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J.P. Morgan Roundtable: Biotech’s Reputation Tarnished By Drug Pricing Concerns 

Scrip Intelligence

25 January 2016 

Mandy Jackson

Big pharma companies are used to being criticized for high drug prices, but biotechnology companies that don’t even have a product on the market also feel vilified, perhaps for the first time, over the cost of prescription medicines.

Drug pricing was one of the hottest topics during the 34th Annual J.P. Morgan Healthcare Conference from Jan. 11 to 14 in San Francisco. The issue and its impact on public perception of biotech was top of mind for executives who took a break from the conference on Jan. 11 to participate in a roundtable discussion moderated by Informa Pharma’s Global Director of Content Mike Ward and Scrip Intelligence West Coast Editor Mandy Jackson.

Biotech stocks have been battered since September when it was revealed that Turing Pharmaceuticals purchased the toxoplasmosis drug Daraprim (pyrimethamine) and increased its price by 5,000%, sparking widespread outrage and political backlash over pharmaceutical price-gouging. At least some of the 14.6% decline in the Nasdaq Biotechnology Index since Sept. 21 can be attributed to ongoing pressure from US presidential candidates and Congress to justify drug price increases.

The Jan. 11 roundtable discussion regarding investment in biotech companies led to a prolonged conversation among the participants about the impact of drug pricing on biopharma’s reputation.

Biopharma’s Bad Reputation

Dennis Purcell, Founder and Senior Advisor at the venture capital firm Aisling Capital, noted that the generation known as Millennials – people who began entering adulthood after the year 2000 – have a different mind-set when it comes to investing than Baby Boomers, who used to be the largest generation in the US.

While Purcell said millennials want to invest in companies with the potential to benefit the greater good, Scrip pointed out that millennials also are skeptical of biopharma and are the most likely generation to eschew vaccines for their children.

“I do think we have done, particularly in the last month or two, a terrible job in terms of our reputation in the industry,” Purcell said.

He noted that when the biotech industry first started the J.P. Morgan conference 34 years ago, which was then sponsored by Hambrecht & Quist, “we were the good guys. We wore the white hats and the pharma guys were in dark hats, and now we are all just lumped together. You see some stupid stuff that happened and it does give us a bad name.”

To get millennials to support biotech research that may lead to treatments and cures, Purcell said, “We have to turn that tide from ‘biotech is bad’ to ‘biotech is good.'”

For Corbus Pharmaceuticals, which is developing drugs for rare and neglected diseases, the key to millennial investors’ hearts may be engagement with patients who suffer from diseases that have no effective treatments. Corbus employees support patients and their advocacy groups via fundraising bike rides, walks to raise money and awareness, and other activities.

“When you do that, not only do you appreciate what is at stake, but you actually will end up probably doing better than not,” Corbus CEO Yuval Cohen said. “I think one way to bring in the millennials is to tap into that passion and into those stories.”

Bringing Payers On Board

There seems to be consensus in the biotech industry that payers will reimburse the often high cost of medicines for rare diseases, because those patients are so few in number and they have no other treatments options. But with US private payers beginning to reassess pricey specialty drugs, and with an increasing number of rare disease therapies hitting the market, there is some concern that the cumulative cost of orphan drugs will be too expensive for the health care system.

Cohen said the industry is not very good at explaining that the vast majority of health care costs have nothing to do with medicine, but he acknowledged that there also is a lack of transparency around how biopharma companies price drugs, which feeds concerns about the cost of medicines.

Cohen said a drug like Daraprim that’s been around for 60 years shouldn’t suddenly cost $750 per pill versus $13.50 per pill, but he said new medicines that make a difference for patients who have no treatments available today should be able to get premium pricing.

“If we can change these people’s lives, that’s worth something,” Cohen said.

