These are the best and worst of times in all facets of life, including drug development. Breakthrough treatments can extend survival by many years—what was a cancer death sentence isn’t necessarily so anymore. But the price tag has become so high that not all can enjoy the benefits. We grow more accustomed to winners and losers.
Merrill Goozner, editor of Modern Healthcare, questions some recent biopharma pricing schemes and fundamentally questions the current government and public taxpayer technology transfer regime. He has good reason to, but others have a good reason to embrace it. What’s happening? First, he challenges the repeated premise that drug producers, what used to be vertically integrated, large pharmaceutical companies–must recoup the costs of drug development from early discovery through preclinical, clinical trials (Phase I through III) through NDA/EMA et al filings through commercialization efforts. The argument’s basis was that the drug’s patent lasted 20 years and the drug possibly took up to 15 years and billions to produce and only five years to recoup the investment. Hence higher prices in countries where there market forces are more amenable to higher pricing.
Does this reflect the evolving drug development landscape? Goozner notes that universities and government funded research (e.g. NIH) take on a lot more of the heavy intellectual property lifting and therefore actually in many respects, lower the actual drug development costs to pharma companies. He states that the typical pharma company argument that “high prices are needed to repay drug development costs is laughable.” He argues that in fact, enormous price tags exist because A) those that need the drugs and have the means will pay for survival B) payers participate since in most cases they help cover costs and C) pharma cos and Wall Street seek scientific-based monopolies to extract technical rent via aggressive profit-seeking behavior.
His underlying argument rests on the premise that government and academic technology transfer policies are out of whack with societal norms. He points us toward some examples of how this disequilibria plays out in real time.
Consider that the most powerfully important cancer treatments new to market—such as chimeric-antigen receptor T-cell therapy (CAR -T), has fundamentally transformed many cancer regimens. Thanks to this breakthrough treatment class, long -term remission and survival are vastly improving. Great news for anyone that is able to enjoy their loved ones for more time. Goozner notes more than 400 clinical trials are testing various CAR-T therapies. He continues that new sophisticated treatments for cystic fibrosis and Leber congenital amaurosis, or LCA address “mutation-driven diseases whose effects begin at birth and lead to debilitating lung disease and blindness.” Translation—the universities and/or government-funded research, in many cases, are picking the therapy targets that will enable maximum financial return.
Goozner breaks down the interesting trend:
- Kymriah (Novartis); developed by the University of PA by Dr. Carl June and colleagues
- Yescarta (Gilead); invented by the National Cancer Institute (Gilead purchased the rights via the $11 billion Kite Pharma acquisition)
- Orkambi and Kaydeco (Vertex Pharmaceuticals); they were developed with grants from the NIH and the CF Foundation. They sold the rights to Vertex for $3.3 billion
- Luxturna (Spark Therapeutics); developed by Children’s Hospital of Philadelphia. Founder Dr. High formed Spark Therapeutics with $50 million investment by CHOP which TrialSite News report yielded a 20X return in just 6 years! They were acquired by Roche.
These are the best of times for scientific entrepreneurs and their financial backers. What is the model? Scientific capitalists pair up with investors and operators; spin-out the underlying advanced treatments they developed in their university or tax-payer subsidized lab, pair up with even more investors for later tranches; and finish up what is essentially a clinical trial sprint as opposed to a marathon. They then sell the asset for an enormous premium to a willing and waiting biotech. The heavy intellectual lifting was done early on in the university or tax payer-supported lab. For instance, he argues, that the clinical trial costs necessary for these sophisticated investigational products are in “the low-two figures with desperate patients breaking down doors to get in.” These aren’t the clinical trials of yesteryear—massive marathon Phase III segments with thousands of patients worldwide. Those were costly.
Goozner is a wise man and has called out the scientific entrepreneurial start up model. There are fortunes to be made as was recently exhibited by the CHOP 20X return. And because these treatments save lives—or at least extend them for considerably more time—consumers will pay as much as they can to keep loved ones alive. Hence why we see some prices approaching half a million per treatment—or even more!
Goozner notes that university tech transfer offices don’t think much about the price issue anymore. After all, they are motivated by higher prices. Higher prices flow back to them in the form of royalty payments. They of course argue that these funds are pumped back into the research labs to help more patients in the future; non-profit Cystic Fibrosis would take the same stance.
Goozner’s point: “this distorts the nation’s research prioritization process. It divorces funded projects from the public accountability that comes from an independent review of their medical need and scientific opportunity.” Noted Dr. Ross McKinney, chief scientific officer for the Association of American Medical Colleges “we’re working against the ethical standards we should be driven by.” Hence, there is another side—some face the worst of times.
Obviously, many believe this should change and that Congress should adopt pricing legislation. After all, Americans are fair– aren’t they? Goozner’s ultimate argument centers on the premise that an affordability clause should be infused into technology transfer agreements involving government and tax-payer payments. Should the treatment be funded by the public then there should be some form of price caps or controls of some type.
Opposites attract. On the one hand, we certainly believe that Mr. Goozner has a legitimate argument to make. After all tax payer monies are precious and should be allocated to what a society values. On the other hand, in many of these cases, biopharma spends enormous sums to buy these assets. In the case of Yescarta Gilead paid $11 billion so certainly they will seek to generate a ROI. So the argument that costs become cheaper for the actual drug company cannot be verified without a systematic financial analysis.
But there is an even deeper dialectic going on here. What does our society value? Do we see mass protests in state capitals (or in DC) against drug prices? Yes, we know of many cases where exorbitant drug prices push those that are poor or working poor or even some middle class folks into a dire situation. Ultimately, it would seem that consumers are more concerned about readily available health access rather than specific drug pricing. Could it be that having universal access mechanisms would be the more important dialogue?
The new President, upon taking office, touted his negotiation prowess and ability to do deals. One top line item on the agenda was the lowering of drug prices–but that quickly dissipated in any meaningful way. As bad as it can get—what does the society prioritize?
Importantly is the scientific capitalist profit motive responsible for the accelerated advancements in breakthrough drugs such as CAR-T? Do readers think that the profit motive may have represented an incentive for many of these researchers? Perhaps that is why they worked that much harder; that much longer; over weekends; through holidays and perhaps many an “all-nighter.”
Does Goozer’s analysis afford us the opportunity to go back in time and determine what would have happened if in fact we did impose some form of price controls on government or tax-payer funded drug development? Would CAR-T be the same with out the hyper-profit motive that we have in today’s society?
Our society is continuously transforming and for better, or for worse–we have moved into a sort of hyper-market way of being. We have become, in some ways, a “winner take all society.” Yet growing numbers don’t have enough and seek redistributive actions. And both of these oppositional forces will in fact intensify over the years to come.
This affords enormous opportunity and great deficiencies. Never in our history has there been so many different breaks to create new pathways to generate wealth (and breakthrough drugs), for example (for those fortunate to have education, connections and Fortune). However, never has there been such wealth inequality (or at least we are close to a record). Can we correlate the material advancements to the past decade to greed or altruism? Or both?
Can we link cancer treatment advancements with the minting of new scientific university-originated millionaires? Long ago Adam Smith identified in Wealth of Nations that individuals working for self-gain actually may benefit society. On the other hand, many—maybe a majority—don’t win. Marx identified a natural economic tendency for unequal concentration of power and money in a market society. The fact is that today’s technology transfer dynamics reflect our broader societal forces—its norms, mores and values. The good, the bad and the ugly.
What if we could go back in time and impose technology transfer price controls on breakthroughs such as CAR-T? Would we have witnessed the same accelerated results?