Magazine Article | July 1, 2016

Biopharma Companies Are Focused On Access, Continued Innovation

Source: Life Science Leader

By Ron Cohen, M.D., President and CEO, Acorda Therapeutics, Inc.

Our nation is engaged in an increasingly intense debate about our healthcare system, with particular focus on access and cost. Often, the price of medicines is at the center of this discourse.

While some of our industry practices can justifiably be criticized (as they may be for any industry), I have found the vast majority of the thousands of people I have met over my 30 years in the industry to be passionate, committed people who come to work every day to make a positive difference in the world. And they do!

I believe that, rather than vilifying any segment of our healthcare system, we need to have an open and frank dialogue about the costs of this system — one that includes all the players that are needed to help improve care and affordable access: biopharmaceutical companies, hospitals, physicians, payers, regulators, legislators, employers, and patient advocacy groups.

Our shared goal should be to design an economically sustainable system that ensures patient access and promotes future innovation. Here are a few keys to consider as we work toward this goal:

"We now face the real risk that shortsighted policies will drive investors away and impair the U.S. biotech sector that drives global medical innovation and employs more than 800,000 people across the country."
  • We need to explore new ways to develop and deliver medicines that maximize patient benefit and drive smarter spending within the healthcare system. Such approaches include value- and outcomes-based contracting arrangements that reflect the different values medicines can have for different subpopulations. We must also emphasize patient adherence and education programs, alternative financing and payment mechanisms, and other options.
  • Legislators must remove legal barriers that currently limit or prevent the pursuit of innovative approaches. Such barriers include antiquated pricing requirements for government payers, which interfere with the ability to implement new value-based pricing models. Companies are also restricted in the information they may share about their products. Removing restrictions on truthful, nonmisleading communications about medicines can enable more effective discussions between drug developers and payers, improve healthcare outcomes, and save money.
  • Any discussion on drug pricing needs to account for the “innovation ecosystem” that produces advanced new medicines. The reality is that the great majority of drugs in development, almost 90 percent, fail; and over 90 percent of the over 1,000 biopharma companies are not profitable. Yet the failures must also be invested in, to allow the successes to emerge. Investors must be confident that they will have large returns for the few winners in order to justify their continued investment in drug innovation — otherwise they will default to less risky investments, and we will not have the medical breakthroughs we need.
  • It’s also important to understand that these high returns last for only a limited period of exclusivity. After that, the drugs become generic and are available cheaply forever after. This is a great bargain for society. No other segment of the healthcare system reduces prices after a fixed period: hospitals don’t lower their rates after they have paid off their mortgages; nor does the price of your health insurance premiums drop by 90 percent after 10 years. To put this in context, generic versions of branded medicines are estimated to have saved about $1.5 trillion in medication costs over the past 10 years alone!
  • Often lost in the rhetoric is how drug costs fit into the bigger picture of overall healthcare spending. Drugs comprise less than 15 percent of overall healthcare spending, yet are a key part of the system that actually can reduce overall healthcare costs. As just one example, the recently introduced cures for hepatitis C cost about $50,000 per person net of rebates, yet have been estimated to save over $200,000 in healthcare costs associated with the complications of hepatitis C. Effective prescription drugs help hold down overall spending in ways that are not always immediately apparent. The patient who does not have to go back to the hospital after a successful course of treatment rarely makes headlines.
  • A related point on drug prices is that, like the “rack rate” in hotel rooms, virtually nobody actually pays the list price. Payers and their agents negotiate vigorously with drug manufacturers, and numerous other parties, such as distributors, hospitals, and pharmacies, and also take a percentage off every dollar of the nominal drug price. Thus, the total discount to the list price may be up to 50 percent or more. And, while prices for some drugs have indeed increased substantially, overall branded net drug prices increased just 2.8 percent in 2015, less than the increase in insurance premiums.
  • But still, aren’t the Big Pharma companies reaping “excessive” profits? The top 10 biopharma companies have an average return on equity of about 20 percent. That’s good, because it is sufficient to continue to attract investors. But this rate of return ranked only 42 behind such industries as information technology, restaurants, home improvement chains, apparel, footwear, and beverage companies.
  • The biopharma industry invests more in R&D, as a percentage of its revenue, than any other industry. You might not know it from reading today’s headlines, but biopharma companies invested more than $70 billion in R&D in 2015 alone, almost triple what the NIH spent on R&D.
  • It’s time that outliers like Turing and Valeant stop being held up as representative of the biopharma industry; they are not. These companies invested virtually nothing in R&D, while taking huge price increases on old medicines, and they have been rightly repudiated by the major biopharma industry organizations.
  • Talking about drug pricing also means tackling the inequities in insurance coverage that force patients to pay a far larger share of their medicine costs than for hospital or physician services. Often this effectively denies them the care they are supposed to be insured for. Why are copays for hospitalizations only about 4 percent, when patients may be forced by their insurance companies to pay 30, 40, or even 50 percent of the costs of their medicines? Insurance companies like to claim that drug prices are causing their premiums to go up. But their own data shows that the major drivers are inpatient and outpatient hospital price increases (accounting for 53.4 percent of premium growth) and professional services like doctor visits (accounting for 21.5 percent of premium growth), not prescription drugs (17.5 percent of premium growth).

In summary, innovative medicines increase our overall health and lower other healthcare costs. They do so at prices that are temporary, that lead to low-priced generics permanently, that permit the highest rate of R&D investment of any industry, and also attract the huge amounts of outside investment that are needed to produce the next generations of innovative medicines. We now face the real risk that short-sighted policies will drive investors away and impair the U.S. biotech sector that drives global medical innovation and employs more than 800,000 people across the country.

Does this mean there are no problems with drug access and costs? No. What it means is that the biopharmaceutical industry is one of several important players in the healthcare system, and effective solutions require all stakeholders in this system — drug innovators, payers, and hospitals, as well as regulators, legislators, healthcare professionals, and patient groups — to collaborate to ensure that patients gain affordable access to the medicines they need, while allowing innovator companies to continue investing in the groundbreaking cures and treatments of tomorrow.

BIO’s Principles on the Value of Biopharmaceuticals commit our industry’s leaders to find patient-centered solutions to the challenges and opportunities presented by modern medicine. To date, we are the only sector of the healthcare system to produce a document of this kind. A productive discussion should be less about finger-pointing, and more about collaborating to improve outcomes and maximize the effectiveness of healthcare dollars.

We stand ready to work with all parties to that end, and will continue our efforts to improve healthcare outcomes, and access to those outcomes, for all people who need them — now and in the future.