardable pharmaceutical innovation

A Review of Current Approaches to Defining and Valuing Innovation in Health Technology Assessment

Key messages, 

Although, formerly, denoting a new drug as innovative was based on the drug having received patent protection or being a new molecular entity, this criterion is no longer sufficient from the perspective of many stakeholders. Rather, it became widely accepted that the central criterion to identify a drug as truly innovative should be the drug’s benefit or usefulness. With usefulness being a relative quality though, innovation is often defined by the particular view of what is deemed important or valuable. 

On the one hand, there is the notion that the value of innovation derives exclusively from the effect that the innovative drug has on the therapeutic benefit. What matters most for patients is whether a drug is the best choice to achieve treatment goals. It is this basic principle that guides most of the work on how to define rewardable innovation in the context of drug value assessments. The main argument is that, assuming a limited budget for healthcare expenditures, valuing anything beyond this therapeutic benefit in pricing and reimbursement decisions would reduce population health by displacing more cost-effective therapies. Furthermore, as a consequence, pharmaceutical companies might be incentivized to increasingly invest in R&D of slightly modified but basically similar products as opposed to drugs with a potentially larger positive therapeutic impact on patients.

On the other hand, it is argued that there might also be other, less obvious benefits from innovation in a wider sense. First, there may be benefits related to health or well-being that are not captured in measures of health outcomes typically used in clinical trials. A novel drug with less side effects or one that allows a more convenient treatment, for example, oral versus intravenous administration, may have the same effect on the therapeutic outcome but still improve the subjective well-being of the patients.

 

Tuscany, man made landscape

Are we paying too much for pharmaceutical innovation?

Economics of the Pharmaceutical Industry

The question of whether innovation is too high or too low is a first-order—perhaps the first- order—policy question in the economics of the pharmaceutical industry. Yet, economists have not produced a definitive answer. At best, we have suggestive analyses that point to the low rate of surplus capture by innovators, and modeled estimates suggesting that the social return to innovation is positive on the margin. While helpful, these findings each require a speculative leap in order to draw an inference about the social efficiency of innovation. Much rides on the answer to this question. If innovation is indeed excessive, then public and private payers are wasting money paying excessively high rewards to firms producing innovations. In contrast, if innovation is too low, lives are being lost prematurely due to a lack of medical progress.

This is the "answer" that Lackdawalla gives in an interesting article in Journal of Economic Literature (more details inside). If you want a review in 50 pages of the main issues surrounding the industry, this is the article you have to read.

Courtauld Impressionists exhibition at the National Gallery
Video

Drug pricing 101 (2)

The New Drug Reimbursement Game. A Regulator’s Guide to Playing and Winning

In my former post I was backing a complete review of current drug pricing regulation. Any official that has to perform this task needs some fresh ideas and knowledge and this is precisely what a new book provides. In The New Drug Reimbursement Game by Brita A.K. Pekarsky you'll find the economic foundations for a new drug pricing regulation.
The basic argument:

Higher prices today mean increased economic rent for the pharmaceutical industry (Pharma) otherwise firms would not lobby for them. It is in Pharma’s interest to protect and seek these economic rents. Whether higher prices and more R&D today increase future health remains an empirical question. If higher prices also mean a higher net present value of the population’s health, then it is in the institution’s interest to increase prices. Given the institution’s objectives, the most effective strategy Pharma can use to protect these rents is “the Threat”: lowering prices is against the interest of health funders because it will reduce a population’s future health.

Therefore,

 The regulator’s challenge is to answer the following question:
• “How should rational institutions respond to the Threat?” (A rational response is one that is consistent with a given institution’s stated objective function, whatever this may be.)
This introduction places this research question in the context of current evidence and research, by addressing the following three questions.
• Is it plausible that the Threat exists and that it influences the price of new drugs?
• Is there rigorous empirical evidence that suggests that lower drug prices will result in reduced future health?
• Are economists in agreement as to the value of a decision threshold for new  drugs that accommodates characteristics of the health budget such as allocative and technical inefficiency?

And the conclusion:

When the Institution buys this new drug, it buys the health effects from this drug and the health benefits from future innovation. This is not the case with other health programmes. Therefore, unless the Institution pays a premium for the health effects from the new drug, the population will be worse off because innovation will be suboptimal and the future drug will not be produced.

