The drug pric­ing de­bate in Amer­i­ca reach­es a boil­ing point at #JPM19

On stage: John Car­roll, Christi Shaw (Lil­ly), Pe­ter Bach (MSKCC), Kath­leen Tre­go­ning (Sanofi), Stephen Ubl (PhRMA), Jef­frey Mar­raz­zo (Spark)

End­points News or­ga­nized a pan­el dis­cus­sion in San Fran­cis­co dur­ing JP­Mor­gan in ear­ly Jan­u­ary de­vot­ed to one of the hottest dis­cus­sions in the in­dus­try: drug pric­ing. No mat­ter how this plays out, drug pric­ing af­fects every­one who has an in­ter­est in bio­phar­ma, re­gard­less of the po­si­tion they hold.

It was a live­ly con­ver­sa­tion, with plen­ty of back and forth be­tween some high-lev­el bio­phar­ma ex­ecs, and one of the most promi­nent crit­ics of the cur­rent sys­tem in the US. Here’s our tran­script of the event. Be sure to leave a com­ment at the bot­tom with your own opin­ion.

This ex­change has been edit­ed for flow and to a cer­tain ex­tent brevi­ty. — John Car­roll

John Car­roll, Founder & Ed­i­tor, End­points News. JEFF RU­MANS for END­POINTS NEWS

[The Amer­i­can peo­ple] re­spond­ed that there are two pri­ma­ry is­sues that they want Con­gress law­mak­ers to fo­cus on in 2019. One is the fed­er­al deficit and the oth­er is cut­ting drug prices.

— John Car­roll

John Car­roll: Every­one’s talk­ing about drug pric­ing. In fact, just a few days ago, Politi­co and Har­vard got to­geth­er and ran a sur­vey of Amer­i­cans and asked them what they thought were the most im­por­tant is­sues that need­ed to be dealt with by Con­gress. They re­spond­ed that there are two pri­ma­ry is­sues that they want Con­gress law­mak­ers to fo­cus on in 2019. One is the fed­er­al deficit and the oth­er is cut­ting drug prices. So, ob­vi­ous­ly, we have a tremen­dous amount of pres­sure that’s been build­ing up in­side Wash­ing­ton DC over the last cou­ple of years as pric­ing has be­come a big­ger and big­ger is­sue. I’m joined to­day by Christi Shaw from Eli Lil­ly, which made news to­day with the buy­out at Loxo. To her left, Pe­ter Bach with Memo­r­i­al Sloan Ket­ter­ing who fre­quent­ly talks about drug pric­ing in the Unit­ed States. We have Kath­leen Tre­go­ning, the Ex­ec­u­tive Vice-Pres­i­dent of Ex­ter­nal Af­fairs for Sanofi, which has been very en­gaged on this top­ic. Stephen Ubl, the head of PhRMA and our spon­sor to­day. Ap­pre­ci­ate you spon­sor­ing this con­ver­sa­tion and be­ing able to get to­geth­er be­cause of this. And Jef­frey Mar­raz­zo, the CEO of Spark. Jeff is mar­ket­ing the first gene ther­a­py ap­proved in the Unit­ed States and we’ll have a lot to talk about as it re­lates to rare dis­ease, drug prices and what’s been go­ing on there. But, I want to di­rect the first ques­tion to Pe­ter. If you ask the av­er­age per­son on the streets, what’s go­ing on with drug pric­ing, they’d say, it’s ter­ri­ble. Is the drug pric­ing sys­tem in Unit­ed States bro­ken? And does it need to be fixed?

Pe­ter Bach: Yes and yes. So, there’s es­sen­tial­ly three prob­lems that I think are prob­a­bly im­por­tant to think about. But, it all comes from the per­spec­tive that most of the mon­ey that is spent on phar­ma­ceu­ti­cals in the US comes from the pock­ets of so­ci­ety at large. Not just through tax­es and flow­ing through the Medicare and Med­ic­aid pro­gram, but through de­duc­tions in pay­checks and oth­er sources of fund­ing in­to the sys­tem. Oth­er than the very rich, it’s all sort of a col­lec­tive pool be­ing in­vest­ed in var­i­ous ser­vices in­clud­ing drugs, hos­pi­tal ser­vices and oth­er kinds of spend­ing and we’ve got­ten to a place where the al­lo­ca­tion is pret­ty in­ef­fi­cient even across phar­ma­ceu­ti­cals.

More im­por­tant, we have got­ten in­to this bind where lit­tle re­straint by phar­ma­ceu­ti­cal com­pa­nies in terms of pric­ing is be­ing met with some­what dra­con­ian tac­tics by in­sur­ers — ei­ther stand­alone or work­ing on be­half of em­ploy­ers or even the Medicare pro­gram — to try and lim­it spend­ing on phar­ma­ceu­ti­cals. And what hap­pens is if you think about this as a closed loop of so­cial in­vest­ment, not just the NIH but on the pay­ment side for drugs which is ded­i­cat­ed to im­prov­ing health. Some­how we went from there to a sys­tem where we have poor­er ac­cess to drugs than any oth­er West­ern coun­try when you look at them. Very high prices, high de­ductibles that are re­al­ly hurt­ing peo­ple fi­nan­cial­ly. There’s ru­mors of bank­rupt­cy.

I don’t think med­ical bank­rupt­cy is re­al­ly the lead­ing cause of bank­rupt­cy. But it’s a se­ri­ous fi­nan­cial strain on peo­ple. So, that isn’t so­cial­ly op­ti­mal even though it’s a prod­uct with so­cial in­vest­ment and pol­i­cy. So, that’s one thing we need to fix; we need to find a mar­riage be­tween hav­ing prices that are at a lev­el where in­sur­ers can cov­er drugs with­out harm­ing the pa­tient they’re in­tend­ed to help. The oth­er is the skew with­in the port­fo­lio. We have sys­tem­at­i­cal­ly em­pha­sized treat­ments for rare dis­eases through a num­ber of pol­i­cy en­deav­ors which have pro­duced re­al­ly amaz­ing ther­a­pies. There’s no ques­tion sci­en­tif­i­cal­ly they are in­cred­i­ble. But, they have ac­tu­al­ly moved large­ly away from the biggest health­care prob­lems we have.

So, I don’t know ex­act­ly where we went wrong but it’s very clear at this point that drugs for rare dis­eases in or­phan con­di­tions are be­ing over em­pha­sized if you take the view that the goal of in­no­va­tion in health­care is to im­prove the ag­gre­gate health. Just the math doesn’t work out once you’re treat­ing dis­eases that on­ly af­fect a few thou­sand peo­ple.

John Car­roll: So, let’s talk about that a lit­tle bit, Kath­leen. Sanofi has done its own work as it re­lates to mod­er­at­ing drug pric­ing. I think in terms of med­ical in­fla­tion, peg­ging your an­nu­al price in­creas­es against med­ical in­fla­tion. I would say that over the last two years or cer­tain­ly the last year, the in­dus­try has been more re­spon­sive than ever as it re­lates to pric­ing and there’s nev­er been a greater lev­el of dis­sat­is­fac­tion among law­mak­ers and among the pub­lic about what’s go­ing on with drug pric­ing. So, from your per­spec­tive, if what you’re do­ing isn’t enough to blunt this process, where does it go?

Kath­leen Tre­go­ning: Well, first of all, thank you John for host­ing this pan­el. I think this is a crit­i­cal­ly im­por­tant dis­cus­sion. As you men­tioned, Sanofi has been at the fore­front of try­ing to mod­er­ate and take a lead­ing po­si­tion on drug pric­ing. We put out pric­ing prin­ci­ples al­most two years ago in which we do a holis­tic val­ue as­sess­ment of our prod­ucts in which we pegged any price in­creas­es in the US to med­ical in­fla­tion — which is the most ag­gres­sive stan­dard and I think con­tin­ues to be the most ag­gres­sive stan­dard. Over the last sev­er­al years, our net pric­ing has ac­tu­al­ly gone down. So, the prices that the in­ter­me­di­aries are pay­ing for our prod­ucts is ac­tu­al­ly less and yet that is not trans­lat­ing in­to what pa­tients pay.

So, we have a sys­tem now in which there are a whole num­ber of in­cen­tives. There’s about $150 bil­lion in re­bates flow­ing through the sys­tem that are be­ing used for oth­er parts of the health­care sys­tem. But, they’re not mov­ing all the way to mak­ing drugs less ex­pen­sive for pa­tients. We’re do­ing every­thing we can as an in­di­vid­ual com­pa­ny but we do need sys­tem changes, fo­cus on changes for and re­duc­ing costs for the pa­tient. Al­so, on Pe­ter’s com­ments about rare dis­ease re­search, we’re do­ing re­search across a whole spec­trum. From pri­ma­ry care in ar­eas like di­a­betes to car­dio­vas­cu­lar dis­ease to cer­tain spe­cial­ty con­di­tions all the way through rare dis­ease.

