Also, if we conflate investing in new drugs that we will someday “pay off” with simply spending money on expensive healthcare services (which never go generic), then we may make the wrong budget cuts and thereby only worsen our long-term costs and outcomes.
Consider a home mortgage. A borrower spends 15-30 years paying off a mortgage, typically while younger and employed. Those mortgage payments can be substantial, but once the owner makes the final payment, she can celebrate by burning the mortgage contract, living in the house rent-free, and eventually passing it down to her children and grandchildren. In this way, past generations paid off their branded drugs and gifted us the generics we have today. We can do the same for our children (and even throw a patent-burning party once branded drugs are similarly paid off).
What also becomes evident using this framework is that the costs of doctors, surgeries, and treatments such as dialysis for kidney disease are like rent and will remain high forever—we can only hope to prevent the need for these expensive services with inexpensive drugs.88 A heart bypass and a cardiac surgeon may never go generic, but cholesterol lowering statins, which prevent hospital admissions and even surgeries, will be cheap indefinitely.
One might object to the mortgage analogy by pointing out that we don’t use some generic drugs forever. Some drugs are phased out as newer, better ones come to market. That may seem like paying a mortgage for a home that you’ll abandon to go live in another home on which you’ll pay a new mortgage. Just as that’s not how home ownership works,89 neither is it how we make medical progress. A better analogy is that a family pays off the mortgage on its first home, a shack really, and each generation pays for additions and upgrades by taking on new loans that it then also pays off. After several generations, the improved family home may not even resemble the original structure or retain a single one of its beams, and yet it was made possible and paid for by a series of mortgages covering the cost of incremental improvements.
Had prior generations been content to rent the same old shack, today the family might discover that they couldn’t possibly afford to upgrade it to a proper, well-built family home. This approach scales to entire communities. It’s by being willing to build incrementally on what we’ve already accomplished that villages eventually become cities. Similarly, all the generic drugs we have today are only possible because society was willing to incentivize and invest in the development of drugs that provided the scientific foundation for modern treatments.
All technological progress works this way. It doesn’t matter whether the drug that represents the first step towards someday curing a disease is part of the comprehensive treatment we’ll have in 50 years, just as it doesn’t matter whether the latest iPhone has any of the same components as the original iPhone. Had we not incentivized the first steps, we would not have climbed the scale of progress to get to the ultimate goal. It is that climb, each step a permanent advance, that paying for branded drugs incentivizes and makes possible. If we hold out for the ultimate product, refusing to pay for any cancer drug short of a cure, the research to get there would never get done, and we’ll stay just where we are forever.
We can collectively afford to fund this climb. When politicians say that we can make do with fewer new treatments to fund other priorities, they’re pitching a false premise.90 When skeptics argue that it’s either new drugs or investment in schools and hiring more teachers, they’re presenting false choices.91 It’s true that not all progress is of equal importance. If we stopped investing in better smartphones and faster Internet speeds, the state of current technology would serve America well for the coming generations. But if we don’t invest in biomedical innovation, our children will suffer from the same illnesses that plague us today.
Yet when we talk about making room for all the other investments we should be making, including education and clean energy, let’s first cut the inordinate amount of bureaucracy, a lot of it in healthcare itself, that wastes society’s resources (see Chapter 10). Arbitrarily pitting these other priorities against biotechnology and new drug development is as unnecessary as it is unproductive.
When President Kennedy proposed that Americans send a man to the moon, he asked the country to boldly commit to a goal that would require substantial funding, partnerships between government and corporations, and immense intellectual capital. He explained that, “in a very real sense, it will not be one man going to the moon—if we make this judgment affirmatively, it will be an entire nation. For all of us must work to put him there.”92 Individual scientists and research teams will be the ones to discover the next generation of cures and treatments, but their successes will be the product of a collective societal effort. Just as the Apollo program produced breakthroughs in engineering, computing, and our understanding of spaceflight, let us recognize that the high cost of today’s new drugs fuels and inspires the continued discovery of tomorrow’s medical advances, providing high-value, affordable generics that will benefit us all for the rest of time.
* * *
84Though maybe the best solution to ensuring the quality of generics is to shift some of the budget and accountability for quality control to the central distributors and pharmacies through which most generics flow.
85Chie Hoon Song and Jeung-Whan Han, “Patent Cliff and Strategic Switch.”
86FTC Staff Study, Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions (Federal Trade Commission, 2010), https://www.ftc.gov/sites/default/files/documents/reports/pay-delay-how-drug-company-pay-offs-cost-consumers-billions-federal-trade-commission-staff-study/100112payfordelayrpt.pdf.
87It’s easy to say “should” and for every “should” that I believe is actionable, I’ll propose how to do it. In this case, I aim to convey that ending stall tactics is preferable but not essential. So while I say we “should” end stall tactics, my argument still stands even if we can’t or don’t. At less than 4% of all drug revenues, tactics that stall the market entry of generics are a tolerable inefficiency in a process that is working reasonably well. The real problem, also small but growing with no corrective measures in sight, are drugs that can’t go generic at all (discussed in Chapter 8).
