The Great American Drug Deal
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While no one company might be expected to voluntarily deny itself lawful profits, for the preservation of the whole industry, it is important that we collectively—at the level of organizations like BIO and PhRMA—support regulations to bring about contractual genericization of off-patent drugs that remain natural monopolies (e.g., someday gene therapies) or even natural oligopolies (e.g., biologics with few biosimilars) to ultimately make them as inexpensive as they can be. The drug industry should make its money from innovation, not long tails of profits from old drugs.
Clipping those long tails will impact a few companies in the near-term. Indeed, the reforms I’m proposing fundamentally pit innovators who value the first 10-15 years of a new drug’s sales against the more mature companies milking older drugs, potentially creating a rift within the industry. But to safeguard the drug development industry from the kinds of blunt price controls being discussed today, it’s important that we offer society a better model by which all drugs can become cost-effective in the long run.
Especially if tail-limiting regulation (e.g., contractual genericization) were to come paired with vital insurance reforms to allow all patients to afford the medicines we create, we must be prepared to make such essential trades to uphold the Biotech Social Contract. Doing so will benefit present and future patients in America and around the world.
Calling Every Reader to Action
As a parent, child, sibling, spouse, grandparent, or friend to someone who currently needs or someday may need medical care, your view of the drug pricing debate counts. This is personal, or at least someday it will be.
It’s up to each of us how we talk about drug pricing at the dinner table. If we write or comment on social media, it’s up to us what we say on this topic. It’s up to each of us how we vote. Those are some of the ways we can make a difference.
There are now scientists exploring every crack in the façades of thousands of diseases and disorders, like water searching for weaknesses in a rock so that it might, by expanding and contracting with the seasons, break it apart from within. As innovators move from idea to idea, backed by investors supporting small companies or by the revenues of larger companies, they will fail countless times. But some will succeed. In time, human ingenuity will seep through every fissure and disintegrate yet another healthcare challenge, just as decades of concerted effort resulted in a cure for hepatitis C. We are tackling cancer and heart disease and diabetes with the same determination.
America has always been a country of hardworking, risk-taking innovators. We wanted to put people on the moon and we did. We have invented our way to a remarkable modern world, and what we can accomplish with our sights set on disease is nothing short of extraordinary.
Even as America struggles to compete with other countries in manufacturing and other sectors, we remain a leader in biomedical innovation. We’re good at it. We should keep doing it.
If you, a family member, or someone you know is a scientist working for a biotechnology company, you should be proud. America should be proud.
And yet, until we have made the fruits of all that effort accessible and affordable to all Americans, we can’t be happy or proud. That is the lesson amidst the public outrage over drug costs.
So now you understand the role of insurance in determining whether what society can afford is affordable to any one patient. You must decide the degree to which insurance companies and government plans should be allowed to cut holes in the safety net they are promising while still calling the product “insurance.” I hope that this book has equipped you with the knowledge to recognize policies that really can make healthcare affordable for patients while preserving innovation.
Upholding the Biotech Social Contract is up to each of us.
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422Peter Kolchinsky, “America’s Social Contract with the Biopharmaceutical Industry,” Biotech Social Contract, Dec. 27, 2017, https://medium.com/the-biotech-social-contract/kolchinsky-tbsc-1-dafc2fe803e5.
423Peter Kolchinsky, “When Drugs Can’t Go Generic: Honoring Our End of the Contract with ‘Synthetic’ Genericization,’” Biocentury, Dec. 17, 2018, https://www.biocentury.com/biocentury/politics-policy-law/2018-12-17/kolchinsky-how-keep-social-contract-drugs-can%E2%80%99t-go-generic.
424Preston Atteberry et al., “Biologics Are Natural Monopolies (Part 1)”;
“Mark Trusheim et al., “Biologics Are Natural Monopolies (Part 2).”
425Others objected to reference pricing, arguing it would lower drug costs in the US and therefore reduce funding for innovation, which would only be true if the US imposed absolute price controls in addition to reference pricing, as has also been proposed.
426For example, Lipitor would have looked much more cost-effective in its early years had one divided fifteen years of costs by a century’s worth of effectiveness.
