2019 SENATE HEARINGS – THE WONDERS WE CREATED AND THE POTHOLES WE DUG

On Feb 26, 2019 the heads of 7 pharmaceutical manufacturers appeared before a congressional committee. The CEO’s of Roche and Novartis—the Swiss—were notably absent. Senators were trying to learn why the cost of medicine was much higher in America than it was in any other advanced country. At the end of her 5 minute interrogation Debbie Stabenow of Michigan seemed frustrated by the evasive non-answers she was evoking, and she concluded that companies raise prices because they can.

She was right and wrong. I believe CEO’s believe they have no choice. They are accountable to stock holders. If the company is not profitable their jobs are in jeopardy. The marketplace they face is not one where their “competitors” are trying to grow market share by cutting their prices. Quite the contrary. Industry leaders are charging more each year. As long as price increases stay below 10% and are some odd number, they don’t seem arbitrary. Most importantly, when pharmaceutical prices rise no one who matters seems to care.

Not that the spokespeople that defend Pharma are wrong. Some of the drugs that company researchers spend years developing fail. When tested, they aren’t effective or are they are toxic, or they don’t have a market niche that makes them profitable. When company money makers lose their exclusivity, generics move in.

Most advanced nations keep prices down by using a system called “reference pricing”. They cluster medications that “have identical or similar therapeutic effects”. Then some insuring nations (like Italy) pay the cost of the cheapest drug in each grouping, and in other countries (like Germany) shell out the price of the average medicine in the collection. In America the government hasn’t instituted a pharmaceutical price control system. Insurers, phamaceutical benefit managers and the VA negotiate drug prices; Medicare, by law, can’t. ¹

Many of the CEOs that were in Washington that day seemed less than proud of their contribution to the price problem. Some seemed anxious to lower prices and/or tie increases to inflation. In return they wanted to stop giving discounts and rebates to middle men and women–pharmaceutical managers– or give rebates directly to the person that needs them. And if they were going to lower prices they wanted the other companies to follow suit.

Kenneth Frazier, the son of a janitor, and grandson of a South Carolina share cropper was the CEO of Merck. A graduate of Harvard, he was the first black man to head a fortune 500 corporation. Initially a member of the defense team when Merck was sued because its arthritis medication, Vioxx, increased the risk of heart attacks and strokes, he had also practiced criminal law. He was part of a legal team that won a new trial and eventual acquittal for an Alabama man who had been convicted of murder.⁵ He told the senators that he felt his company had a duty to be responsible in pricing practices and to contribute to solutions that address patient affordability. He said that the previous year Merck had decided to not annually increase the net price of their portfolio by more than inflation. And he pointed out that his company had deployed 70k doses of experimental Ebola vaccine in the Congo.

The French company Sanofi’s head, Olivier Brandicourt, had, as young doctor “spent two years in the Republic of the Congo. He had then studied malaria during his eight years at the institute of infectious and tropical diseases in Paris.” He said that two years earlier his company had pledged to keep price increases at or below the U.S. national health expenditure projected growth rate. He talked about the gap between net and list prices. Lantus, the company’s long acting insulin had seen a 30% decrease in net at a time when U.S. patients out of pocket costs had increased 60%. He felt dealing with list price alone would not solve the problem of patient out of pocket costs.⁶

Pascal Soriot head of Astra-Zeneca agreed: “The government has to step up and change the rules.” Born in France, Soriot currently calls Australia his home. An avid bicyclist he keeps a road bike in the Alps, another in the US, and a third one in Cambridge England.⁷ He grew up in the north of Paris and when young was a member of a “team”. His story suggests it might have been a bit like a gang. There were “many fist fights.” He was trained in veterinary medicine before he started working for Pharma.

The new CEO of Pfizer apparently believed the group was not brought to Washington to provide certain senators with an opportunity to publically chastise big shots and show their voters they cared. He thought the senators wanted suggestions. Named Albert Bourla, he was a Greek veterinarian who was a former director of Pfizer’s animal health group. When his turn came he stated he was “particularly humble to take part in such an important policy discussion within the U.S. Senate. When he immigrated 18 years earlier he could never have imagined such an honor.” And he told the senators–at the end of the session–that he had made it clear to investors: Pricing will not be a growth driver for the company now or in years to come. (I wonder how long he will last.)

Unlike the other CEOs he didn’t point out how many billions of dollars his company was spending on research, how they desperately wanted to discover and develop a new super drug for mankind—not for their bottom line. And he didn’t talk about his company’s risks and failures. The suggestions he made provided a decent summary of what everyone (aside from AbbVie) was saying.

