COMMENTARY
Goodwill Hunting
Martin Shkreli and Hillary Clinton last week
provided the flint and steel that ignited a dry tinderbox of well-worn ideas
about controlling drug prices.
Like all wildfires, the furor flared in the
blink of an eye, even by the standards of today’s hyperkinetic, Twitter-driven
news cycle. Shkreli and his Turing Pharmaceuticals AG were called to account by
The New York Times on Sunday for increasing the price of Daraprim pyrimethamine
by more than fiftyfold. Clinton rushed in on Monday to fan the flames with a
populist crusader’s call for reforms, which she issued on Tuesday.
By week’s end, Turing had been drummed out of
BIO. But not before $145 billion, or 10% of the market value of BioCentury’s
biotech universe, was wiped out on Wall Street (see “Loose Lips”).
While throwing Shkreli and Turing overboard
was the obvious thing to do in this fire drill, there’s actually little the
industry can do collectively to douse the remaining embers.
The price control fires will keep flaring up
because they are such easy political pickings, especially as the election
season wears on. BIO and PhRMA probably will find ways to lower the heat
temporarily because they command seasoned inside-the-Beltway skills. But in the
end, it’s up to each biopharma company, acting alone, to build goodwill with
the public while juggling the apparently conflicting interests of shareholders
and patients.
The path forward will be hard, but BioCentury
has been pointing out the obvious for years.
Each company’s cost structure must be reformed
to create headroom for creativity on pricing. Commercial players have to get
serious — quickly — about experimenting with new pricing and access models,
coupled to broader approaches for adding patient value. And R&D players as
well as commercial companies have to go beyond platitudes and involve patients
in identifying priorities for development of drugs that the patients will want
both public and private payers to pay for.
These steps will not usher in an era of peace
and harmony for the biopharmaceutical industry, but they are the best responses
to the political and economic realities of healthcare.
IT WASN’T ME
Clinton teased her drug pricing policy
announcement by tweeting on Monday: “Price gouging like this in the specialty
drug market is outrageous,” and linking to The Times’ story reporting that
Turing increased the price of Daraprim from $13.50 per pill to $750. The
company had acquired U.S. rights to the antiparasitic compound from Impax
Laboratories Inc. earlier in September.
By the end of the week, CEO Shkreli had been
thoroughly tarred and feathered in social and mainstream media, and both BIO
and PhRMA issued statements distancing themselves from Turing. The biotech
trade group then proceeded to formally jettison the company from its
membership.
The last step was completely necessary as
industry leaders must avoid guilt by association with the handful of companies
that cynically extort patients and the healthcare system by jacking up prices
on ancient drugs that are in short supply.
At the same time, shunning bad actors won’t
solve the problem. Shkreli is an excellent piñata for politicians and the
media, but he isn’t their real target. In fact, the public and politicians
don’t distinguish between the Turings of the world and companies that actually
engage in discovery and development. All they look at is what a drug costs. And
what they see is five- and six-digit prices, double-digit price increases, and
rising co-pays.
In her tweet and in a campaign speech on
Tuesday, Clinton tried to conflate eye-popping increases in the price of an old
generic drug with the broader, and far more consequential, issue of the pricing
of novel drugs that change the course of disease in unprecedented ways.
Clinton accurately called Turing’s pricing of
Daraprim “price gouging, pure and simple.” However, she followed this with a
broader attack on the drug industry. “At the same time this is happening, top
pharmaceutical companies are receiving billions of dollars in tax relief every
single year and earning billions of dollar in profits every year. And many of
them spend more money on marketing and advertising than they do on research.”
Clinton went on to accuse industry of
marketing me-too drugs as breakthroughs: “Too often, so-called “new” drugs are
really old drugs that have just been tweaked a little bit, but then they’re
marketed as breakthrough drugs, and they’re sold for high prices.”
HILLARYCARE
Readers who weren’t born yesterday will
recognize that Clinton’s proposals for hammering drug prices were in the works
long before she or anyone else had heard of Turing. Her rhetoric likewise will
bring back memories of the first years of the Bill Clinton White House in the
early 1990s, when Hillary Clinton and her team of acolytes created a healthcare
reform plan that inspired Democrats in Congress to propose a national board to
impose “price controls on breakthrough drugs.”
That first version of Hillarycare cratered,
while the nostrums she proposed last week have been pursued unsuccessfully by
the Obama administration for years (see “A Brief History”).