So, we re­al­ly be­lieve that it’s im­por­tant sci­en­tif­i­cal­ly to ad­vance all of those fron­tiers. The sec­ond key point is any changes to the drug pric­ing sys­tem have to main­tain what is an in­cred­i­ble en­gine of in­no­va­tion here in this coun­try in terms of pri­ma­ry care and rare dis­ease. Be­cause if you have a rare dis­ease, that dis­ease isn’t rare, right?

John Car­roll: One of the things that seems to be a re­al stick­ing point in this con­ver­sa­tion is what hap­pens with list prices and the ac­tu­al prices that peo­ple pay in terms of get­ting the drug and how much of that ac­tu­al­ly sifts down to the bot­tom. Drug pric­ing right now seems to be a nail and every­body in Wash­ing­ton DC is grab­bing for a ham­mer. So, even though your net pric­ing may be drop­ping, it’s not some­thing that comes through. What you had at the be­gin­ning of this year was: here’s 300 drugs that cost more, the list price has gone up.

From Eli Lil­ly’s per­spec­tive, where are we go­ing with this and how sus­tain­able is this whole process?

Christi Shaw, Pres­i­dent, Lil­ly Bio-Med­i­cines. JEFF RU­MANS for END­POINTS NEWS

Christi Shaw: It’s re­al­ly dis­heart­en­ing be­cause we’re all talk­ing about drug pric­ing, but what’s our main ob­jec­tive? If our main ob­jec­tive is to help pa­tients ac­cess med­i­cines, chang­ing the list price, drop it in half, it doesn’t af­fect those pa­tients. My sis­ter died of mul­ti­ple myelo­ma this year, a very rare can­cer. Every can­cer is be­com­ing more and more rare and as pa­tients look at their out-of-pock­ets, the list price is what they’re pay­ing yet the mid­dle­man ac­tu­al­ly get the net price. They get the re­bates, they get to pock­et the re­bates but the pa­tient is pay­ing a per­cent­age of the list price. As you drop that price, the pa­tients are still pay­ing out of pock­et. They still have that $10,000 de­ductible.

So, if we fast for­ward and say great, let’s drop all drug prices in half, list prices in half, we don’t help the pa­tient’s out-of-pock­et. Let’s say our ob­jec­tive is not the pa­tient. Let’s say our ob­jec­tive is ac­tu­al­ly to de­crease health­care ex­pen­di­tures. That would be re­al­ly good. Well, the prob­lem is over the last 15 years, bio­phar­ma­ceu­ti­cals have been about 10% of the health­care costs. They’re grow­ing at 0.4% last year. So that doesn’t even af­fect that as well. Out-of-pock­et for pa­tients is grow­ing 50%. Out-of-pock­et is four times the amount for phar­ma­ceu­ti­cals than it is for any oth­er part of the health­care sys­tem. We don’t charge pa­tients huge co-pays to see a physi­cian. We don’t charge them huge co-pays to go to the hos­pi­tal.

Out-of-pock­et for pa­tients is grow­ing 50%. Out-of-pock­et is four times the amount for phar­ma­ceu­ti­cals than it is for any oth­er part of the health­care sys­tem.

— Christi Shaw

Yet, in phar­ma­ceu­ti­cals that are most ef­fec­tive and ef­fi­cient, we’re mak­ing them pay so much more out of their pock­et, which is why Amer­i­ca is an up­roar. All of the pa­tients who have to pay out-of-pock­et like that are in an up­roar. They think that out-of-pock­et is tied di­rect­ly to the list price of drugs.

John Car­roll: But, you can con­clude from that phar­ma com­pa­nies are es­sen­tial­ly help­less in terms of what they do with the cur­rent sys­tem. Are com­pa­nies help­less? Is there noth­ing that you can do in terms of try­ing to take the heat out of this or to ac­tu­al­ly broach the sub­ject di­rect­ly?

Christi Shaw: No, you’re ab­solute­ly right. We do all need to come to the ta­ble to­geth­er and I think this has been go­ing on for so long. It went on too long. So, as we look at part­ner­ing to­geth­er and find­ing where our com­mon ground is, in­creas­ing com­pe­ti­tion is ex­treme­ly and crit­i­cal­ly im­por­tant. Get­ting gener­ics to mar­ket very quick­ly is ex­treme­ly im­por­tant. Once they get to mar­ket, get­ting them ac­cess. Biosim­i­lars should be more ac­ces­si­ble than they are. An ex­per­i­ment I’ll share with you is, we have a prod­uct for rheuma­toid arthri­tis. We did a head-to-head study ver­sus the com­pe­ti­tion which is an old­er med­i­cine. Yet 60% less is what we charged. We showed that we were bet­ter. Yet, the old­er, less ef­fec­tive drug is the one that pa­tients have to take.

So drop­ping list price by 60% did no good for those pa­tients to get ac­cess to a bet­ter drug. We very much want to see gener­ics and biosim­i­lars come to mar­ket more quick­ly. Val­ue based agree­ments, ab­solute­ly. We want to be able to prove that if our drugs are keep­ing pa­tients out of the hos­pi­tal, keep­ing them alive longer, be­ing able to use the big da­ta that we use in so many oth­er parts of the world. Da­ta is every­where yet in the health­care sys­tem where pa­tients need it most, where peo­ple need it most, if we could use that da­ta to ac­tu­al­ly mea­sure did pa­tients have few­er mi­graines? Did they stay out of the hos­pi­tal and ER? Did they ac­tu­al­ly re­duce med­ical costs be­cause they were on the med­i­cine? Then we’d feel bet­ter about pay­ing for them and we’d be af­fect­ing the to­tal health­care sys­tem.

There’s many things that we could do to­geth­er. Last one I’d say is pol­i­cy change is on list price. The per­verse in­cen­tives that we have in the mar­ket­place or re­al­ly ty­ing pay­ments to list price is ar­bi­trary and it forces be­hav­iors that doesn’t help pa­tients get ac­cess to what they need.

John Car­roll: Well, Stephen, ob­vi­ous­ly you’re in the thick of things in Wash­ing­ton DC as it re­lat­ed to drug pric­ing and leg­is­la­tion. There was a di­rect and sharp shriek of a pain when Pres­i­dent Trump sug­gest­ed that you tie Medicare Part B prices to what sin­gle-pay­er sys­tems are pay­ing in Eu­rope over a pe­ri­od of five years. That’s re­al­ly crude and very ef­fec­tive in terms of get­ting things down. So, how do you stop the train?

Stephen Ubl, Pres­i­dent & CEO, PhRMA. JEFF RU­MANS for END­POINTS NEWS

Stephen Ubl: One of the great things about my job is I get to trav­el the coun­try, meet with re­searchers and sci­en­tists, and we are re­al­ly liv­ing in this in­cred­i­ble year of in­no­va­tion and it’s re­mark­able to me, if you think about Jeff’s tech­nol­o­gy and cures on the hori­zon for sick­le cell dis­ease and he­mo­phil­ia. It’s re­al­ly quite stun­ning.

But, the re­al­i­ty is against the back­drop of all this in­no­va­tion drug spend­ing and drug prices are ac­tu­al­ly rapid­ly de­cel­er­at­ing. It wasn’t that long ago that drug spend­ing was at 13%. To­day drug spend­ing and drug pric­ing are grow­ing with­in, on a net ba­sis, af­ter re­bates and dis­counts, less than CPI. Not med­ical in­fla­tion, less than CPI. So, my ques­tion to you John is, we have this sort of herd men­tal­i­ty in the press right now, fo­cused on these list price in­creas­es. Where are the sto­ries of the 1000 gener­ic med­i­cines that were ap­proved last year that are now 80% less?

The irony is that med­i­cine is the on­ly item in health­care that goes down in cost over time.

John Car­roll: But to me that’s ex­act­ly what this is­sue is all but. The in­dus­try has been re­spon­sive. Nev­er more re­spon­sive, nev­er more pro­duc­tive. You’ve just seen a record num­ber of drugs ap­proved in the Unit­ed States over the past year, some re­mark­able new drugs. Ob­vi­ous­ly, Spark has played a role in terms of pi­o­neer­ing gene ther­a­pies. But, what’s in­ter­est­ing to me is that peo­ple take for grant­ed that which does not cause pain and they fo­cus on some­thing that does cause pain.

That’s kind of a nat­ur­al hu­man re­sponse. The in­ter­est­ing thing from my per­spec­tive is that the sto­ries have all been about these prices go­ing up and there­fore every­thing the in­dus­try is try­ing to do is not work­ing. If it doesn’t work, how sus­tain­able is this process?