Medical breakthroughs, he said, “won’t do anyone any good if patients can’t afford them, and unfortunately the horribly misaligned incentives within our health care system often makes medicines unaffordable for American patients. We need to fix this.”

In part restating the thoughts of the other CEOs, Bourla presented four ideas:

All rebates should go to patients. He believes too much money is being swallowed up in the supply chain. His company paid $12 billion this year in rebates. He didn’t think any of the money found its way to patients. If discounts were provided to the people who take medications, seniors could save hundreds of dollars a year.

Medicaid covers the costs of the prescription drugs used by the people it cares for. “To help ensure that the taxpayer sponsored program receives the lowest price available for all prescription drugs” Congress passed the Medicaid best price rule in 1990. Pharmaceutical manufacturers, who sell products to people covered by Medicaid can’t charge the U.S. more than they charge a tough bargaining private insurer.

And as part of the Affordable Care Act, to “offset the overall cost of Medicaid prescription drugs,” 600 brand-name drug manufacturers (under duress) agreed to pay a rebate to the states and Federal government. The amount of rebate is based on a statutory formula: it is a percent of the Average Manufacturer Price (AMP)—the average price that manufacturers receive from the wholesalers who distribute medicines to retail pharmacies.

For recently approved –“innovator” drugs—the first to contain a “specific active ingredient” –manufacturers pay at least 23.1 percent of the AMP.
For blood clotting factors and pediatric medications at least 17.1 %,
and for generic drugs at least 13%⁹.
In 2016, Medicaid drug rebates totaled $31.2 billion.”

Bourla repeated the longstanding dream of many in the health care field. If a drug has less value it should cost less. If a pill prevents heart attacks its price should be tied to the number of lives it saves. Or—as Dr Peter Bach of Sloan Kettering pointed out — when Tarceva is used to treat lung cancer people live, on average, an extra year. If it’s given to someone with pancreatic cancer their life is extended, on average, a week and a half. The drug’s effectiveness varies but its cost doesn’t. (So how would Bach and Bourla price penicillin, transfusions, or emergency heart stents?)

Bourla suggested capping seniors out of pocket medicines cost. Americans are increasingly paying a greater percentage of the cost of their medicines (14%) than they do for their time in the hospital (3%). If someone doesn’t take a needed medication and as a result lands in the hospital, it’s more costly to the health care system. (Lids on drug costs will also get some of the noisy voters off the backs of the companies and the legislators).

Finally Bourla touched on the problem that congress created and that only congress could fix. Our laws are keeping Biosimilars off the American market.

Biosimilars are antibodies that bind to the same antigen as an approved monoclonal antibody. They are the generics of the day. Half are mouse antibodies. They come from special mice, creatures that were genetically altered. When they were mere embryos some of their DNA was replaced with human DNA. As a result when a protein—an antigen—is injected into one of the rodents, the creature makes antibodies that the homo sapiens immune system believes is human in origin. When one of these “human-ish” antibodies is injected into a person our lymphocytes don’t destroy it.

Monoclonal antibody tutorial:

There are Billions of B cells in a body.
Each can only recognize one of the billions of different antigens it encounters. (Antigens: viruses, toxins, pollen.)
When a B cell identifies its fated antigen it creates a unique antibody.
The B cell also clones itself; it makes billions of identical copies of itself.
Each cell in the clone makes the same unique antibody.
The antibodies are thus identical and monoclonal.

In the lab a chosen antigen is injected into a mouse. The animal is given time to recognize the antigen and clone itself–grow billions of B cells that each make the same special antibody. Because large numbers of B cells are present in the spleen, a large bore needle is inserted into an animal’s organ and blood rich in B cells is sucked out.

B cells don’t live long.
Myeloma cells don’t die.
When B and Myeloma cells are fused chemically or electrically, a hybrid cell is created.
It makes and keeps making the antibody; and it doesn’t die.
The mixture of B and fused cells (hybridomas) are put in a special medium.
It allows and encourages un-fused B cells to die off; and it allows hybridomas to multiply, thrive, and make lots of monoclonal antibody.
The basic technology for making monoclonal antibodies is not new or obscure. It was developed in 1975, and its inventors won the Nobel Prize.

Humira is a mouse antibody –it blocks—inactivates—some of the body’s important immune modulators— molecules that play a role in the inflammatory process. The cytokine group it obstructs is called TNF, tumor necrosis factor. When TNF is blocked it’s like a jack knifed truck on the freeway. The immune/inflammatory reaction is shut down. To make a biosimilar to TNF, trained researchers must inject the molecule into a humanized mouse, harvest the lymphocytes that produce the desired antibody, fuse the lymphocytes with myeloma cells, and create cells that should live “forever.” They test the antibodies that the cells produce and learn if they are safe and effective. No two antibodies are, chemically speaking, exactly the same (they are not technically generics.) But like Shakespeare’s rose, good biosimilars “would smell as sweet.” The\ biosimilars need to be and are as good as the original drug. To date four pharmaceutical manufacturers have developed and tested effective Humira biosimilars.

