Morgan Moments: A Closer Reading of the JP Morgan Investor Conference

The January JP Morgan investor conference is a head-clearing exposé of who really calls the shots in today’s biopharmaceutical industry.  As one CEO after another mounts the stage to deliver those “forward looking” statements, the underlying tension is palpable. Are the forecasts on earnings guidance and share price good enough to satisfy the relentlessly inflated

William Looney

expectations of the capitalist tools-not for more of the same but for something spectacular, even transcendent? The truth is that private investor sentiment is decisive, swift, and unforgiving-everything that law, politics, and patient power is not. Those who carry the impression that medicines are a “public good” have never been to San Francisco for this New Year’s dose of postprandial reality programming. 

Certainly there was little sign that popular concerns about the high cost of medicines has persuaded investors to lower the bar on profit performance. Wall Street’s message to price aggressively was communicated across the board. The harshest criticism at Morgan was actually aimed at generic companies and drug wholesalers-both of whom operate on rail-thin margins, compared to the rest of the industry-for not doing enough to reverse the current market trend toward off-patent price deflation. For big Pharma, “shareholder value” expressed through annual double-digit earnings growth-and doing whatever it takes to stay focused on this goal, including the divestment of entire lines of business-remains the starting point for conversation. CEOs know that conforming to this mindset is the only way to guarantee the breathing space to take risky bets on investments requiring a long-term payout.  

However, a closer reading of the conference provides evidence that the insular, often maladroit tone of the industry-investor dialogue may be morphing to something more grounded in the larger societal context that all health providers are expected to embrace, at least rhetorically.   

First, we saw at Morgan that the science behind many new medicines is so revolutionary it allows industry to redefine the blockbuster drug as a game-changing clinical advance rather than just another billion-dollar product. In fact, many of the “blockbusters” now emerging from industry labs will plateau at much lower revenues due to the precisely targeted therapeutics of such drugs in delivering the right dose to the right patient, for the right outcome. With the onset of precision medicine, the much derided “placebo effect” will become a historical anomaly. Pricing is never going to the same, or as predictable, as that for the previous generation of easily manufactured, one-size-fits-all, small molecule drugs for common chronic diseases.    

Second, poor drug adherence, a $300 billion annual burden of unnecessary health costs, is catching the attention of payers, with leading PBMs and insurers committing in their Morgan presentations to meld vast new data retrieval technologies with human capital investments to raise prescription compliance rates. For big Pharma, it’s a win too-an alternative to one-off price hikes, through volume growth driven by better utilization. Reliable compliance data also allows for a more visible demonstration of that all-important value proposition to payers. 

Third, discussions at Morgan showed how changes in the ecosystem of medicines development and financing is making outside constituencies more consequential in driving performance expectations for big Pharma. 

A pertinent example is the National Immunotherapy Coalition Cancer MoonShot 2020 project, an alliance of stakeholders from industry, academia, and government to validate combination immunotherapies for up to 20 cancer tumor types, ultimately leading to the introduction of a personalized, vaccine-based platform immunotherapy for major cancers by 2020. The Morgan  conference concluded with a symposium tracking the project’s progress.  It was conceded that the key barrier to success-poor interoperability among data retrieval and management systems established in the historically siloed world of healthcare-could not be overcome unless government stepped forward as honest broker between competing companies, academia, health professionals, and the payer community. A logical conclusion to take here is that the price points for new therapies derived from this ambitious template will not be determined by the conventional standard of what the market will bear.    

Finally, there is the shifting geography of new drug competition, chiefly from China and India, who tout their ability to conduct R&D at lower cost compared to big Pharma-the catchphrase is “frugal innovation.” A Morgan panel on China’s innovation potential fixed on 2020 to 2023 as the date when a novel, single-source drug developed entirely in China would be successfully introduced to the global market-that’s practically tomorrow, in drug timelines. Will fresh competition from producers with lower fixed overhead lead to a revolutionary adjustment in price expectations? At least that’s how markets are supposed to work. 

Game on, Morgan investors.

William Looney

 is Editor-in-Chief of 

Pharm Exec

. He can be reached at 

wlooney@advanstar.com

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