Unfortunately, when you get to the end you'll miss any consideration about what innovation means. If you look at recent patterns of effectiveness of new drugs, you'll see that the value of innovation is under scrutiny, and most drugs would not pass the test. In my opinion, the regulator has to send signals about the value of health improvement in certain diseases and pharmaceutical companies should focus R+D on such fields and avoid others.
Therefore, a new companion to this book should be written. This is only a regulator's guide to play, but not to win. Take it only as a starting point.

PS. Just FYI, you'll not find the term "Budget impact analysis"  in the book, a close term Programme budgeting marginal analysis PBMA is what you'll find. It is suggested a price effectiveness analysis as a previous requirement for any PBMA, otherwise it makes no sense. This approach seems quite different to  yesterday's news.

Thomas Piketty speech at UPF Oct 2014, it starts at min 8:10. My post, last May.

COVID-19 innovation response

 The COVID-19 Innovation System

EIT Community COVID-19 Response

 The COVID-19 innovation system represents a departure from business as usual. Considering the remarkable progress to date, especially on vaccine development, this raises the question of whether this model is useful only for crisis times, or whether biomedical innovation policy in “normal” times might productively incorporate some elements of the COVID-19 model as well.

The largest funding response has been from the US government. Roughly $14–$15 billion of the $4 trillion allocated to the COVID-19 response was for R&D for vaccines and treatments.8,9 Though this increased US federally funded biomedical R&D by about one-third (compared to previous NIH funding; see “NIH Data” in the online appendix),10 it is small compared with the potential value of these interventions for ameliorating or preventing the disease and securing a return to normalcy

 

 

 

Creative construction or how big companies innovate

 Creative Construction. The DNA of Sustained Innovation

The conventional wisdom is that only disruptive, nimble startups can innovate; once a business gets bigger and more complex, corporate arteriosclerosis sets in. Over the last three decades, I’ve researched innovation and have had extraordinary on-the-ground experience with big companies and fast-growing ones that have moved beyond the startup stage. The culmination of that work is “Creative Construction,” which yields a new perspective about how bigger companies can leverage scale for competitive advantage in innovation.

You can check in this book how innovation is misunderstood quite often, and how to create a culture, strategy and organizational system that embraces it.

 

Mazzucato as a supplier of a flattering narrative for politicians (2)

Mission Economy. A Moonshot Guide to Changing Capitalism

My former post on a recent book by Mazzucato was based on a comment by McCloskey. Now, she has published a new one, and the best comment has been made by John Kay, clear message, I don't have anything to add.

Ever since 1969, people have asked themselves why if humans can land on the moon, can’t they solve pressing problems here on Earth, such as poverty, dementia and climate change. Mariana Mazzucato offers an answer: if only governments would apply the mission-driven methods of the Apollo project, they could.

Mission Economy, the new book from the high-profile economist noted for her advocacy of a more active state, contains many screenshots of the whiteboards beloved of brainstorming meetings, each with an ambitious goal at the top: secure the future of mobility, clean oceans, defeat cancer; below is a jumble of boxes and circles linked by multidirectional arrows.

We need a “solutions based economy”, driven and co-ordinated by more powerful governments engaged in every stage of the process of innovation.

But Apollo was a success because the objective was specific and limited; the basic science was well understood, even if many subsidiary technological developments were needed to make the mission feasible; and the political commitment to the project was sufficiently strong to make budget overruns almost irrelevant. Centrally directed missions have sometimes succeeded when these conditions are in place; Apollo was a response to the Soviet Union’s pioneering launch of a human into space, and the greatest achievement of the USSR was the mobilisation of resources to defeat Nazi Germany.

Nixon’s war on cancer, explicitly modelled on the Apollo programme, was a failure because cancer is not a single illness and too little was then — or now — understood about the science of cell mutation. Mao’s Great Leap Forward, a vain bid to create an industrial society within five years, proved to be one of the greatest economic and humanitarian disasters in human history. At least 30m people died.

Democratic societies have more checks and balances to protect them from visionary leaders driven by missions and enthused by moonshots, but the characteristics which made the Great Leap Forward a catastrophe are nevertheless still evident in attenuated version.

