The Orphan Drug Act represents an example of how society through its government created a path in which the drug industry is incentivized to solve a societal problem. It works in some cases, but we need more such policies in place for situations where solely market-based incentives aren’t enough to drive innovators and investors to develop a drug that is scientifically and technically developable.
For example, existing drugs are sometimes found to be useful for treating diseases for which they were not specifically developed. If a drug like this is nearing the end of its patent term, neither the current manufacturer nor future generic manufacturers would be able to financially justify risking capital on clinical trials to explore broader usage. Certainly a company in this situation might try to alter the original drug in some way and develop only this new version for the new indication.305 But there is no guarantee that physicians will prescribe the modified drug as opposed to the old generic version for the new use. In this scenario, the government could offer the company a patent term extension in exchange for researching and testing its drug in a new indication. The length of the extension could even be tied to the drug’s revenues; the lower the anticipated yearly revenues, the longer the extension would have to be to allow for the company to recoup costs.
In many cases, non-profits, including universities, the US National Institutes of Health (NIH), and other grant-giving groups, step in to fund studies for broader usage of older drugs. This helps society get more out of the generic armamentarium it already owns, which is hugely beneficial.306
Some might think non-profit funding is “purer” than profit-seeking investment because the latter leaves drug manufacturers beholden to shareholders, and that more drug development should be funded by non-profits. But it is not realistic to count on this kind of funding to have a wider impact on clinical development. The federal government contributes about 23% of the total biomedical research dollars in the US, mostly through the NIH, but only a tiny fraction of that goes to clinical research.307 Research funding from all other non-profit sources adds up to only 13% of the total.308 The remaining 64% of biomedical research funding (80% of which is spending on clinical trials, as opposed to animal studies and basic research) is supplied by the biopharmaceutical industry.309 There simply isn’t enough non-profit funding to do what industry does.
Many drugs are invented entirely within companies. Most of those that do get their starts in NIH-funded laboratories offer only hints of activity in test tubes and mice. These compounds are often still too toxic to humans or so weak that a patient would have to take a higher dose than can be cost-effectively manufactured. Chemists that work for companies are experts at turning those “rough drafts” of drugs into much more potent, safer chemicals that are more likely to become well-tolerated, effective drugs, often through extensive and expensive trial and error.
Why Can’t Non-profits Do Everything?
In theory, a non-profit could raise money from donors to invest in R&D instead of a for-profit company offering a financial return to investors to inspire them to risk their money on funding its projects. Since profit margins for the biopharmaceutical industry run about 20%, if the industry converted entirely to a non-profit model (i.e., relying on donations instead of return-seeking investment), then branded drugs would cost society about a fifth less. That’s not enough of a discount to make them affordable to individual patients; only proper insurance without onerous cost-sharing can do that.
But if you are still thinking that a 20% discount sounds attractive, keep in mind that, historically, capitalism has been a more reliable driver of innovation than altruism, which can be a bit patchy, relying on how good a donation makes a donor feel, as opposed to the powerfully motivating promise of greater financial security that investing offers. Hopefully, those who struggle to reconcile healthcare with profit-motive will recognize that, in the long run, as long as all expensive products eventually go generic (via contractual genericization if necessary) and insurance allows patients to afford what their physicians prescribe, the Biotech Social Contract is actually built on a sustainable, functional, utopian ideology.
Humira—What If?
AbbVie’s Humira is the most successful drug in history. Launched in 2002, it continues to generate nearly $20 billion/year (~$15 billion of that in the US) and isn’t expected to go biosimilar in the US until 2023310—which means that, in essence, Humira will have enjoyed almost 21 years of market exclusivity. How has AbbVie been able to shield its flagship drug from biosimilar competition for so long? The answer, filing a thicket of patents for what some consider technicalities, has stirred a lot of controversy.311
Humira is an anti-TNF antibody initially developed to treat rheumatoid arthritis (RA). It wasn’t the first of this class, but because it arrived as an auto-injector that made it relatively easy for patients to give themselves twice-monthly, subcutaneous shots, it was the most convenient. Other anti-TNFs had to be infused or injected more frequently. AbbVie then expanded the uses of Humira to include psoriatic arthritis (2005), ankylosing spondylitis in adults (2006), Crohn’s disease in adults (2007), chronic plaque psoriasis in adults (2008), polyarticular juvenile idiopathic arthritis in children (2008), ulcerative colitis (2012), Crohn’s disease in children (2014), and hidradenitis suppurativa (2015). In 2018, AbbVie launched an upgraded version of the auto-injector which causes fewer injection site reactions.
If the government had taken the approach suggested by this chapter (and Chapter 8) and granted AbbVie an extra six months for each of the eight new uses and the one tolerability upgrade, it would have tacked 4.5 additional years onto Humira’s patent protection (i.e., as suggested in Chapter 8, delayed its Contract Generic Date by 4.5 years). That means Humira would have ended up enjoying a total of 19.5 years of exclusivity for nearly all of its uses before the first biosimilars launch in the US. Given that each six months is worth $7.5 billion in sales to AbbVie, that’s a lot of incentive.312
But if Humira actually starts to “go biosimilar” in 2023, then it would have enjoyed almost 21 years’ market exclusivity. While that’s not much longer than 19.5 years, considering that each year costs the US roughly $15 billion, the patent-based extension costs considerably more than the incentive scheme I propose.
