As 2016 came to a close, I began to see that the biopharmaceutical industry and society are engaged in a kind of symbiotic relationship, a powerful but delicate one that I came to call the Biotech Social Contract (a term others had used but in different ways). This contract is the central tenet of this book and the basis of all of my arguments.
I define the Biotech Social Contract as follows:
The drug development industry’s commitment to developing new medicines (and other technologies) that will go generic without undue delay is reciprocated by society’s commitment to providing universal health insurance with low/no out-of-pocket costs so that patients can afford what their physicians prescribe.
As long as those conditions were met, patients would get the medicines they needed and society would continue to enjoy a growing armamentarium of inexpensive, generic medicines that would improve human health for the rest of time thanks to the ingenuity of the thriving collective of scientists, clinicians, executives, investors, and others at the heart of the biotechnology industry.
But that’s not what anyone was talking about.
The Biotech Social Contract: An Analogy
Here’s how I’ve come to think about the injustices of how we, as a society, have come to pay for medicines.
Imagine that a community, where, on average, five homes catch fire each year, decides that it needs a fire station. It will cost $20 million to build the fire station and then $1 million/year to maintain it. So the town decides to take out a ten-year loan for $20 million and raise taxes on everyone in town to generate the extra $1 million/year in operating costs as well as to cover 80% of the payments on the long-term loan. To cover the extra 20% of the loan payments (let’s say $500,000/year for 10 years, allowing for interest), they plan to charge $100,000 to each family that calls for help during the first ten years after the fire station is built.
In ten years, everyone will continue to enjoy the services of the fire station for the rest of time for merely the cost of the modest fire station operating tax. That’s good for everyone except those families unlucky enough to need the fire station’s help during its first decade; they were hit with bills of $100,000 each and some of them were driven into bankruptcy and ended up homeless.
Part of the town management committee’s rationale for having the $100,000 copayments was that it would discourage people from calling the fire station for help. Indeed, a few people who could not afford the copayment decided against calling the fire station. While that left them homeless and living in their cars, at least they didn’t have the extra $100,000 of debt.
Of course, that’s not actually what a town would do. But, sadly, it’s how we currently pay for drugs.
In this analogy, fire represents being diagnosed with a disease, let’s say cancer, and building the fire station represents developing a drug. The bank that loaned the town money represents the company and investors funding drug development. The town is the insurance company, taxes are the premiums it charges all its members, and the $100,000/family charge represents patients’ out-of-pocket costs for the drug. Paying off the loan represents the fire station going generic. A smart and compassionate populace would agree to raise taxes enough to fully service the loan payments. It would fully spread the cost of building the fire station across all the residents over ten years without hitting people whose homes burned down with a sudden $100,000 bill. All families would be treated fairly, whether they needed help from the fire department in its first decade, three decades later, or never.
This Book’s Origin Story
The rancor of the 2016 presidential election left me searching for reassurance that our country had dealt effectively with greater adversity, so I went back to America’s beginnings. That year, I read Ron Chernow’s biography of Alexander Hamilton. Like many of America’s founders, Hamilton appreciated the significance of what they were doing, shaping a nation that would be ruled according to the world’s best practices gleaned from hard lessons learned over millennia, ranging from Greece and Rome to then-modern England and France. Their work culminated in the US Constitution, possibly the most intentional and deliberated social contract ever written. With its checks and balances, the Constitution attempted to reconcile the many conflicting priorities of the original thirteen states—some industrial, others engaged mostly in farming, some densely populated, others sparsely so. Everyone had to give something up, but the question was whether they appreciated how much more they stood to gain by foregoing their individual liberties as states and submitting to a contract binding them all as a single nation.
Each state’s legislature had to ratify the Constitution. If even one state held out, it could all fall apart. Debates raged all over the country, in the pages of every newspaper and in every tavern. There was a serious risk that the Constitution would not be ratified and the opportunity to forge a nation would be lost, potentially forever. That was their moment and there might not be another.
Hamilton fought for the social contract he believed in. He had helped shape the Constitution, knew its workings, and was intimately involved in deliberating the many scenarios it was designed to handle. Together with fellow founders James Madison and John Jay, over a period of about two years, Hamilton published 85 essays in support of the Constitution, exploring its advantages and defending it against its opponents’ arguments. These were later aggregated into a compendium called The Federalist Papers. He was tireless, earnest, opinionated, analytical, and passionate. The fact that the Constitution was ratified and we now live in the United States of America is due in part to Hamilton’s conviction that this was the future worth fighting for. His efforts to overcome the arguments of many skeptics were successful.
You may see where I’m going with this. From my vantage point, the public’s mostly misdirected outrage against high drug prices and patients being unable to afford medicines is a threat to what I view as humanity’s epic endeavor to solve disease through science and technology, improving life for generations to come. There is a social contract between the drug development industry and society that hasn’t been spelled out, which leaves it even more vulnerable to misunderstanding and mischaracterization than the written Constitution.
