All opinions are my own.

Wednesday, July 15, 2015

Are Software Technologies Going to be Pharma’s Creative Destructionists?

Three companies are causing some perturbation in healthcare diagnostics field. They are Theranos, 23andMe and Nanobiosym. I am sure there are others on the horizon. They are simplifying how diagnostic information can be used by individuals to stay healthy and prevent diseases before they become life threatening. Each company is using advances in software and information technology to create methods and devices that are useful to us. The testing costs are significantly lower than the traditional tests. Better and quicker information at lower costs suggest that there are possibilities.

Drug discovery is a cumbersome process and takes five to seven years to identify the molecules that could be used to cure a disease. Recently a friend Mr. Rohit Phansalkar (1) brought Verseon Corporation (2) to my attention. Reviewing their information and some of the filed IP, it seems that they could do the same what is happening in the diagnostics area. The following is from company’s information package.

“More than a decade of intense research and development has yielded two key innovations: the Molecular Modeling Engine (MME) and the Molecule Creation Engine (MCE). The MME overcomes the accuracy barrier that has plagued other computational methods for virtual drug screening. The MCE enables the company to explore a vast and as yet undiscovered chemical space of potential drug candidates. When combined, these two technologies yield multiple, chemically-diverse drug candidates per program, which we believe will significantly increase the probability of success in the later stages of drug development. “

“Company’s Molecule Creation Engine comprises a large collection of novel algorithms and an encoded chemical reaction knowledge base that when combined together are capable of creating a practically unlimited supply of novel, drug-like and synthesisable compound designs. Secondly, the company’s Molecule Modeling Engine combines multiple breakthroughs in the computational modeling of small molecule-protein interactions to successfully predict which compound designs will be potent for a given disease target protein. Finally, by leveraging the capabilities of both engines, Verseon has discovered and assimilated the core competencies of how to accelerate lead drug optimization in a highly resource efficient and cost efficient manner in order to rapidly advance multiple promising lead candidates in multiple and unrelated disease indications.”

Reviewing their filed patents and other information I would conjecture that if Verseon can create/develop new and/or significantly better and effective molecules faster than the current methods that have less side effects, their software would be of immense value for curing diseases. Patients will benefit. Shortened drug discovery time would extend the patent’s commercial life i.e. additional revenue for the company. Better designed molecule could have wider use and would be an overall win through economies of scale leading to better business practices and manufacturing technologies.

An argument can be made against my observations about Verseons’s capabilities. It would be that National Institute of Health and pharma companies have established models and methods to develop new drug molecules, thus why we need other models. However, their recent results have not been astounding. Had they been successful, we would have seen new drugs that are significantly better than existing drugs rather than “me-too” or marginally better drugs. If the pharma companies were successful, we would not be looking at almost drying of the drug pipeline for the masses. Pharma most recent discoveries are catering to less than 0.05% of the global population.

Why Verseon claims to be succeeding? They believe that in their modeling they can quickly see the interaction of the molecules against set parameters to design a better drug molecule. Company believes that the therapeutic profile of the selected molecules has reduced drug interaction and they have higher performance. They will have to prove their hypothesis through clinical trials of the drugs under development. 

Verseon is working on drugs for Diabetic Retinopathy, Diabetic Macular Oedema and Age-related Macular Degeneration. Physicians inject current drugs for these diseases. This is an overall an expensive proposition. Verseon is looking at eye drop use. If that happens, it is expected the drugs could be priced lower due to reduced physician intervention and could benefit much larger global population than speculated.

Verseon could be the company that has a better idea about drugs and their administration. They could be Pharma’s “creative destructionist”.

Before the drugs get to clinical trials Verseon or their licensee will have to be mindful of how APIs of the discovered drugs are manufactured, formulated and priced. Unless the drugs are accessible to masses, new drugs will have limited use. Under current regulations, process improvements after drug commercialization are out of the question. This is due to the need of reconfirm drug efficacy and effectiveness.

I would not be surprised Verseon’s success could spill over to companies like Apple, Google and Microsoft etc. who could use their creative algorithm developing and modeling skills for better drug discoveries. Of the three companies mentioned earlier 23andMe (3) has recently announced their venture in drug discovery. Time will tell who all will change the playing filed, as there are opportunities.

