While recently attending a biotechnology forum, I found myself considering the pharmaceutical landscape and some of the ways it may be changing. The event was Boston's War on Cancer, organized by Xconomy, during which a number of corporate presentations and discussion sections examined the state and direction of research into effective cancer therapeutics. The pharmaceutical industry is a regulated one, as it should be in my opinion, but the framework imposed by the regulatory process can often make innovative business models and development paradigms difficult to explore.
In the development of cancer therapeutics, companion diagnostic tests that assist in directing preferred treatments are taking on an ever more important role. Even here, regulatory uncertainty has likely hindered development. These tests are often developed by agents outside the pharmaceutical company, though they are often synergistically partnered. In 2004, the FDA identified companion diagnostics as an area of interest as part of its Critical Path Initiative. It followed up in 2005 by offering a concept paper for industry discussion, but actual draft guidance is still not expected until the end of this year at the earliest. I don't envy the agency and its difficult responsibility of both insuring scientific vigor and maintaining a level of flexibility.
Entering the 21st century
Social media is another arena in which the pharmaceutical companies have been hesitant to venture due to unclear regulatory guidance. Concerns over how pharmaceutical products may be marketed over such venues concerns the FDA, which has yet to issue guidance despite the demand.
Unwilling to wait, pharmaceutical firm Roche has issued its own set of guidelines on how it plans on using the new media. Outside the pharmaceutical companies, there is no restriction. During a socializing break at the Xconomy forum, I learned of Sermo, a social group established and restricted to practicing physicians. Here, doctors can confer with their peers on patient specific topics and treatment options. Social support groups for patients are available and only passively supported by pharmaceutical firms.
What seems to be occurring is a change in the direction of information flow. Companies in the past have had a degree of control over how information on their drug products was distributed, largely through their sales force armies. Now these firms are being forced to become observers as information related to their products, often anecdotal, is distributed and discussed by outside agents that they don't control.
The advent of widespread electronic medical records is going to accelerate the flow reversal of drug information. A recent study serves as a key example here. In late 2009, the label for the Bristol-Myers Squibb (NYSE: BMY ) and Sanofi-Aventis (NYSE: SNY ) drug Plavix (clopidogrel) was changed based on concerns that co-use of proton pump inhibitors could affect drug metabolism and efficacy. The study was based on claims data gathered by insurance companies Aetna (NYSE: AET ) and Medco Health (NYSE: MHS ) .
Claims records may be mined, but the process will be far easier once the systems are fully electronic. In 10 years, a good deal of the medical literature may be published by insurers and based on data mining of real patient records. The result will be some real-world comparisons to drug efficacies seen in more controlled clinical settings. The result may indicate efficacy in treating conditions (off-label use), better information on how pharmaceuticals help save over more expensive forms of care (such as repeat hospitalization), but there will also likely be an increase observance of low-level adverse events, resulting in more situations of post market withdrawals, perhaps analogous to what happened to Merck's (NYSE: MRK ) Vioxx (rofecoxib).
As an investor, I want to consider what these possible changes in information sources may mean to industry players. I think it will continue to make pharmaceutical development and marketing a challenge, and perhaps continue to keep pharmaceutical firms relatively cheap in comparison to their historical norms. The loss of control over the pharmaceutical data will make drug marketing more difficult, though I am not sure it will make it more clear to consumers, who are increasingly involved in the decision process themselves.
I'm still content to own a few pharmaceutical firms, because of their enticing valuations and generally good dividend yields, but I prefer the more diversified companies. I also believe that insurers should find themselves gaining a valuable new asset that can be used for the more effective delivery of care services. I'm inclined to be bullish on insurers, but also inclined to continue to wait until there is more visibility resulting from the health-care reform legislation.
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