Events, Pricing

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