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Are Drugs Safe?


Thanks for visiting me in NYC!

Let's get this out of the way right off the top. Are drugs safe?


There are several billion people on the planet, each with a peculiar body chemistry. I can guarantee that any active drug will kill, maim, or otherwise adversely affect at least one of these several billion people. In fact, I can go out on a limb and say there are a few dozen of these several billion people who will be killed, maimed, or adversely affected by any active drug I choose.

Therein lies the conundrum of the various regulatory agencies and drug manufacturers. Sorting out which drugs will harm which people. It's actually an easy problem to solve: Just give the drug to every soul on the planet and do a detailed autopsy/workup on the ones that get sick. Then write all that down and do a complete genetic screen of all newborns for the relative markers. That guarantees nobody else will ever get sick from an approved drug.

That's what I used to tell my students was taking a question to an illogical extreme.

Regulators & drug approvals

The role of regulators is not to prevent drugs that hurt people from entering the market. That is impossible without testing every single soul on the planet. The role of a regulator is to gather as much factual and theoretical evidence as possible and make a cost/benefit analysis. What benefits will this drug bring to patients it doesn't maim versus the costs it will bring to patients it does maim?

The drug that made the FDA famous, thalidomide, was a perfect example of this. Thalidomide was a treatment to reduce the discomforts of pregnancy. Regulators in other countries approved the drug, but the FDA denied it because they were not comfortable with the scientific theory behind it. The FDA believed the reward of reducing morning sickness was not worth the risk represented by anecdotal animal evidence and the drug's mechanism of action. As you may know, thalidomide was responsible for horrible birth defects.

That's an easy one. Here's a harder one. Americans eat too damn much - especially fatty foods. Here's a drug that reduces the impact of that lifestyle and generally reduces morbidity (illness) and mortality (death) by a significant percentage. There are side effects, however, including a few deaths from liver disease. Should the FDA approve a drug that extends the life of 100,000 patients significantly when that drug maims 2-3 of them?

How about a drug that, when given to suicidal patients, reduces the incidence of suicide attempts by 20%. When given to a larger population of depressed individuals, however, a very small percentage (< 0.1%) seems to develop suicidal tendencies and act on them.

Quoth Mr. Spock: "The needs of the many outweigh the needs of the few, Jim."

Enter the trial lawyers

Here's the problem. Trial lawyers are in the business of convincing 12 people that any maiming is bad. The needs of the one far outweigh the needs of the many. Spin their job any way you like, but that's what they do. In the business of suing drug manufacturers, it is all about enforcing the atypical body chemistry of the unlucky few on the rest of us.

It makes no difference if a drug increases the quality of life of 99,998 people. If it maims two out of 100,000, then there will be hell to pay.

I find this especially irksome when the labels clearly warn against most of these problems. Nobody likes to read those laundry lists of potential side effects because they are depressing. They often tell the truth, however, so as a drug consumer you should be clearly watching for the side effects and complain early and loudly to your physician if they show up.

Impact on investors

The first decade of the 21st Century will not be known for when we roamed Mars, launched private space travel, or explored Jupiter's moons. It will be known as the decade when the drug lawsuit was king.

My introduction was not facetious. Give a drug to enough people and it will maim someone. I guarantee it. How can you protect your portfolio against such odds? Find investments in companies whose drugs treat conditions where the cost/benefit ratio is monstrously obvious and the overall patient populations are relatively small.

An Orphan Drug is one chosen by the FDA (European regulatory agencies have similar designations) because the potential market is so small. We're not always talking about isolated genetic diseases here. Many cancers - particularly blood cancers - fall into this category. As we learn more about cancer and better delineate cancer sub-types, the orphan indication will become more common. Since the patient populations are small, the potential for unintended maiming will also shrink.

Speaking of cancer, this is the most obvious of the cost/benefit winners. The alternative to the use of a cancer drug is certain death. We're more than willing to put up with maiming drugs in order to prevent death. The last drug approved for melanoma, for example, is so horrendously toxic only young people can take it and even they have to be confined to a hospital ICU during treatment.

Let's look more generically at drugs for acute and chronic conditions. An acute condition is one that arrives, is treated, and then disappears. A chronic condition is one that arrives and requires constant treatment in order to keep it from getting worse. It never disappears.

Chronic conditions are seen as real moneymakers for drug companies because you have a customer for life. The only problem is the more you take a particular drug, the more chances an unexpected side effect pops up. Then you're right back in the trial lawyer's lap and it's all bad news from there.

The moral of the story

Big pharma focuses on chronic conditions, usually subtle conditions where the benefit from the drug is incremental. Big pharma has found it is easier to convince people (via the power of advertising) they have a subtle chronic condition, so that's where they focus. This is the field of proven blockbuster drugs. As a result, big pharma is unusually exposed to unintended side effects and the trial lawyer invasion they bring.

If you do not think big pharma understands they must escape from this dynamic, then you simply haven't been paying much attention to them when they talk about moving to acute care products (read: products where the benefit is more clear cut), serious diseases (ditto), and specialty markets (read: smaller patient populations).

So where does big pharma access these drugs?

Well, I can tell you where they won't access them - at least any time soon: Their own pipelines. Drug companies shelved or outlicensed their acute care, orphan, and specialty products throughout the 1990s because the potential revenue from them was less than the $1B "blockbuster" level they fervently desire.

The only remaining source for these types of drugs is from the myriad of small biotech companies working on treatments for acute diseases, orphan indications, and specialty markets. Not only are these drugs far less susceptible to the trial lawyer phenomenon, they tend to have higher margins due to lower selling costs and higher retail costs.

I always like to tie things together and the 'Ville's myriad of inputs is a great place to do that. In one of his recent missives, Professor Reynolds had this to say:

"...But, so far, there has been no indication of any reversal of the willingness of bond investors to throw money at companies. As long as that continues, it is likely that this is just an equity market correction and, if stock prices do not eventually resume climbing on their own, we will see more M&A and share buyback activity designed to try to accomplish that."

I humbly submit that the strength in the corporate bond market will provide more than enough liquidity for big pharma to make the product and company acquisitions it needs to survive. The beneficiaries of this largess will be small biotech companies and, of course, their shareholders.

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