The Great American Drug Deal Read online

  Published by Evelexa Press

  Boston, Massachusetts

  Copyright © 2020 by Peter Kolchinsky

  All rights reserved.

  No part of this book may be reproduced, scanned, or distributed in any printed or electronic form without written permission from the copyright holder or a stated representative. To request permission or for information about bulk purchases, please email: [email protected]

  Cover design by theBook Designers

  Book design by Alex Head / The Draft Lab

  Cover Image: shutterstock.com

  Author photo by Bryce Vickmark

  Images created by Erin Clutter

  ISBN: 978-1-7330589-0-2

  Printed in the United States of America

  For those struggling in America’s healthcare system.

  We can and should do better for you.

  Contents

  Part 1. The Biotech Social Contract

  1. A Worthy Cause­

  2. Generic Drugs: A Mountain of Progress and Its Unsung Heroes

  3. Branded Drugs: An Investment—Not an Expense

  4. America’s Health Insurance System Breaks the Contract: A Call for Reforms

  5. Honoring Both Sides of the Biotech Social Contract

  Part 2. How to Keep Drug Prices in Check

  6. Why Wait for Generics? Embracing Fast-Followers

  7. False Heroes: Pharmacy Benefit Managers and the Patients They Prey On

  8. When a Drug Won’t Go Generic: Proposing Contractual Genericization

  9. Preventing Price-Jacking of Off-Patent Drugs

  10. Why Drugs Are Cheaper in Other Countries—And Why That’s Still Good for Us

  11. In Total: Drug Prices Are Close to Where They Need to Be

  Part 3. Beyond Conventional Thinking

  12. Direct-to-Consumer Advertising: Hated, Misunderstood, Essential

  13. Incremental Innovation: Proposing Short Exclusivity Extensions Instead of Long Patents

  14. Productizing Homebrews: Stealing or a Service to Society?

  15. Benefit-Risk Balance: Lessons from the Opioid Crisis

  16. A Call to Action

  Acknowledgements

  About the Author

  Part 1

  The Biotech Social Contract

  1

  A Worthy Cause

  Of all the bones in your body, your hip might just be the worst one to break. Fracturing this vital joint can necessitate replacement surgery followed by months of slow and often excruciating recovery. For seniors, especially, it can disrupt important routines, lead to isolation from social networks, and ultimately tip the balance between good and poor health, beginning a downward spiral toward death. Still, we can only be grateful, for without surgery people would remain immobilized and racked with pain.

  The procedure and tools have improved since hip replacement surgery was first performed in the 1940s, but, in essence, the method is the same: The patient is put under anesthesia, and the surgeon cuts into the skin and removes old bone, implants an artificial joint made of metal or ceramic, sews up the patient, and prescribes antibiotics and pain medication. Many patients require opioids for severe pain, which come with a risk of addiction.

  Hip replacement surgery costs around $40,000 (not counting any extended nursing or rehabilitation, which is often needed),1 and around 400,000 such procedures are performed in America each year, double the rate from 15 years ago.2 For the sake of argument, let’s ballpark the overall cost of hip replacement in America at $16 billion in 2019—and that cost is likely to climb as our population grows and ages. Hospital costs consistently climb faster than inflation and the growth of the broader economy, averaging 4-5% per year over the last decade.3 Not only will the number of hip replacements double again in the next couple of decades, but the costs likely will too. Today’s $16 billion in hip replacement spending could become $50 billion in the next several decades. As things stand, hip replacement surgery and the associated inconvenience, pain, and growing costs are our future, our children’s future, and our grandchildren’s future.

  And yet scientists know a lot about how bones work, how they become weaker, and how they can be strengthened. For decades, scientists have been testing molecules to determine how to reverse bone loss to prevent fractures. Because of the high cost of making new drugs—far more than an academic laboratory can afford—researchers and investors have created and funded companies to develop some of these molecules into medicines that prevent bone damage, with some success, particularly for patients with osteoporosis and rheumatoid arthritis. If not for these breakthroughs, the rate of hip replacement surgery would be even higher than it is.

  Now imagine that later this year, a company comes out with a drug that strengthens bones so effectively that a person’s risk of fracturing their hip is cut in half. This drug would spare 200,000 Americans the agony and impairment of hip replacement surgery and save society $8 billion. After a couple of decades, with the cost of surgery over $60,000 and twice as many people at risk of fracture, society would be saving closer to $25 billion per year. Tens of millions of people—our grandchildren and their children—would live longer, fuller lives, thanks to this miracle drug.

  What’s that worth to America? Such a drug would be one of the highest-selling medicines ever, pulling in many billions in US sales and much more on a global basis until its patent expired—a jackpot for the company and a boon for humankind. As inexpensive generic versions of that drug continued to keep the rate of hip surgeries down for the rest of time, the savings to society would likely reach trillions of dollars. Yet down the road, no one would talk about the cost of that common, affordable bone-building drug. It would be a gift from a long-forgotten era, paid for by a long-forgotten generation, like all of our generic drugs today.

