Daily Editors' Notes

Drugs, the lottery and your company's future

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John O'Connor, editorial director, McKnight's Long-Term Care News
John O'Connor, editorial director, McKnight's Long-Term Care News

Having recently plunked down a $120 co-pay for medicine that was a far cry from designer caliber, I can relate to people who believe drugs are too expensive.

And when you hear about the multibillion-dollar blockbuster drugs that reward investors for nearly a generation, it's not hard to conclude that under-the-counter medicine is an easy path to riches. Unfortunately, that conclusion would be largely wrong.

In fact, many drug companies now face a challenge most long-term care operators know all too well: trying to survive in the short term and thrive in the long term, as traditional strategies lose their effectiveness.

Conventional wisdom holds that it now costs about $1.3 billion to bring a new drug to market. But some industry insiders say that the real total is closer to $4 billion — especially if post-approval clinical trials and safety monitoring costs are bundled in. And keep in mind that fewer than 1 in 10 drugs tested on humans make it to market.

Yes, a new medication can be a revenue rainmaker for more than a decade. But when you are investing big cabbage into a product that has a better than 90% chance of failure, you really are playing the lottery.

And the odds aren't getting better. Generic drugs accounted for a little over 50% of all prescriptions in 2005. Now the figure is nearing 75% — and growing. The Food & Drug Administration has become much more zealous about scrutinizing new meds, which means the pipeline has slowed to a trickle. Insurers are refusing to pay five figures for a one-year supply of many of the specialized drug regimens that have helped keep many drug firms solvent. And the pharmcos themselves have shed more than 100,000 employees in the past few years. Still think making medicine is the easy way to strike it rich?

So what path will successful drug companies need to take? Actually, it's likely to be similar to the course that many long-term care firms will need to follow.

Leaders in both fields will need to make some strategic bets about the road ahead, and plan accordingly. Yes, that will mean the discomfort of embracing change, perhaps accepting a new vision, making sure you can exploit your operational efficiencies, and fishing where the proverbial fish are.

Most important, it will mean constructing new business models (yes, that's models, not one model) that complement your master plan.

The alternative is to do nothing and hope for the best. In that case, you may need something a lot stronger than aspirin.

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Daily Editors' Notes

McKnight's Daily Editor's Notes features commentary on the latest in long-term care news. Entries are written by Editorial Director John O'Connor on Monday and Friday; Staff Writer Tim Mullaney on Tuesday, Editor James M. Berklan on Wednesday and Senior Editor Elizabeth Newman on Thursday.

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