You set up an en­tire com­pa­ny around a drug that ini­tial­ly is go­ing to cost $850,000. You have peo­ple in your field that are talk­ing about rolling out drugs at four to five mil­lion dol­lars. Jeff, how sus­tain­able is this?

Jeff Mar­raz­zo: Well, be­fore I talk about the specifics of Lux­tur­na and its price, you asked are there things that we can do as com­pa­nies? We took the step of in­tro­duc­ing three nov­el pay­ment and dis­tri­b­u­tion mod­els when we in­tro­duced Lux­tur­na’s price. And I think many of those things that we are do­ing and have im­ple­ment­ed and are suc­cess­ful­ly en­sur­ing pa­tients are get­ting ac­cess to Lux­tur­na. If you rewind a year, two years, five years ago when I found­ed Spark, there was this ques­tion. These are nev­er go­ing to get to pa­tients.

That’s not what’s hap­pen­ing with Lux­tur­na. We an­nounced this morn­ing we have 75 vials that were shipped through 2018 and so far, what we’ve been able to show is that pa­tients are get­ting ac­cess to that. In fact, so far through the com­mer­cial in­sur­ance sys­tem, which ob­vi­ous­ly has cer­tain unique el­e­ments to it, no pa­tient had to pay any­thing out of pock­et so far if they didn’t choose to. So, we are find­ing ways to solve that. But, tak­ing a step back, one of the things we did was in­tro­duce some­thing that we call the Spark Path, which is ba­si­cal­ly a way to take provider ad­min­is­tered drugs and find an al­ter­na­tive for pay­ers to pay for those di­rect­ly to us as op­posed to hav­ing them be sold through var­i­ous peo­ple, even­tu­al­ly to the hos­pi­tal and then if the hos­pi­tal turned around or who­ev­er it might be and mark that up to the pay­er.

Be­cause then, not on­ly are you not talk­ing about the list price, you’re talk­ing about a markup of the list price which is on­ly in­creas­ing costs. To me, that’s not trans­par­ent. We can ar­gue about the list price but ul­ti­mate­ly what we shouldn’t be do­ing is hav­ing ad­di­tion­al costs be added in the sys­tem when frankly what those hos­pi­tals are try­ing to do in my es­ti­ma­tion is off­set costs that they’re not get­ting prop­er­ly com­pen­sat­ed for some­where else, the ER room, what­ev­er it might be. That’s not a right way to fix that prob­lem. We should have trans­paren­cy.

We can ar­gue about the list price but ul­ti­mate­ly what we shouldn’t be do­ing is hav­ing ad­di­tion­al costs be added in the sys­tem when frankly what those hos­pi­tals are try­ing to do in my es­ti­ma­tion is off­set costs that they’re not get­ting prop­er­ly com­pen­sat­ed for some­where else, the ER room, what­ev­er it might be.

— Jeff Mar­raz­zo

Sec­ond­ly, we in­tro­duced a con­cept around pay­ing for per­for­mance and we’ve stood be­hind not on­ly ini­tial­ly ef­fi­ca­cy of the ther­a­py, but that the ef­fi­ca­cy would be main­tained — which of course is the promise of gene ther­a­py — out as far as 30 to 36 months. So, those prin­ci­ples, I think, can be ap­plied and of course, we thought were crit­i­cal to ap­ply to gene ther­a­py. But, there’s no rea­son that ei­ther of those two con­cepts couldn’t be ap­plied more gen­er­al­ly in the case of provider ad­min­is­tered drugs or in the case of ther­a­pies that you be­lieve were go­ing to have a huge trans­for­ma­tive ef­fect on pa­tients.

We’re will­ing to stand be­hind our ther­a­py, not on­ly its ini­tial ef­fi­ca­cy but its sus­tained ef­fi­ca­cy. So we’ve in­tro­duced those mod­els. There are pay­ers with those out­come-based re­bates struc­tures in place and it’s gain­ing; most im­por­tant­ly en­sur­ing that pa­tients are get­ting ac­cess to a new nov­el ther­a­py which again — rewind a year, two years ago — the doom and gloom was pa­tients were not go­ing to get ac­cess.

John Car­roll: Okay. So we saw that No­var­tis has been talk­ing about a pro­gram of their own that they be­lieve is worth four to five mil­lion dol­lars for one time use, just like your own drug. There’s a lot of dis­cus­sion whether they ac­tu­al­ly want four or five mil­lion or whether this is a way of get­ting two mil­lion dol­lars and mak­ing it look a lit­tle bit bet­ter. I am cu­ri­ous, though. You talk about what the me­dia re­sponse is and things like that.

I can tell you ex­act­ly what the me­dia re­sponse is go­ing to be. $2 mil­lion for a drug and every­one’s go­ing to fo­cus in on that re­gard­less of the dis­cus­sion around the eco­nom­ics of the deal, where you’ve got pa­tients that cost sig­nif­i­cant­ly more to keep alive and can be of­fered some­thing that would have a dra­mat­ic ef­fect on that par­tic­u­lar dis­ease.

But, what I’m cu­ri­ous about though, when you see this de­bate go­ing on, when you see that the var­i­ous rea­son­ings and math that go in­to a drug are not chang­ing the de­bate, how sus­tain­able is this for com­pa­nies such as your­self? Do you have to do some­thing dif­fer­ent?

Jeff Mar­raz­zo: Well, we’ve ar­gued very clear­ly that there are things that need to change and there are things that need to hap­pen dif­fer­ent­ly. So, I gave you the first two things that we’ve done which is again, a mech­a­nism for cut­ting out mid­dle­men and two, stand­ing be­hind your ther­a­pies. I think those can ap­ply to any­thing. That doesn’t have to ap­ply to one time nov­el gene ther­a­pies. The third thing we had pro­posed to the Fed­er­al Gov­ern­ment, specif­i­cal­ly in a pro­pos­al sent to CMS, is a way in which they could re­lieve gov­ern­ment price re­port­ing reg­u­la­tions that would al­low us to charge over time and we think that that would, if there are pay­ers who have con­cerns about cost den­si­ty or bud­get in­ten­si­ty in a giv­en year, they could choose an al­ter­na­tive where they could pay some­thing over time.

What we’ve said is that those pay­ments over time would be sub­ject to con­tin­ued per­for­mance of the ther­a­py in im­prov­ing pa­tient’s health go­ing back to what we all are try­ing to ac­com­plish. We look for­ward to the Fed­er­al Gov­ern­ment tak­ing up that pro­pos­al and putting it in place. I think those things are things that can be done and start to not just talk about what the ther­a­py is worth, but the com­pa­ny stand­ing be­hind it …


Left: Pe­ter Bach, Di­rec­tor, Cen­ter for Health Pol­i­cy & Out­comes – MSKCC. Right: Kath­leen Tre­go­ning, EVP Ex­ter­nal Af­fairs, Sanofi.JEFF RU­MANS for END­POINTS NEWS

Kath­leen Tre­go­ning: And John, I think just to flip the ques­tion, the ques­tion you’re ask­ing is, how can a com­pa­ny like this sur­vive the cur­rent sys­tem? I think the ques­tion we need to be ask­ing is, how can we up­date the cur­rent sys­tem to keep pace with the sci­en­tif­ic ad­vances that we’re see­ing? How do we take a re­im­burse­ment sys­tem that’s used to chron­ic, long-term pay­ments for dis­eases and get to a place where we’ve got the type of pay­ment sys­tems we need to ad­dress the tremen­dous ad­vances in sci­ence? I think that the sci­ence has out­stripped the sys­tem and now it’s time for all the par­ties to come to­geth­er to fig­ure out how do we change some of these in­cen­tives that were set up un­der a dif­fer­ent struc­ture? How do we up­date the sys­tem so that these sci­en­tif­ic ad­vances can ul­ti­mate­ly reach pa­tients?

John Car­roll: So Pe­ter, are these an­swers go­ing to be suf­fi­cient to change things?

Pe­ter Bach: It’s re­mark­ably on mes­sage, this dis­cus­sion. But, all of these im­prove­ments in the sys­tem are ac­tu­al­ly in­fla­tion­ary. So the no­tion that a com­pa­ny should be able to charge for a drug over time be­cause they’re un­cer­tain about the lev­el of ef­fi­ca­cy and push all of the risk on­to pay­ers is back­wards eco­nom­i­cal­ly. As com­pa­nies have said this over and over again over sev­er­al years, it has sort of stuck.

