By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL
Is it plausible that biopharma is a victim of its own success? For example, since Richard Nixon first declared war on cancer in 1971, half of those diagnosed today will survive for at least 10 years — a point at which their chances of survival are pretty much assured. The HIV/AIDS epidemic that began in the late 1970s not only resulted in the advent of over 20 different disease-specific medications but also shifted an HIV positive diagnosis from a death sentence to a manageable chronic disease. Despite these and other incredible successes, the biopharmaceutical industry has descended from being the most admired business sector in the world to one that ranks barely above tobacco in honesty, ethics, and trustworthiness. As I watch politicians zero in on “high-priced” drugs as the big political issue for 2016, I have been brooding as to how we have allowed our industry to be reduced to no more than a populist cause capable of pulling voters across party lines. This is why I couldn’t pass up the opportunity to interview Suresh Kumar, EVP of external affairs at Sanofi, about the politics of drug pricing. After all, Kumar’s healthcare experience spans more than 30 years and includes stints in Big Pharma (e.g., J&J, Warner Lambert), big nonprofit (i.e., the Clinton Foundation), and big government (i.e., Assistant Secretary of Commerce and Director General of the U.S. and Foreign Commercial Service, spearheading global trade for the Obama administration). According to Kumar, “It is time for a constructive dialogue on drug pricing, but in the context of access, value, and overall healthcare costs.” But where to begin?
Key Contributors To The Perceived Drug-Pricing Problem
Thus far, the rising negativity and focus on healthcare costs has primarily resulted in key industry players taking positions of isolation or attack. For example, in 2015 PhRMA moved from a two-day public conference to that of a “closed-door” event. Though PhRMA didn’t disclose the specific rationale behind the decision, the perception created is one of an organization strategically circling the wagons against the rising barrage of drug-pricing attacks. At the 2015 American Society for Clinical Oncology (ASCO) meeting, Memorial Sloan Kettering Cancer Center oncologist Leonard Saltz, M.D., went on the offensive in his plenary speech saying, “These drugs cost too much.” To date, at least six states (i.e., CA, MA, NC, NY, OR, and PA) have introduced prescription drug transparency legislation seeking to force companies not only to provide itemized drug R&D expenses, but also to reveal costs associated with manufacturing. (Let’s keep in mind that collecting and organizing all of this information in order to comply will also involve an additional cost).
“Everyone would like [cost] transparency when it comes to healthcare,” says Kumar. “For example, in 2013 there was a Time magazine article [Bitter Pill: Why Medical Bills Are Killing Us] that talks about the lack of transparency in hospital costs.” Though many states have passed healthcare price transparency laws, most are doing a poor job when it comes to enforcement. Part of the problem is being heaped on payers and providers for functioning as barriers to successful enactment. However, another part of the problem might be the sheer number of moving parts (e.g., allocation of labor, systems, and supplies) involved in a typical patient’s hospital visit. But according to Kumar, another problem is the back and forth finger pointing that takes place among various industries (e.g., payers, PBMs [pharmacy benefit managers], providers, and pharma) and government. (For more info, see sidebar “The Drug Pricing Transparency Versus Value Conundrum.”).
Another problem is the preponderance of negative media coverage about anything related to drug pricing. “Most media coverage concerning drug pricing focuses on sensational headlines,” Kumar attests. “I saw the disgusting testimony of Martin Shkreli before Congress. That is not the pharmaceutical industry.” But because Shkreli pleaded the Fifth and said nothing, when combined with his smirking facial expressions and posttestimony tweets calling members of government “imbeciles,” the result was a media frenzy that continued to try to position him as the poster boy of the entire pharma industry — obviously an unfair comparison that lacks context. “When we focus on only how much a drug price went up, as opposed to looking across the value chain of, for example, how much it costs to treat a person living with diabetes today versus yesterday without new products, versus the cost/benefit to treat a life tomorrow, you end up with just media soundbites,” he shares. Consider the long-term out-comes associated with a drug everyone knows — Pfizer’s cholesterol lowering agent Lipitor (atorvastatin calcium). “If you take the price of Lipitor at launch all the way through its life as a branded drug, you will arrive at some median price,” he explains. However, that price does not adequately reflect its value to society. Since the development of statins (e.g., Lipitor), these drugs have become the standard of care, reducing LDL cholesterol levels and frequency of heart attacks. “In 2010, the price of 30 20mg Lipitor tablets was around $5.50 per pill,” he continues. “Yet, today the price of a generic version is about $0.50 per pill.” The reason generic statins can be priced so cheaply today is the direct result of investment by branded research-based pharmaceutical companies. That’s the beauty of the market-based system, particularly in the U.S. Investment results in innovation and, eventually, lower prices, bringing about the new cures to those who so desperately need them. According to Kumar, though the concept is fairly simple to understand, when not communicated in its entirety, based on the present type of media coverage, public understanding is lost. “Solving big problems like this requires intelligent and substantive dialogues,” Kumar contends. It also requires coalitions.
