Trump says the biopharma industry can no
longer depend on the higher US profit margins with his initiative to peg US
drug prices to global norms. The US president needs second and third
initiatives to be successful: Enable the regulators and biopharma industry to
rationalize R&D, and to eliminate selling costs that collectively account
for one-half of the industry, writes Viren Mehta, founding partner of Mehta
The US Administration’s proposal to peg
Medicare Part B payments to foreign drug prices cannot be realized unless two
parallel fundamental shifts take place. The first is a dramatic rationalization
of regulatory norms and the second is a drastic change to the biopharma
industry cost structure. Without those changes, the very existence of the
biopharma industry as we know it may need to become optional in the interest of
ensuring that the costs of biopharma innovations are equitably shared around
the world among all who benefit.
Logic argues that the US should not be
footing the lion’s share of the bill for better health that new drugs offer.
Yet many of the healthcare industry’s incentives globally are anything but
logical. And the relentless maximization of market forces in a sector offering
a regulatory veil to hide behind has enabled healthcare providers, especially
the biopharma industry, to compound the illogical perversities that now
threaten to undo the industry structure.
Trump would seem to be the least likely
of the recent US presidents to pull the rug from under the biopharma industry
by yoking its pricing power to global norms. Then again, Trump readily tears
apart norms that have shaped the world since the 1920s. Many such moves by
Trump do not progress far.
Already a wide spectrum of the industry,
as well as its stakeholders, especially the oncology community, have concluded
that the proposed pegging of pricing to a dozen countries would not succeed.
Rushing to such a conclusion may prove
short-sighted, as it ignores the urgent need for a more sustainable biopharma
innovation model. Pharma industry profits have continued to grow at a healthy
clip despite increasingly effective cost containment actions internationally.
In the US, on the other hand, the biopharma share of the healthcare pie has
soared to as high as 25% among many payers. While this may be welcomed by
short-term investors, the warning signs have been flashing bright amber. This
Trump proposal signals that they are now about to turn red, as the cost of
R&D on the one hand and selling and marketing costs on the other
increasingly limit biopharma managers’ options.
The Regulator: Easy Scapegoat…Or R&D
Regulators are an easy scapegoat for
R&D costs that are clearly out of control. Just as the new tools of science
are refining ways to target a therapy precisely for a smaller and smaller
subset of patients, the time and money needed to get such precision products to
the market are reaching levels where few products can recoup their
investments—even at five- and six-digit dollar prices.
One FDA action in October illustrates the
scale of the challenge: FDA qualified a group of kidney injury biomarkers from
a consortium of four institutions (the Foundation for the National Institutes
of Health (FNIH) Biomarkers Consortium (BC) and the Critical Path Institute
(C-Path) Predictive Safety Testing Consortium (PSTC),) marking the first
qualification of a clinical safety biomarker. The qualification applies to a
single composite measure of six urine biomarkers that can now be used in Phase
I trials in conjunction with traditional measures of kidney function to aid in
detecting treatment-induced acute kidney tubular injury in healthy volunteers.
The Kidney Safety Project was launched in 2011 to identify the best biomarkers.
Identifying biomarkers for use in the clinic has been a priority of biopharma
and FDA since the agency announced its Critical Path initiative in 2004. Here
we are at the end of 2018, and one micro-component of safety evaluation has
arrived—with hundreds more to go!
Despite such complexity of science, or
rather specifically because of the accumulating evidence from such precise
tools, regulators and industry should be able to streamline the criteria for
safety and efficacy evaluation of new therapies so that data from adaptively
designed Phase II studies can be sufficient for NDA filing and for market
approval. Phase III and Phase IV can be combined with the IT tools so that any
unexpected safety signal can be promptly addressed with the tools already in
place for an immediate recall.
This and a number of other regulatory
refinements should enable therapies to be brought to market for low three-digit
millions of dollars, and in a handful of years—making it possible for most of
the effective new drugs to generate a healthy profit even at two- and
three-digit dollar prices. A large portion of the industry’s R&D costs,
about one-fifth of its revenue, can be avoided with such rational refinements.
Selling Costs – The Other Opportunity
The day cannot be far off when the new precision
medicines and their companion diagnostics will sell themselves based on the
pivotal Phase II data, eliminating need for over a third of industry revenues
being spent on selling and related activities. Only a highly qualified
marketing team deploying global online resources will be needed to support each
patient’s team – a team of clinicians and of family, friends, and other
patients like herself – to ensure that an optimal treatment is administered.
Non-compliance will be a thing of the past, as the patient and her team would
seek out such tailored therapies, having followed their clinical studies.
How far is the science and its practical
application from allowing regulatory and commercial practices to be
rationalized enough for the entire world to be able to afford to contribute its
fair share to biopharma innovation? Such a change cannot be expected within the
usual five-year planning horizon, but it would be foolhardy of the industry to
believe that the US pricing will not be harmonized to a certain global
threshold, and to just carry one with business as usual.
This disruption is at least on the
horizon, even if the healthcare industry manages to generate opposition to this
otherwise logical Trump proposal by focusing on how innovation and patient care
could be harmed if the current US margins are not allowed. Just as the PBMs
ignored the accumulating alerts only to be forced into recent precipitous
actions, biopharma will not escape this reality for long even if the price
pegging proposal is delayed.
Done right, the biopharma industry can
not only focus its spending on what matters, but by focusing on value it can
ensure that it fulfills its contract with society when it accepts monopoly
rights from the patents on its innovations: this contract being that its
products will be accessible to every patient globally who may benefit – all at
a fair profit once the industry learns to sustain itself on global profit
margins, no longer depending on the US margins. The moment is ripe for all
biopharma stakeholders to begin streamlining both regulatory and commercial
practices with this singular objective.
This column originally appeared on Scrip
Biopharma Intelligence, November 07th, 2018.