Girish Malhotra, PE
EPCOT International

  1. Phansalkar, Rohit: Chairman and CEO RKP Capital, Inc. Las Vegas, US private communication June 3, 2015
  2. Verseon Corporation, http://www.verseon.com Accessed June 22, 2015
  3. In Big Shift, 23andMe Will Invent Drugs Using Customer Data, http://www.forbes.com/sites/matthewherper/2015/03/12/23andme-enters-the-drug-business-just-as-apple-changes-it/ Accessed July 9, 2015

Wednesday, June 17, 2015

Can An Alliance Between US Pharmaceutical Benefit Managers (1) and Make in India (2) Lead to Lower Global Drug Prices?

Question asked is very legitimate and the ANSWER is unequivocally YES. However, in order for it to happen there has to be a unique alliance that would bring bureaucrats, technocrats and business minds on the same table and work together “hand and glove” to change the global landscape.


Indian pharma companies with 2005 WTO/TRIPS agreement took advantage of the need for low cost generics in the developed countries. They succeeded. However, regulatory bodies (FDA, EMA and others) were not fully prepared to oversee their manufacturing practices. With time quality and therefore supply issues have resulted. My conjecture is that in order to stay profitable not every “t” has been crossed and not every “i” has been dotted with respect to manufacturing technology and meeting regulatory requirements.

Unless attention is paid in the improving manufacturing technologies and complying with regulations Indian companies might not be able to meet all of the regulatory and quality requirements. This could have long-term impact on the reputation of Indian companies as the “global pharmacy”.

Many of the Indian pharmaceutical companies have imported their Active Pharmaceutical Ingredients (API) from China. Chinese API overdependence has caught the attention of Modi government in India. Government of India is taking steps to alleviate API dependence from China (Centre mulls bulk drug policy, Government working on policy to promote APIs production). This recognition and remediation steps are of significant value.

My concern is that unless the right players are involved and timing is impeccable, Government of India might not be able to meet its “Make in India” plan for pharmaceuticals and might loose India’s status as the “global pharmacy”.

Indian companies for the foreseeable future will remain supplier of generic drugs. They have a significant opportunity to be the supplier of generics to 30+% of the global pharma market if all the pieces of puzzle fit.

Brand Company market revenue will be higher due to high drug prices but compared to generics they will have significantly lower patient base. I do not believe Brand companies will have much roll in this venture as their focus is catering drugs that are under patent. 

What all is needed:

With respect to formulations Indian pharma landscape is fragmented. There are too many players catering to the same customer base as a result they do not have economies of scale i.e. not the best manufacturing technologies. Economies of scale can improve profitability. Same holds for the needed API.

US PBMs, as the time progresses, will be consolidating. CVS Health and Target merger is the most recent. PBMs need to leverage their supply costs. Consolidation of PBMs is one way. The other way is to work with pharmaceutical manufacturers. Second way will have higher and sustained financial benefits for each participant.

PBMs along with a quasi-Indian government body can create pharmaceutical API manufacturing and formulation companies who can through economies of scale incorporate best of the technologies to produce quality drugs at the lowest price to supply the world’s pharma market.

If a “can-do” team that consists of savvy technocrats, bureaucrats and business folks from India and the United States can be created and it succeeds; it will change the global pharma supply landscape. Timing is of the essence and the team will have to operate on a fast track.

An International team can be assembled and it can very quickly select pharmaceuticals based on their revenue, patient need and manufacturing technologies. Reverse calculation method (3) using total global revenue can be a staring point. I would not venture out to say what cost reduction is possible but improved asset utilization, improved product yield, reduced waste and reduced quality approval time would definitely lower costs. Regulatory bodies will have to play their part for the success. It would be a global win.  

Girish Malhotra
EPCOT International

Friday, May 1, 2015

May Day May Day: Can Someone Help and Lower Drug Prices?

Answer to the distress call is YES! However, it needs effort. I am presenting my perspective about the effort.

A recent article (1) tells us a story, some call it bogus (2), but everyone is clamoring about high drug prices. Not much is being done by the movers and shakers to address the price issue. They also are not doing much to address the shortage and quality lapses.