We wrote a piece re­cent­ly where I ex­plained that this was like some­body was watch­ing late night TV or some­thing. It’s like, oh if you don’t like it you get your mon­ey back. What this has paved the way for is charg­ing vast­ly more than the ex­pect­ed val­ue of the prod­uct un­der these sort of re­bater, long-term pay­ment arrange­ments. The same thing with the cost den­si­ty prob­lem. The prices are prices the com­pa­ny has cho­sen to set. Those are not de­rived from some sort of truth about na­ture. They’re sim­ply the price that the com­pa­ny would like to cap­ture. For the com­pa­ny to then turn around … and this is in­dus­try-wide … to then say, well, you know, we’re caus­ing all this strain on the sys­tem so let’s come up with this way you can pay over time. It’s sort of the, if you will, the wolf kind of run­ning not on­ly just the hen house, but the en­tire hen farm.

It’s sort of the, if you will, the wolf kind of run­ning not on­ly just the hen house, but the en­tire hen farm.

— Pe­ter Bach

These oth­er is­sues, this is all vic­tim stance. I un­der­stand the in­dus­try’s un­der pres­sure, but it’s the same thing with the re­bates. These re­bates are, to my un­der­stand­ing, a con­trac­tu­al agree­ment be­tween the com­pa­nies and the PBMs. And then the com­pa­ny’s turn­ing around and say­ing oh, we’re pay­ing so much in re­bates. Both par­ties signed on these agree­ments. It’s true, we’re at about 10% rev­enue to pharmabio, right, in the US. But we’re about 14 and a half per­cent in to­tal spend­ing through the chain of in­ter­me­di­aries. What the PBMs cap­ture, they of course don’t keep most of the re­bates, they pass it on. But still, re­bates, hos­pi­tals like mine cap­ture a piece of this.

This very fric­tion-laden sys­tem we have is a prod­uct of try­ing to coun­ter­act mo­nop­o­lis­tic pric­ing be­hav­ior. It is all of a piece and we do need to fix it, but I don’t think the way to fix it is to cre­ate even more ways to trans­fer even more so­cial wealth to phar­ma­ceu­ti­cal com­pa­nies around what­ev­er prices they seek to cap­ture. Of course they want to cap­ture the high­est prices pos­si­ble. I just want to say, what we’ve been work­ing on is not out­comes arrange­ments, it’s not mort­gages, it’s val­ue pric­ing where you would set prices based on health eco­nom­ic ex­am­ples. (Spark’s) Lux­tur­na came in (un­der the ICER re­view) at what, $450,000 if I re­mem­ber cor­rect­ly. About half what the com­pa­ny’s charg­ing.

Un­der an arrange­ment where an ex­ter­nal body sets those prices, it would start to look like some Eu­ro­pean coun­tries. At that price, pay­ers would be man­dat­ed to pay. Part D for­mu­la­ries would be man­dat­ed to in­clude it with low co-in­sur­ance. You could have oth­er sorts of set ups with­in the sys­tem to in­sure cov­er­age. If you charge your price that’s based on the mar­gin­al high­est val­ue of wealth trans­fer we should have where each in­cre­men­tal dol­lar above that, there are bet­ter us­es for. That’s the idea of cost ef­fec­tive­ness in this analy­sis. Then, you should have wide­spread ac­cess so that pa­tients aren’t crip­pled by their cost. And there are work arounds: coupons, free drug … but those work arounds are al­so in­fla­tion­ary, ul­ti­mate­ly, be­cause they’re work­ing around a sys­tem that is in­tend­ed to re­strain prices.

Stephen Ubl: Can I jump in? First of all, I want to em­pha­size that the in­dus­try as a whole be­lieves the sys­tem needs to change in im­por­tant ways, that we’re not for the sta­tus quo. I think it’s al­so clear that we’re go­ing to see some changes this year based on what the ad­min­is­tra­tion has pro­posed and what the con­gress is con­sid­er­ing. The re­al ques­tion is, what kind of changes are we go­ing to have? Are we go­ing to have changes that en­hance the com­pet­i­tive mar­ket place? Or, as Pe­ter said, are we go­ing to move to a sys­tem like they have in Eu­rope and oth­er places where the gov­ern­ment plays a more cen­tral role in de­ter­min­ing what pa­tients have ac­cess to and don’t?

The re­al­i­ty is, if you study those Eu­ro­pean mar­kets, they tend to be marked by less in­vest­ment. You know, you had a sit­u­a­tion in the 80s where a lot of the R&D that was cen­tered in Eu­rope has moved to the US. I would ar­gue be­cause we have a more ro­bust ecosys­tem. The pa­tients have less ac­cess to nov­el treat­ments. We’ve done an analy­sis that looked at that, based on the IPI pro­pos­al the ad­min­is­tra­tion’s made. Pa­tients have ac­cess to about 95% of nov­el can­cer treat­ments in the US com­pared to about half of that in the Eu­ro­pean mar­kets that are be­ing com­pared to the 14 mar­kets that are be­ing ref­er­enced as the bas­ket. So, in the face of a clin­i­cal tri­al that’s shown that the mod­els that move to re­strict­ed ac­cess vers­es the frag­ment­ed mar­ket that we have to­day, that needs im­prove­ment and re­forms, there’s re­al­ly on­ly one place you want to be. It’s in one of our best hos­pi­tals, best physi­cians, best ac­cess to nov­el treat­ments.

So, we’ve tried to change, we’ve tried to bring re­form. What are some of those ideas? They’ve been ref­er­enced by the pan­el. First and fore­most, tak­ing that $150 bil­lion in re­bates and dis­counts and get­ting them to the pa­tients at the point of sale seems to us as the best way to ad­dress the po­lit­i­cal is­sue. Be­cause un­til you ad­dress what pa­tients pay out of pock­et you’re go­ing to have this vi­cious cy­cle that you’re re­fer­ring to about fo­cus on, I would ar­gue, ir­rel­e­vant things like mod­est list price in­creas­es and not sys­temic changes that are need­ed to low­er out-of-pock­et costs.

I had lunch with a sen­a­tor the oth­er day, used to run a For­tune 500 com­pa­ny. He said, my sup­ply chain costs were 6%. Why are they 40 to 50% in your busi­ness? Think about that for a minute. In a com­pet­i­tive class in med­i­cine, the re­bates and dis­counts are 40 to 50%. Now, Pe­ter’s right. The in­dus­try has been in­volved in these mod­els for a long time, which is why I’m frankly proud of our folks say­ing we think the sys­tem needs to be dis­rupt­ed. We think the cur­rent re­bate mod­el is bro­ken and has per­verse in­ten­sives. A pa­tient should get ac­cess to those re­bates and dis­counts. As Christi said, every ac­tor in the chain to­day is paid on this price of the med­i­cine. That’s crazy. They should be paid fee for ser­vice. What val­ue are they bring­ing to the ta­ble? Not a per­cent­age of the val­ue that we’re bring­ing to the ta­ble.

Christi Shaw: You know, and I think my head’s kind of go­ing around and around here, but we saw at the White House the coun­sel for eco­nom­ic ad­vi­sors al­ready did that ex­per­i­ment and said that if you bring in the so­cial pric­ing that we see in Eu­rope, that pa­tients suf­fer. That’s what we want to do with our Amer­i­can se­niors, is have them have that kind of a health care sys­tem. We al­so….

Pe­ter Bach: Wait, in fair­ness, I didn’t say im­port the en­tire Eu­ro­pean sys­tem and the EMA. I said, the idea of val­ue-based pric­ing is that there would be manda­to­ry cov­er­age with low co-in­sur­ance un­der a sys­tem where prices were set based on some val­ue. I’d say an ICER frame­work, for ex­am­ple. There’s no re­quire­ment that phar­ma­ceu­ti­cal com­pa­nies would do that. There would be a vol­un­tary, sort of a co-vol­un­tary arrange­ment, where pay­ers and com­pa­nies could come to terms around health tech­nol­o­gy as­sess­ment rather than the cur­rent sys­tem which has very much high­er prices in some cas­es. In some cas­es, drugs are priced even be­low bench­mark, but not have the high co-in­sur­ance so that there could be ac­cess. I didn’t talk about the EMA or any of these analy­ses or the fact that ac­cess is bet­ter in Eu­rope than it is here or any­thing of those oth­er things.

Christi Shaw: I was re­fer­ring to what John was say­ing ear­li­er and he had brought it up.

Kath­leen Tre­go­ning: I think the key there is what’s the val­ue frame­work and how do you make sure that you’re look­ing at all com­po­nents of val­ue.

Christi Shaw: Sure.

Kath­leen Tre­go­ning: We have cer­tain­ly en­gaged ex­ten­sive­ly with ICER and work with them close­ly. I think that it …

Pe­ter Bach: Yeah, it’s hard, but it’s doable.

Kath­leen Tre­go­ning: But much like you said, val­ue isn’t nec­es­sar­i­ly just a uni­ver­sal con­stant. That al­so takes place in a con­text. Part of the val­ue that we have here is the val­ue of in­no­va­tion, the val­ue of hav­ing ac­cess to the nov­el treat­ments, as Steve ref­er­enced.