  • • •

  When I was a student, history was a difficult subject for me, as my youthful ignorance blinded me to the lessons I needed to draw from the past. I preferred science because each discovery seemed to fit neatly into an interlocking, logical framework, and whatever didn’t make sense held a secret to be discovered through experimentation. Science promises to operate on the basis of true and false, black and white, which can feel the same to a teenager as right and wrong. History is comparatively messy.

  When I was a teenager, my father suggested that biotechnology would change the world for the better, setting me on the path I’ve been on ever since. I trained as a virologist, partly because I thought viruses were fascinating, but mostly to learn the language and methods of science that would allow me to distinguish between data I could trust and data that would mislead me. Around the time the human genome project was nearing its stunning conclusion, I joined the biotechnology industry to help scientists turn their breakthroughs into novel medicines and diagnostics.

  As a biotechnology investor, I’m on the receiving end of a fire hose of knowledge. Our office buzzes with excitement as we learn about creative ideas for combatting diseases with chemicals, antibodies, and cutting-edge technologies such as gene therapies and antisense oligonucleotides. My team is accountable to our investors, and the biotechnology companies in which we invest are accountable to us and their other shareholders, yet really all of us are accountable to the patients who our products must ultimately serve for any of our work to matter.

  Since 2002, I’ve observed and participated in the evolution of the biotechnology industry. I’ve seen ideas that existed only in patents and small companies’ slide decks become marketed drugs that cured
millions of people of hepatitis C, saved the lives of children born with spinal muscular atrophy, and helped patients with cancer survive their diagnoses. And I’ve witnessed thousands of other ideas collapse under the weight of all we don’t yet know about disease. But each success remains a permanent step forward. We’ve made the present healthier than the past, and the future will be better still.

  For too long my utopian view of the biotechnology industry omitted the perspective of patients who couldn’t afford their medications. I’ll confess that for many years their plight was more of an abstract problem for my team and other investors. When considering how many patients might someday benefit from a new drug, we would assume that the total would be less than 100% of those who needed it, shaving down the percentage out of deference to what we simply saw as unfortunate realities. Not all patients would even know they had the disease that the drug was meant to treat. Not all patients who suspected they had this disease would consult their physicians. Not all physicians would know the drug existed or think to prescribe it. Even when it was prescribed, not all patients would fill their prescriptions, maybe because they couldn’t be bothered or because their insurance wouldn’t cover the drug. Even if their insurance covered the drug, the copayment might be too high for the patient to afford. And even once a patient started taking the medication, they might not continue taking it, either because they didn’t think it was working for them or due to side effects, or, again, because the copayments became overwhelming. When the law permits, drug companies usually offer to help pay these copayments, and yet some patients still go without, perhaps because they do not realize they are eligible for copayment assistance or even can get drugs for free.

  America’s healthcare system makes it hard for some patients to access drugs that could help them. But I certainly didn’t see how this troubling fact was the biotechnology industry’s fault, and I didn’t spend much time dwelling on what could be done about it. As I saw it, our byzantine healthcare “system” (a word we use when we don’t know exactly who does what) wanted to save money by denying patients access to expensive treatments. Drug companies just needed to be savvy enough to get around those defenses by making sure that patients and doctors knew how their drugs could help, negotiating with insurance companies to get their drugs reimbursed, and providing copayment assistance to circumvent financial deterrents. The outcome was that most patients did eventually get the treatments they needed. But I failed to see that the growing outrage over those left behind by this bureaucracy could pose an existential threat to innovation.

  In 2014, there was an especially loud outcry from politicians, the media, and the public over what they saw as the high price of newly launched hepatitis C drugs. For almost eight years, I’d been immersed in the science of how the virus reproduces in people’s livers, trying to predict which companies were on the right track to curing it, and supporting some of them with investment. With breakthrough drugs coming to market, millions of patients would finally be cured. But the list price for the first of these drugs was $84,000 (which came out to $1,000 per pill), and instead of celebrating our collective triumph over a devastating disease, society accused the industry of price-gouging. Some defended the price, pointing out that it cost less than the prior standard-of-care on a per-cure basis. The drug was inarguably less expensive than the cost of untreated hepatitis C, which leads to liver failure, cancer, and death. Others noted that, since this cost was paid upfront for a cure, the cost of hepatitis C drugs was a bargain compared to the $25,000 per year cost of HIV medications that must be taken indefinitely to manage a disease we still don’t know how to cure. The entry of another comparably effective hepatitis C drug towards the end of 2014 and the subsequent drop in prices as two (and, later, more) companies competed to cure patients helped calm the turmoil. Still, the public’s fury had been palpable, belying a deep mistrust of the pharmaceutical industry that could and would be triggered again.