With respect to brand drug pricing, not much can be done as the world’s patients are at the mercy of very select band of people whose focus is, by charging the highest drug price possible, delivering the ROI to the investors even if the drug is for less than 100,000 people worldwide. We cannot fault them as they are meeting their objectives and keeping the financial analysts happy. We are in way judging their motives and goals. It is our hope that in their efforts they might do some good by stumbling on new drugs/therapies that might benefit millions. Global need and want for lower drug prices remains.

What is needed to lower drug prices?

Generic drugs constitute more than 50% of the global market. They present the highest opportunity to lower pharma costs through manufacturing technology and the total business process innovation. Everyone and that includes regulators, legislatures, patients, PBMs (Pharma Benefits Managers), various health organizations and foundations (WHO, CHAI, Gates Foundation, Médecins Sans Frontières etc.) would like to see lower prices. There are many things standing in the way to get to the goals. They are:

  1. Current business model

  2. Fragmented and multitude suppliers

  3. Lack of economies of scale

  4. Inefficiencies of the manufacturing processes

  5. Inefficient use of corporate (equipment, infrastructure) assets

  6. Quality control practices

  7. Regulations

Generic pharma companies have not done much to lower drug prices as they do not see any need. Why? They capitalize on the need to extend life. PBMs and national healthcare agencies worldwide have not made any moves to convince the generic pharmaceutical companies to step up and use the best manufacturing technologies, business practices and systems to alleviate shortage, quality lapses and lower drug prices.

In the current business model generic pharma companies have an argument against doing anything for better technologies and practices. Regulatory re-approval would be needed for the incorporation of innovations. Intent of drug efficacy and quality will have to be re-assured. Under the current regulatory environment, re-approval cost is unknown, could be expensive and time consuming. Any effort is going to take away from the focus of generic pharma to supply the needed drugs as it could lower their profits. Since there are many suppliers of the same drug, there are no economies of scale. Re-approval will also burden the regulatory bodies.

Thus we have a “chicken and egg” quandary. However, there is a potential solution. It has been practiced worldwide but not much in pharma. Most of us know them as “TENDER (3)”bidding.

If every organization mentioned above asks for the supply bids from the companies worldwide, for drugs they dispense, we would have competitive bidding. It would allow them to compare and negotiate drug prices based on their manufacturing technologies, business practices, quality methods and any other measure they think will assist them. We will have an interesting business environment and as we know competition would be best for all involved.

PBM companies, foundations, global healthcare organizations can use “reverse calculation method (4)” to determine what would be the costs if the companies were using the best possible technologies and methods at different supply levels (economies of scale). Information thus generated could be used for their pricing negotiations. It is very possible that such an effort “could be called foul” by many in the pharma industry, their lobbyists and even legislatures but this is one way to rationalize economies of scale, technologies and best business practices which will lower drug prices, improve profits and include many patients who cannot afford drugs. Change has never hurt anyone but made all involved strong. It is pharma’s time.

Such an effort will take time on part of PBM companies, foundations and global healthcare organizations. If they move forward, the process could give the best of the suppliers time to showcase their chemistries, manufacturing practices, asset utilization capabilities and how they can produce quality products from the onset using better batch or even continuous processes for API manufacture and their formulations. Tender bidding could also alleviate drug shortages.  

Pharma is a unique business where the industry improves the health of its patient base besides making profits. Yes it is tight rope, between profits, greed and compassion, to walk but someone has to walk it.

Please suggest if anyone has better ideas. We need to address the May Day call.

Girish Malhotra, PE

EPCOT International

  1. Small Number of Drugs Drives Big Medicare Bill, Spending Data Show http://www.wsj.com/articles/medicare-releases-detailed-look-at-prescription-drug-spending-1430426438 Accessed May 1, 2015
  2. Herper, Matthew, Why Medicare's List Of Costly Drugs Is Kind Of Bogus http://www.forbes.com/sites/matthewherper/2015/05/01/why-medicares-list-of-costly-drugs-is-kind-of-bogus/?utm_source=followingimmediate&utm_medium=email&utm_campaign=20150501 Accessed May 1, 2015
  3. Tender http://www.investopedia.com/terms/t/tender.asp Accessed May 1, 2015
  4. Malhotra, Girish A Blueprint for Improved Pharma Competitiveness http://www.contractpharma.com/issues/2014-09-01/view_features/a-blueprint-for-improved-pharma-competitiveness/ Accessed May 1, 2015