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Paying the Price: The impact of the Turing scandal on employment

Date: 29 October 2015

On August 10th Turing Pharmaceuticals led by their CEO and former hedge fund manager, Martin Shkreli acquired the rights to the drug Daraprim (pyrimethamine). Pyrimthamine is part of first-line and alternate treatment regimens for the disease toxoplasmosis, a parasitic disease that is most commonly found in patients that have conditions that compromise their immune systems such as HIV and cancer.

On September 17th, the healthcare news website Healio reported that the price for pyrimethamine had increased from $13.50 per tablet to $750 per pill – an overnight increase of 5000%. Obviously this did not go unnoticed. Shortly afterwards, after being picked up by local media and subsequently USA Today and the New York Times people were beginning to ask questions regarding what was behind the hike – including John Carroll of FierceBiotech who asked Shkreli a simple question: “Why?”.

The response?

“It’s a great business decision that benefits all of our stakeholders,” and then “I don’t expect the likes of you to process that.”  

And then, crucially: “You are such a moron.”

That single tweet went viral, prompting Hilary Clinton to engage in the debate promising to outline plans to tackle the issue of Pharmaceutical pricing head on. The next day papers and news sites around the world were awash with the news. Gawker called Shkreli a “pharmaceutical greed villain.” The Daily Beast called him “Pharma’s Biggest A**hole.” TechCrunch said Shkreli “doesn’t know when to stop tweeting.”

On the same day the NASDAQ biotech industry dropped 4% and over the next week dropped by a massive 17% causing widespread condemnation from many Pharmaceutical Execs and from industry bodies such as the PhRMA.

Shkreli has defended the decision to raise prices by saying that it will fund R&D to find a better treatment for toxoplasmosis however there are serious questions about this. There are several industry analysts that have already discussed this, however I want to focus on what I feel this will mean for both employees, and employers within the industry.

Pharmaceutical Scapegoat?

It is all too easy for people to blame the Pharmaceutical companies in the US for the high drug prices – however in my opinion they are not necessarily to blame.  The Pharma industry sets its prices in the US based on well-established rules set by the United States government, and the need to make money as dictated by their shareholders.

My concern in the witch hunt following the Turing scandal is whether Americans are prepared to ask the more important questions addressing how R&D is to be funded.

Drug prices in the US are the highest in the world because of lack of drug price regulation

Drug prices in the United States are the highest in the world, and there is a clear answer as to why this is: most countries regulate prices, and the US doesn’t. Congress has specifically prohibited Medicare (used by close to 40 million US citizens) from negotiating prices with Drug companies whereas elsewhere, for example in Europe, negotiation is commonplace resulting in lower drug prices. In essence, most countries are demanding discounts whereas the US pays retail prices for its medicine. The result of this is that the US consumer pays the most for developing new drugs – while the rest of the world benefits.

"The US consumer pays the most for developing new drugs – while the rest of the world benefits."

The issue facing the industry is whether prices in the US should be regulated, it will be better for the US but there is a concern that this will lead to a reduction in Pharma R&D. The cost of developing a drug is close to $2.5bn and we are all too aware of how many drugs simply do not make it to regulatory approval. Any significant reduction in pricing on drugs will discourage Big Pharma from R&D investment and we may simply see more M&A activity than ever.

This is all very well if biotech funding is consistent. As previously reported most of the top selling drugs in 2014 were not produced by the companies selling them directly as they were acquired from Biotech companies. In relying on biotech companies to keep developing these new drugs we would need to see a sustained level of private financing for research. With lower expected returns based on the price for big pharma and their shareholders, prices paid on acquisitions are likely to be lower than we have seen in the last decade and therefore the initial financing for development within biotech companies may be difficult to come by over the next couple of years. The net result will be that medical progress is slowed and people need to think carefully about whether this short term win on pricing is worth it.

"Regulating US drug pricing could lead to a global slowdown in medial progress"

Impact on workforce

Given the fall in industry stock prices in the last 6 months it is likely that companies will be looking carefully at their budgets for 2016, specifically where talent is needed and where it is not. There will be a number of areas within the industry that are likely to be affected both short term, and mid term – especially if price regulation is brought into the US market.  In the short term, with uncertainty and reduced stock prices it is likely that companies will be looking to achieve greater value. We expect this to result in a freeze or reduction in R&D spending, with negative impact on headcount. This could lead to an increase in outsourced development services where CRO’s could benefit. Likewise, spending on external consulting is likely to soar as the industry seeks insight and guidance on movements for the future.

"Spending on external consulting is likely to soar as the Pharma industry
seeks insight and guidance on movements for the future."

Another area to be negatively impacted is likely to be the sales force. We are already experiencing a trend away from traditional big pharma mass sales force “cure-all” products into a more focused specialty care model. With stresses on price level further cuts are likely to be made in established product markets and potentially in launches post 6 months.

"Market Access, Pricing and Reimbursement –
expected to reach boiling point with companies investing in talent in this key area"

However, it is not all bad news. Market Access, Pricing and Reimbursement – already a hot market area is expected to reach boiling point with companies investing in this key area to ensure that talent is abundant. These teams are likely to have the biggest impact on pricing agreements and also securing the lucrative contracts that will guarantee steady revenue streams.  Companies will also be looking to make further savings on production and back office functions. We expect an increase in demand for Operations, Procurement and Manufacturing Excellence professionals as there is a renewed focus in this area.

One thing is certain, there is a storm brewing...