Saul Kaplan: Biotech Disruption

The national health-care debate is many things to many business interests. To the biotech industry, it seems to be a matter of life and death. Makers of biotech drugs, which are derived by manipulating genetic material in living organisms, insist that their products must be patent-protected from generic “biosimilars” for at least 12 years. That would ensure monopoly prices, which the industry says are required to earn back their big investments in research and development. 

To reform the U.S. health-care system, the government shouldn’t be creating a road map to biosimilars, however long the trip. Instead, it should open the floodgate to “biodissimilars” and to the personalized medicine options they will enable. 

Biotech is a great U.S. innovation success story with the potential to be the disruptive force that makes personalized medicine possible. Personalized medicine creates remedies designed for your specific genetic makeup or condition and offers a path toward better, longer lives, and lower health-care costs. Unfortunately, the biotech industry has moved away from its disruptive potential and morphed into Big Pharma, adopting the pharmaceutical industry’s unsustainable “blockbuster or bust” business model. 

Blockbuster BustBiotech executives will claim that they are different from the pharmaceutical industry. Don’t believe it. Just check out the overlap of their participation in the Biotechnology Industry Organization (BIO) and PhRMA, the Pharmaceutical Research & Manufacturers Assn. The biotech and pharmaceutical industries have locked into identical business models, both dependent on producing a steady stream of blockbuster products, or drugs that generate at least $1 billion a year in revenue. Blockbuster drugs offer a one-size-fits-all therapeutic approach—think Lipitor or Advair—and the antithesis of personalized medicine. 

Today both industries are valued on Wall Street solely by the net present value of their product portfolios and compounds under development. In addition, the few biotech companies with branded productsmarket them exactly as pharmaceutical companies do. It works both ways. Check out almost any pharmaceutical company and you will find that it has fully integrated biotech platforms into its R&D capabilities. You can’t tell the difference between these two industries. 

Initially, all new technologies are deployed as a sustaining innovation. Biotechnology is no different. As predicted by Clay Christensen’s disruptive innovation theory, the pharmaceutical/biotech industry has deployed biotechnology tools and platforms in an effort to sustain its current blockbuster business model. Both pharmaceutical and biotech companies will fight to the death to wring out every possible blockbuster product from the current industry model. There is still money to be made—a lot of money, in fact­—but the model is not sustainable. 

Imagine needing to introduce three, four, or five products every single year each with more than $1 billion in market potential. That is the scale it takes to compete in the drug industry today. This daunting challenge will force another wave of consolidation as a few very large companies try to feed the voracious appetite of the blockbuster monster. Everyone else will be either a niche company or a development company feeding products to the few behemoths left standing. 

Fail Faster!I don’t know how long it will take, but all of the disruptive innovation theory and supporting evidence predicts that the current industry model will fail. We need it to fail faster because the patient is waiting. Reform, as currently contemplated, is little improvement. Legislation under consideration today does nothing more than extend access and marginally increase the efficiency of our current system. Costs will continue to escalate out of control and outcomes will not improve. 

Biotechnology has the potential to change the way we understand and treat disease. It has the disruptive potential to put the patient at the center of a new system with individualized diagnostic and treatment approaches. As such, it could deliver better care for less money. 

To fix the U.S. health-care system, we need to design a system where incentives are realigned and the roles of the players—doctors, patients, insurers, hospitals, etc.—are reconfigured to create a “well-care” system that puts the patient in charge and at the center of the system. Biotechnology can help enable the transformation to personalized medicine, but not until we take better advantage of its disruptive potential.