Pharma’s Cutting Edge

This article in yesterday’s NY Times isn’t really news, but it’s part of a trend of quasi-editorial stories in the lay press that describe the growing expense of certain new therapies, particularly oncology therapies.

I report on this to prepare you early for the impact of the announcement to occur some time within the next 3 years that US and state governments will begin to consider cost-effectiveness in their equations for government-sponsored formulary and reimbursement coverage determinations for drugs and devices. We’ve seen CMS take some baby steps in this direction already (see my June Note on CMS’ draft guidance on drug coverage determination using health outcome measures), and it seems inevitable that much bolder steps will be taken, as government drug spending spirals out of control beginning with next year’s Part D rollout.

Neither pharma nor the big biopharms seems particularly prepared for the coming policy changes (are they in denial or just poor planners?). But because investors currently value biopharma at a substantial premium to pharma, and because biopharma is relatively more exposed to price-control policies (especially those focused initially on the most costly therapies), long-term investors in the former should be particularly concerned about a selective and fairly rapid de-valuation of the biopharma sector once cost-effectiveness supplants drug re-importation as the focus of drug-cost discussions in the legislature. I have little idea specifically when that will happen, but I’ll be sure to keep an eye on the signs of its imminent approach.