I picked Humira as an example because it is the top-selling branded drug in the US and easily drives home the point of how delays to the introduction of biosimilars and generics can cost society dearly. But the incentives I propose should be strong enough to encourage companies to upgrade drugs with lower sales as well. The 20th best-selling drug in the US in 2018 was the HIV treatment Truvada with $2.6 billion in sales that year, still a lot (a six-month extension for this drug would offer a reward of $1.3 billion in additional revenues).313 If we introduced this new scheme just for drugs that sell over $1 billion/year in the US, which I estimate would apply to less than 100 drugs and yet would have the most impact on overall US drug spending,314 then six months of additional branded life would amount to at least $500 million of revenue per upgrade.315 For drugs with lower sales or where an upgrade might be straightforward but still cost a lot, longer extensions might be necessary to entice companies to invest in upgrades. Companies would negotiate for the length of their extension with the FDA up front,316 before incurring additional development costs, so there would be room to tailor the incentives to the specific cost and benefit of the upgrade.
As for Humira, AbbVie has certainly stretched the Biotech Social Contract by exploiting many features of our patent and regulatory system, illuminating where society is vulnerable. Still, Humira is a remarkable drug with many uses that helps a large number of patients manage a variety of diseases and should be much more affordable within a decade as a valuable addition to our generic (biosimilar, in this case) armamentarium.317
Changing Incentives with Cautions
Some drugs sell relatively poorly but have the potential to be much more useful, either through
an upgrade or through expansion of the market—sometimes both! The EpiPen is a perfect example, as discussed in detail in the previous chapter. If the suggestion in this chapter had been applied to the EpiPen, the government might have offered a company earning modest revenues on epinephrine another six months or even three years of extended market exclusivity in exchange for making the upgrade to the EpiPen. But considering how poorly epinephrine was selling at the time, that might not have been enough. Even three years is not enough time to both invest in expanding the market by educating physicians, parents, and schools, as Mylan did, and then generate an adequate return before generics come in. Had we relied on short market-exclusivity extensions to incentivize that upgrade, the EpiPen might not ever have been invented and society would still be unaware and unprepared for anaphylaxis. That would be counterproductive. The current patent-based system was necessary to allow a long enough period of exclusivity so that a string of companies, ultimately Mylan (and maybe continuing to Kaleo and its Auvi-Q), could figure out how to unlock its utility.
Indeed not all upgrades are easy, so we should be careful about assuming that what may seem like a small increment of innovation really can be incentivized with a modest extension of market exclusivity. There was a time when extending the release of a drug from a pill so that it can be taken once-daily instead of twice was in fact difficult.
Switching from a system that awards new patents to one that offers patent extensions or other additional exclusivities would admittedly not be simple. Regulations with this aim would have to ensure that companies are incentivized to discover new uses for their drugs and drive changes in standards of care. This applies to both easily understood upgrades (e.g., converting a twice-daily drug into a once-daily; formulating an injectable drug at a more neutral pH so that it causes less irritation) and those that are challenging. They would require the regulator—and, indeed, maybe even the courts—to make distinctions between what is a difficult or complex upgrade, worthy of new patent protection and the lengthy monopoly that entails, and what is sufficiently incentivized by shorter exclusivities.
None of that will be easy, but that shouldn’t stop us from trying (I propose a framework at the end of this chapter). Our current system allows companies to extend exclusivity beyond the intended scope of the Biotech Social Contract, yet sometimes fails to incentivize industry to explore new uses or upgrades for existing drugs. Who knows how many older drugs that are part of the generic drug mountain are trapped there in forms that are less convenient or less safe than they could be? How many conditions could be treated with drugs that we already have, if only there were enough incentive for companies to uncover their broader potential?
How Payers Incentivize Innovation…or Fail to
The biopharmaceutical company Vertex has developed a set of drugs called potentiators and correctors to treat cystic fibrosis (CF). A potentiator called Kalydeco works very well on its own for the small sliver of CF patients with a certain genetic mutation of the disease. Vertex combined Kalydeco with a corrector molecule to create a combination treatment, Orkambi, that offers only a modest benefit for most other CF patients. Appreciating that Orkambi wasn’t the best it could do, Vertex developed a triple combination of Kalydeco and two correctors that worked much better. This new cocktail, named Trikafta and approved in the US in late 2019, is profoundly transformative for the approximately 100,000 CF patients around the world.