With political direction of innovation we regularly encounter grandiosity of ambition and scale; the belief that strength of commitment overcomes practical problems; an absence of honest feedback; the suppression of sceptical comment and marginalisation of sceptical commentators. All these were seen in Britain’s experience with Concorde, the Channel Tunnel and the AGR nuclear reactor programme, some of the worst commercial projects in history. More recently, there is the £12bn wasted on the NHS computerisation programme — a project that Mazzucato mentions, though only to blame private contractors for their failure to deliver on the political imperative.

On a smaller scale, Britain has suffered in the last year from the delays resulting from Public Health England’s insistence on central control of the coronavirus testing programme and the predictable fiasco of the attempt to sideline the expertise of Apple and Google in order to develop a uniquely advanced NHS test and trace app. And in September there was prime minister Boris Johnson’s “operation moonshot”, designed to control the coronavirus by testing 10m people daily in early 2021.

In contrast to these failures, the rapid development of vaccines is, at least provisionally, a success story. That development is not the product of visionary central direction but is the result of a competitive process with many different teams around the world attempting to be among the first across the finishing line.

Their work has drawn on a combination of existing academic science with the expertise in development and testing and the manufacturing and logistics capabilities of the global pharmaceutical industry. The role of government, appropriately, has primarily been in funding basic research and assuring that there will be a rewarding market for successful products.

Mazzucato lists “twenty things we wouldn’t have without space travel”. Athletic shoes, CAT scanners, home insulation, baby formula, artificial limbs. Yes, really. But beyond the ridiculous headline, we see the reality of productive innovation: a decentralised process in which developers draw on and help create the collective intelligence that leads to constant incremental improvement in so many fields — including better running shoes.

When historians of technology review the past 50 years, they may conclude that Neil Armstrong exaggerated when he announced “one giant leap for mankind”. The “new frontier” of the late 1960s turned out to be, not space, but information technology. And the development of IT was characterised by a striking absence of centralised vision and direction.

No moonshots; but piecemeal innovation through disciplined pluralism in which temporary winners were almost always displaced as they failed to anticipate the next step of the journey. Do you remember Digital Equipment, Word Perfect, Wang Laboratories, CompuServe, Netscape, AOL, BlackBerry? Each once a leader, now forgotten. Even Apple suffered more than one near-death experience, Microsoft failed to anticipate mobile computing or the cloud, IBM was swept out of the industry it had created.

Mazzucato has correctly emphasised the contribution of state funded basic research to Silicon Valley, but thank goodness the development was in the hands of Steve Jobs, Travis Kalanick and Elon Musk rather than a committee in the department of commerce.

No one has, or could have, the knowledge of present or future required to create or implement successfully the strategies that Mazzucato recommends. Take her modern signature example — Germany’s Energiewende, or energy transition to renewables. You will not learn from Mission Economy that this highly political, much publicised and wildly expensive project has brought about significantly smaller reductions in carbon emissions than Britain’s quiet, economically and socially beneficial substitution of gas for coal.

The failure of the Energiewende illustrates the dangers of moonshots and the mission economy. As talk of a “Green New Deal” becomes more frequent on both sides of the Atlantic, the prospect of more large, costly and ineffectual visionary projects grows.

Politicians readily fall in love with such proposals, and Mazzucato is not shy in reminding us how anxious they are to engage with her in discussing them. But the vision that propelled China’s economic development was not Mao’s Great Leap Forward or Cultural Revolution, but Deng’s “it doesn’t matter whether a cat is black or white if it catches mice”. It is more rewarding and effective to build better mousetraps than to shoot for a mice-free world.