88Bill Briggs, “Surgery Prices Surge with Innovation and Consolidation Under Obamacare,” NBC News, Aug. 31, 2014, https://pnhp.org/news/surgery-prices-surge-with-innovation-and-consolidation-under-obamacare/;
Michael Rosenblatt, “The Real Cost of ‘High-Priced’ Drugs,” Harvard Business Review, Harvard Business Publishing, Nov. 17, 2014, https://hbr.org/2014/11/the-real-cost-of-high-priced-drugs.
89You can sell the first house and use the money to buy the second, so the equity one earns from paying off a mortgage is preserved.
90Lev Facher, “Democrats’ New Logic on Drug Pricing: Developing Slightly Fewer Medicines is OK If It Means Lower Prices,” STAT, Oct. 28, 2019, https://www.statnews.com/2019/10/28/democrats-new-logic-drug-prices-biomedical-innovation/.
91Kimberly Leonard, “Budget Breakers,” US News & World Report, Sept. 24, 2015, https://www.usnews.com/news/the-report/articles/2015/09/24/expensive-drugs-a-drag-on-consumers-and-government.
92John F. Kennedy, “Special Message to the Congress on Urgent National Needs” (speech, Washington, DC, May 25, 1961) NASA, https://www.nasa.gov/vision/space/features/jfk_speech_text.html.
Part 2
How to Keep Drug Prices in Check
6
Why Wait for Generics? Embracing Fast-Followers
In 1994, the biotechnology company Genzyme launched Cerezyme,93 an enzyme replacement therapy to treat Gaucher disease, a rare genetic disorder that causes a specific lipid to build up in the body. The buildup can create problems for the spleen and liver, weaken bones, and limit the production of blood cells, causing anemia and other conditions that are difficult to manage. In many cases, this necessitated major surgery, most commonly, the r
emoval of the enlarged spleen.
Prior to the release of Cerezyme, doctors had been using its predecessor, Ceredase, to treat Gaucher disease. Ceredase was incredibly effective, making it possible for people with Gaucher disease to lead fuller lives and reducing the need for spleen removal surgery, but Genzyme produced it using human placental tissue—a lot of it. It took 50,000 placentas to create a year’s worth of the Ceredase for one patient. In addition, this production technique carried the risk of viruses being transmitted from placenta donors to patients.
By 1994, Genzyme had figured out how to make the drug more purely in cells using recombinant DNA technology, and over the next few years, all Ceredase patients were switched over to the new drug, Cerezyme.94 At an average dose, the annual cost of Cerezyme in 2005 was roughly $200,000 per year.95
For 19 years, Cerezyme was the only treatment available for this rare disease. That’s a long monopoly, which isn’t common, but Cerezyme is a biologic drug, one of the first the industry ever launched, which makes it much harder to copy than drugs composed simply of chemicals (in Chapter 8, we’ll discuss what’s been done to more efficiently genericize biologics). Other companies saw an opportunity to compete for a slice of this market and worked on their own enzymes. With a proven treatment already on the market, it wasn’t easy to convince patients to enroll in a clinical trial of a new, unproven drug, but a few companies forged ahead. Finally, in 2010, the company Shire was able to bring a competing product to market and undercut Genzyme’s price slightly.96 In 2012, Pfizer launched its own version at a steeper discount. Patients could almost always count on Cerezyme to be covered by insurance and Genzyme was generous in helping those who had gaps in coverage, so the new competition didn’t necessarily lower prices for patients themselves, but the launch of these Cerezyme-followers (forerunners to what today we might call biosimilars—more on this in Chapter 8) ensured drug supply against problems with any one manufacturer and also lowered the price society (insurance) paid.
In this case, Genzyme was able to enjoy a long monopoly since theirs was the only drug of a given class or type. This is known as an “in-class monopoly,” and it used to be fairly typical in the biopharmaceutical industry. For twelve years, Roche’s drug Rituxan was the only “anti-CD20” antibody on the market (meaning that it could bind to a protein called CD20 on B-cells, destroying them), treating diseases such as leukemia and, more recently, multiple sclerosis. For five years, Novartis dominated the treatment of chronic myelogenous leukemia (CML) with the drug Gleevec, the first BCR-ABL kinase inhibitor on the market. For three years, Merck was the only company to sell a DPP4 inhibitor, Januvia, to treat type 2 diabetes in the US.
As the industry has become more productive with more companies competing with one another to solve the same problems, long in-class monopolies have become less common. Now, when a company launches a novel “first-in-class” drug, others are often not far behind with their “fast-follower” drugs (by comparison, the Cerezyme-like drugs Shire and Pfizer launched were very slow followers). Fast-follower drugs are sometimes similar enough that a physician might feel that a given patient might be adequately treated with any one of them. And yet, these drugs are different enough that each is covered by its own patents, and pharmacies can’t take the initiative to just substitute one for the other, at least not without calling the doctor to send in a new prescription.
Fast-follower drugs are often maligned in the press and by the public as non-innovative. Detractors call them “me-too” drugs that are not worth their prices, and suggest that they contribute to the growth in drug spending. The first drug in a class could be manufactured redundantly at two or three different sites, as some are, to ensure against supply disruption and will eventually become inexpensive by going generic. So why waste time, creativity, and money on developing a second or third drug in the same class?
