April 2013 Issue of Life Science Leader magazine
There is a long history of innovation in the United States. Everyday products such as the telephone, light bulb, microwave, and personal computer all originated in the states. This culture of innovation has translated to healthcare as well. For example, in the last 10 years the United States has been responsible for producing more than half of the world’s new medicines. But the U.S. culture of medical innovation is at risk, and that risk is coming from within. Domestic regulatory and tax policies have opened the floodgates for other countries to offer various incentives to boost private investment in new medicines and medical devices in order to lure research facilities and jobs away from the United States.
This doesn’t sit well with Celgene Chairman and CEO Bob Hugin, who ascribes to the notion that the ultimate value of medical innovation is derived from where discovery and development take place, not just where the resulting innovation is distributed. Take Europe as an example. “Thirty years ago Europe produced more than 50% of the intellectual property around new medical compounds,” he states. Today, the EU represents less than 25%, a decline Hugin attributes to Europe’s lost opportunity to aggressively support early-stage research with policies that allow for good reimbursement and a reasonable return for companies developing drugs. This failure to recognize the inextricable link between medical innovation and economic progress and prosperity has contributed in a cycle of decline that has rippled throughout the EU economy as evidenced by the European commissioner for economic and monetary affairs forecasting a weak 0.1% growth rate across the 27-member nation economy for this year.
Hugin does not want to see the same thing happen to the U.S. R&D engine of medical innovation, which supports approximately 4 million total U.S. jobs and creates an economic output in excess of $900 billion annually. “If we don’t recognize that the whole system has to be successful, these innovations are going to be made elsewhere, and the economic benefit is going to accrue in other countries,” he says. In order to prevent this, Hugin is asking life sciences industry leaders and constituents to take action. “We need spokespersons advocating for an environment of collaboration, pro-innovation policies and regulations, as well as IP protection laws which support the U.S. medical innovation ecosystem,” he states.
Lead By Example
To become a successful spokesperson or industry advocate, Hugin believes you have to speak from experience and lead by example — something which Celgene has most certainly been doing. The company has been recognized as one of the most innovative in the world by Forbes. A recent entrant into the Fortune 500, Celgene’s exceptional stock performance over the past 10 years, +1,778%, is the envy of many of its peers. Some experts are predicting Celgene to be the best- performing biotech in 2013. Hugin attributes Celgene’s success to a positive policy environment, collaborations with multiple constituencies, and an internal company culture he describes as entrepreneurial, challenging, and innovative. It’s those success stories and industry credibility that he’s bringing to his new spokesperson role as chairman of the Pharmaceutical Research and Manufacturers of America (PhRMA), a position he assumes in April, replacing Eli Lilly’s John Lechleiter. But Hugin can’t do it alone. He is looking to all stakeholders to step up as spokespersons for medical innovation to spread the message — a healthy U.S. medical innovation R&D engine is an integral component of a healthy U.S. economy.
Create A Challenging Environment Within Your Organization
When it comes to touting the importance of a healthy pharmaceutical R&D industry, Hugin suggests you first look at your own company. For instance, do you have a challenging environment internally geared toward innovation? For Celgene, the process of creating an entrepreneurial, challenging, and innovative environment all began with getting the FDA to allow the company to bring back a drug that had been withdrawn from the market over 50 years ago.
When Celgene’s REVLIMID (lenalidomide) first received FDA approval in 2005 as a viable treatment for blood cancer, it was no small feat. That’s because the drug is a derivative of THALOMID (thalidomide), which was withdrawn from the market in 1962 after being linked to birth defects. Given the tragic history associated with this drug, the decision to try to launch a new drug derived from it certainly created a challenging environment at Celgene. Many might think that the politically correct thing to do would have been to not even try. But would that have been the right thing to do? According to Hugin, “The drug had positive attributes which were beginning to be understood by people who had no treatment alternatives, including the AIDS community.” As a result, Celgene leadership was willing to take the risk of bringing back THALOMID and developing next-generation therapies with improved features and greater clinical benefit — a challenging endeavor requiring multiple collaborations between the FDA, patient advocacy groups, and insurance payers. Facing this unique situation forced Celgene to ask the following types of questions of its leadership team that ultimately led to the evolution of a more innovative environment.
- How do we create a mindset to look at things in creative ways?
