Can We Afford The Cures Biopharmaceutical Companies Seem Capable Of? Part 2 of 4

By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL

Hurdles, Pricing And Patents Part 2 of 4

While the biopharmaceutical industry has made 50 percent of current cancers curable, it still is facing continued pressure to develop ever more cures at ever cheaper prices. Not long ago I saw a headline touting the price of a drug that cured a previously incurable disease. Though the headline focused on the price, it also mentioned how much it cost to manufacture, an $85,850 difference, as if drug should be priced similar to other cost-plus products. But the reality is that taking such an approach doesn’t count all of the costs it took to research and develop the drug from scratch. A recent study noted that the cost of developing a new prescription medicine that gains marketing approval to be around $2.9 billion when you factor in post-approval R&D costs required by the FDA. It seems U.S. citizens want these innovative treatments. For if this weren’t the case, would we witness social media firestorms resulting from a drug company executive denying access to an investigational drug? The problem seems to be that we, insurance companies, and even big government can’t seem to afford the current price of some of the new biopharmaceutical breakthroughs. I recently had the opportunity to listen in on a conversation between a group of biopharmaceutical R&D executives. What follows is a continuation of this discussion, and somewhat of a “behind the scenes look” at the challenges presently faced by drug companies trying to develop treatments to meet our unmet medical needs.

What Are The Biggest Hurdles Facing Biopharma?

“For me, it’s very clear that we have two hurdles,” says another R&D head. “One is approval with the regulatory agencies around the world, and the other is reimbursement. We need to think earlier than we have done in the past, how to jump over the reimbursement hurdle in our development programs. We’ve been talking about this for a long time, but we clearly have not been successful, because when it comes to NICE [the National Institute for Health and Care Excellence] or to get drugs approve in the United States, we’re still not doing a good enough job, and something we need to work on much earlier in our development programs.” According to this executive, she is finding it increasingly difficult to get a decent price for developing lifesaving antibiotics. “This is why pharmaceutical companies have been getting out of antibiotic development and that’s going to be a huge issue for human health.”

Another executive thinks we need to think much bigger picture. “As an industry, we’ve done a really bad job of how we communicate price. We’ve done a bad job of not focusing on true innovation that benefits patients. As a result, we have muddied the waters. The real message should be that our industry is doing some of the most important work for society. If we can communicate how we are developing breakthroughs that improve human health, and of course, not mess up on the pricing side, we could be elevating our entire industry.” Expressing exasperation, he adds, “I don’t understand why we can’t change the conversation. The biggest companies in the world (e.g., Apple, Google, and Microsoft) arguably aren’t working on delivering such important things to human beings as life and health. The people at those companies are making billions of dollars for improving search and computer programs, and they are being deified. We on the other hand are fighting cancer and autoimmune diseases and we are being vilified. Obviously we are doing something wrong.” This executive believes one of the biggest hurdles is industry itself. “We are not doing what we should be, in terms of striving for true innovation, and focusing on getting the profits from those true innovations. That’s what’s critically important. While this involves all the little details, we can’t lose sight of the big picture message of the important work we do. We need to be doing thing right, be proud of the work we do, so we can change the conversation with the public so they can understand it. But before we can change the message we need to all be behaving properly, if we want to elevate the conversation such that people understand the work we do is so much more important than an iPhone.”

Though one executive believes one of the hurdles to be the message of how biopharma develops drugs and eventually gives the intellectual property away for the betterment of mankind to not “getting out,” another feels this not to be the case. “It’s not that we aren’t saying this, because we are,” he says. “It is being interpreted in the complete reverse. When generics bring the price of a previously patented drug down, people don’t think about what a great deal they are getting today, they focus on the previous price and perceive us to have been robbing them the entire time, and don’t take into account all of the money spent in R&D, for which generic companies spend none, and one of the reasons they can price a drug so cheaply. Clearly this is neither being heard, nor understood.”

Should Biopharma Be A cost-plus Industry?

Some industries, such as water, use cost-plus pricing strategy in which the sell price is determined by adding a specific dollar amount markup to a product’s unit cost. While there are some who feel this is how drugs should be priced, one R&D head reminds that the key to future innovation is the patent system currently in place. While many people want to shorten patents, some R&D heads wonder if making them longer would be beneficial lowering drug pricing. “That debate isn’t even on the table, but I think it should be,” says one. “Copyright intellectual property protection is something like 75 years.” Actually, for works created after 1978, copyrights are the life of the author plus 70 years. Copyrights for corporate works are 95 years from the year of first publication, or 120 years from the year of creation, whichever expires first. “If you want a total reduction on burden of disease for over 100 years, instead of just five, this might be interesting to consider,” adds another executive. “Well, the cost models [used by outsiders to criticize industry] never take into account the realities that after a certain period of time the drug’s intellectual property becomes available for free,” adds yet another. “They are just doing cost analysis for those first few years. We know innovation occurs in waves thanks to the patent system. For example, following Gilead’s product were two others. Combined with PBMs doing reverse auctions and we have seen drug rebates on Sovaldi go to 50 percent. But that doesn’t get communicated to people we still think insurance companies are paying $84,000.”