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Medical innovation has a price: BioNJ Roundtable — Biopharma execs share what's behind drug pricing

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Panelists for BioNJ's Value of Medical Innovation roundtable, from left, James Sapirstein, CEO, ContraVir Pharmaceuticals; Scott White, president, Janssen Immunology, Janssen Biotech Inc.; Debbie Hart, president and CEO, BioNJ; Kevin Rigby, principal, K Rigby Consulting; and Bob Goldberg, vice president and co-founder, Center for Medicine in the Public Interest.
Panelists for BioNJ's Value of Medical Innovation roundtable, from left, James Sapirstein, CEO, ContraVir Pharmaceuticals; Scott White, president, Janssen Immunology, Janssen Biotech Inc.; Debbie Hart, president and CEO, BioNJ; Kevin Rigby, principal, K Rigby Consulting; and Bob Goldberg, vice president and co-founder, Center for Medicine in the Public Interest. - ()

It's no secret that biopharmaceutical companies have become the target of heavy criticism from politicians and consumers due to high drug prices, especially at a time when health care reform in the U.S. has become a hot-button topic.

The topic is especially of interest in New Jersey, given that some of the state’s largest employers are biopharmaceutical companies including Kenilworth-based Merck; Johnson & Johnson, headquartered in New Brunswick; and Celgene, located in Summit.

A panel of biopharmaceutical executives and industry advocates stressed that such criticisms are misguided, ignore the benefits of groundbreaking medicines to the health care system as a whole, and fail to recognize the role that health insurance companies and pharmacy benefit managers play in the cost of drugs. They also said that FDA approval regulations also play a part in the extremely high costs of bringing new drugs to market.

They offered their views during a Sept. 13 roundtable sponsored by BioNJ focused on biopharmaceutical innovation and drug prices, and discussed ways to strike a balance between the profitability and affordability of drugs. The discussion coincidentally took place on the day that Vermont Senator from and former presidential candidate Bernie Sanders – a long-time critic of the pharmaceutical industry for high drug prices – introduced his “Medicare for All” bill to the U.S. Senate.

The executives said that critics of drug prices largely ignore the benefits of the innovation and medical breakthroughs that drug makers have made over the past 25 years, and that the development of new drugs has lowered the cost of health care by keeping people out of hospitals and avoiding visits to the emergency room.

 For Dr. Bob Goldberg, vice president of the Center for Medicine in the Public Interest and one of the roundtable participants, Senator Sanders’ approach to lowering the costs of drugs is naïve.

Goldberg, citing a recent study from IMS Health, said, “It turns out that over the past 20 years, the number of new drugs that have come out have reduced the costs of emergency rooms and physicians and hospitalizations, and have reduced the number of days people were out of work. To put it plainly, these drugs buy more time to live to the next new therapy.”

“Before there were drugs for psoriasis, for example, the average length of a hospital stay for that was 19 days,” Goldberg said. “Before drugs came out to treat tuberculosis, the average hospital stay was 100 days, and before [the drug] AZT was produced, the average hospital stay for HIV/AIDS was 6 months, and then you died a very painful and expensive death.”

Goldberg noted that recent research by the Agency for Healthcare Research and Quality found that that over the past 25 years, hospitalizations have declined from 68 percent of total healthcare spending to 45 percent specifically because of new innovations from the biopharmaceutical industry.

 “If those ratios were still in place today, we would be spending three times as much on cancer, and we forget that,” he claimed.

Critics also underestimate the cost of researching, developing and producing drugs, the panelists said, noting that the average cost to develop and gain marketing approval of a new drug per a 2016 analysis by the Tufts Center for the Study of Development is $2.6 billion. Critics also discount the importance of biopharma companies to continue researching the next medical breakthrough.

“You can’t borrow money for drug development from a bank,” Goldberg said. “They will laugh at you. You have to invest as much cash as possible and get private markets such as venture capital to invest in you, and you have to offer a return that attracts people, and then you have to pay salaries. So even if you have a home run [with the launch of a new drug], what about the next day, and the next day?”

