Life Sciences Pilot Meeting Explores Drug Costs, M-A Landscape, Banks and Insurance
The pilot meeting of the Life Sciences Treasury Peer Group sponsored by Wells Fargo and hosted by Gilead Sciences in Foster City, CA, provided a setting where finance professionals discussed issues specifically affecting the pharma, medical technology and equipment industry, as well as challenges and opportunities faced by all treasurers and their teams.
“Nobody in the World Wants to Pay.” That frank assessment was among comments made during a dinner discussion about the cost of health care and what it means for patients, health care companies, insurers and governments. One member said the expense of developing a drug is often “forgotten,” while another participant said political answers to the problem are “super hard” and made more so by controversies over high-priced drugs. He talked about the value of having payors “with skin in the game,” saying, “the more subsidized something is, the more it costs.”
New Ways to Pay? One of the most interesting ideas to surface about financing customer drug costs is matching the time a patient has to pay with the duration of the therapy, say, 18 to 24 months. Less clear is whether the patient would pay a financing rate and, if so, whether a third-party like a bank or fintech would hold the risk or the drug company itself would do so. The discussion also touched on so-called outcome-based pricing that’s pegged to a drug’s effectiveness.
“M&A is Not a Democracy.” That statement from a Wells Fargo banker points to the reality that deals are getting done, despite valuations in life sciences that he described as being at “astronomical levels” with “very high multiples—people are struggling to pay them.” He said companies that used to use hurdle rates are “moving to something else” and that pressure to do transactions is driving a more “aggressive financial posture in terms as what qualifies as a good deal.” Often, behind that posture lies a view that by bolting on an acquisition a company positions itself for future synergies and other deals that will accrue to its benefit and growth.
Insurance Conundrums. A presentation about innovation in insurance coverage addressed the difficulty of many life sciences companies to get affordable product liability coverage and other issues, including the desire of some companies for integrated programs that would better match coverage with risks. A presenter from Aon said the insurance broker would “love to come to each of you with a parametric solution that will be indexed,” but that the industry also needs to come up with other approaches. But in the end, many participants remained skeptical about the outlook and unhappy with the lack of transparency in pricing insurance, with one saying, “it’s so opaque.”