Mixed in with arguments about high drug prices was anger that drug companies were advertising their products directly to consumers, ignoring the fact that no patient can get a drug if their physician doesn’t know about it. People seemed to resent that some drugs were too similar to other drugs and therefore not innovative, overlooking that it was precisely the launch of multiple, similar cures for hepatitis C that sparked a price war that saved society billions of dollars.
I saw the constructive contract between society and its innovative biotechnology sector about to be torn to shreds. Nobody was reconciling the two sides by explaining both how patients could afford their medicines and how society could get value for its money. Yes, certain reforms are necessary. We need universal health insurance (not necessarily the same as a single-payer system) and limits to what patients have to pay out of pocket. We need to do something about drugs that can’t or don’t go generic, which I see as the real threat to society getting its money’s worth over time.
These simple and effective ideas elicit many questions that start with “But what about…?” What about the high cost of the EpiPen? What about doctors prescribing drugs that patients don’t need and wasting society’s money? What price, if any, is too high for a drug? This book offers a single, internally consistent framework for answering these questions and many others.
So it boils down to this. I’m a scientist and investor, I love my work, and I admire the integrity and intentions of most people in my industry. I’m inspired to see companies having to constantly hustle to think of something new because they know that they will only get to collect revenues from their successes for a finite period of time. That creativity and drive is healthy and productive for society. I’m distressed an
d saddened by the anger directed against my professional community for injustices that are a result of America’s broken health insurance system. I am frustrated by my industry’s inability to defend itself against the facile arguments of critics who either don’t realize or don’t want to acknowledge that patients can’t afford drugs because insurance companies don’t want them to. And yet I am embarrassed by the real abuses of my industry, particularly the growing share of drugs that cannot go generic, and I therefore suggest reforms, some novel, that will keep the biotechnology industry vibrant for the long run.
I’m not alone in these concerns. It won’t come as a surprise that there is widespread agreement in the drug industry on the need to reform the US insurance system. But many of my colleagues and peers also agree with the need for the reforms of the drug industry that I call for. I wish I could tell you that insurance executives acknowledge the harms of their policies and are calling for reforms to make healthcare accessible to all patients, but they aren’t. So it’s up to the rest of us to reshape the system.
In answer to your presumed outrage—I share it. I believe that patients should be able to afford what their physicians prescribe, and this book lays out how to do that while ensuring that the drug industry continues to expand our generic drug mountain. I hope that this book inspires policymakers to eliminate out-of-pocket costs for patients while ensuring that all drugs go generic without undue delay, and I hope that you will do what you can to see that these key tenets of the Biotech Social Contract come to pass.
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1Blue Cross Blue Shield, Health of America Report, Planned Knee and Hip Replacement Surgeries Are on the Rise in the U.S. (Blue Cross Blue Shield Association, 2019), https://www.bcbs.com/sites/default/files/file-attachments/health-of-america-report/HoA-Orthopedic%2BCosts%20Report.pdf.
2Department of Research & Scientific Affairs, Annual Incidence of Common Musculoskeletal Procedures and Treatment (American Academy of Orthopaedic Surgeons, 2014), https://www.aaos.org/research/stats/CommonProceduresTreatments-March2014.pdf;
R. Andrews et al., HCUP Projections: Mobility/Orthopedic Procedures 2003 to 2012 (Rockville: U.S. Agency for Healthcare Research and Quality, 2012), http://hcup-us.ahrq.gov/reports/projections/2012-03.pdf;
Qian Gu PhD et al., “Surgery for Hip Fracture Yields Societal Benefits That Exceed the Direct Medical Costs,” Clinical Orthopaedics and Related Research 472 (2014): 3536-3546, accessed Oct. 15, 2019. doi: 10.1007/s11999-014-3820-6, https://link.springer.com/content/pdf/10.1007%2Fs11999-014-3820-6.pdf;
Lane Koenig et al., “Estimating the Societal Benefits of THA After Accounting for Work Status and Productivity: A Markov Model Approach,” Clinical Orthopaedics and Related Research 474, no. 12 (2016): 2645-2654, accessed Oct. 15, 2019. doi: 10.1007/s11999-016-5084-9, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5085951/;
SM Kurtz and KL Ong et al., “Impact of the Economic Downturn on Total Joint Replacement Demand in the United States: Updated Projections to 2021,” The Journal of Bone & Joint Surgery America 96, no. 8 (2016): 624-30, accessed Oct.15, 2019. doi: 10.2106/JBJS.M.00285,
https://www.ncbi.nlm.nih.gov/pubmed/24740658.
3Cynthia Cox and Rabah Kammal, “How Has U.S. Spending on Healthcare Changed Over Time?” Peterson-Kaiser Family Foundation Health System Tracker, Dec. 20, 2018, https://www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/#item-administrative-costs-have-risen-over-time-but-have-recently-moderated_2017.
4You may have heard about the dangers of high cholesterol. Cholesterol-lowering drugs like atorvastatin (formerly known as Lipitor, which generated around $13 billion per year in revenues for Pfizer at its peak and is now the 3rd most highly prescribed drug in America) have contributed to a 50% decline in death from both heart attacks and strokes throughout the developed world over the last few decades. When Pfizer’s patent on Lipitor expired and generic versions entered the market, the price quickly dropped by 95% of the initial cost and has remained negligible ever since.