- What can we do to challenge the conventional wisdom internally?
- How can we work in areas that are going to make transformational change for patients and change the way science and medicine are practiced?
- How can we revolutionize processes so that we are looking to do things in a way that has the highest probability of creating great outcomes and doing things that have the most efficiency?
- What are we doing to focus on operational excellence internally so that every dollar saved can be put back into creating more opportunities?
- How can we improve access to drugs for patients?
- Are we really committing our resources to advance science and medicine?
Having a more innovative and challenging environment at Celgene improved R&D productivity. For example, Hugin notes that the company has nearly halved the time it takes from discovery, when a development candidate is first identified, to entering clinical trials. Since FDA approval of Thalomid in July 1998 for treatment of erythema nodosum leprosum (a severe and debilitating condition associated with leprosy), Celgene has not only gained approval of REVLIMID worldwide, which had sales of $3.77 billion in 2012, but also recently won regulatory approval for use in China. A next-generation oral immunomodulatory therapy, POMALYST (pomalidomide), was approved by the FDA in February for the treatment of relapsed or refractory multiple myeloma in the U.S. It is important to note that survival rates for patients with multiple myeloma have soared to well over 50% as a result of the introduction of novel therapies including REVLIMID and POMALYST. In addition, REVLIMID is up for FDA priority review for a new use in patients with mantle-cell lymphoma with an expected decision in June. One of the keys to Celgene’s success has been its commitment to put significant financial resources into R&D — a policy Hugin believes needs to be implemented on a more macro level.
Branded Innovation Benefits Society Through A Virtuous Cycle
Evangelizing the importance of increasing investment in medical innovation in the U.S. requires more than just a revamped culture of innovation. Namely, it requires pro-innovation policies and regulations, IP protection, and a significant financial commitment. Presently, the biopharmaceutical sector is the most R&D-intensive industry in the United States, investing more than nine times the amount of R&D on a per-employee basis when compared to manufacturing industries overall. Celgene is even higher, investing approximately $265,000 in R&D per employee. Compare that to the $7,634 per-employee average R&D expenditure for all U.S. manufacturing sectors between 2000 and 2004.
Celgene and the biopharmaceutical sector have demonstrated the financial fortitude to invest in U.S. medical innovation, which helps people live longer, better, and healthier lives and, in turn, stimulates the U.S. economy. But Hugin believes there are some big opportunities that should be mentioned and discussed frequently, for example, the facts related to the cost of drug development. “When successful drug discovery costs close to $1.2 billion and takes an average of 12+ years, that is just not sustainable if you want to provide therapies that can be cost- effective while continuing to invest in more programs to have more solutions,” he states. In order to protect the U.S. medical innovation R&D engine, the effort needs to be truly collaborative, with multiple constituents, including life sciences companies, academia, patient advocates, payors, FDA, NIH, and CMS (Centers for Medicare & Medicaid Services).
Additionally, he says the fact that most drugs eventually go generic is an important consideration for all life sciences constituents. “If you want people to take risks, they have to have confidence and the certainty that if, in the rare case they are successful, they will benefit from it and be able to sustain the business model and make future investments in R&D,” he notes. An integral component of the virtuous cycle of medical innovation is that new discoveries are accessed and reimbursed based on their therapeutic value. As a result, this provides both funding for future innovation and long-term benefit to society in the form of generic drugs after the original patent life has expired. As a point of reference, the innovator’s discovery spends more time in the generic phase of its product life cycle than it does in the brand phase of its life cycle — an enormous societal benefit. “Generics will not exist if we don’t invest in branded, innovative therapies that get fully protected for the life of the intellectual property,” reminds Hugin. “Generics are invented by branded innovative companies. They aren’t invented by generic companies.”
Seek Opportunity When Facing Adversity
Hugin is hopeful that U.S. government lawmakers heed the example of the EU’s drug industry. He believes public policies which are supportive of collaboration and pro-innovation are necessary to truly protect the U.S. medical innovation R&D engine. Referencing Federal Reserve Chairman Ben Bernanke’s Feb. 26, 2013 comments, Hugin advocates the need for addressing problems with a long-term approach as opposed to the EU’s implementation of austerity — spending cuts and increasing taxes. Bernanke recently urged Congress to consider tax and spending policies that “increase incentives to work and save, encourage investments in workforce skills, advance private-capital formation, promote research and development, and provide necessary and productive public infrastructure.” Hugin is in agreement, noting, “Often, during times of great adversity, you are presented with excellent opportunities. Seek to find the opportunities adversity presents.” Not bad advice coming from the CEO of a company that overcame adversity by bringing back a once-banned drug that ignited bold pursuits in science and transformational approaches to rare, serious, and debilitating diseases, including REVLIMID and POMALYST for patients with multiple myeloma.