John Kay is an economist, author and fellow of St John’s College, Oxford

 

Risky business

The productivity crisis in pharmaceutical R&D

L'evolució dels processos actuals d'innovació farmacèutica queden ben explicats a Nature. En Pammoli et al. ho descriuen i analitzen en un article clar. Selecciono aquest paràgraf:

The rate and direction of pharmaceutical innovation will continue to be affected by the interplay between patterns of technological change and market regulation. In our view, the value and cost of innovation should be assessed not only from a static efficiency perspective, but also from a dynamic one. From a static efficiency perspective, when two projects with the same potential market value but different POS values are compared, it is rational to drop the riskier project. However, such a
perspective fails to take into account the dynamic effects of competition among different organizations on market value and the risk of R&D projects. First, if all the organizations choose to invest in therapeutic areas in which the POS is high, those markets will experience fierce price competition, also due to the incentives designed by regulators and institutional payers through reimbursement and pricing schemes. If payers do not recognize any premium for incremental innovation, it is rational for investors to aim to achieve market exclusivity in difficult areas, which are characterized by a low POS, rather than being forced to compete on price in a low-risk but highly crowded market. Second, the benchmark to measure the degree of risk is endogenous: at the aggregate level, the more firms invest in high-risk markets, the lower is the risk premium each of them has to pay to investors. Taken together, these two effects have pushed pharmaceutical companies to focus on high-risk, high-potential areas of activity.

El que no expliquen és si aquestes àrees d'elevat potencial (valor de mercat), són també pels problemes de salut més rellevants (valor de salut). Aquesta qüestió acostuma a quedar pendent.

Ill-prepared for the arrival of new medicines

Pharmaceutical Innovation and Access to Medicines

While in the last years the number of new drugs in the market has been limited, this trend has changed and countries may expect larger bills in the next future. The OECD report explains the main challenges of pharmaceutical innovation and says:

Despite a slowdown in growth in the 2000s, pharmaceutical spending has nevertheless increased sharply in some therapeutic areas, such as oncology and certain rare diseases where many new medicines target small population groups and command high prices. While these may well address unmet needs, they often have prices that may not be justified by the health benefits they confer.

Countries may be ill-prepared for the arrival of novel medicines targeting wide  population groups. In 2013, the first of a new class of very effective but expensive
drugs known as direct-acting anti-virals (DAAs) for hepatitis C created a shock due to the potential budget impact of treating all infected people. Many countries initially restricted access to the most severely affected patients, creating frustration among patients and clinicians alike. Although subsequent entries of alternative products have created competition on prices and allowed payers to expand eligibility to treatment, the initial shock highlighted the lack of readiness of payers for such events.

In some countries, sudden, large price increases for off-patent medicines have made important treatments unaffordable for patients.

Finally, innovation is lacking in certain areas of high-unmet need, such as new antimicrobials, non-vascular dementia, and some rare diseases.

The report summarises different proposals and measures that would be helpful for a government that cares about citizens' welfare. Unfortunately, this is not our case.

Exhibition at Foto Collectanea

On ecosystems

 ECOSYSTEM EDGE.Sustaining Competitiveness in the Face of Disruption

Selected statements from the book:

Each of the four ways in which the development of an ecosystem can unlock new value—through new product bundles, new customer solutions, new platform economies, and spawning new industries—shares a common characteristic: they require a process by which new customer value is discovered. The new value is not just assembled or delivered from existing elements by following a predetermined blueprint; it has to be identified. Business ecosystems come into their own by facilitating the process of discovery.

Discovering new sources of value requires the three key capabilities that ecosystems excel at: a huge potential for rapid, joint learning and innovation; the ability to harness the capabilities of diverse players and channel them toward a common goal through the leadership of an enlightened company; and the flexibility for continuous reconfiguration in the face of an uncertain, fast-changing environment.

Given these demands, what can you do as an ecosystem leader to catalyze and promote the discovery of new value through your ecosystem strategy?

The rise of ecosystems will also rewrite the rules of competition and strategy as we have come to know them, encapsulated in the seminal work of Michael Porter. The classic cost-leadership strategy based on growing the volume of products and services a company produces to reap economies of scale that drive down costs below competitors, will be replaced. In a world of competing ecosystems, cost advantage will come from aggregating the scale of your entire partner network to spread the fixed costs of investments in everything from design and innovation through to production and distribution. Your ability to reap network economies will become decisive.

