President Obama is continuing to push for lower health-care costs, despite what many consider to be more pressing near-term issues.
And that should scare the cr- ... well, should really scare drugmakers and their investors.
I'm not so concerned about companies being forced to lower the cost of their current drugs as I am worried about whether new drugs will be able to gain traction. Health insurers are continuing to shift patients to low-cost generics. For instance, my copayment is twice as much for branded drugs as for generics and Target's
Keeping those high margins
In an era where the government wants to do comparative studies to see which drugs work the best, me-too drugs just aren't going to cut it. Changing a molecule slightly -- like Wyeth and Johnson & Johnson
The solution is for companies to run head-to-head trials with drugs that are currently on the market. Both Amylin Pharmaceuticals and Novo Nordisk have used this strategy for their diabetes drugs. Running head-to-head trials is a risky strategy -- marginal benefits might not justify the higher costs -- but companies don't have much other choice if they're in a field full of competitors.
Two potentially game-changing drugs
Another equally risky option is to try and treat a disease for which no good treatment exists. It's just as risky as head-to-head trials because there's usually a reason that no one has been able to come up with a good treatment option. But the potential payoff is tremendous.
For instance, the current treatment options for hepatitis C patients, pegylated interferons, are pretty pathetic. Both Roche's Pegasys and Schering-Plough's
The farthest along in the clinic is Vertex Pharmaceuticals'
Telaprevir is currently in phase 3 trials in untreated patients, and if it can put up numbers like it did with treatment-experienced patients, it should have no problems getting past the FDA. The bigger risk is that drugs farther behind it in the clinic -- Schering has one that's extremely close -- will unseat it before Vertex is able to fully capitalize on telaprevir.
A little more risky in the efficacy arena, but also with huge potential benefit, is Elan
Investing in drug companies in this time of "change" doesn't have to be scary. You've just got to find rule breaker-type drugmakers, because playing by the rules isn't going to cut it anymore.
It should come as no surprise that Vertex and Elan are Motley Fool Rule Breakers picks. The newsletter is always on the hunt for hot drug stocks and other cutting-edge picks. Click here to see all of our latest discoveries with a free 30-day trial subscription.
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Novo Nordisk is a Motley Fool Global Gains recommendation. Johnson & Johnson is an Income Investor pick. Pfizer and Wal-Mart Stores are Inside Value recommendations. The Fool has a disclosure policy.