But much like you said, val­ue isn’t nec­es­sar­i­ly just a uni­ver­sal con­stant. That al­so takes place in a con­text. Part of the val­ue that we have here is the val­ue of in­no­va­tion, the val­ue of hav­ing ac­cess to the nov­el treat­ments, as Steve ref­er­enced.

— Kath­leen Tre­go­ning

Christi Shaw: To one out of three Amer­i­cans right now, over the age of 80, has Alzheimer’s dis­ease. One out of three over the age of 80. That’s go­ing to break the health care sys­tem. But if we do val­ue-based pric­ing on on­ly re­coup­ing the cost for your spe­cif­ic area, we will not be able to keep in­vest­ing in Alzheimer’s dis­ease, which Lil­ly alone has in­vest­ed well over three bil­lion dol­lars in with­out a med­i­cine yet. So as we look at val­ue based, we can’t just put it in iso­la­tion of this one drug and this one pill that I pay for. It has to be in the whole in­no­va­tion sys­tem if we want to cure those dis­eases.

If we want to take, like my sis­ter, rare dis­ease, mul­ti­ple myelo­ma. Thank God we in­vest­ed be­cause she was on sev­en dif­fer­ent med­i­cines. She had a great qual­i­ty of life for three out of four years, while she would’ve on­ly got­ten sev­en months be­fore. Now, that may not mean a lot to every­body un­til it’s your own sis­ter, un­til it’s your own pa­tient, your own child, your moth­er.

So, look­ing at this holis­ti­cal­ly, why is it that drug prices are the main­stay? Over 90% of med­i­cines are gener­ic. On­ly 8% of the Medicare bud­get is for med­i­cines. On­ly 8%. So this lit­tle bit of time that we have where we’re charg­ing a lot of mon­ey…. Look at Gleevec, chron­ic myel­oge­nous leukemia on­ly costs dol­lars now. It’s gener­ic. For the rest of time in the his­to­ry of the world, you won’t die of chron­ic myel­oge­nous leukemia and you’ll get it for a few dol­lars a month be­cause it was a brand that had it’s patent life, re­couped its in­vest­ment, and now you have many more can­cer med­i­cines. It goes back to where I start­ed, what is the prob­lem we’re try­ing to solve when we’re talk­ing about drug pric­ing?

John Car­roll: Well, let me play dev­il’s ad­vo­cate for just a sec­ond here as it re­lates to the fac­tor­ing in the price of fail­ure. You fac­tor in the cost of de­vel­op­ment for a drug in terms of how you think it should be fair­ly re­im­bursed for, how it should be paid for, but that leaves out the cost of fail­ure, which is enor­mous in bio­phar­ma. Now, should a com­pa­ny get cred­it be­cause it failed to cre­ate a drug and spent over three bil­lion dol­lars, in­clud­ing do­ing three piv­otal stud­ies for solanezum­ab? Is that some­thing that a com­pa­ny should get cred­it for? How do you fac­tor that in so that it’s fair­ly done? It just seems like once you agree to a ba­sic ap­proach, the in­dus­try’s ini­tial re­ac­tion is to say, well, there’s val­ue and there’s how we de­fine val­ue. Those are two dif­fer­ent things as it re­lates to what the rest of the world is say­ing.

So, should a com­pa­ny get cred­it, full cred­it, for fail­ure?

So, should a com­pa­ny get cred­it, full cred­it, for fail­ure?

— John Car­roll

Christi Shaw: I don’t know about full cred­it, but I think that’s why we’re in this high risk in­dus­try. We are for-prof­it com­pa­nies. We do have in­vestors that see us as high risk. We do have to pro­duce a prof­it and spend three bil­lion dol­lars; we can’t do that in per­pe­tu­ity with­out get­ting re­im­bursed for that. So yes, I think all of those fail­ures, even though there’s not a med­i­cine for Alzheimer’s we know more about Alzheimer’s dis­ease than we ever have be­fore. The ad­vance­ment of know­ing the plaques, and the tau, and what they play in­to. We now know many of our fail­ures have led us to be able to say we see the light in the fu­ture where we can ac­tu­al­ly do clin­i­cal tri­als that are more based on knowl­edge of the sci­ence.

So yes, I do think that is our in­dus­try. We bring in nov­el med­i­cines for a short pe­ri­od of time at a high price to pay for all of the fail­ures and to pay for ad­vanc­ing the qual­i­ty and quan­ti­ty of life.

Stephen Ubl: Now re­mem­ber, we’re talk­ing about this as an in­dus­try­wide, but Sanofi and Lil­ly’s books are sep­a­rate, right? If you’re go­ing to pay more for a drug be­cause of fail­ures, the next log­i­cal step is that com­pa­nies that fail more of­ten should be able to charge more for their suc­cess­es. That’s pret­ty counter to the no­tion of a com­pet­i­tive mar­ket and how it dri­ves ef­fi­cien­cies.

John Car­roll: Eli Lil­ly to­day bought a com­pa­ny that has a drug that they did not have any fail­ure with. It charges $400,000 for a drug that is on­ly go­ing to be able to go to a very small num­ber of peo­ple. It’s go­ing to be very hard to find those peo­ple that will ben­e­fit from it. So it has a long way to go in terms of get­ting the val­ue out of it. I am cu­ri­ous, though, in those sit­u­a­tions how you come up with a prop­er val­ue for a drug. Have you looked at this par­tic­u­lar drug from Loxo?

Pe­ter Bach: Sure. You know, the in­ter­est­ing thing about that is it’s prob­a­bly go­ing to be a half a mil­lion dol­lars per found pa­tient just in NGS test­ing at cur­rent Medicare rates. That’s be­fore you even pay for the drug. By the way, I work at Sloan Ket­ter­ing. Sloan Ket­ter­ing played a piv­otal role in de­vel­op­ing that drug, as well. This is ex­act­ly what I was talk­ing about. The sci­ence is amaz­ing. My col­leagues who worked on this are re­al­ly smart peo­ple. It’s fab­u­lous, but even if we could reach all of those pa­tients … and this is a harsh thing to say … it isn’t so­ci­etal­ly ef­fi­cient to go af­ter that con­di­tion com­pared to try­ing to get peo­ple, for ex­am­ple, to not smoke in the first place. There’s not a per­fect over­lap, of course, be­tween the cause and ef­fect of those can­cers.

It’s fab­u­lous, but even if we could reach all of those pa­tients … and this is a harsh thing to say … it isn’t so­ci­etal­ly ef­fi­cient to go af­ter that con­di­tion com­pared to try­ing to get peo­ple, for ex­am­ple, to not smoke in the first place.

— Pe­ter Bach

But this is a chal­lenge as we go in­to rar­er cat­e­gories, we’re go­ing to suck up more so­cial wealth in­to these dis­eases that af­fect just a few peo­ple when we have some ma­jor health care chal­lenges here in the US. You know, low­er life ex­pectan­cy and than all these oth­er coun­tries that ap­par­ent­ly are com­mu­nist. Oth­er sorts of chal­lenges that we are putting dol­lars in­to. They are amaz­ing. I love the sci­ence just as much as every­body else, but the goal of our health­care sys­tem, I think, is to im­prove health. Not to prove that we can land on the moon. That’s what we are do­ing. Again, I love the ar­ti­cles in Na­ture, but this is very in­ef­fi­cient. We are in­creas­ing­ly go­ing in this di­rec­tion.

Christi Shaw: And Pe­ter, how do you feel about the hos­pi­tal cost or the 500% mark-up on the price of drugs in the hos­pi­tal or the physi­cian fees that are sky rock­et­ing even more than the price of drugs?

Pe­ter Bach: Yeah, not good. We’ve writ­ten tons about this. We’ve done a lot of the pri­ma­ry re­search on the 340B drug dis­count pro­gram and try­ing to point out what’s de­fec­tive there. I think all of these in­ter­me­di­ary sys­tems are wild­ly in­ef­fi­cient and per­verse, in many cas­es. So, ab­solute­ly. I don’t know my own hos­pi­tal’s eco­nom­ics. In gen­er­al terms, we make more mon­ey or hos­pi­tals like mine make more mon­ey, when we pre­scribe ex­pen­sive drugs. Every sin­gle study that has looked at this ques­tion both in hos­pi­tals and doc­tor’s of­fices have shown that doc­tors will pre­fer on the mar­gin of more ex­pen­sive drug be­cause the mark-up is big­ger. That’s a re­al­ly stu­pid sys­tem. I know where it came from. You know, it’s an ar­ti­fact of a dif­fer­ent time where cost-plus kind of made sense. But we need to fix all those things.

