SAABOA continues to publish a range of opinion pieces that touch on key aspects of healthcare and pharmaceutical development
Driving from Florida to Pennsylvania on your own gives you time. Time to think. Time to contemplate the universe. Time to consider the inability of some drivers to use the slow lane. In my case, this time was somewhat consumed by re-reading one of my favorite guides to strategic thinking: Moneyball: The Art of Winning an Unfair Game by Michael Lewis.
Before I get into the two lessons it reinforced, a quick backgrounder. The Oakland A’s in the late 1990s and early 2000s were outliers. Massive, huge, outliers. Their Major League Baseball team had extremely limited resources, yet their win-per-dollar-spent ratio was incredible, and far superior to the free spending big boys over in New York, Boston and elsewhere – essentially, they were much more efficient at winning baseball games. These wins were not the product of luck, or the uncovering of a rich vein of low-cost superstars from the draft. No, these guys kept winning big with players most of the league had discarded or largely ignored.
There are many reasons from their success (go read the book!), but two have a relevance to the pharmaceutical industry, a place that is also dominated by huge ‘whales’ and little ‘minnows’ looking for a seat at the table. So, what did I learn about winning in the unfair game that is modern pharma?
Road Trip Lesson 1: You are what you measure
We’ve all heard this chestnut before, but how often do we really think about it? In the case of baseball, the metrics most often applied to the game had been laid down like the 10 commandments. The arcane measuring sticks used to evaluate winning performances were numerous and rarely questioned. However, the A’s began to recognize that a) these baseball metrics were primarily anchored in subjectivity and b) the statistics everyone else used to assess performance weren’t really good predictors of success. This led to the A’s adopting very different metrics in their assessment of players, specifically the on-base-percentage (OBP). Essentially, a higher success rate of reaching base dramatically increases the probability of scoring runs, and scoring runs is the most important factor in winning games (which is converse to a commonly held belief that good pitching is the key). By upending this existing dogma, the A’s were able to gain a competitive advantage – identifying players who were over-looked by other teams, but who represented gold dust in terms of OBP, runs, and yes, ultimately wins.
How does this relate to the pharmaceutical industry and pipeline development? On that long drive I started wondering if we needed our own OBP-moment. If we’re honest, the rate of ‘failure’ in clinical trials is staggering (a rate of 90% failure is often quoted), and when safety/ funding isn’t the overriding factor, it usually comes down to a failure to demonstrate efficacy in a selected population. By its own admission, the pharma industry is not converting its runs into wins at an efficient rate. Part of this issue could be that assessment of efficacy is too reliant on the type of subjectively defined ‘objective’ data that teams such as the Oakland A’s would have avoided or at least questioned: think MADRS in depression, VAS, CGI, the list goes on and on. Even hard data such as cardiovascular outcomes have become aggregated into endpoints that dilute the assessment of a drug’s potential (I’m looking at you MACE). A reliance on these endpoints also has knock-on impact to population selection, where we frequently utilize historical precedents without assessing whether the drug actually provides benefit in that specific population. Oncology is particularly sensitive to this phenomenon, with PFS and OS metrics skewing initial product trial development towards more diseased populations at the expense of potentially better matched patient groups.
Pharma could do better at defining an ‘OBP’ for any given asset in any given disease. If the A’s approach taught us anything it’s that if you want to be successful, you stand a much greater statistical chance of success and winning (differentiating) if you define what and who your product is for, rather than replicating the same clinical trial program that others did multiple times before. The A’s knew they’d fail if they blindly followed 100+ years of baseball folklore, so why do some pharma companies continue to adhere to precedent in the selecting their late phase endpoints and populations? And before we blame the regulators, it’s the responsibility of the innovators to shape the market within which they operate – it’s a little too convenient to blame them, when there is plenty of evidence showing regulators to be open-minded and flexible to innovation.
Road Trip Lesson 2: Aggregate success can be more efficient than the individual blockbuster
Oakland had a few big-name superstars (Giambi, Damon), who were cited as keeping the team competitive. As with all minnows (Hello biotech!), they repeatedly lost these rising stars to the big boys, and the compensation wouldn’t allow like-for-like restocking with other superstars in the league. To address an inherent disadvantage, Billy Beane, the general manager of the Oakland A’s decided to use his OBP insights to identify multiple players that in the aggregate could replace the OBP of the single superstar who left. This was much to the annoyance of his scouts (and the fans) who were still looking for the next rising star, measuring them with the same old metrics of athleticism and splashy plays, but not the critical success criteria of OBP.