Some pharmaceutical sector analysts estimate REVLIMID will generate sales in excess of $6.7 billion by 2018. That’s good for society long term since it creates multiple opportunities for Celgene to reinvest in the next generation of life-enhancing therapies that may enable healthcare providers to turn more terminal diseases into long-term manageable ones. But if that is the only number which impresses you, then you didn’t think nearly big enough nor nearly long-term enough. Big problems require long-term solutions — and spokespersons like you — to preserve the U.S. medical innovation R&D engine. Medical innovation is the crown jewel of America. It has contributed so greatly to the economic success of our country over the last 50 years, and it offers enormous potential to make a meaningful difference in the quality and length of our lives in the next 50 years. Of all the critical trends that will create a prosperous future, medical innovation will be the most important. For those of us who believe that medical innovation in a culture of change in science and medicine will be part of the solution, we must stand up and advocate for public policies and laws that support a positive environment and positive solutions to the challenges we face. Certainly, here in America, we have to believe in a positive future and be bold and courageous as we create it.
The Economic Benefits Of Good Public Policy
“So few people today appreciate the improvements to the quality and length of life that medicines, devices, and medical innovations have on our society and the economy at large,” states Bob Hugin, chairman and CEO of Celgene. For example, in 1900, the average U.S. life expectancy was 49 years. Today, it is 79. It is estimated by 2040 U.S. life expectancy will reach 85 years, a full 13 years more than the rest of the world. This is primarily the result of innovation in medicine and improvements to public health, which translates to U.S. economic health as well. Economists Kevin Murphy, Ph.D., and Robert Topel, Ph.D., calculated life expectancy gains from 1970 to 2000 to have added approximately $3.2 trillion per year to national wealth. They estimate a modest 1% reduction in cancer mortality would be worth $500 billion to the U.S. economy. Unfortunately, many pundits focus on prescription drug spending in a vacuum, noting increased spending on newer prescription drugs, while failing to note the overall reduction in medical spending that often results. Research conducted by Columbia University Professor Frank Lichtenberg, Ph.D., provides strong evidence to support the use of newer drugs in actually reducing total healthcare spending. For example, he estimates the use of a newer drug to treat a condition would result in an increase in prescription drug spending of $18. However, it would also result in a reduction in other medical spending by $129, with most of the savings being due to reduced hospital and physician office-visit expenditures. Hugin cites Medicare Part D as a real-world example in support of Lichtenberg’s research. “In the first year, we saw a $14 billion reduction in other medical services expenditures with just the introduction of Medicare Part D – and costs 43% below forecasts,” he attests. “It’s only been around seven years and has nearly a 90% approval rating, which is pretty much unheard of. How can anyone not believe that Medicare Part D represents great public policy and an important social advance for America?”
The Importance Of The FDA Incentivizing Innovation
Tropical diseases are not a prevalent problem in the United States. So why then did the FDA create a policy that incentivizes companies to develop new drugs geared toward treating these diseases? Because if you want companies to invest in developing new innovative drugs, which may not be commercially viable in the U.S. but will prove beneficial in solving global health problems, create a program that rewards these companies for their efforts. The FDA voucher program falls under the FDA Amendment Act of 2007 (FDAAA), and here is how it works. If a company develops a drug for a tropical disease treatment (e.g. TB) and receives FDA approval for it, the company is eligible to receive a transferrable voucher that allows the bearer to designate a single human drug application (i.e. another drug in the company’s pipeline) submitted under section 505(b) (1) or section 351 of the PHS Act, to receive six-month priority review status. I think this is a great example of pro-innovation policy. If you want new innovative therapies that advance the treatment paradigm, stimulate the economy, and reduce the burden on our healthcare system, provide appropriate incentives. Not only is the FDA helping to treat diseases found primarily in poor and developing countries, but who knows what else might develop from this research?