We’ve done a lot of work on point of sale re­bates, as well. That doesn’t make sense. If any­one saw the Wall Street Jour­nal and the mix of news over the last week­end, we did all that work on how the D plans are gain­ing the in­sur­ance in the pre­mi­um bid. We have a lot of things to fix. I’m mad about all of it.

Stephen Ubl: It’s a great point. You men­tioned the Part B pro­pos­al that has been made and the ex­plic­it crit­i­cism is that there’s not the lev­el of re­bat­ing and dis­count­ing in Part B as there is in the com­mer­cial mar­ket or that there should be. I would ar­gue on a fact ba­sis that’s ac­tu­al­ly not true. That for many com­mon­ly used med­i­cines the av­er­age dis­count is about 21%. But set­ting that aside, what’s miss­ing from the de­bate is what would pro­duce more dis­counts and re­bates in Part B is if you ad­dress the Part B sit­u­a­tion where you have to turn around and give a 50% dis­count to 50% of the hos­pi­tals.

John Car­roll: So Jeff, I want to get some feed­back from you be­cause you di­rect­ly en­gaged in this, as well. If you were re­quired to sell your ther­a­py for half price or a lit­tle bit over half price, what the list price is right now, would that be sus­tain­able? Is that some­thing that you could do?

Jeff Mar­raz­zo, CEO, Spark Ther­a­peu­tics. JEFF RU­MANS for END­POINTS NEWS

Jeff Mar­raz­zo: In the case of Lux­tur­na, no. The dev­il’s in the de­tails of these types of sys­tems. We en­gaged in a very ex­ten­sive process with ICER in that ac­tu­al re­view. We pro­vid­ed them tons of in­for­ma­tion. We went through a se­ries of things back and forth. Ul­ti­mate­ly, if you look ac­tu­al­ly at their own analy­sis, they show it be­ing cost ef­fec­tive at the price we set when you make cer­tain as­sump­tions. They chose to make cer­tain as­sump­tions and quan­ti­fy what the ben­e­fit was for some­one who got Lux­tur­na in terms of their qual­i­ty of life and their gain of vi­sion back. They felt that, when look­ing at the da­ta, they thought it was some­thing like eight or 10% im­prove­ment.

When I sat through the ad­vi­so­ry com­mit­tee meet­ing hear­ing and lis­tened to all those pa­tients talk about their im­prove­ments and their lives, that 8%, 10% sounds like a mar­gin­al im­prove­ment. If you shift that up, now that’s cost ef­fec­tive. So how do you ul­ti­mate­ly, and es­pe­cial­ly in a rare dis­ease like that where you’re not go­ing to run a tri­al on hun­dred or thou­sands of pa­tients and gen­er­ate the da­ta to be able to show is it an 8% ef­fect or a 40% ef­fect. That drove the en­tire analy­sis on that.

The sec­ond thing that their analy­sis didn’t ac­count for in­di­rect costs. So a lot of what we’re dis­cussing is the im­pact on the health­care sys­tem. I know we might say that’s where we want to be as a pol­i­cy mak­ing po­si­tion. How­ev­er, you start to think about dis­eases like blind­ness, deaf­ness, and I’m sure you can go on and fig­ure a num­ber of oth­ers that don’t have sig­nif­i­cant di­rect costs to the health care sys­tem, but they are huge im­pacts on both pa­tient’s lives on pro­duc­tiv­i­ty, on wel­fare. Frankly, when you look at oth­er coun­tries, they ac­tu­al­ly can un­der­stand and as­sess all those oth­er non-health are costs. So once again, choos­ing from a pol­i­cy per­spec­tive to say we’re not go­ing to ac­count in­di­rect costs in a frame­work like that changes, ul­ti­mate­ly, dra­mat­i­cal­ly, where you come to on val­ue. So, these are the things that ul­ti­mate­ly you’d have to work through and fig­ure out.

I will just say one oth­er piece, which is back to the ex­am­ple you asked about, No­var­tis. There are hosts of dis­ease: spinal mus­cu­lar at­ro­phy, he­mo­phil­ia, plen­ty oth­ers, where there are ex­ist­ing drug costs where we pay chron­i­cal­ly, and we pay every sin­gle year for those, for long pe­ri­ods of time. If you ask a pa­tient, would you pre­fer a one time treat­ment where you’re free of in­fu­sions and free of the risk of bleeds? Or would you pre­fer to take in­fu­sions a hun­dred to 150, 300 times a year for the rest of your life? You don’t have to do any mar­ket re­search to see what peo­ple pre­fer. We should not have a sys­tem that in­cen­tivizes chron­ic ther­a­py over one time ther­a­py. It makes no sense.

If you ask a pa­tient, would you pre­fer a one time treat­ment where you’re free of in­fu­sions and free of the risk of bleeds? Or would you pre­fer to take in­fu­sions a hun­dred to 150, 300 times a year for the rest of your life? You don’t have to do any mar­ket re­search to see what peo­ple pre­fer.

— Jeff Mar­raz­zo

John Car­roll: But the counter ar­gu­ment to that is that these oth­er mod­el­ing ap­proach­es to­wards pric­ing a drug do take that in­to ac­count. They do take in­to ac­count how much it costs to treat some­body over a pro­longed pe­ri­od of time where the prices are re­al­ly, ex­treme­ly high. I mean, ex­tra­or­di­nary.

Jeff Mar­raz­zo: Well, they do and they don’t, right? So just take the ICER analy­sis of this sit­u­a­tion with SMA. I didn’t read the de­tails so I could be off a lit­tle bit on it. But I un­der­stand they came out and said we think it’s cost ef­fec­tive with two mil­lion dol­lars.

John Car­roll: Right, they did.

Jeff Mar­raz­zo: They did that by look­ing at the cost of Spin­raza over five years. So what if the ther­a­py is still work­ing to im­prove the pa­tient’s life at six years, at sev­en years, to ten years? There’s no ev­i­dence of that. And by the way, Pe­ter, to your point. Yes, it would be per­fect if when a drug launch­es we have 78 years of ev­i­dence that it works for their en­tire life­time. That’s not re­al­is­tic. We think a so­lu­tion around that is to say there’s in­for­ma­tion that we don’t have yet to prove to you, pay­er, that it’s go­ing to work for 10, 15, 20 years. We have X num­ber of years when we’re launch­ing. Let’s agree on some­thing that al­lows us to share in risk that if it’s work­ing, and we’re right, that we get paid for that. If we’re wrong and it stopped work­ing at year six, we don’t. But to cut it off at five years, it’s ar­bi­trary and it’s based on that point in time. And again, I think there’s ways to share in that risk with out­comes and arrange­ments like that.

Kath­leen Tre­go­ning: And that’s why these val­ue frame­works are so es­sen­tial and why we need a sys­tem that looks at this holis­tic as­sess­ment of val­ue and not just do­ing a sin­gle point in time, a math­e­mat­i­cal cal­cu­la­tion, and that’s it. We’ve got to have a sys­tem that looks at this, but al­so step­ping back, to get back to: what is the is­sue to the point of this pan­el? It’s pa­tient out-of-pock­et costs. How do we ad­dress changes that fo­cus on ad­dress­ing cost to pa­tients, and how do we look at a sys­tem that I think, to Steve’s point, you now have markups all along … based on list price, that is no longer serv­ing the sys­tem.

And so we’ve got to evolve, but it’s not some­thing any one com­pa­ny can do. Much like Christi was say­ing with Lil­ly, Sanofi has made a num­ber of strides to bring drugs in at low­er prices, to mod­er­ate our own pric­ing poli­cies and so on to work with ICER on these val­ue as­sess­ments. No one com­pa­ny or even one part of this in­dus­try can solve all of these is­sues, but we’ve got to keep in mind what solves out-of-pock­et for pa­tients, but what al­so … and you talked about a moon shot. This in­no­va­tion en­gine that we have in this coun­try, the in­vest­ment that com­pa­nies make in dis­ease like Alzheimer’s, we don’t want to lose that. That is an in­her­ent val­ue of our health­care sys­tem be­yond just the health. It’s the in­no­va­tion en­gine, and that is a re­al­ly pre­cious thing that we have here that we don’t want to lose as we look for so­lu­tions.