  That moment came in July 2015, when a small, newly formed company called Turing Pharmaceuticals bought from another company the rights to sell an old drug that treats very rare infections and jacked up its price by more than 5000%. The resulting outrage extended to other companies that had raised prices on old drugs, then to companies that were raising prices on newer drugs, and finally to any company selling a high-priced drug. The industry responded by condemning Turing’s heinous price-jacking of an old drug but otherwise defended high drug costs with standard explanations of how expensive it is to develop a drug. Some executives vowed that their companies would take only modest price increases, in some cases under 10% and in some cases no more than inflation.

  When politicians started talking about price controls, industry representatives responded with statements that amount to “patients need to be able to afford drugs, but Congress should not pursue policies that would undermine innovation.” The problem is the word “but”—it is tone-deaf. “But” implies that patients bankrupted by medical bills or unable to afford treatment are unfortunate but unavoidable casualties of innovation. That “but” should have been an “and,” and it should have been followed immediately by “here’s how.”

  Patients need to be able to afford drugs, and Congress should not pursue policies that would undermine innovation. Here’s how…

  I believe in that “and,” and this book is the “here’s how…”

  In listening to the industry’s response, what surprised me was what wasn’t being talked about. No one was extolling the benefits of the mountain of off-patent, inexpensive generic drugs that continue to help humanity and always will. What makes drugs affordable to society in the long run is precisely the fact that they are typically easy enough to manufacture that, once their patents expire, the same drugs can be made by dozens of different companies that then compete on price. That’s not the case for the rest of healthcare. Doctors and hospitals do not go generic. Surgery will only climb in price. For all the outrage over companies raising the prices of their branded drugs year after year, that is the norm for land values, housing costs, and the prices of many other products. And yet, while apartments in New York City will not suddenly turn into affordable housing overnight, that’s essentially what happens when drugs like Lipitor go generic.4

  When you pay a high and growing price for an apartment forever, that’s called rent. When you pay a high price for an apartment for a defined period of time and then you own it, that’s a mortgage. Those expressing outrage at the high price of branded drugs were, in a way, thinking of a mortgage payment as if it were rent. Rent is an expense. A mortgage is an investment. No one was making this point.

  Another response I didn’t hear: High drug prices aren’t the reason patients are unable to afford medications—high out-of-pocket costs are. The only way patients can be expected to afford branded drugs is if they have insurance, and by that I mean insurance that offers proper coverage of healthcare costs instead of the patchwork of gaps many patients fall through today.

  America’s safety net is failing. There are people in America who don’t have enough food, yet it’s not because food is too expensive. There are people in America who don’t have access to clean water, yet it’s not because clean water is too expensive. And there are patients in America who are denied available treatments, but it’s not because those treatments are too expensive. In every case, it’s because of how we fail to compassionately and thoughtfully distribute the resources we do have.

  The whole point of healthcare reform and the crux of the Affordable Care Act (aka Obamacare) was to extend health insurance to more Americans, ideally to everyone, to protect them from the unforeseeable costs of illness and accidents.

  How come then, in response to a patient not being able to afford a treatment, the public’s first thought was “drug prices are too high” instead of “hey, isn’t that what insurance is for?”

  I think that drug developers failed to account for the consequences of their successes. Inn
ovators achieved one breakthrough after another, spending huge amounts of money to develop drugs that physicians and patients badly wanted for many diseases, but then neglected to inspire the public to see the value and long-term cost-effectiveness of these advances. Innovators left that part of the narrative to middlemen—the insurance companies—who took the easier path of casting drug companies as price-gouging villains. So as insurance plans balanced their own budgets by cutting back on the amount of coverage they offered, causing patients’ out-of-pocket costs to rise and many to forego insurance, the public blamed drug companies. In retrospect, the drug industry should have made a case for the value of their products and helped patients lobby for the kind of insurance policies that would make these breakthroughs affordable to them. If America could be inspired to pay to send people to the moon, it can be inspired to find a way to pay for curing hepatitis C and cancer without bankrupting patients.

  Yet, over the course of 2015 and 2016, I watched as the drug industry failed to make a clear case that:

  Patients would be able to afford medicines if insurance companies and Medicare were forbidden from imposing high out-of-pocket costs,5 relegating the question of drug costs to a question of what society can afford, not what any one sick patient can afford.

  In terms of what society can afford, high drug prices are usually temporary. The vast majority of drugs go generic after 10-15 years and stay inexpensive for the rest of time, permanently upgrading our standard of care.

  The prices paid for genericizable drugs are a mortgage, a cost-effective investment that benefits our society, the cost of which should be borne by the entire society—which is what insurance is for, to avoid disproportionately burdening the sick and poor.

  The small percentage of drugs that can’t be “genericized” (i.e., drugs with a recipe that is too hard to copy) must be regulated so that their costs drop over time as if they had, in fact, gone generic.