Nevertheless, given the gift of the “Turing
moment,” Clinton last week vowed to make drug prices a centerpiece of her
campaign. The candidate asserted that most new drugs are “me-toos” and said
that if elected, in addition to extracting billions of dollars in rebates from
drug companies, she would regulate their operations to ensure that they spend a
“sufficient” amount on research.
Fortunately, campaigning is not governing, and
by the time the dust settles on the elections next November and a new president
and Congress take over in January 2017, few will remember the promises and
proposals candidates made in September 2015. And no substantive legislation,
and certainly nothing that fundamentally changes the economics of drug
development, will be enacted for the remainder of the Obama administration.
This means there is some breathing room, but
it doesn’t mean the issue will go away on its own.
Clinton’s proposals, and the words she used to
present them, were propelled by polling and polished by focus groups that have
convinced sophisticated campaign operatives that a substantial segment of the
voting population will respond favorably to promises to lower their
out-of-pocket costs for drugs, and to assertions that drug companies are
rapacious.
HARD CHOICES
The headlines, and the inevitability of
continued political attacks on drug prices, reinforce the messages BioCentury
has been sending in its annual Back to School essays for the last three years.
In 2013, Back to School argued the “drug
industry is going to have to come to grips with the reality that the existing
pricing paradigm is not sustainable. This is precisely the opposite of the
direction companies are pursuing with their focus on Orphan drugs and
ever-smaller cancer indications, which they expect will continue to be priced
at eye-popping levels with eye popping margins and a steady dose of price
increases.”
At the time, Back to School also said industry
was heading in a direction that was “destructive to both the industry and its
investors in the long run by making payer and public backlash even harsher than
it already is.” BioCentury called for the drug industry to “participate in
shaping the system that defines innovation,” or face the prospect of payers
making decisions based solely on cost.
In 2014, Back to School warned that a backlash
against drug pricing in the U.S. meant the “last bastion of free pricing is
crumbling” and argued that “biotech and pharma had better start experimenting
with new pricing models based on value for money while they still have the
chance.”
This year, Back to School argued for much
deeper industry engagement with patients, noting that they can “help define the
value of medical interventions for payers, and for other patients, in ways that
are far more convincing than anything drug developers can say.”
Patient-driven drug development, BioCentury
argued, is “both inevitable and essential to improving product offerings,
shortening development times and achieving product approval and reimbursement.”
These necessary changes will be difficult, and
some will be painful, but there will be no way around the fact that drug
companies need to adapt to a world in which they have less pricing power.
It means drug companies will have to dig far
more deeply to reform their cost structures to shore up profits and dividends
as prices flatten, discounts rise and the cost of providing the clinical
outcomes beyond simply distributing pills and vials goes up.
They also will have to reset the expectations
of shareholders who have come to expect profits that are not just above
average, but far above average. The resulting short-term reduction in
valuations, and a turnover in shareholders who want above-average dividends
rather than innovation, may be the price pharma companies have to pay to make
the kinds of changes that are necessary to ensure their long-term viability.
The key point is that goodwill is created one
company at a time, not by trade groups inside Washington.
This is not a PR exercise. No amount of
investment by trade associations in communications or lobbying will get the job
done. Indeed, PhRMA and BIO have spent decades trying to improve the public’s
perception about the industry, with little if anything to show for their
efforts.
The trade groups have had important lobbying
successes, preventing Congress from afflicting the industry with countless
plagues. But the rising influence of populists in both parties will make it
increasingly more arduous for them to kill legislation.
The only thing that can work is for each drug
company to show through pricing and access decisions that it is serving the
public interest.
Some promising first steps have been made along
these lines. For example, Novartis AG is working on a performance-based pricing
model for Entresto sacubitril/valsartan under which the pharma would have to
earn an increase in price from deep discounts offered at launch by showing the
new heart failure drug produces downstream healthcare savings, such as by
reducing hospitalizations.
In collaboration with drug companies — and, in
fact, in response to pharma interest in pricing experiments — Express Scripts
Holding Co. will pilot an indication-based pricing scheme that involves
variable reimbursement rates for cancer drugs that are commensurate with the
degree of bene t the drugs provide in different cancers.
If more R&D companies partner with patients and payers to prioritize clinical needs, define and demonstrate value, and agree on plans that ensure access to medicines, then these constituents will have a stake in preventing the most ruinous political policies that would be imposed if the current trajectory is not modified.