As competition between ecosystems grows, rewriting the rules of competition in the process, the demands on ecosystem leaders are only set to increase. The pressure to discover new sources of value for customers and to craft unique and attractive offerings will intensify. Partners will evaluate whether joining an ecosystem can deliver benefits, as well as how one ecosystem’s value proposition compares with that of another network. A potential ecosystem leader’s value proposition to partners will need to be top-notch. In the competition between ecosystems, the speed with which a leader kick-starts a virtuous spiral of cooperation and the rate at which it can scale its ecosystem are both critical. Those that get ahead because of network economies will surge forward in what could easily become a winner-take-all game. However, to sustain the ecosystem leader’s competitive position, the amount of learning and innovation generated by the ecosystem, and its ability to capture that learning, will be critical. Ecosystems that are less productive and efficient will be unable to compete. Mastering the strategies and capabilities we described earlier will become even more essential tomorrow than they are today.

This is the only book that finally provides some clear conceptualisation on ecosystems., as far as I know. 

Creative destruction or how to save capitalism from the capitalists

The Power of Creative Destruction. Economic Upheaval and the Wealth of Nations

This book is an invitation to a journey: a journey through economic history, more specifically a journey to explore the enigmas of economic growth through the lens of creative destruction.

Creative destruction is the process by which new innovations continually emerge and render existing technologies obsolete, new firms continually arrive to compete with existing firms, and new jobs and activities arise and replace existing jobs and activities. Creative destruction is the driving force of capitalism, ensuring its perpetual renewal and reproduction, but at the same time generating risks and upheaval that must be managed and regulated.

This is precisely what this book explains. And behind the driving force of capitalism, you'll find ideas, as Deirdre McCloskey dixit. 

From Shumpeter:

The first idea is that innovation and the diffusion of knowledge are at the heart of the growth process.

The second idea is that innovation relies on incentives and protection of property rights

The third idea is creative destruction: new innovations render former innovationsobsolete. In other words, growth by creative destruction sets the stage for apermanent conflict between the old and the new: it is the story of all incumbent firms, all the conglomerates, that perpetually attempt to block or delay the entryof new competitors in their sectors.

Creative destruction thus creates a dilemma or a contradiction at the very heart of the growth process. On the one hand, rents are necessary to reward innovation and thereby motivate innovators; on the other hand, yesterday’s innovators must not use their rents to impede new innovations. As we mentioned above, Schumpeter’s answer to this dilemma was that capitalism was condemned to fail precisely because it was impossible to prevent incumbent firms from obstructing new innovations. Our response is that it is indeed possible to overcome this contradiction, in other words to regulate capitalism or, to take the title of Raghuram Rajan’s and Luigi Zingales’ 2004 book, to “save capitalism from the capitalists.”

PS. Shelling on the strategy of conflict.

Addiction goods and innovation failure

When Innovation Goes Wrong: Technological Regress and the Opioid Epidemic 

The medical use of opioids to treat pain will always involve costs and benefits, and the optimal level of opioid prescription is unlikely to be zero. The mistake that  doctors and prescribers made in recent decades was to assume overoptimistically that a time release system would render opioids non-addictive. Thousands of years of experience with the fruits of the poppy should have taught that opioids have never been safe and probably never will be. The larger message of the opioid epidemic is that technological innovation can go badly wrong when consumers, professionals, and regulators underestimate the downsides of new innovations and firms take advantage of this error. Typically, consumers can experiment with a new product and reject the duds, but with addiction, experimentation can have permanent  consequences.

A must read, by Cutler et al.

 Robert Doisneau

A plea for public patents on COVID prevention and treatment

 Funding of Pharmaceutical Innovation During and After the COVID-19 Pandemic

Extensive public investments also are being made in therapeutics. The 2 most prominent monoclonal antibodies (by Regeneron and Lilly) have come to market with substantial governmental support for product commercialization. Both products derive from therapeutic research platforms established with governmental support before the COVID-19 pandemic, but product commercialization and manufacturing received major additional investments in 2020. Separately, the National Institutes of Health (NIH) Rapid Acceleration of Diagnostics program has committed $1.5 billion to supporting development of diagnostic tests related to COVID-19. The specifics of the federal contracts largely remain confidential.

Why do they remain confidential? 

The lesson of the COVID-19 experience is that, when innovation in the life sciences is imperative, the traditional reliance on pharmaceutical industry prices and profits is jettisoned in favor of governmental grants and procurement. Sustained public funding for product development and commercialization will permit the sustained financing of innovation, a renewed attention to major public health needs, and the global position of the US pharmaceutical industry.