Stephen Ubl: Can I just make a quick point? I’d be in­ter­est­ed in Pe­ter’s per­spec­tive on this, this im­plic­it no­tion that com­pa­nies can price their prod­uct at what­ev­er the mar­ket will bear, they want to charge, etc., etc. Does any­one re­al­ly be­lieve that in the en­vi­ron­ment that we’re op­er­at­ing in to­day, where there are three PBMs that con­trol 80% or 90% of the mar­ket, that we have mas­sive con­sol­i­da­tion in health sys­tem and health plans, we’ve got ICER, we’ve got the aba­cus, we’ve got a num­ber of oth­er or­ga­ni­za­tions that have a view on val­ue, that get an­chored in a ne­go­ti­a­tion with a pay­er, even if they aren’t set­ting the price …

This is the over­all en­vi­ron­ment that com­pa­nies are op­er­at­ing in to­day. Again, this no­tion that what­ev­er a com­pa­ny de­ter­mines should be the price I just think is a fun­da­men­tal mis­nomer. And ac­tu­al­ly, I wor­ry more to­day, in this tec­ton­ic bat­tle be­tween man­u­fac­tur­ers and plans, that there’s too much con­sol­i­da­tion in pow­er on the oth­er side of the equa­tion. The re­al­i­ty is that plans and PBMs are sys­tem­at­i­cal­ly shed­ding risk to the in­di­vid­ual around med­i­cine costs in a way that they are not on the med­ical costs.

I get a hip or knee re­place­ment, I go to the hos­pi­tal. I don’t even know what hip or knee I got. I pay my mod­est hos­pi­tal de­ductible. I’m on my way. That is not the case with med­i­cine. You’re show­ing up at the phar­ma­cy more reg­u­lar­ly than you go to the doc­tor or the hos­pi­tal, and you’re pay­ing more out of pock­et, whether it’s the D plans, over­bid­ding … The re­al­i­ty is hos­pi­tals would rather have phar­ma com­pa­nies cut than hos­pi­tals cut. There­fore, they de­fend 340B and they de­fend the cur­rent sta­tus quo as it re­lates to hos­pi­tal pay­ment.

Plans’ fa­vorite tac­tic is to point the fin­ger back at phar­ma in terms of pre­mi­um in­creas­es, even though it’s not fact-based. The re­al­i­ty is out-of-pock­et costs are grow­ing faster than un­der­ly­ing med­ical costs and un­der­ly­ing phar­ma costs. Again, un­til this de­bate gets fun­da­men­tal­ly re­ori­ent­ed to­wards all the fac­tors that bear on what pa­tients pay out of pock­et, we’re go­ing to have a vi­cious down­ward spi­ral.

John Car­roll: But that doesn’t seem to be hap­pen­ing, not in Wash­ing­ton, DC in any case. I’m kind of cu­ri­ous. Is there a piece of leg­is­la­tion re­lat­ed to drug pric­ing that you would back, and what would that look like?

Stephen Ubl: Ab­solute­ly. There’s a num­ber of ideas that we have put for­ward, I think, ad­dress­ing bar­ri­ers to more out­comes-based con­tracts. I un­der­stand Pe­ter’s per­spec­tive, but the re­al­i­ty is the way the sci­ence is evolv­ing, we know that cer­tain pa­tients are go­ing to re­spond and cer­tain pa­tients aren’t. And when pa­tients don’t re­spond, com­pa­nies are will­ing to put their mon­ey where their mouth is and not get paid.

Sim­i­lar­ly, if there are in­di­ca­tions-based pric­ing, I think the in­dus­try would be will­ing to have en­gage­ment around that. If there’s a med­i­cine that works re­al­ly well in lung can­cer, but the da­ta’s less ma­ture in stom­ach can­cer, we should have two prices, not one drug, one price. You look at the sup­ply chain re­forms-

John Car­roll: Pe­ter, you’re nod­ding your head.

Pe­ter Bach: It was our pol­i­cy idea. Yeah. I’m ap­pre­ci­at­ing the shout-out.

Stephen Ubl: Again, I think that there are mar­ket-based ideas that would ad­dress health­care costs holis­ti­cal­ly. We do think ad­dress­ing some of these dis­tor­tions in the mar­ket­place is re­al­ly im­por­tant, whether it’s in the sup­ply chain or whether it’s things like 340B or hos­pi­tal markups. They all need to be ad­dressed. The irony is the ad­min­is­tra­tion’s done more than any oth­er ad­min­is­tra­tion to lev­el the play­ing field with oth­er coun­tries that are not ad­e­quate­ly rec­og­niz­ing in­no­va­tion.

You look at the USMC agree­ment with Cana­da and Mex­i­co. Mex­i­co went from ze­ro years of in­tel­lec­tu­al prop­er­ty pro­tec­tion to 10 years. Cana­da went from eight to 10 years. It’s rough­ly dou­ble the TPP stan­dard. Ko­rea, FTA. There are great op­por­tu­ni­ties in these bi­lat­er­als to hold coun­tries ac­count­able for ba­si­cal­ly free-rid­ing on US in­vest­ments in R&D. So whether it’s val­ue-based con­tract­ing, sup­ply chain, ad­dress­ing oth­er dis­tor­tions in the sys­tem, a more ro­bust trade en­force­ment agen­da, these are bet­ter ways in our view to get at the prob­lem.

But to the point ear­li­er about pa­tient out-of-pock­et costs, I’m struck by pro­pos­als that are on the ta­ble to­day, how lit­tle they would do to ad­dress pa­tient costs. Let’s look at Part B. Let’s say we do get a 30% re­duc­tion over five years, as the sec­re­tary has pro­posed. The re­al­i­ty is Part B is marked to­day by uni­ver­sal ac­cess and low out-of-pock­et costs, so who ben­e­fits? Yes, there’d be some gov­ern­ment sav­ings to re­duc­ing costs by 30%. There might be some mar­gin­al pa­tient ben­e­fit in terms of low­er cost-shar­ing.

Same thing in D. You look at the six pro­tect­ed class­es. The sec­re­tary wants more sav­ings in those class­es. Let’s say we go from 20% re­bates to 40%. Who ben­e­fits from that? Re­bates and dis­counts are not be­ing passed on to pa­tients cur­rent­ly, so the D plans ben­e­fit from that. Again, there might be some mar­gin­al sav­ings for the gov­ern­ment or for low­er cost-shar­ing. They aren’t fun­da­men­tal­ly ad­dress­ing pa­tient out-of-pock­et costs.

John Car­roll: Christi, what would you like to say this year?

Christi Shaw: Just me?

John Car­roll: Just you. Eli Lil­ly.

Christi Shaw: I guess what I say prob­a­bly cor­re­lates to them a lit­tle bit. I was just shak­ing my head be­cause it’s so dis­heart­en­ing for me. I’ve been in the in­dus­try 30 years, and it was a badge of hon­or when I first was a sales rep­re­sen­ta­tive for Eli Lil­ly and com­pa­ny back in the day. When I look at tak­ing a year off with my sis­ter and the strug­gle she had just to get her can­cer med­ica­tion every month, miss­ing two to six dos­es un­til she fi­nal­ly told me, to just … It’s like it’s de­nied to her even though she paid her de­ductible in Jan­u­ary.

And I look at what we’re talk­ing about now, and what’s dis­heart­en­ing to me is it’s pol­i­tics, it’s head­lines, it’s herd men­tal­i­ty, and there’s no ed­u­ca­tion about the pa­tient and the out-of-pock­et. If that’s our num­ber one is­sue, we can solve that. We can take that mon­ey that we’re mak­ing pa­tients pay and re­duce it, and it won’t cost any of us that much more, whether it’s the phar­ma in­dus­try, the hos­pi­tal, the pay­ers, the gov­ern­ment. And we’re not solv­ing that. We’re just let­ting it go and let­ting pa­tients suf­fer, and from a non-cor­po­rate stand­point, that’s what I’m think­ing about, and that’s what I would like to see change. We’ve got to help pa­tients get ac­cess to the med­i­cines they need.

Stephen Ubl: I would agree with that. I think what we’ve got to stay fo­cused on is not the rhetoric and the head­lines, but what the ul­ti­mate is­sue is. Again, I think many com­pa­nies are do­ing what they can with­in the sys­tem as it ex­ists to­day to fo­cus on get­ting pa­tients the prod­ucts that we need. We put to­geth­er a sav­ings pro­gram for in­sulins to pro­vide peo­ple who are pay­ing cash at the phar­ma­cy counter a fixed price for their in­sulin. We are do­ing what we can.

I’d like to see the whole sys­tem come to­geth­er and move to a more in-depth un­der­stand­ing of the per­verse in­cen­tives, and how do we move those away so that we can all get to a sys­tem that, to Christi’s point, low­ers out-of-pock­et costs for pa­tients, gets pa­tients ac­cess to the med­i­cines that they need, but does so in a way that con­tin­ues to al­low us to in­vest in in­no­v­a­tive ther­a­pies and to har­ness the sci­ence that we’re see­ing right now?

John Car­roll: I want to ask one more ques­tion of Pe­ter. If we got back here next year, ear­ly Jan­u­ary, JP Mor­gan, is any­thing go­ing to be dif­fer­ent? Do you think we’re go­ing to be hav­ing the ex­act same ar­gu­ment about the ex­act same things, or does some­thing have to change this year?