Competition Gives Payers Leverage and Patients Options
Because drugs in the same class can seem similar, some people think that only the first drug in a class represents innovation, and the others are just copycats. Critics say that these me-too drugs don’t deserve a high price because the companies that made them didn’t seem to take as much risk to develop them as the first-to-market company.97 If the first drug to market generates $2 billion/year in sales and the second drug $1 billion, critics appear to consider the sales of that second drug unearned and excessive. Yet, if not for the second drug, those patients would presumably either be taking the first drug (and so its sales would be $3 billion/year) or possibly they wouldn’t be getting any treatment (e.g., if they couldn’t tolerate the first drug due to some side effect), which would be unfortunate. So society and its patients are not disadvantaged by the existence of the second drug.
Competition within any given class of drug benefits society in two major ways.
Firstly, for patients, having multiple options means a greater chance for safe, effective treatment. For some patients, all drugs in a class may be interchangeable in terms of efficacy and side effects. But other patients might respond much better to one drug versus another of the same class. Different compounds in a particular class may be approved at different dosages or dosing schedules (i.e., how frequently they are taken). The differences between therapies in the same drug class may manifest as different side effects or efficacy profiles or interact differently with other drugs a person may be taking (known as drug-drug interactions).
For example, some patients have genetic differences that cause their liver enzymes to degrade some types of chemicals faster than would the liver enzymes of most other patients. A patient who is a fast degrader might break down one drug quickly, deriving less benefit from it. A me-too drug that is resistant to that patient’s particular enzymes might work better. These differences have been observed for pain medications, anti-depressants, antibiotics, and many other drug classes. With several options, a physician has a better chance of finding a drug within a treatment class that works for a particular patient.
Secondly, having fast-followers in a class (I’ll use this term interchangeably with “me-too”) allows payers to play drugs off one another, offering preferential formulary status and market share in exchange for price concessions. It’s simple economics: More sellers means price competition. Of course, it doesn’t always appear to work that way. Fast-followers sometimes launch at a higher list price than the first-in-class drug, prompting a matching price increase on the first drug in the class. But even when list prices appear to go up, payers usually are able to extract greater rebates from all the manufacturers than they could when there was just one drug (see Chapter 7 for why insurance companies encourage higher list prices). So, generally speaking, net prices go down compared to where they would have been had the first drug enjoyed a monopoly.
For example, the first two drugs designed to inhibit the protein PCSK9 and treat high cholesterol were approved within weeks of one another, allowing payers to play them off each other to keep their prices in check. The first-in-class migraine drug targeting CGRP had two competitors in the same class within its first year on the market. Similar scenarios are playing out in most drug classes, from SGLT2 inhibitors for diabetes to CAR-T treatments for cancer. Though long in-class monopolies are becoming less common, they are still common, and there is room for more fast-followers.
Why Aren’t There More Fast-Followers (Me-Toos), and Why Aren’t They Embraced?
Despite the benefits of me-too drugs, a lot of biopharmaceutical R&D dollars are being directed to developing first-in-class drugs, often for rare diseases—drugs that are more likely to earn the FDA’s coveted “breakthrough” designation. That’s where the regulatory incentives lie and where payer hurdles are often lower. Furthermore, many in the industry, sensitive to being labeled “non-innovative,” fail to see the nuanced benefits of fast-followers, preferring the advantages of being first. Politicians talk about price controls not being intended to discourage innovation but
to reduce what they see as the unnecessary development of me-toos, failing to realize that it was the launch of several me-toos that drove the price of hepatitis C cures down quickly. And payers don’t consistently encourage me-too development, using them only to extract discounts from the market leader but not actually rewarding the me-toos with any significant market share (i.e., using them as a stalking horse).
For example, as mentioned in Chapter 4, Gilead was first to market with a once-daily pill called Harvoni that could cure hepatitis C and was followed by AbbVie’s twice-daily Viekira Pak. But while AbbVie was willing to compete aggressively on price, payers were happy to just extract large rebates from Gilead and relegate AbbVie to less than a fifth of the market. Because the hepatitis C market was very large, with total annual sales in the US briefly growing to a peak of almost $20 billion/year, that fraction was still a sizable reward in absolute terms for AbbVie. But that is not an encouraging example for other companies considering how to challenge a first-in-class drug with their fast-followers in smaller markets. Getting 15% of a $2 billion/year market might not justify investing hundreds of millions of dollars to develop a slightly differentiated fast-follower, but a third of the pie might.
Regulators want to see more options for each drug class in the pharmacopeia.98 At a conference in late 2015, the director of the FDA’s Office of New Drugs John Jenkins lamented the lack of me-too drugs in the industry pipeline and among FDA’s approved drugs list that year, declaring that me-too therapies for chronic diseases were often “me-better” and can be a boon for public health.99 In early 2018, among the regulatory reforms suggested by the President’s Council of Economic Advisors was an expedited approval pathway for me-too drugs.
The Great American Drug Deal Page 9