"Most media coverage concerning drug pricing focuses on sensational headlines."
EVP of External Affairs, Sanofi
Solving Big Problems Requires Building Coalitions
Back in October 2015, Vice President Joe Biden called for a “Moonshot” in order to find a cure for cancer. “For a country that landed people on the moon, this may be the right approach in looking for the next cure for cancer,” says Kumar. “I think we need to build on this concept (i.e., having a lofty target requiring a coalition to address) when it comes to tackling the rising global healthcare cost problem,” Kumar attests. “There’s no doubt the healthcare cost curve can be positively impacted by continuing to develop new medicines that more efficiently and effectively deal with disease. But this cannot be done in a vacuum.” Perhaps what is required is the building of a healthcare moonshot type of coalition. But how?
“When I look at the current pricing debate and compare it to the failed attempt at universal healthcare from the past Clinton administration, it seems the challenge in tackling such big problems always starts with determining how far-reaching the coalition designated to solve those problems should be,” he says. “Also, will you start with digestible bite sizes [of the problem] or take on the entire enchilada? Should you focus on the fastest-growing cost areas or the slowest growing areas?” As an example of the challenge of choosing what the best approach would be, he discusses Sanofi’s dengue fever vaccine that has approval in four countries. It took nearly 20 years, an investment of more than 1.5 billion euros, and clinical studies across 15 countries involving 40,000 patients. Because dengue is primarily found in tropic and subtropical regions, the company first went to the countries where the disease is endemic, thereby not following the traditional approach of starting in the U.S., then on to Western Europe, and then rest of the world. “In January we announced our commitment to start looking for a cure for the Zika virus, a close cousin of dengue,” says Kumar. “Given all the work we have done on mosquito-borne diseases, we have significant expertise and relationships to address this virus.” And while he believes a coalition will be important to successfully solving the Zika problem, he asserts that the world doesn’t have the luxury of time (i.e., 15 years) to invest billions to conduct clinical studies when the problem is now. “If you were to put together a coalition for the successful development of a Zika vaccine, obviously you would want it to be multifaceted, including organizations such as the CDC and WHO,” he says. The coalition probably should also include funders, such as the World Bank or the Bill and Melinda Gates Foundation, or private companies willing to float corporate bonds. Another thing to consider is how to involve regulatory agencies (e.g., FDA) so they can become more adaptable during crisis situations (i.e., creating mutual acceptance processes among the various regulatory agencies involved in order to accelerate clinical studies and approval). “After that,” Kumar continues, “since the delivery of all this will be in countries where Zika’s a problem, those countries’ governments need to be a part of the dialogue.” But building a coalition also requires the oversight of a lead agency.
What It Takes To Execute A Healthcare Cost-Reducing Moonshot
Significant achievements such as putting a man on the moon or creating the Human Genome Project all required some kind of agency overseeing the project (i.e., NASA, NIH). And while reducing U.S. healthcare costs might not seem as noble as landing on the moon or mapping the genome, it is easily as significant, if not more so. Achieving just a 1 percent cost reduction in U.S. healthcare spend equates to approximately $40 billion in savings — annually! To put this in perspective, that is $15 billion more than the cost of the entire Apollo program and $37.3 billion more than the entire Human Genome Project.
The question isn’t whether the goal is worthy, but rather, what organization should take the lead? Further, where will the funding for such a bold project come from? Having personally gone through two senate confirmations, Kumar believes, given the polarizing world in which we live, such a healthcare cost-reduction project would fail if the White House decides to try to drive the process. But if we model such a coalition on our two previous examples, it is likely project funding will come from government, and as such, should involve a government agency with the clout capable of bringing key stakeholders to the table. Perhaps this is a job for the U.S. Department of Health & Human Services (HHS). “This past November, HHS convened a pharmaceutical forum on innovation, access, affordability, and better health,” Kumar shares. “The day involved a number of presentations, but the real key was bringing together the varied components of a fragmented healthcare value chain, from discovery to delivery, well beyond just pharmaceuticals.” For example, AARP, America’s Health Insurance Plans (AHIP), Consumer Reports, the Generic Pharmaceutical Association (GPhA), Express Scripts, and state healthcare and employee retirement systems took part, to name just a few. Further, stakeholder participation hailed from the highest levels (e.g., Ken Frazier, CEO of Merck; Bernard Tyson, CEO of Kaiser Permanente; Marc Boutin, CEO of the National Health Council). “To build a healthcare cost-reduction coalition, while representatives from the pharmaceutical industry would need to be included, it would also have to include providers, payers, PBMs, patients, policymakers, regulators, and so on. That’s the only way we’re going to get this done,” Kumar contends. He believes the HHS gathering was a great first step that created dialogue among all the key stakeholders. But to truly embark on a healthcare cost-reducing moonshot that focuses beyond just “high-priced” drugs, requires an agreed-upon common goal and an organization willing to take the lead and begin the process of creating a coalition. “Therein lies the essence,” Kumar concludes. “What is it as a society we wish to do, and what role can each of us play to get there? Because having medicine, or access to healthcare, should not be a privilege.”