Pe­ter Bach: I’d like to be op­ti­mistic. Hope­ful­ly we’ll make some progress on 340B. Cer­tain­ly a lot of in­ter­est in mov­ing to­wards di­rect sub­si­dies to the hos­pi­tals and away from the spread rev­enue mod­el they have. I’d like to see progress on Part D as well. I think we could get to point-of-sale re­bates. I think we’ll see if the IPI con­tin­ues to move for­ward. There’s sev­er­al steps along the way. But what I pray for, which I think is over­ly op­ti­mistic, is that dis­cus­sions like this, where peo­ple say, “The prob­lem is pa­tients can’t af­ford their med­i­cines,” ac­knowl­edge that the re­al­i­ty, the rea­son they can’t af­ford their med­i­cines, is be­cause of ef­forts to coun­ter­act mo­nop­o­lis­tic — and mo­nop­oly’s not a bad word in this case — mo­nop­o­lis­tic pric­ing be­hav­ior.

The rea­son pa­tients don’t pay very much in Ger­many — the av­er­age month­ly pre­scrip­tion’s 10 eu­ros, even for ex­pen­sive spe­cial­ty drugs — is be­cause they have a cen­tral­ized pric­ing sys­tem. It doesn’t use health tech­nol­o­gy as­sess­ment, as every­body knows here who knows about Ger­many. This ac­tu­al­ly po­ten­tial­ly could hap­pen … just flow more mon­ey to in­su­late pa­tients from prices, so that com­pa­nies can go right down the mo­nop­o­list de­mand curve and max­i­mal­ly price-dis­crim­i­nate, which is of course high­ly de­sir­able if you’ve been to busi­ness school — is high­ly un­de­sir­able from a so­cial per­spec­tive.

But I sus­pect that will be the con­ver­sa­tion next year. Pa­tients can’t af­ford these med­i­cines. In­no­va­tion is price­less, and we need to just find a way to trans­fer more wealth in­to the phar­ma­ceu­ti­cal sec­tor.

But I sus­pect that will be the con­ver­sa­tion next year. Pa­tients can’t af­ford these med­i­cines. In­no­va­tion is price­less, and we need to just find a way to trans­fer more wealth in­to the phar­ma­ceu­ti­cal sec­tor.

— Pe­ter Bach

Au­di­ence con­vers­es over break­fast be­fore the pan­el

Au­di­ence mem­ber asks a ques­tion

Jeff Mar­raz­zo talks to John Car­roll.

Au­di­ence mem­ber talks to Kath­leen Tre­go­ning.

Christi Shaw talks to an au­di­ence mem­ber.

Au­di­ence mem­ber talks to Pe­ter Bach

RWE chal­lenges for to­day's bio­phar­ma

The rapid development of technology — and the resulting avalanche of data — are catalysts for significant change in the biopharmaceutical industry. This translates into urgent pressures for today’s biopharma, including a need to quickly and affordably develop products with proven therapeutic efficacy and value. This urgency is expedited by the growth of value-based contracting, where access to reimbursement and profit depends on these abilities.

UP­DAT­ED: In a stun­ning turn­around, Bio­gen says that ad­u­canum­ab does work for Alzheimer's — but da­ta min­ing in­cites con­tro­ver­sy and ques­tions

Biogen has confounded the biotech world one more time.

In a stunning about-face, the company and its partners at Eisai say that a new analysis of a larger dataset on aducanumab has restored its faith in the drug as a game-changer for Alzheimer’s and, after talking it over with the FDA, they’ll now be filing for an approval of a drug that had been given up for dead.

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As shares suf­fer from a lin­ger­ing slump, a bruised Alk­er­mes slash­es 160 jobs in R&D re­struc­tur­ing

With its share price in a deep slump after suffering through a regulatory debacle over their depression drug ALKS 5461, Alkermes CEO Richard Pops is taking the ax to its R&D organization in a restructuring aimed at cutting costs ahead of its next attempt at a rollout in a tough field.

Richard Pops, Endpoints via Youtube

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Acor­da's Ron Co­hen brings the ax back out as new drug sales on­ly trick­le in while cash cow is led to the slaugh­ter

With its new drug earning meager sums and its one-time cash cow reduced to a bony shadow of its former self, Acorda Therapeutics today is rolling out a new restructuring aimed at slashing the staff and cutting costs to get through the hard times ahead.

The biotech is chopping a quarter of its staff today, carving back R&D as well as SG&A expenses. And CEO Ron Cohen is cutting deep.

Under the new austerity budget, Acorda’s R&D expenses for the full year 2019 are expected to be $55 – $60 million, reduced from $70 – $80 million. SG&A expenses for the full year 2019 are expected to be $185 – $190 million, reduced from $200 – $210 million. R&D expenses for the full year 2020 are expected to be $20 – $25 million and SG&A
expenses for the full year 2020 are expected to be $160 – $165 million.

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RAPT Ther­a­peu­tics re­turns to Wall Street to re­vive IPO bid

On May 24, FLX Bio, a small cancer and inflammation biotech with backing from GV, changed its name to RAPT Therapeutics and filed confidentially for an IPO. On July 5th, they filed to raise up to $86 million. On July 22, they announced the IPO with a $75 million goal.  And on August 1, they abruptly and without explanation called it all off.

Now, without explanation, they’re reviving the bid, filing again for a $75 million IPO, this time with a new bookrunner and a new drug candidate in the clinic. The terms will be the same: 5 million shares at $14-$16 per share. It would give them a diluted market value of $351 million.

EY vet set to re­place re­tir­ing Am­gen CFO Meline

Ahead of its third-quarter results next week, Amgen on Tuesday disclosed the planned retirement of David Meline, who has served as the company’s chief financial officer since 2014.

Meline will be replaced by Ernst & Young vet, Peter Griffith, as CFO come January 1, 2020 — but until then Griffith will serve as executive vice president, finance.

“Over the last 5 years at Amgen, Meline instituted many major changes that led to operational efficiencies and margin expansion while successfully returning cash to shareholders. Now that Amgen is on solid footing, it was a good time to step away,” Cowen’s Yaron Werber wrote in a note. “We do not anticipate any major changes to strategy or operations immediately due to this transition as Amgen is on solid footing.”

Eli Lil­ly’s USA, di­a­betes chief En­rique Con­ter­no is head­ing out af­ter 27 years, and he’s be­ing re­placed by a com­pa­ny in­sid­er

Close to 3 years after Eli Lilly CEO Dave Ricks added the title of president of the US operations to Enrique Conterno’s resume, which included his helmsmanship of the diabetes franchise, the Peruvian born exec is set to retire after a 27-year run at the pharma giant.

Lilly put out the news just as it was posting Q3 results, with a mix of upbeat and downbeat results in the latest set of numbers from Lilly.
Conterno — a grizzled, deeply experienced and sometimes gruff veteran of the pharma world — was a high-profile figure at Lilly, stepping up to expanded duties as the company was forced to deal with intense pricing pressure on the diabetes side of the business. He had replaced outgoing US president Alex Azar, who later popped up as head of Health and Human Services in the Trump administration.
As head of the diabetes unit, Conterno had to deal with an extraordinarily competitive field as payers demanded bigger discounts. Trulicity’s success helped generate new revenue for the company, but Q3’s miss on revenue had a lot to do with the need for discounting the drug ahead of Novo Nordisk’s rival therapy, Rybelsus, which was priced on the wholesale level at an almost identical rate.

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No­var­tis hands off $80M in cash to part­ner up with a top biotech play­er in the fi­bro­sis sec­tor

Never underestimate the power of a good showing at a scientific conference.
In a presentation late last year, the researchers at Pliant Therapeutics launched a series of discussions about the preclinical data they were pulling together around their work on their small-molecule integrin inhibitor aimed at transforming growth factor beta, or TGF-β, a key pathway involved in fibrosis.
And they got some serious attention for the work.
“We got interest from pharma partners and at the end Novartis basically made it,” says Pliant CEO Bernard Coulie.

Is there a recipe for M&A suc­cess? The best and worst buy­out deals in the past decade of­fer some keys to suc­cess — and fail­ure

It’s not easy achieving a solid win in M&A in this industry. But if you follow a few simple guidelines, you may be able to increase your odds of success.
Geoffrey Porges and the team at SVB Leerink went about the “notoriously difficult” task of scoring the biopharma buyout of 2009 to 2019. Sizing up current and expected revenue from the products that were gained, they came up with the 5 winners:
Merck/Schering Plough
It says a lot about the field that it’s much easier sorting out the 5 worst deals, though there’s also a lot more competition for that title, notes Porges. As picked by the analysts:

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