Political issue, conspiracy or serious public relations problem- these are the predominant sector views of a drug pricing controversy that has turned pharma into healthcare’s biggest villain.
The practices of Valeant (NYSE:VRX) and Turing Pharmaceuticals drove the debate in 2015, but of course it was Gilead Sciences’ (NASDAQ:GILD) $1,000-a-pill list price for the hepatitis C treatment Sovaldi that launched the latest round of pharma-bashing. Now, as the sector confronts a US presidential election year in which it will be the target of criticism, leaders acknowledge that they are struggling to come up with a believable response- and Gilead’s uncompromising view is not helping.
“The people who are putting us in the gunsights in the media and society have an advantage, because they have soundbites and we have explanations,” Ron Cohen, chief executive of Acorda Therapeutics (NASDAQ:ACOR) and chairman of the Biotechnology Innovation Organization, said during an event on the sidelines of the JP Morgan meeting in San Francisco. “Soundbites always beat explanations.”
In the crosshairs
Potential presidential candidate Hillary Clinton’s statement in September on drug “price gouging”- specifically aimed at Turing's hefty increase on Daraprim- has been seen as a puncture that helped deflate biotech valuations over recent months. Since a peak in mid-July the Nasdaq biotech index has fallen by a quarter.
The drop in market capitalisations has caused enough hand-wringing, but it has been accompanied by a fall in the public’s view of pharma that has not been resolved by the simple ostracism of Turing and its chief executive, Martin Shkreli.
And when revelations later emerged about Valeant's ownership interest of downstream pharmacies, accompanied by allegations that those captive pharmacies drove use of Valeant’s more expensive offerings, this did nothing to erase the image of a sector far more concerned about profits than people (Valeant’s containment strategy, October 30, 2015). Indeed, some of these practices were called out specifically by Express Scripts executives at JP Morgan, who suggested that this year they might exercise their power to exclude branded generics in addition to taking a hard line on expensive new drugs.
At JP Morgan and satellite meetings, industry leaders have been debating whether this loss of faith was self-inflicted or the result of nefarious outside influences. Acorda’s Mr Cohen, for one, asserted that the insurance industry, led by the trade group America’s Health Insurance Plans, has a strategic plan to blame the pharmaceutical industry for high healthcare costs.
“They have been executing it extremely well, and they have taken the high ground, not in the moral sense but in the military sense,” Mr Cohen said.
Divided we fall
Taking this high ground has been, of course, easy, when the practices of Turing and Valeant are revealed and when the sector has been anything but united in its response. Players that have demonstrated innovation, like Gilead, have been stubborn in their response. Gilead's chief operating officer, John Milligan, dismissed pricing concerns as a mere “campaign issue” in his JP Morgan breakout session.
Gilead is, if anything, consistent in this message, as its medical affairs chief, Gregg Alton, said elsewhere: “The messages that are going out to the media are driven by people who aren’t really interested in a rational conversation. I don’t think we’re ever going to get to the point where the loud voices out there say, ‘You know, Gilead, we’re really glad you priced it that way.’”
On the other side there are those who list pricing, along with a litany of practices like direct-to-consumer advertising and a slow response to the HIV crisis in developing nations, as self-inflicted wounds. Shifting the conversation to the sector’s history of innovation is one approach, which could lead to a discussion of the associated costs of drug development.
“What do we want as an industry?” said Philippe Lopes-Fernandes, head of global licensing and business development at Merck KGaA. “We can protect our margins and please Wall Street. Or we can protect our innovation, and that is going to be something for the greater good- and if we protect our innovation we also can please our investors.”
The problem is that there has been the emergence of a legislative response in many US jurisdictions, Mr Cohen warns, with drug price transparency laws being proposed.
Advocates for those laws argue “if it cost, let’s say, $2.6bn to make Sovaldi and you made $11bn the first year, that doesn’t seem very fair,” he said. “They’re hoisting us on our own petard.”
A better argument, Mr Cohen suggests, is one that explains the need for reward for investment in a high-risk research environment, in which failure is more common than success. Or as Sara Radcliffe, chief executive of the California Life Sciences Association, puts it, “If somebody says to me, ‘Why do drugs cost so much?’ I usually say 'because cancer and Alzheimer’s haven’t been cured yet'.”
Uniting behind that message seems to be as much of a challenge as the public clamour on pricing.