In 2009 congress was sold a bill of goods. They were told something like: we want to make it easier for biosimilars to enter the market. We want to speed up the process. So let’s make sure they work, that they are safe and effective. But let’s not force them to go through extensive controlled trials. Let’s speed up the process.

The Biosimilars Act of March 23, 2010, gave biosimilars 12 years of marketplace exclusivity. Standard medications were getting a 5 year monopoly. At the end of those years (in the absence of legal gamesmanship) the first standard generic (biosimilar) would theoretically be allowed to compete —unless a valid patent stood in the way. And that’s the rub. All new pharmaceuticals are “protected” by significant and insignificant patents. Pharmaceutical companies have long used insignificant patents –that their lawyers could allege were important–to keep generics off the market for a few years. They have long used a provision in the 1984 Hatch-Waxman act to delay the entry of competitors. Then in 2010, in the guise of speeding biosimilars to the market, industry lobbyists did it again. They shaped a new rule as an amendment to the Public Health Service act. They titled it an innovation, and they slipped it into the Affordable Care Act—Obama care. And Ron Wyden, the senator who was most troubled when AbbVie used the loophole, voted for the bill.
AbbVie used loopholes in the law to keep four Humira biosimilars, off the American market for 5 years. Presumably they would have driven down the price of Humira. The company’s lawyers probably had one or several patents that were allegedly being infringed. Abbvie owns 126 Humira patents. Most (I assume) have little nothing to do with the core drug. Under the new law when there was a patent dispute–in the place of litigation “negotiation was encouraged”. The bargaining rules (called a dance) are complex, Byzantine.³

In Humira’s case the manufacturers reached an agreement. 4 companies were allowed to market their biosimilars in all countries of the world outside the U.S. AbbVie kept exclusive control of the American market. That’s over $9 billion a year for 5 years. Thanks to our legislators, the U.S. will have to wait for biosimilars until September 2023.⁴ Bourla explained our law created “reverse incentives that favor higher cost biologics and are keeping biosimilars from reaching patients. In many cases insurance companies decline to include lower price biosimilars in their formularies because they would risk losing rebates from higher cost medicines.”

Parenthetically Bourla suggested that the administration should obtain trade agreements that prevent foreigners from freely using American innovations. He didn’t think Americans should pay less for drugs. He thought people in the other western countries should pay more. “The price control mechanisms of many nations are giving others a free ride on American innovations.”

Richard Gonzalez, the CEO of AbbVie was the target of Senator Wyden’s wrath; One of Pharma’s few CEO’s without a college degree, Gonzalez worked for Abbott for 30 years and retired when he developed throat cancer. Declared cured, he returned in 2009 as head of a spinoff called Abbvie.⁸ Gonzalez stated there’s no one solution; and he did his best to avoid discussing the biosimilar elephant in the room. He pointed out that since its inception in 2013 his company had spent 50 billion dollars in research and had a hepatitis C drug that financially failed. He felt price was only a part of the problem. Stating a willlingness to work with the committee, he pointed out that his company is charitable. 81,000 patients got free drugs (for an unspecified period of time.)

AbbVie, he explained, has 30,000 employees (and they need to eat). Senator Wyden, in turn, pointed out that Gonzalez’s salary was $22.6 million. And he got a bonus of $4.3 million dollars. Was, Wyden asked, the bonus tied to the financial performance of Humira.

In September 2018 congress passed John Sarbanes’ Biosimilars Competition Act. It is supposed to “shine a light” on backroom, “so-called “pay-for-delay” deals – often made in secret. They must now be reported to the federal trade commission who, with the justice department, will review agreements, look for anti- trust and anti-competitive behavior and “punish bad actors.” In other words if a company has a drug with an annual revenue of $10 billion and they keep other drugs off the market for 5 more years (and make an additional $50 billion in U.S. sales) they may be sued, and their lawyers may be forced to settle with the government, admit no wrong, and pay a fine of a few million dollars. Great law.

“By 2014” (according to a Harvard Public Health school intellectual-property consultant) “biologics were expected to account for half of all pharmaceutical sales.” Their prices are often quite high. If congress doesn’t modify the rules we can expect high priced biologics for a long time.

CSPAN: PRESCRIPTION DRUG PRICING. https://www.c-span.org/video/?458198-1/lawmakers-press-pharma-ceos-rising-drug-prices