However, Gilead Sciences has received pushback from payers, patients and politicians when arguing that point in the US for its blockbuster hepatitis C drugs Sovaldi(sofosbuvir) and Harvoni (sofosbuvir/ledipasvir). Sovaldi costs $1,000 per pill or $84,000 for 12 weeks of treatment and it cures nearly all of the people who take the drug, saving patients from severe liver disease that requires costly treatments, including liver transplants.

“It costs $300,000 to save a hepatitis C patient and you charge $84,000 [for a cure]. That is a legitimate argument and it didn’t catch on with the public,” said Symic Biomedical CEO Ken Horne, who noted that people picketed outside of the J.P. Morgan conference to protest Gilead’s pricing practices.

Horne said Novartis AG may be on to something with its reimbursement strategy for the new heart failure drug Entresto (sacubitril/valsartan). The Swiss big pharma has negotiated with payers to reimburse the cost of its drug only if it works for the patients who take it. Novartis is betting that Entresto will reduce costly hospitalizations for heart failure patients in the real world, as the drug did during clinical trials.

“I bet there will be a lot more of that in the future: If the outcome is good, you pay, and if it is not, great, don’t pay,” Horne said.

Part of the problem, according to Alder Biopharmaceuticals Chief Business Officer Mark Litton, is that US payers have a short-term view when it comes to the price of new drugs. Private health insurers and pharmacy benefit managers (PBMs) often have patients as their customers for only a year or two – however long those patients’ employers use a specific insurer or PBM to handle employees’ health care coverage.

“I thought Gilead did a really good job and they have real world examples to show the [savings associated with Sovaldi and Harvoni]. But the truth of the matter is, payers have calculated what that cost is in a short-term analysis, not in a five- to ten-year analysis,” Litton said.

Biopharma companies should cut out the middleman and start talking directly to employers long before drugs are approved and launched, he said, to help companies understand how the cost of new medicines may affect their bottom line. For instance, Alder is developing the CGRP antagonist ALD403 for the prevention and treatment of migraine headaches, which have a big impact on worker productivity for employers.

The European Perspective

Of course, biopharma has a much different experience with drug pricing and reimbursement in Europe, where there essentially is only one payer in each country, since health care is a service paid for by the government. Each country has an entity that negotiates prices and denies reimbursement for costly drugs if the benefit is deemed too minimal to justify the expense.

Litton wondered, “At the end of the day, does Europe not get access to innovative drugs? Because we’re having some interactions with big pharma and they say, ‘Why are you even going to Europe?'”

It was noted that European pharma companies – Roche, Novartis, Sanofi, AstraZeneca PLC and GlaxoSmithKline PLC – all turn multibillion-dollar profits, but Cohen pointed out that while those companies sell their drugs in Europe, their biggest source of revenue is US sales.

“I do think that the seven major markets are called the seven major markets, because they are major; one of them happens to be ginormous, but the rest of them are not insignificant,” he said.

Sergi Trilla, President and CEO of the Barcelona-based contract business development organization Trifermed, said it’s easy for European politicians and government agencies to require limits on drug price reimbursement before cutting other health care costs, because the general population has no problem with measures that affect pharma firms with billions of dollars in profits.

“If you start closing hospitals or reducing the numbers of doctors to take care of the population, for politicians this is not good. It goes against their short-term view, which is normally four years, but going against the [biopharma] industry makes them look very good,” Trilla said.

Also, he noted, European government-run health care systems have limited funding, so if a drug price offered by pharma is too high for a country’s medicines budget, the associated health care agency has no problem denying reimbursement for a drug.

When Purcell asked if Trilla preferred Europe’s single-payer, government-run health care to the multi-payer US system, the Trifermed founder picked the European model.

“It gives unanimous service to all of the population. There is no difference between your income and the services you receive,” he said.

Cohen said the US health care system’s biggest problem is that there are good government programs, i.e. Medicare and Medicaid, to ensure that poor patients have access to care, but there is no good option for people who make too much money to qualify for public programs and earn too little to afford high-quality private insurance.

“There is no such thing as a perfect system, but you can certainly improve the existing systems, there is no question about that,” Cohen said.