Biotech considers a radical idea: Making money by charging less
This year, lowering drug prices is sure to be a presidential campaign issue, a congressional rallying cry, and an all-purpose cudgel against the drug industry. And for some of the wealthiest forces in biotech, it might also be an investment opportunity.
Our colleague Damian Garde is in San Francisco, where biotech is gathered for its massive annual conference. He points out that the biggest story is a bunch of venture capitalists betting money on a plot to make medicines cheaper. EQRx is planning to invent drugs that work as well as established blockbusters and then sell them at cut-rate prices. That may sound like dog-bites-man capitalism, but consider the fact that biotech has long thrived on a simple model: Spend millions of dollars inventing a new drug and, on the off chance it works, charge as much for it as the market can possibly bear.
With that in mind, EQRx reads like a startup designed to address the sharpest criticisms levied against the drug industry, where competition between products has a way of making everything more expensive. But what resonated at J.P. Morgan, a conference for pharma’s many bankers and bean counters, was the fact that top-tier investors have put $200 million into the idea, implying you can get rich by charging less.
“I’ve spent the last 25 years creating breakthrough new medicines,” said Alexis Borisy, the longtime biotech venture capitalist who co-founded EQRx. “We’ve ratcheted up the prices on them ever higher, frankly, because we can. And the reality is we can create a lot of these great new medicines, and turn that into a viable business charging a lot less for them.”
All that being said, expensive drugs are still good for business. On the eve of the conference, a company called Blueprint Medicines said it would charge $32,000 a month for its new cancer drug, a price that is double what Wall Street analysts had expected. As SVB Leerink analyst Andrew Berens wrote in a note to clients, “we believe other companies with targeted oncology drugs in development may adopt similar pricing strategies, which could spark a rally as investors contemplate these new valuations.” In short: Regardless of public perception, the market isn’t about to stop rewarding biotech companies for charging a lot of money.
Our colleague Damian Garde is in San Francisco, where biotech is gathered for its massive annual conference. He points out that the biggest story is a bunch of venture capitalists betting money on a plot to make medicines cheaper. EQRx is planning to invent drugs that work as well as established blockbusters and then sell them at cut-rate prices. That may sound like dog-bites-man capitalism, but consider the fact that biotech has long thrived on a simple model: Spend millions of dollars inventing a new drug and, on the off chance it works, charge as much for it as the market can possibly bear.
With that in mind, EQRx reads like a startup designed to address the sharpest criticisms levied against the drug industry, where competition between products has a way of making everything more expensive. But what resonated at J.P. Morgan, a conference for pharma’s many bankers and bean counters, was the fact that top-tier investors have put $200 million into the idea, implying you can get rich by charging less.
“I’ve spent the last 25 years creating breakthrough new medicines,” said Alexis Borisy, the longtime biotech venture capitalist who co-founded EQRx. “We’ve ratcheted up the prices on them ever higher, frankly, because we can. And the reality is we can create a lot of these great new medicines, and turn that into a viable business charging a lot less for them.”
All that being said, expensive drugs are still good for business. On the eve of the conference, a company called Blueprint Medicines said it would charge $32,000 a month for its new cancer drug, a price that is double what Wall Street analysts had expected. As SVB Leerink analyst Andrew Berens wrote in a note to clients, “we believe other companies with targeted oncology drugs in development may adopt similar pricing strategies, which could spark a rally as investors contemplate these new valuations.” In short: Regardless of public perception, the market isn’t about to stop rewarding biotech companies for charging a lot of money.
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