Love Me, Love Me Not — The Life Science Industry's Paradox

By Wayne Koberstein, Executive Editor, Life Science Leader
Follow Me On Twitter @WayneKoberstein

Cynicism and idealism constantly conflict in this industry’s image of itself, as well as in how others see it. Cold-hearted logic dominates the quest for shareholder value, even as industry insiders complain that “nobody loves us.” What better example of the conundrum exists than the current commentary about Gilead and its wonder drugs for Hep C?

Although the dominant public discussion of Gilead’s near cures for the pervasive liver disease has revolved around their remarkable prices, another extraordinary issue has surfaced — are the drug treatments, Sovaldi (sofosbuvir), and Harvoni (ledipasvir/sofosbuvir), too effective for the company’s own good? Are they so good, in fact, that they are destroying the Hep C market, and thus devaluing return on investment? It may be instructive to keep the question in mind while we ponder the industry’s age-old lovelorn complaint.

I have to admit I was not only taken aback, but also appalled when I read the smarmy analysis of Gilead’s disappointing stock performance in a well-known investment newsletter. With only passing recognition of the outstanding benefits these breakthrough medicines bring to Hep C patients and their physicians, the author used a rhetorical question invoking the analogy of “shooting itself in the foot” to characterize Gilead’s amazing feat. I remember when hepatitis C was first discovered lurking among the more familiar A and B forms of the disease. It took years of solid research to distinguish C from the other forms, then to distinguish the variety of viruses in the C class. And that was the easy part, compared to finding treatments for the intractable condition those microbes produce.

By then, illicit use of injectable drugs and medical transfusions had spread the mostly symptomless disease to a vast multitude of people around the world — symptomless, that is, until the complications of chronic infection — liver scarring, cirrhosis, cancer, and gastric/esophageal varices — begin to surface. Until the new generation of drugs from Gilead, Janssen, and AbbVie came along, the standard treatments for Hep C infection, with interferons and antivirals, were only marginally effective and highly unpleasant, to say the least.

But, as a former colleague was fond of saying whenever I was discouraged, no good deed goes unpunished. From patients who should be most grateful — and payers whose bottom line the drugs most affected — came a chorus of criticism about their price tags. And now, from those who supposedly invest in the industry because of its innovation, we hear, “Whoa, slow down. Did you have to make these medicines so effective?” Essentially, this is what the new critics are saying: if you innovate too much, it’s bad for business.

Ever since I started covering this business back in the mid-1980s, I have heard industry supporters claim, “If people only knew our story, they would love us.” (See “The Price Wars from All Sides”) The argument runs something like this: The industry spends billions on R&D for every approved new drug it produces. Actually, the formula includes the sometimes disputed variable of all the money spent on drugs that fail to win regulatory approval, divided by the number of approved ones, which is either a magnification of heroic efforts or an admission of miserable productivity. Nevertheless, the assertion depends greatly on the perceived value of innovation; patient benefits justify the price we pay for innovative new drugs. So, the more innovative the drug, the more it is worth, right?

Wrong — at least according to the latest argument. If you give patients too much value in a new drug, at some point crossing an invisible line into actually eradicating the disease, you destroy value for shareholders. From such a perspective, it follows, it is better to stop short of a cure and let people suffer on, just at a lower level of suffering. I am sure a smart economist could tell you what the right level is, where people feel better but must keep taking your drug, preferably for the rest of their lives, and of course at a premium price.

Thus, we may have hit on an explanation for why Gilead appears to be leaving the anti-infective space in favor of cancer, where there is still a lot of room for improvement. Of course, I have not spoken with the company about this yet and may have misinterpreted its intentions, although it is certainly welcome to speak with me at any time.

Speaking of cancer, the same cynical misgivings concerning the possible over-effectiveness of the new Hep C medicines could also apply to immuno-oncology, which we might see as threatening the oncology space by effecting apparent cures in a growing portion of the cancer population. The old complaint, that many cancer drugs merely make a lot of patients sicker while emptying their pockets, may give way to the opposite: by ridding patients of their disease, immunotherapies could make shareholders wince, while emptying their pockets. Is that what the cynical stock-market analysts and journalists would say?

The trouble with that argument must be blindingly obvious. It leads logically to a state where the public has even less reason to love the industry, because the industry presents two faces, diametrically opposed to each other. On one side, companies strive to be seen as heroically innovative, bringing ever better new treatments for serious conditions plaguing the human race; on the other, they cynically manipulate the situation by shying away from science that veers too close to treatments granting total relief. Or perhaps, after accomplishing a single miracle with a near or complete cure, they move on to more lucrative territory where marginal improvements offer larger paybacks.

I sometimes wonder whether the life sciences industry really belongs in the stock market, although even private companies have investors who could adopt the same self-serving posture. I tell people I do not invest in stocks because, as a journalist, I wish to avoid a conflict of interest — and that is true. But my other reason is I can only see this business fulfilling its mission if it keeps a long-term view, which is why I find the cynical analysis of Gilead so appalling. You can play the stocks either way, long or short, but the contemporary practice is all about short — not only in the sense of short-selling, but also short-sighted.

There is a little town in Georgia where most of the old-time residents are quite well-off. Why? Because long ago, a local banker convinced them all to invest a bit of money in a new company called Coca-Cola, then accumulate their holdings over many years. Aside from the irony of Coke’s ingredients back then and its possible drawbacks even now, the point of the story is long-term value.

Entrance and exit strategies have their place in the life science industry, but only in the context of the future. It makes no common sense to me to get into this business only for a quick payoff, betting against true innovation of the sort Gilead and others have championed. If by a combination of excellent science and extraordinary good fortune someone finds a way to defeat a disease entirely, take strength from the victory and move on to the next battle. But don’t play the con game of handicapping companies for “destroying a market” and then expect people to love you.