Big pharma is at risk of replicating the behavior of these scouts when faced with LOE (Loss of exclusivity), patent cliffs or the desires of their shareholders. There is a behavior that can manifest itself as looking for the next big thing, which funnily enough looks like the last big thing, only better. Problem is, everyone else is also looking for the next best thing, and if you don’t have the legacy (born of a long history within the therapeutic area) to identify these, you may stand a reduced chance of success. Of course, you can metaphorically swing for the fences in the draft every year, with the hope that 1 in 100 lands and carries the company forward, but the reality is those superstars are few and far between, and if you are measuring their potential in the same old ways (pre-clinical features and/or early efficacy metrics), your probability of success is much reduced.
There is a real risk that portfolio strategy boils down to ‘big bets’ or a ‘blockbuster strategy’ that is absent of vision. An expensive filtration process often re-couped down the line through pricing of the drugs that do make it to market. But this inefficiency (reminiscent of the big-market Baseball teams) is becoming untenable, with the Inflation Reduction Act and other legislative programs showing that healthcare systems won’t tolerate the consequences of this inefficient and therefore costly approach.
We prefer a strategic approach that is built from unmet need and endpoints/ populations that match this need (the ‘why’). This could mean ditching a ‘next big thing’ mentality for a more nuanced approached that may include multiple assets, smaller in their individual potential, but more valuable in the aggregate. It also speaks to a streamlined development path to reduce costs – these big, often bloated programs were justifiable when there was one single molecule to focus on, but with an aggregate strategy, precise and fast is the name of the game.
Final thoughts
If you’ve managed to read this far, it’s obvious I had too much time to think on that 1089-mile road trip. Maybe, but reading Moneyball re-affirmed core principles that are often missed in pharmaceutical path-to-market development. The principles of defining ‘who, what and why’ are universal to developing a successful product or portfolio. Billy Beane and the Oakland A’s managed to re-define all three of these components when constructing a team that managed to compete at the highest level in baseball with limited resources.The minnows and whales of pharma who wish to succeed in an increasingly competitive and restrictive environment might do well exploring alternative paths to winning.
A somewhat predictable outcome of trade conferences is the cyclical need to revisit debates of price, the value of mega-mergers, or continued efforts to improve the passage of new medicines from bench to bedside reality. Meanwhile, outside the conference center the battle for affordable healthcare rages on with doctor strikes and healthcare budget deficits being reported on an almost daily basis. Despite all the detailed initiatives set out, justifications given, collaborations sought, and mergers announced at these conferences, there remains an underlying dynamic that continues to direct the character of the pharmaceutical market and its relationship with its customer base. Without a correction this could prevent the emergence of a more sustainable pricing model, while holding back disruptive innovation of the market.
Producers as the market-maker
Unwieldy healthcare systems conceived for a different age represent the dominant customer for purchasing therapies. Aside from the need for structural reform to their purchasing mechanisms, they represent a small, homogenous and somewhat regulated customer base – even if you count more diversified insurance-based healthcare systems. This puts them in a potentially strong gatekeeper position when discussing access to new medicines. However, the electorate’s insatiable demand for new therapies continues unabated, since humans equate this to a very basic visceral need for survival. This leads to the ultimate zero-sum game: either provide new medicines and tax/ premiums will rise, or ration them and risk the public ire when they can’t get access.
This inherent weakness of the customer negotiating position means that producers have the higher ground in negotiating price. Certainly, the customer has tried to regain some ground by inserting artificial mechanisms to assess the ‘value’ of new medicines. But this is being undermined by the constant pressure created from a public expectation of access to new medicines, especially in emotionally charged areas such as cancer. The limited number and diversity of customers exacerbates this situation because it means that no one single customer can really afford (politically or financially) to break from all the others. And while it may not always feel as if the pharmaceutical industry is controlling the engagement (especially in genericized markets), we are talking about a market where broadly the balance still favors the producer despite the protestations of some within our industry.
So what?
This admittedly slight distortion of the customer-producer relationship explains how recent behaviors could actually be perceived as rational responses, but have been dismissed as largely irresponsible by some industry commentators. For example, if producers have a protected position facilitated by patent exclusivity and a somewhat weakened customer, there is always going to be an underlying incentive to maximize the price one sets. This producer-led and very lucrative market could also explain a mega-merger approach (in the absence of any product-specific strategic synergies), since market leadership achieved through sheer scale is highly prized and harder to unseat within this type of emerging oligopoly. The spin-off effect from having these very large and dominant competitor businesses is that because barriers to market entry are so high (due to patents, complexity, regulations etc.), new technology providers (the biotech industry) shift their focus to upselling their concepts or whole businesses, rather than trying to directly disrupt the market themselves (contrast this with a highly competitive, low entry-barrier digital market place). Ultimately though, the effect is to drive downward pressure on innovation by introducing inefficiency into drug development, while incentivizing certain producers to maximize price and justify these incremental rises as a response to expanding drug development cost bases (failing miserably in the process to win the value argument).