One way to lower the cost of drugs would be if the U.S. Food and Drug Administration eased its stringent regulations on the way biopharma companies conduct clinical trials, and allowed them to use real-world data (data collected under normal day-to-day circumstances found outside of a randomized clinical trial). In fact, according to Debbie Hart, president and CEO of BioNJ, “The industry is encouraged by the new FDA commissioner’s willingness to look at the FDA review process and where time may be saved and costs may be reduced or eliminated.”

“It’s getting more expensive to produce drugs. The trials are longer and they’ve become riskier, and it’s harder to get sub-populations in for clinical trials,” Kevin Rigby, principal at K Rigby Consulting and one of the panelists, said, referring to the sample of patients who participate in clinical trials.

Scott White, president of Janssen Immunology, a unit of Johnson & Johnson, and BioNJ board member added, “We’ve recently completed a phase three study on one of our oncology drugs where it cost us $188,000 per patient enrolled. We have five phase three studies ongoing for that same drug, so it gives you an idea of how quickly those costs can be magnified, so any kind of support we can get through the FDA around new opportunities to gain data through alternative sources that can help lower the cost of drugs would really have a positive impact on drug prices.”

Pharmacy benefit managers (PBMs) – third-party administrators of prescription drug programs for commercial, self-insured, government and Medicaid Part D plans – as well as health insurance companies, are also responsible for the prices patients pay for drugs, according to the panelists.

“Last year there was $450 billion in retail sales of prescription drugs, and of that, $127 billion went to PBMs who passed it on to health insurance companies,” Goldberg said. “So you have $127 billion of spending that could either go towards R&D or reducing patient co-pays, but they’re not.”  

“Under the Clinton Administration,” said panel participant James Sapirstein, CEO of ContraVir Pharmaceuticals and BioNJ chairman, “the middle man [PBMs and health insurance companies] grew from 5 percent to 60 percent of U.S. health care dollars, and that has to be inverted. Otherwise, there is no solution. You can cap the price on every drug in this country tomorrow and you’re still going to have a health care problem. I think insurance companies need to come to the table to talk with their customers.”

White added that the best solution is for insurance companies is to join the discussion on drug prices and be transparent in the profits they are making from the sale of drugs.

“We would all be better served by having greater transparency, more conversation and less demonization,” said Rigby.

Ward Sanders, president of the NJ Association of Health Plans, in an interview disputed the positions taken by roundtable participants, particularly the notion that insurance companies contribute to the high price of prescription drugs. 

“It’s very simple – drug companies set the prices for their drugs; some do it responsibly, creating better access for consumers; others do not,” Sanders told NJBIZ in an e-mail.

Despite the fact that pharmaceutical and health care company lobbyists spent nearly $145 million so far this year, the panelists largely agreed that politicians need to be better educated on the health care system before promising to force drug companies to lower prices, as such criticism often causes investors to become nervous and, as a result, the price of biopharmaceutical company stocks comes crashing down.

“Politicians believe they’re doing the right thing by scaring drug companies but they’re instead scaring patients, they’re scaring investors, and it’s causing us stress in terms of how to go out and fund research projects for new medical cures,” Sapirstein said. “And that raises the cost of capital for companies like mine. We have to look at every nook and cranny to find dollars, and those dollars are expensive dollars depending on who is lending or investing,” he said.

“When you think about HIV,” said Goldberg, “it is essentially cured so long as long you stay on therapy for the rest of your life. We can’t say that about cardiovascular disease, we can’t say that about most cancers and we can’t say that about diabetes.”

“There’s much more research and innovation to be done and the system has to support it,” added Hart. “Proposals coming out of Washington should encourage innovation as opposed to onerous legislation that will result in limiting getting therapies and cures to the patients who need them.”  

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Vince Calio

Vince Calio

Vince Calio covers health care and manufacturing for NJBIZ. You can contact him at vcalio@njbiz.com.

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