The Drug-Pricing Transparency Versus Value Conundrum
One of the problems currently preventing drug-pricing transparency is WAC — the wholesale acquisition cost. WAC is a manufacturer's list price of a drug when sold to the wholesaler (e.g., McKesson). “WAC has little bearing on the actual price to a patient,” states Sanofi’s EVP of External Affairs, Suresh Kumar. “If you look at the difference between the WAC price of a drug and the price negotiated with PBMs and insurance plans, you would see it is substantially discounted.” According to Kumar, one of the roadblocks to achieving true drug-pricing transparency is pharmaceutical companies not being able to publically share the discounted price paid for a drug by a PBM or payer. “Why don’t we provide it? Because, we are contractually barred from disclosing the level of discounts we provide,” he explains. “That [WAC discount] savings has the opportunity to be passed along throughout the drug-distribution chain. But the savings provided by these pharmaceutical company discounts do not always find their way to the patient.” To truly understand the price a patient pays for a drug requires looking at the entire system. What was the WAC price? What was the true price paid by a PBM or a payer? What was the price at which the patient got it, adding in their copay? While in a single-payer market this information would be much easier to find, in a market-driven situation like we have in the United States, these discounts are not transparent to the end user.
“How are we going to break through this conundrum?” asks Kumar. One way is moving to a collaborative effort among the various stakeholders and moving from fee-for-product to fee-for-performance. For example, consider Praluent (alirocumab), a PCSK9 (Proprotein Convertase Subtilisin Kexin Type 9) inhibitor antibody indicated as an adjunct to diet for adults with heterozygous familial hypercholesterolemia or clinical atheroscierotic cardiovascular disease, who require additional lowering of LDL-C. “This is the first major innovation after lipid-lowering statins in 30 years and provides the appropriate patients up to a 50 percent reduction in LDL over their current regimen, including statins,” Kumar explains. “With that level of innovation, we should certainly be able to do valuebased pricing.” According to Kumar, when Sanofi launches a new medicine, the company communicates with constituents the value the innovation represents. “We use multiple models that are very sophisticated, incorporating economic metrics and internal data derived from studies, as well as data from third parties to express a drug’s value and definitively establish WAC prices that reflect that,” he says. “Now, if we go through the exercise of demonstrating we have a therapy that reduces LDL by 50 percent, and your organization [payer/PBM] says it only wants to pay for value, then it is incumbent on the insurance company to have a system to be able to capture that value. You can’t demand that you want to pay for only value and then turn around and say you don’t know how to do it.” Kumar says this is one of the challenges pharmaceutical companies encounter when broaching the subject with payers on developing or piloting value-based pricing models — the payer’s inability or lack of systems to be able to capture the value a drug provides a patient.
Biopharmaceutical Companies Are Businesses, Not Charities
Suresh Kumar has worked for charitable foundations, so he knows that pharma companies do not fall into this category. Unfortunately, society often forgets what Kumar knows — that pharmaceutical companies are businesses. While all three require money to function, budgets to operate, and have a variety of expenses, they all receive their finances differently.
“It doesn’t matter what industry you are in, any company must recoup its costs for the work it does,” says Sanofi’s EVP of External Affairs. “This is a responsibility we have to our shareholders.” Anybody who owns healthcare stocks wants to earn a return on their investment, not to lose money, and not to just break even. Pharmaceutical companies take huge risks in discovery and developing innovative therapies that require significant financial commitments. “We have an ODYSSEY OUTCOMES (a collection of global Phase 3 clinical studies in the area of high cholesterol) study for Praluent (alirocumab) to see if the therapy stops or leads to a decline in frequency of heart attacks,” he shares. “If it does, that’s a major innovation.” This is why prescription drug companies have been traditionally referred to as ethical pharmaceutical companies, because ethics preclude them from making any sort of product claim until it has been proven, which requires the design and execution of regulatory-approved clinical studies. Kumar notes that it's costly to conduct an 18,000-patient, strictly controlled, long-term clinical trial. There’s the cost of discovery, manufacturing, and continuous product improvement, as well as many other expenses, including the cost of failure (i.e., attempts to develop cures that didn’t work). “To either not understand all of that, or understand it and simply decide to ignore that pharmaceutical companies need to recover all of their costs, doesn’t work,” he shares. “I can’t go back and tell my scientists, ‘Oh, by the way, our drug didn’t succeed, so I’m not going to pay your salary.’” Kumar says if we want to reduce the costs associated with drug development, we need to look for new paradigms that allow for forward-thinking (e.g., streamlining drug development) rules and regulations. However, if we want to reduce overall healthcare costs, we need to start thinking about how we can work together to remove costs from the entire system. “Drugs that impact big-ticket items, such as reducing the length of a hospital stay or eliminating the need for surgery, create significant and immediate savings,” he reminds. “Simply saying that these drugs are too expensive without taking into account the value and long-term saving they bring to society is acting irresponsibly.”