If there is public funding, why there aren't public patents? 

Value-based pricing: a controversial narrative

 Rethinking value in health innovation: from mystifications towards prescriptions

From the abstract:

Debates over value in health innovation in the U.S. and Europe have
become increasingly dominated by “value-based pricing”. We examine
this prevailing narrative and its weaknesses and then present an
alternative framework for rethinking value in health. Drawing on
scholarship from the political economy of innovation, we argue that
value in health must be considered in terms of both value creation
as a collective process amongst public and private actors, as well as
value extraction that occurs due to financialization. In building this
alternative framework, we pose three questions that present areas
for further research and public policy change

Efficiency in drug patents buyout

Panning for gold: sourcing pharmaceutical innovation

Once upon a time there were pharmaceutical firms that invested mostly in internal R+D departments. Long time ago, the door was opened to contracting out, buying patents and licensing. The most recent step is to the acquisition of firms with promising molecules.
A short article in Nature sheds some light about the efficiency of recent mergers and acquisitions. And the summary is:

Our analysis suggests that most companies have a considerable opportunity to get better at deploying capital and resources efficiently when sourcing innovation externally. In our experience, we have found that the best performers develop robust forecasts for the key assets, are fiscally disciplined, and set up their innovation-sourcing teams and transaction capabilities to ensure that the right internal expertise is brought to bear and to ensure smooth hand‑offs through the life cycle of a deal.

The success lies within, the internal expertise is crucial. Have a look at the figure and you'll notice that the most efficient (defined as the commercial impact of the products acquired relative to capital deployed in M&As) is Roche. This is not by chance.

PS. Unfortunately, the study doesn't reflects any consideration to value in health or lobbying efforts in drug prices.
PS. FT's summer books 2015 

Bundled payments, update

While I was reading the HA blog I  thought that the word innovation is like a joker, when somebody has a real concern about potential income in the future, any change may harm innovation. The current situation in US of bundled payments is still embryonic and biased towards certain services. Bundled payments need to be holistic, not partial in order to deliver clear results. Otherwise, incentives in non-regulated areas increase. Maybe those that are concerned with innovation will move towards such areas...

Mazzucato as a supplier of a flattering narrative for politicians

 The Myth of the Entrepreneurial State

Some delicious words by Deirdre McCloskey on Mazzucato recent contributions:

Mazzucato, a loyal daughter of the left, is suspicious of private gain, of the sort you pursue when you go shopping, say, and is therefore suspicious of people doing things for a private reward. She wants the State, advised by herself, to decide for you. Yet the private entrepreneur, she would concede, gets a reward if she pleases her customers. And it is in fact what Mazzucato in her own trade has done. She has parachuted herself into the center of the debate about the role of state planning as against private profit-making for innovation and allocation. It is not because she is innovative herself (though that is what her brave rhetoric suggests), but because she is, market-style, giving people what most of them want: magical thinking, mythical certitude, free lunches all around, wise and loving parents guiding the people in a coerced routine from on high. Modern “statism.” Her theory is the illiberal one that has dominated economics since John Maynard Keynes eight decades ago spoke out loud and bold.

 The statists imagine that it is always COVID-19 time, for anything: the legitimate actions by a State to suppress a plague or a forest fire or a military invasion are to be applied to all manner of private matters, always, with no such persuasive claim to legitimacy as fighting plagues, forest fires, or invasions, being technically speaking public goods. Braiding hair for a living is to be regulated by the State. Innovation and allocation, says Mazzucato in particular, are to be socialized.

And we could say that Deirdre is a loyal daughter of the right. And no problem. However, you may imagine what follows...in her book. I have read Mazzucato and part of her arguments are convincing. However, there is a need for a balanced perspective according to the current trends. Deirdre provides such perspective. A book that deserves to be read.

