Dear Acting Secretary Speer,
As you know, the United States must prepare for future outbreaks of the Zika virus, but a high-stakes debate has erupted over a deal the federal government may strike with a private company to develop a vaccine. As acting secretary of the US Army, you have an opportunity — and responsibility — to find a workable solution.
The issue is whether the company — in this case, Sanofi (SNY) Pasteur — should be required to make the vaccine, which is based on technology discovered with US taxpayer funds, affordable for Americans in return for an exclusive license to develop it into a commercial product.
I understand there are risks, but you should find a way to ensure that Americans do not overpay.
Here’s the backstory: Last year, the government gave Sanofi, which is one of the world’s largest vaccine makers, a $43 million grant. Another $130 million may follow as research continues. The Army also disclosed plans to award Sanofi an exclusive license to a pair of patents that are crucial to the vaccine.
But this move upset some lawmakers and patient advocates, who fear the deal will give the company a monopoly to exploit — and might lead Sanofi to jack up prices for American consumers, assuming the virus spreads and vaccines actually become a big market.
The backdrop to such concerns is the larger controversy over the rising cost of prescription medicines, a problem that has upset many Americans, prompted a flurry of legislation, and put the pharmaceutical industry on the defensive.
Sanofi, which is already under fire over its insulin pricing, is well-aware of the problem. Earlier this month, the company sought to deflect criticism — and mounting negative publicity — by vowing to limit price hikes for its medicines to a level at or below the rate of medical inflation in the US.
But an advocacy group, Knowledge Ecology International, argued Sanofi cannot be trusted and pointed to pricing for its Aubagio multiple sclerosis drug. Americans using a coupon can pay about $6,100 for a month’s supply ― which is seven times more than patients pay in France and at least four times the price in the UK, Ireland, and Australia. A Sanofi spokeswoman says prices vary due to circumstances in each country.
This is why Senator Bernie Sanders and others maintain the Army should push Sanofi for fair pricing on the Zika vaccine. They want a guarantee that Americans would pay a price comparable to what other countries are charged. But as you know, Secretary Speer, Sanofi rejected such a request from your staff last month.
Drug makers generally avoid discussing pricing decisions in advance and Sanofi is no exception. In this case, the company has noted the vaccine doesn’t even exist yet.
A Sanofi executive offered further insight in a letter to a House subcommittee last week. “Given the high risk nature of vaccine development and unpredictability for diseases like Zika, if the US government changes its historic approach to licensing terms, it could undermine the intent of these types of collaborations,” wrote Adam Gluck, who heads US government relations for the drug maker.
In other words, if a company is forced to agree to certain pricing constraints in advance, it may not bother working with the government to develop such vaccines in the first place.
Indeed, this risk that companies might respond in this way has long worried government officials. In 1995, in fact, the National Institutes of Health removed what was called a “reasonable pricing” clause from research agreements with companies. At the time, former NIH Director Harold Varmus described such clauses as a “restraint” on new product development.
“What companies don’t like is additional uncertainty for commercial considerations piled on top of the inherent risk of doing drug development,” said Genia Long, a senior advisor at Analysis Group, an economic and strategic consulting firm. “If the federal government is going to insert pricing considerations, it might affect their willingness to enter into such agreements.”
I understand that such notions may give your negotiating team second thoughts. Playing hardball in a situation where public health is at stake is not easy.
But while you may be worried that Sanofi could walk away if pressed too hard on pricing, consider that the company also has something to lose — it would be turning its back on a potentially money-making vaccine that can be sold in numerous markets around the world.
In an era of rising drug costs — an issue that your boss has insisted must be solved — you have an opportunity to ensure that tax dollars spent subsidizing research provide a return on investment that benefits all Americans.