Kalydeco costs roughly $300,000/year per patient in the US and less in European markets ($267,000 in the UK), where it is reasonably well covered for the small patient population that needs it.318 But when it came to Orkambi, which is reimbursed at $273,000 in the US, negotiations didn’t go well in all European markets. Although Germany negotiated a price of $163,000, the UK rejected Vertex’s proposed price. The company responded by publicly questioning the UK’s support of biotech innovation and, according to some, even considered relocating its European offices and laboratories from the UK.319 France, which pays the European rate for Kalydeco, insisted on a hugely discounted price for Orkambi (80% lower than other European countries). France and the UK seemed to be saying, “We’re willing to pay your price, but only for drugs that work well.” In response, Vertex canceled clinical trials of its newer triple combination agents in France on the basis that it would be unethical to test drugs on patients who might then not be able to access them once they are approved.320
But if France or the UK apply the same reimbursement standard to Trikafta once it’s approved as it did to Kalydeco, Vertex should feel reassured that Trikafta will be reimbursed and continue to enroll French patients in trials even if France insists on playing hardball over the less effective Orkambi. For its part, France could have agreed to reimburse Orkambi for the next couple of years at the standard European rate, knowing that patients on Orkambi would indeed be upgraded to Trikafta once it was approved. The net result would have been a brief period of paying for at least some efficacy in the spirit of supporting innovation that had a high likelihood of yielding a much better treatment in the near future.
France and the UK acknowledged the value of Vertex’s innovation by reimbursing Kalydeco at a high price (even if lower than in the US) for the few patients for whom it’s appropriate and, rather than settling for a subpar first-generation combination therapy for the broader CF population, seem prepared to hold out for the good stuff.321
It might seem reasonable for a payer to take this approach to negotiating prices. After all, who wants to pay a premium for something that has limited efficacy? But it seems somewhat less reasonable when you consider that these payers are deciding what they are willing to pay only after a company has incurred the expense of bringing the new therapy to market. On the other hand, if France had published, in advance of the development of Orkambi, how much it would be willing to pay for various degrees of benefit, it would have allowed Vertex to make an informed decision about whether to bring it to market in France. That might seem like a lot to ask.
In what other industry are innovators afforded such assurances by future customers? It’s actually more common than you might think. For example, in the aviation and defense industries, in which companies may spend billions of dollars and many years developing expensive planes and technologies, pre-negotiated agreements are commonplace. Given the investment necessary to bring something new to market, companies in these fields have no choice but to line up customers in advance at pre-negotiated prices. That’s also how the US government contracts with biotechnology companies to develop biodefense products such as pandemic vaccines.
Using pre-negotiated agreements would certainly help companies in the biopharmaceutical field make informed decisions about what to develop and where to bring it to market. The problem is that the calculations performed to arrive at a pre-negotiated price will likely undervalue the future benefit of a drug—especially if they employ conventional cost-effectiveness models that do not factor in eventual genericization. The UK’s NICE, for example, does not take genericization into account when determining cost-effectiveness and negotiating prices for drugs.322
Making the methodology clear would be important so that patients who thought their government was underestimating the benefit of an increment of progress would have the opportunity to lobby their governments to reconsider its threshold for what it considered a meaningful and cost-effective benefit (or maybe what appears to be a small benefit on average is really a large benefit for an unpredictable few patients).
In the unique Vertex-France instance, Vertex was already supported by sales of Kalydeco and knew that it would soon launch the undeniably effectively Trikafta worldwide. Therefore, even if Vertex were to offer Orkambi globally at a low price in the intervening period, knowing that it could command higher prices once Trikafta got on the market, Vertex’s innovation engine would likely not be significantly undermined, at most costing Vertex a few billion in Orkambi sales.
The fact that Vertex wa
s in a position to potentially compromise on Orkambi pricing ought not to be seen as a broadly applicable precedent. Vertex was an anomaly, and on a global scale, France’s tactics would rob the world of the benefits of real but incremental innovations potentially serving as the stepping stones to large advances. Most companies that have gotten an incrementally effective drug approved don’t already know that their next drug will turn out to be far better, as fortunately turned out to be the case for Vertex. Therefore, failure to get reimbursement for their first version would likely result in those companies not being able to fund the rest of their pipelines.
Imagine if Orkambi were Vertex’s first drug, that Trikafta did not yet have compelling proof-of-concept clinical data, and France’s hardball tactics were the norm around the world, including the US. If this had been the case, Vertex’s stock might have collapsed when news hit that Orkambi would not sell well, making it challenging to get the funds needed to advance Trikafta into trials and robbing patients suffering from cystic fibrosis and their families of the transformative potential of Vertex’s ultimate innovation.
When the Current Incentives Aren’t Enough
Sometimes, even under the current system, there is not enough incentive to create a particular drug that would be useful to some patients. For example, a company might run out of money and never finish clinical trials of a new molecule. Later, it may dawn on someone that finishing development of the abandoned drug would still be a good idea. They might try to raise money from investors to restart trials, but the abandoned drug’s patent may soon expire.
In Europe, the regulatory system simply grants any approved new drug a period of market exclusivity that lasts the longer of ten years or until its patents expire. In the US, if the patient population is small (orphan, <200,000 patients), the exclusivity period is seven years, per the Orphan Drug Act of 1983, but if it’s a larger market, then the period is only five years, per the Hatch-Waxman Act of 1984.
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