Adapt or die
Interestingly there are some recent macro-level trends that could return more balance to the customer-producer relationship. On the customer side there is a gradual strengthening of negotiating position. Governments have recognized that they operate a limited set of levers to affect initial price setting, but are increasingly using their scale better to coordinate control of drug expenditure and thereby force discounting (see Canada’s emerging strategy). This trend will likely continue, especially when healthcare spend is still myopically focused on using medicines to treat disease as opposed to public health initiatives of health maintenance and prevention.
On the producer side, a positive disruptive effect is the increasing interface of other external markets with healthcare – new competitive entrants are utilizing the financial muscle and risk-management capabilities of the digital market to directly challenge the status quo. It’s an open secret that Silicon Valley sees healthcare as a big, lucrative, (largely) non-commoditized target for its energies. It’s also apparent that technology businesses take a very different view of who the customer is, and what healthcare challenges might exist in the future: with much greater focus and energy being applied to lifestyle and wellness of the individual, as opposed to the traditional producer-led dynamics of selling therapies to governments and insurers. Unwieldy and reactive pharmaceutical businesses who only recognize a producer-led market position could find their foundations undermined by these highly efficient, risk-aware businesses coming from customer-dominated markets. It’s through this prism that we should review and pressure test the myriad of initiatives announced last week at JPM16, to see which ones actually have the potential to move the needle of their corporation’s character from one of producer-led to customer-led behaviors.
I love sports, I love sports so much it affects my mood day-today. It’s a disease I’m trying to address, but when your Eagles team gets a beating from its main NFC rival and then faces a division enemy (with a 14-game losing streak away from home), it can really affect your mental health! But it can also teach you some valuable life lessons and this week it taught me a good one about GLP-1, obesity, and the interpretation of retrospective insights.
In the summer I wrote an article about Moneyball, the ultimate use of statistics to build and win in the unfair game that is pharma. But the thing is, while I love the principles of Moneyball, I struggle with the broader manipulation of statistics and ‘insights’ in sports media. Teams, particularly football teams, are different year-to-year, they have different coaches, philosophies, opponents, grounds, conditions to face – the list goes on. But pundits and analysts all too often real-off insights from the past and state them as predictive of the future. X team hasn’t beaten Y team in years away from home etc.
Aside from it being annoying (in-game stats have become almost unwatchable), what do these ‘insights’ actually inform us of? They are mostly backwards looking and unable to provide the tools to predict future events. That’s why we like sports – it is, by its very nature, unpredictable. To be clear, sophisticated analytics outside of the pundit-world have extreme value when used appropriately. Teams successfully use metrics to assess performance and isolate as many variables as possible to discover hidden trends (how a player hits, catches, throws etc,.) that can be used to guide roster and game-day decisions. They do not use this retrospective analysis to try and predict future wins/losses with all their innumerable variables and uncertainties.
That brings me back to Pharma, and specifically the perceptions around using injectables for obesity. Like football, product development is full of unknowns and variables that govern success and failure of an asset within a specific indication. With all this unnerving uncertainty, it often falls into the lap of market research to make sense of it all. Many years ago, when I was working inside a product team, the insights team were self-styled as the ‘voice of truth’ and in some cases deservedly so. They could uncover the real issues that existed outside of our ivory tower. It was all very comforting when faced with commercially developing a product with so many unknowns that could affect its ultimate success.
But there is a challenge here for forward strategic planning. Market research is by its very nature a current or retrospective snapshot of beliefs and perceptions. And its insights must be taken as such. It has no visibility of the future, any more than we have the ability to predict the future. And that brings me to the Wegovy phenomena. Most research informing GLP-1 use and specifically injectables is anchored in the diabetes market, with assertions made that injectables will slow uptake and that compliance could be an issue etc. This week Novo put this to bed with one year data showing 40% of patients are still taking it. But the issue with those historical perceptions of injectables is that the circumstances are different in obesity and therefore non-informative. GLP-1 delivers substantial weight loss benefit, it has the ability to simultaneously address core unmet needs for the individual (body weight and shape is probably the number one concern we have with our bodies in the west) as well as the provider (huge cardio-metabolic benefits that are both near and long term). In these circumstances the perceptions of needle-phobia fall into the background – yes they are still relevant, but they aren’t on their own going to drown out those underlying dynamics. In T2DM they might continue to do so – HbA1c has always been a hard thing to contextualize even with a linkage to CV risk. But the point is the historical market research embedded in the T2DM market offers little insight here – it’s a different day, a different game, a different set of circumstances.
So what’s the lesson? Well, it’s not to throw out market research. It is a hugely informative tool that has a place in both day-to-day commercial operations and yes, even future strategic planning. However, it is limited as a predictive tool – it cannot tell us the answers for the future or the likely outcome, especially in something as ground-breaking as obesity. It can however be used to validate assumptions and give us permission to explore new opportunities and avenues if the questions it is asking are right. The ultimate ability to shape the future still lies with the strategic choices a company makes when developing their asset, just as it lies with my Eagles team going to Dallas this weekend…