427Diana W. Shineman et al., “Overcoming Obstacles to Repurposing for Neurodegenerative Disease,” Annals of Clinical and Translational Neurology 1, no. 7 (2014): 512-18, accessed Oct. 15, 2019. doi: 10.1002/acn3.76, https://onlinelibrary.wiley.com/doi/full/10.1002/acn3.76.
428Here’s one I wrote in response to a drug and insurance reform bill put forward by Speaker of the House Nancy Pelosi: https://www.statnews.com/2019/09/23/patients-losers-pelosi-drug-prices-plan/.
429Some might say that no one believes any cost-effectiveness calculations that a biased drug company publishes, and I can see how that would be true. That still doesn’t mean that, when a drug company presents its own argument for cost-effectiveness, it should play by others’ flawed rules by omitting the value of future generic versions of its drug. For all talk of bias, anyone would be welcome to look at a mortgage-based model and assess it on its merits. Then cost-effectiveness researchers that treat genericizable drugs as if they will be branded forever can present their arguments for why it’s appropriate to pretend that they will be expensive forever.
Acknowledgments
This book would not have been possible without the support of my colleagues, my editors and thought partners, and my wife. At RA Capital, I’m grateful to my co-founder and partner Raj Shah, who has encouraged me to write and speak out; our lead graphics artist Erin Clutter, who masterfully captured the essential elements of each article; and a former member of our writing team, Aaron Hiltner, who helped me turn our dialogues into early drafts of articles that later became the core of this book. I could always count on my editor, Chris Morrison, for thought partnership, making the cuts that needed to be made, and pushing me to finish. When my attention went elsewhere, my sense of duty to respond to Chris’ comments were often the impetus to find the time to keep writing. Chris was later joined by Lari Bishop and Brian Saliba, two editors I trusted to examine the book from a lay perspective (Chris and I both being biotech insiders). Lari and Alex expertly shepherded the manuscript to its final form. I thank Christina Lilliehook and Rachel Carter for their attentive proofreading, and the team at theBookDesigners for their creative work on the cover.
I deeply appreciate the thought partnership and writing talents of Anthony Bower and Jessica Sagers, my co-authors of articles of which portions are included in chapters on international drug reference pricing and a public domain day for drugs, respectively. Thank you to Amitabh Chandra and John Stanford for their thoughtful suggestions as I neared the finish line. And a special thank you to my fellow biotech investor Alex Karnal for pressure-testing how contractual genericization might really play out and the impact of different kinds of price controls on innovation. I am also grateful to everyone who asked me probing questions when I’ve spoken about what I saw as the Biotech Social Contract, especially the students in the classes I’ve taught; it is their questions that I tried to address in so many footnotes, caveats, explanations, and analogies that made it into this book.
I’m deeply thankful to Richard Aldrich, a bus
inessman, investor, and entrepreneur with a rare talent for bringing out the potential in others, for his generous, no-nonsense mentorship, for launching my career as a scientist-investor, and for his unwavering support of my professional experiments.
I dedicate this book to my wife Anna, for her unwavering support and setting an example for me by her scholarship. And to my parents, Evelina and Alex, who challenged me to always question received wisdom (at some cost to themselves). Also, to my brother Joseph, sister-in-law Jennifer, brother-in-law Danny, and Mary Grace, for all their spirited discussions at our gatherings. And to their children, Penelope, Zane, Levit, Bella, Music, and Julian, and to my children, Olivia and Valentin, who all have made the distant future and well-being of future generations so much more personal for me. And, finally, to Joanna Haas, who as a physician and drug developer was an exceptionally well-qualified thought partner and, as my mom-in-law, was someone I could trust to not hold back. This book has been both a personal journey and a family adventure.
About the Author
Peter Kolchinsky is a biotechnology investor and a scientist. He co-founded and runs the Boston-based investment firm RA Capital Management, writes and teaches about biomedical entrepreneurship and its potential to transform global health, serves on the boards of several public and private drug development companies, and lives in Massachusetts with his historian/equestrian wife, strong-willed children, and reasonably well-trained dog.