Pricing, Innovation, and a Pound of Flesh

August 10, 2020
Lisa Henderson

Lisa Henderson is Editor-in-Chief of Applied Clinical Trials and Pharm Exec. She can be reached at lhenderson@mmhgroup.com.

Pharmaceutical Executive, Pharmaceutical Executive-08-01-2020, Volume 40, Issue 8

How “Contractual Genericization” could revitalize pharma and reframe the public conversation.

Innovation and equitable distribution appear largely an unachievable goal, especially when looked through the lens of healthcare, and, more specifically, pharmaceutical therapies. And against the backdrop of COVID-19, the global dialogue around pricing and innovation is growing more reactionary and frantic. Our two columnists who diligently report on the US and European landscapes, each discuss the current climate of pricing and innovation in their respective columns in this month’s issue.

In the US, Congress is rife with its solutions to ensure reasonable prices and access to COVID-19 therapies or vaccines through everything from Medicare negotiation, “seizing patents from biopharma companies,” and reference pricing. Meanwhile, in the EU, COVID-inspired healthcare budgets proposed for $10 billion, along with a change in health policy—that included an “EU-led renaissance of pharmaceutical manufacturing”—were dashed when the negotiated budget of $2 billion was announced in mid-July.

In this space last month, I discussed pharma’s image around the pricing of Gilead drug remdesivir. Because clearly, pricing has always been a contentious issue between pharma and the general public. And then I found an article that encapsulated and addressed the issues of pricing and innovation posted on biotech journalist Luke Timmerman’s website. It made complete sense to me, so I reached out to Peter Kolchinsky, the author of “The Remdesivir Pricing Letter Gilead Should Have Written,” who is also a biotech investor and scientist, managing partner of RA Capital Management, professor, and the author of The Great American Drug Deal.

Kolchinsky is passionate and well-versed on this topic. But beyond the myriad of truths he speaks, one solution he offers would surely be something that most people could get behind, because it literally previously existed, if the stakeholders could agree to agree—Contractual Genericization. Kolchinsky positions Contractual Genericization against the current practice of over-litigating drug patent expiration at the cost of both rewarding innovation and misaligning the intention of the Hatch-Waxman Act.

He says, “Though branded drug prices seem high, that’s misleading. Branded drugs actually offer America the best value of any aspect of healthcare because they go generic—so they don’t stay expensive forever. Nothing else in healthcare, not hospitals, not doctors, go generic. Think of what America pays for branded drugs a mortgage toward a public good that will serve us and our children indefinitely at low costs. And because sometimes drugs don’t go generic via competition, let’s implement Contractual Genericization to ensure that America always continues to get value for its investment.”

This, says Kolchinsky, would give Congress its pound of flesh, but instead of price controls from the point of launch that many call for, which he likens to reaching for the heart of innovation, he’s suggesting industry yield the rent-seeking, patent-gaming tumor that has been growing within pharma. “We are builders,” he says, “but the ease of turning what should be finite mortgage streams into extended rent payments is corrupting the industry into an increasing number of landlords, who don’t need to innovate for a living.”

Clearly, there are other aspects in play, and all of these are addressed in Kolchinsky’s Letter. They include the role of PBMs and health insurers that conflate the drug pricing process, while offering exactly zero in the form of innovation; the need for biomedical innovation through a capitalistic mechanism; the overall net positive effect that drugs have on the holistic healthcare picture; as well as the support offered by NIH and government infrastructure toward discovery of medicines.

Kolchinsky says, “The remdesivir case warns us about what is wrong with America’s insurance system. We need insurance reform so that health insurance does what it is supposed to do—pool the risk over large populations of people, so that healthy people are paying the bills for those who are sick.” Kolchinsky succinctly lays out the problem between insurers and pharma, but the problems don’t exist just in healthcare.

What is becoming exceptionally clear is that COVID-19 has exposed the cracks in many bureaucracies, not just pharma. The truth is that many entities that were in trouble before COVID are now facing tough choices. Do you do everything in your power to maintain the status quo, no matter the short- or long-term consequences? Do you adapt and reinvent yourself? Do you make minor concessions for long-term investment? Do you open yourself to regulation and risk being told how to run your company? Or, do you cease to exist?

Lisa Henderson is Pharm Exec’s Editor-in-Chief. She can be reached at lhenderson@mjhlifesciences.com.

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