Mehta Analysis: Trump Pricing Tempest In A Teapot Is An Opportunity For Bio-pharma Leaders

President Trump’s much
anticipated pronouncements on drug pricing reform leave a lot to be clarified.
Biopharma companies and their leaders should grasp the opportunity to lead from
the front and propose tangible and transformative actions that deliver benefits
for all stakeholders.

This may be one of the
few letdowns that the biopharma industry should embrace, if not relish. Shrill
propaganda by so many in the government, starting with President Trump himself
soon after entering the US presidential race, had escalated the fear of painful
anti-industry regulations to bring drug price inflation under control.

What do we have after
this two-year stirring of the drug pricing pot? Certainly not the most dreaded
of the initiatives, ranging from CMS authority to negotiate drug prices, to
drug importation. At least not in the near future. Instead, President Trump’s
much-anticipated reforms can best be described as work in progress. “We
will cut out the middlemen,” Trump pronounced in his long-awaited speech
on May 11 at the White House. Details are sketchy, but the secretary of the
Department of Health and Human Services (HHS) Alex Azar said that “over 50
different initiatives are being proposed — very sophisticated, the kind of
thing you’d expect from a CEO like Donald Trump, getting at the real heart of
the business problem.” (Also see “Trump Drug Pricing Plan
Includes Part D Surprises, Challenges PBM Business Model”
Scrip, 11 May, 2018.)

The very next day, in
his speech at the HHS, Azar, former head of Eli Lilly & Co.,
elaborated on a number of these proposals, admitting, however, that much of
this list will take time to take shape, and even longer to reduce US drug

At the other end of
the spectrum, where a key Trump proposal accuses most of the 7 billion people
on the planet of being freeloaders, many governments have already issued polite
denials – and more. The EU issued a statement the same afternoon as the
president’s speech that rational purchasers ponder cost:benefit, especially
when modern day data enable an informed judgement of value. “The drug
manufacturers in the United States set their own prices, and that is not the
norm elsewhere in the world,” a spokesman for the 28-member European Union
said. “EU member states have government entities that either negotiate drug
prices or decide not to cover drugs whose prices they deem excessive. No
similar negotiating happens in the US.” Mitchell Levine, the chairman of
Canada’s Patented Medicine Prices Review Board, which reviews prices, said in
an interview, “With our price regulations, drug companies are still making
profits – just lower profits than in the United States.”

The intellectual
property issues are the leading sticking point in most bilateral and
multilateral treaties, starting with the renegotiation of the North American
Free Trade Agreement that President Trump pulled out of as one of his first
acts upon assuming office. We in the US cannot count on the world drug pricing
order to change anytime soon – rather we are going to have to do our own heavy

Luckily, in between
the aim of persuading foreign governments to pay a higher price for the US
innovations, and many demonstration-stage ideas, a number of tangible proposals
in the Trump plan are promising. Authorizing the Medicare and Medicaid insurance
providers to negotiate and obtain better drug prices is one such example –
although the details remain to be spelled out. In effect, a market-driven if
not a stealth-mode of Part D price negotiation pathway may emerge. This
initiative – combined with value-based pricing, transparency of rebates, and
sharing of these rebates with the patient, as well as rationalizing generic and
biosimilar acceptance – all do hold a strong promise by removing barriers to an
effective competitive market place to function.

Each of these
initiatives should help spur competition, but it all still adds up to a list,
pulled together more to win votes at the November US midterm elections than as
a bold plan to get at the real heart of the business problem, as Azar
proclaims. The White House website lists above topics and more, but there is
quite some distance between the lip and the cup, leaving ample space (and time)
for many interest groups to act, further reducing the chances of a cohesive and
impactful plan to gel.

Perhaps the most
important of last week’s drug pricing related speeches from Trump and Azar was
a pointed warning to biopharma leadership from Azar: “Drug companies have
insisted we can have new cures or affordable prices, but not both. I’ve been a
drug company executive – I know the tired talking points: the idea that if one
penny disappears from pharma profit margins, American innovation will grind to
a halt. I’m not interested in hearing those talking points anymore, and neither
is the President.”

That the biopharma industry
is tone-deaf was confirmed by trade association PhRMA’s initial press release:
“The proposed changes to Medicare Part D could undermine the existing structure
of the program that has successfully held down costs and provided seniors with
access to comprehensive drug coverage. We must also avoid changes to Medicare
Part B that could raise costs for seniors and limit their access to lifesaving
treatments.” These tired talking points border on fear-mongering.

The drug price
blueprint à la Trump/Azar will not yield immediate results, and thus may not
harm the biopharma bottom line in the near future. But the battle lines are
drawn precisely because status quo is no longer acceptable, even to the
industry’s staunchest allies. The biopharma leadership has a choice to make:
pretend that this is just another Washington attempt that the complexity of the
industry structure will fight off in a protracted struggle, or recognize that
the industry landscape will change, and accept the opening that the limitations
of the Trump/Azar proposals offer. Can the industry be bold and venturesome to
lead in bringing about impactful changes not only in the way drug value is
recognized, but perhaps also in showing how a large part of the healthcare
system needs to function as if it were deregulated?

An Opportunity To Lead

Let us invite the
biopharma leadership, who have more resources and experience to address many of
the challenges that the Trump administration seems to have punted on, to rise
to this challenge. Arguably the industry leaders have much more at stake. This
vacuum around the government’s goal to reduce healthcare spending by focusing
on drug prices can be the turning point for the industry leadership to gain an
upper hand. Everyone in the biopharma industry laments how its contribution to
society’s health is not only not appreciated, and that society considers its
tactics aimed more at profits, not patients. Perhaps the single most damaging
accusation is that the industry could do more to ensure that its products are
accessible to all who may benefit. After all it enjoys a range of protections,
from patents to exclusivity to regulatory barriers, that enable it to
consistently earn top-ranking profit margins.

The moment is ripe to
adopt 21st century thinking to solve what otherwise seem like hopelessly
complex challenges. Some selected initiatives, from recent innovation in
biopharma product pricing, to Starwood Hotels offering Headspace meditation
channel, nicely illustrate the power of complementary value creation. But much
more is possible for the biopharma industry to successfully continue to
innovate while earning a fair profit by creating a normal competitive market
place for its products and services – and in fact broadening these offerings.
For example, clear value-based pricing for a growing number of new biopharma
product launches can be extended to most countries, adapting the price to the
life year value in each country. Similarly, complementary collaborations that
expand the biopharma mission to include an open-minded combination of
prevention and treatment options around a holistic value package could begin to
align industry’s actions with what the society seeks.

The resulting positive
impact on biopharma’s image could be further strengthened with direct to
patient pathways, recalibrating the power of the middlemen. To be sure, these
middlemen, from wholesalers to PBMs, play a valuable role in the biopharma
chain, but the role has gone out of kilter, as all the stakeholders have
perfected the technique of hiding behind the regulatory veil while deploying
market forces to the hilt. Rather than accepting a secondary role in this value
chain, building an effective direct channel to patients, and thereby their
doctors and hospitals, would enable biopharma to contribute much more than just
their drugs in their value proposition.

These and a wide range
of other fruits are ripe for the picking. Few other stakeholders in the
healthcare continuum have the resources, scientific expertise and experience to
play such a crucial role in helping streamline key decisions, which likely have
stymied even the blunt-talking president’s ability to fulfill his campaign
promises. A concerted action by biopharma leadership could yield a huge
win:win:win for the industry, for the healthcare systems globally, and for all

This column originally
appeared on Scrip Biopharma Intelligence, May 18th, 2018

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