Michael Rosenblatt, “The Real Cost of ‘High-Priced’ Drugs,” Harvard Business Review, Nov. 17, 2014, https://hbr.org/2014/11/the-real-cost-of-high-priced-drugs.
5Medicare is a US federal government-run healthcare insurance plan run for older Americans. Not to be confused with Medicaid, which is a group of state-run plans that cover very poor people. Those who make too much income to qualify for Medicaid (which isn’t hard since the threshold is under $20K/individual) or are too young for Medicare either get private insurance (typically through whatever company they work for, though self-employed people can also purchase private insurance) or go uninsured (about 13% of Americans have no insurance; they tend to earn too much for Medicaid but are too poor to afford private insurance and are more likely to risk going without insurance if they are younger and feel healthy, though that leaves them vulnerable if they do fall ill).
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Generic Drugs: A Mountain of Progress and Its Unsung Heroes
This year over 100 million prescriptions will be written in the US for lisinopril, a drug for high blood pressure, heart failure, and other cardiac problems. It’s inexpensive (a few dollars per month), and year after year it ranks as either the most or second-most commonly prescribed medicine in the country. Since keeping blood pressure under control is so critical, it is not an exaggeration to say that lisinopril has saved millions of lives around the world and has improved the quality of life for tens of millions more.
But there are no lisinopril commercials on TV or ads for it in the newspaper. Unless you’re taking it, you’ve probably never heard of it. Seems strange that such a widespread and beneficial resource is so anonymous, doesn’t it? Before we get into why and what lesson we can take from that, let’s rewind the clock a bit.
Lisinopril came on the market in 1987 as the branded drugs Prinivil (invented and sold by Merck & Co.) and Zestril (sold by AstraZeneca under license from Merck).6 Both were billed as new-and-improved versions of a similar drug, enalapril, which helps regulate the amount of fluid in the body by blocking an enzyme called ACE. But lisinopril proved to be more effective in controlling blood pressure than enalapril.7 (Enalapril itself was developed as a better ACE inhibitor than captopril, the first drug in this class, which has a spectacular origin story, having been derived from the venom of a poisonous snake, but turned off patients with its strongly metallic taste).
Fast-forward to 1999. Zestril racks up $1.2 billion in sales for AstraZeneca.8 US physicians have prescribed Zestril some 22 million times, making it the top ACE inhibitor on the market and placing it in the top 20 of all prescribed drugs.9
But then, in 2002, something amazing—but also very common—happens: The patent expires, lisinopril goes generic, and other companies are free to bring competing drugs to market, which drives the price down—way down. These generics have the same chemical formula as the original drug, Zestril, and are sold in the same dosages and forms. Lisinopril generics are the same as the branded drug in every way, except one: They can’t call themselves Zestril. Generics like this are inexpensive because they are composed of commodity chemicals, and the price is a function of the cost of manufacturing, which is miniscule compared to the cost of inventing. Companies that make generics simply follow the instructions in the inventors’ patents, conduct minimal, inexpensive clinical trials, and demonstrate to regulators that their version is the same as the original. Having taken negligible risk and invested so little to launch the generic, these companies can afford to charge very little for their product. The generic’s label (the instructions for doctors and patients about how the drug should be used) is the same as the brand’s, and the two products are considered interchangeable. So even if you’re prescribed Zestril, a pharmacist can give you the cheaper generic.
The result? These days, lisinopril can be bought for a small fraction of the price of the original, branded versions. Phy
sicians now prescribe five times as much of the generic version of the drug than they did back when it was branded,10 helping millions more people keep their blood pressure under control and lead healthier lives.
And that’s how it’s supposed to work. The US government issues patents to allow inventors—in this case, Merck and its licensee AstraZeneca—to profit from their invention for a defined period of time, typically 10-15 years after launching the drug. These temporary monopolies incentivize and fuel inventors and investors to develop new drugs. Companies that succeed in creating something new and beneficial can recoup their R&D costs, reward their investors, and plow some of those profits into future projects. This system keeps the biotechnology innovation engine churning and—importantly—prevents companies from milking cash-cow drugs indefinitely.
Furthermore, this system creates a mountain of low-cost therapies that is the core of the Biotech Social Contract,11 which says, “Yes, prices will be initially—and temporarily—high on branded drugs. But after the patent expires, society reaps the benefits of the cheap, effective generic versions for the rest of time.”
I will often talk about drugs going generic (or not going generic), so I’ll define what I mean by that term and variations of that term. Once the patents expire and generic companies start making generic copies of a drug and the price competition causes the price to drop, the branded drug is said to “go generic,” to have “gone generic,” or “to have been genericized.” The hallmark of “genericization,” by which I mean the process of a drug going generic, is steep price erosion resulting from many competitors entering the market, each fighting for market share by offering a lower price than the others. But what everyone really cares about when they talk about a drug going generic is that its price drops by a lot, regardless of how—usually it’s through competition, but that may not be the only way, as I’ll discuss in Chapter 8.12
The Great American Drug Deal Page 2