This post is motivated by a set of lectures I attended as part of the 3rd Annual ITMAT Symposium on Translational Medicine (Full disclosure, ITMAT is currently my employer). Here are the first two lectures given today (for posterity in case the link above goes to the ether some day) that are the focus of this post:
Nassim Nicholas Taleb, PhD, London Business School, “Errors in the Analyses of Market Potential for Drugs”
Dale Nordenberg, Healthcare Industry Advisory, PricewaterhouseCoopers LLP, “Global Trends and Drug Development”
Taleb went on to claim that these types of events are equally applicable to big pharma. Currently the top 6 or so blockbuster drugs capture over 90% of the revenue, and that's no where near normal. Recent high-profile litigation also showed that rare events can hurt a companies' bottom line as well.
The second talk by Dale Nordenberg focused on what industry pundits and analysts are calling "Pharma 2020", or the shift in the industry towards providing personalized medicine. This is pharma's equivalent to the so-called "long tail" economics model popularized by Internet sales. Selling a larger variety of drugs, each tailored for use by fewer people.
There is no doubt in my mind that the gains in safety and efficacy of future drugs offered to the public would be enormous if pharma did indeed move in this direction, but I am a bit skeptical about the financial incentive of big pharma to follow the piper. It is essentially assuming that pharma can reach a normal earnings distribution if this model is followed, which assumes that big pharam will be insulated from the risks of non-normally distributed earnings environments.
But if we take Taleb's lecture at face value in the context of current litigation practices in the US, then we already know that the risk model that pharma faces is one where a rare event will have a very large detrimental effect. Without the equally large and insular effects of blockbusters on revenue, how will a company survive a class action? If I where a CEO, I would probably be paying lip-service to the Pharma 2020 vision, in the hope that such actions would lead to protection from Congress, but my horse's name would still be "Blockbuster McGee".