Biotech Execs Aren’t Ready to Prove Drugs Have Value, E&Y Says

4/23/13Follow @xconomy

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realizes it will need to re-do clinical trials or do additional studies which cost more time and money. That drives down the amount they are willing to pay for a biotech company, or for an individual asset.

These types of studies, which set out to demonstrate the value of a product, are essential at pharma companies that plan to sell products. “Companies are still free to set prices in the American market, but if they can’t demonstrate significant economic value, they are not going to sell a lot of product,” Tao Fu, head of mergers and acquisitions in pharmaceuticals at Johnson & Johnson, said in the report. “We only expect this scrutiny to increase over time.”

Why in the world would biotech executives resist change when the world is clearly changing around them? The E&Y report listed what it considers five myths that companies still subscribe to.

First, there seems to be simple denialism on the part of companies mired in the long years of product development. Oddly, some of these companies say “this only affects companies with commercial products”—even though they, too, aspire to have commercial products in the near future, when the new value-based reimbursement systems will be more established.

Other companies are saying they can’t afford to change, while others insist that their science is so special that they will still be able to set prices with minimal pushback from payers. Some are saying the push to demonstrate value won’t apply to them because they are working in a rare disease segment with no competition, and which payers won’t bother to mess with. Lastly, some executives say the changes won’t become real for many years.

These are all misconceptions that biotech executives cling to at their peril, the E&Y report suggests.

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  • http://twitter.com/dejayc Dejay Clayton

    One thing to consider is that there is value in releasing a drug that treats a disease that is also treated by existing drugs, because it’s good to have alternatives available. Some people may have reactions to specific drugs, and some drugs have side-effects that are not discovered until long after the population embraces it.

  • Biotech Analyst

    Sounds like sense of urgency is lacking in the C-suite. They might want to ask Mitch Gold (Dendreon) how that worked out for him. Vivus too.