Pharma is entering classic Innovator’s dilemma. And that’s an opportunity for a much more equitable model.
Earlier this week a well meaning Goldman Sachs analyst caused uproar by pointing out that it’s going to be really tough to build a good business model around gene therapy… so maybe Pharma shouldn’t be wasting their time curing people. Everyone was thinking it so someone had to say it.
It caused this raucous because it presents a rather worrying moral dilemma. Customers that are ill for life and continue to need your treatments are far better for business than customers that are ‘cured’ and no longer need you. Note cures is in quotes because bio does funky things over time, but that seems to be the term that everyone has adopted for now. Just imagine trying to build a SaaS business that requires billions of dollars to build the product, carries huge customer acquisition cost and runs at 100% churn.
Currently the emerging gene therapy model just about works because these cures are priced between $300k - $1m. However, pharma and analysts alike, know that this won’t be tolerated by the healthcare system for long and prices will have to adjust according to the market size. It’s not even clear that gene editing strategies are particularly defensible as more and more methods emerge to achieve essentially the same result. So there goes the 20 year monopoly.
The thing that no one seems to be mentioning is that this is classic Innovator’s Dilemma in progress. Just as Kodak struggled to shift to digital, for fear of disrupting sales of film (despite being an early mover in digital). If the past is in any way a predictor of the future, pharma simply can’t rapidly switch to a model of cures over treatments. Any given given disease unit would undergo unacceptable internal strife.
This is an incredible moment of opportunity for the challengers to whom the size of the prize will still be plenty significant. In our view this is when the digital platforms, such as those that we’re building at DSV, will begin to excel, firstly on the discovery end due to the reduced cycle time, lower costs and compounding high-dimensional data, and secondly the platforms that enable lower cost patient access, more effective trials and precision matching.
More importantly society will benefit immensely and can finally move on from the pure “pills on pills on pills” healthcare model of the last 50+ years.
The market will ultimately settle to pricing that is acceptable to both customers and suppliers. It likely won’t be the exorbitant prices that are the current norm, but it will be more than enough to support substantial businesses.
And what will become of big pharma? Don’t worry they’ll be fine, they are already investing heavily in external R&D and will maintain the later stage essential financial, product and regulatory power houses that the disruptors need to get to market. The real winners will be the founders with smart approaches to gene therapy and the people who desperately need these treatments.
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Please note that I’m trying to move towards a higher cadence of writing and more exposed thinking. There’s a good chance that not everything is as considered as it should be, as such if you a have more informed view please do comment or tweet.