Inequality in the winner-take-all society

A recent op-ed by Joseph Stiglitz on "Innovation enigma" brought me to retrieve a book of 1995 by Robert H. Frank, "The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us". Nowadays, the issue of raising inequality is on headlines, and often it is considered as a consequence of economic crisis. 
Frank argued two decades years ago that more and more the current economy and other institutions are moving toward a state where very few winners take very much, while the rest are left with little. He attributes this, in part, to the modern structure of markets and technology. It was written before the impact of internet on business and it was a clear alert about what has happened.
Now Thomas Piketty in his book "Capital in the 21st century" argues additionally that when the rate of capital accumulation grows faster than the economy, then inequality increases. And inequality is not an accident but rather a feature of capitalism that can be reversed only through state intervention. The book thus argues that unless capitalism is reformed, the very democratic order will be threatened.
If you combine both perspectives, you must be convinced that it is not only an issue of state intervention, I can't imagine certain parts of global markets ("winner-take-all" ) being abolished or reformed without a global government. That's why I'm not sure about the size of the current threat and when it will explode.
Stiglitz adds an uncertain landscape for innovation, and therefore for future dynamic efficiency of markets (Shumpeter style).
Taking all these pieces together, there is no clear recommendation. Today I just want to state again that correlation is not causation. Inequality and crisis are a contemporary fact, though the trend goes back a long way and it is very much deeper. Avoiding reductionist perspectives is my first suggestion.

PS. Since the implications of wealth inequality and health are huge as I explained in this post, my today comment maybe adds more shades instead of light.

PS. "Health inequalities result from social inequalities. Action on health inequalities requires action across all the social determinants of health." The Marmot Review: Fair Society Healthy Lives

PS. If you want to know why Messi's salary has increased this week, have a look at Frank's book, the answer is there.

Are Pharmaceutical Companies Earning Too Much?

Are Pharmaceutical Companies Earning Too Much?

Estimated Research and Development Investment Needed to Bring a New Medicine to Market, 2009-2018

The debate about pharmaceutical companies earnings is a never ending story. Now you can find in JAMA an article that reflects the cost of a new drug: $1336 million. This is the summary:

The FDA approved 355 new drugs and biologics over the study period. Research and development expenditures were available for 63 (18%) products, developed by 47 different companies. After accounting for the costs of failed trials, the median capitalized research and development investment to bring a new drug to market was estimated at $985.3 million (95% CI, $683.6 million-$1228.9 million), and the mean investment was estimated at $1335.9 million (95% CI, $1042.5 million-$1637.5 million) in the base case analysis. Median estimates by therapeutic area (for areas with ≥5 drugs) ranged from $765.9 million (95% CI, $323.0 million-$1473.5 million) for nervous system agents to $2771.6 million (95% CI, $2051.8 million-$5366.2 million) for antineoplastic and immunomodulating agents.

Why this new figure is relevant? Because previous estimates said that it was the more than the double!

The mean estimate of $1.3 billion in the present study was lower than the $2.8 billion (in 2018 US dollars) reported by DiMasi et al,

And   my impression is that we have entered in a difficult world to estimate the real cost. Right now many firms are buying research (buying firms that have already a product close to be commercialised) and they are paying a premium for outsourcing research. Therefore, how to estimate the cost in this situations? Uncertain.

David Cutler asks about the earnings of pharma firms and says:

Ledley showed that from 2000 to 2018, the median net income margin in the pharmaceutical industry was 13.8% annually, compared with 7.7% in the S&P 500  sample. This difference was statistically significant, even with controls, although earnings seemed to be declining over time.

Is this positive return differential evidence of too high a return? Not necessarily. The economics of pharmaceuticals are important to consider. Like several other industries (eg, software and motion picture production), the pharmaceutical industry has very high fixed cost and very low marginal cost. It takes substantial investment to discover a drug or develop a complex computer code, but the cost of producing an extra pill or allowing an extra download is minimal. The way that firms recoup these fixed costs is by charging above cost for the product once it is made. If these upfront costs are not accounted for, the return on the marketed good will look very high.

 Paying more than a drug is worth clinically is not a good strategy. Even if a drug is worth a high price socially, pricing patients who need the drug out of the market is a real loss, even if it leads to more innovation in the future. In still another case, price increases for older, generic drugs serve no innovation purpose. But, as a general rule, it is important to be wary of blunt “lower all drug prices” policies.

Cutler doesn't say too much on price according value and about public funding of research. It leaves the initial question open and waiting for adhoc answers. That's it , it's a complicated issue, no general prescriptions, they need to be adjusted to specific conditions without a captured regulator. This last point is the most difficult one to overcome.

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