Bills like the Affordable Drug Manufacturing Act, if enacted, could help a beneficial trend gather momentum in 2019: life sciences companies making public-private partnerships a bigger focus of their business strategies.
The bill, proposed by Sen. Elizabeth Warren (D-Mass.) and Rep. Jan Schakowsky (D-Ill.), would create an Office of Drug Manufacturing aimed at boosting competition, lowering drug prices, and addressing prescription drug shortages, among other goals.
The office would have the power to manufacture new generic drugs or enter into contracts with other entities to make them when there’s a drug shortage or when fewer than three companies are making a drug that has seen moderate price hikes, such as insulin.
If the bill comes to fruition, it would be rare for the government to step in and actually make drugs itself. Instead, as Rena Conti, a generic drug market expert at Boston University, told STAT, the government’s strategy would likely be to partner with third-party entities to do that.
That would mean greater opportunity for public-private partnerships that include life sciences companies.
The tactic of engaging in public-private partnerships — multiple-stakeholder relationships between at least one public-sector organization and at least one private-sector entity aimed at reaching a public health objective or improving research efficacy — has been employed by life sciences entities in recent years. These include research partnerships, product development, and systems strategy. But they have typically been leveraged for initiatives targeting diseases that are more common outside the U.S.
As biotech and pharmaceutical sectors face continually escalating drug-development costs that often jeopardize the long-term profitability needed to reinvest in research and development, such partnerships are worth considering more often.
Research and development spending as a percentage of revenue in the biotech industry has continued to soar. In 2017, it reached 526 percent, compared to 321 percent in 2016, according to a 2018 biotech briefing published by BDO USA, the company I work for.
Public-private partnerships provide a way outside the traditional merger and acquisitions route for companies to survive that battle and then eventually grow. In the case of the Affordable Drug Manufacturing Act, for example, a private entity developing a new, lower-cost insulin product could build the public-private partnership tactic into its business strategy from the onset. If successful in securing a contract or partnership with the new agency, the company would gain access to a steady source of funding and regulatory guidance provided it is able to meet the agreed-upon performance requirements.
I’ve seen firsthand the promise these partnerships provide during my time as a portfolio and platform lead at the Bill and Melinda Gates Foundation, where I worked to facilitate the progress of integrated product development plans with the foundation’s public and private partners for drugs, vaccines, and other products to treat diseases afflicting the poorest communities in the world.
This included managing the foundation’s partnership with the Drugs for Neglected Diseases Initiative, a nonprofit drug development effort created by five publicly funded research organizations around the world. I worked on securing the initiative a $60 million portfolio grant from the foundation to develop treatments for several neglected diseases, including human African trypanosomiasis (HAT), in collaboration with Sanofi. HAT, often referred to as sleeping sickness because its symptoms include a disrupted sleeping cycle, is transmitted via the bite of the tsetse fly. The disease threatens millions of people in 36 countries in sub-Saharan Africa. Without treatment, HAT is fatal. The portfolio grant led to the development of fexinidazole, a drug that would be the first all-oral treatment for both first and second stages of sleeping sickness. The European Medicines Agency is now reviewing it for licensing.
While the use of these partnerships is still growing in the U.S., they’ve been gaining steam in the area of transportation, largely because of the growing demands on the transportation system and constraints on public resources. For example, in 2005, the city of Chicago entered into an agreement with a group of private toll road developers from Spain and Australia to operate and maintain the Chicago Skyway for nearly 100 years. Chicago received an upfront $1.8 billion payment, and the developers will collect all toll revenue during the contract period to fund operation and road maintenance and repay the debt that funded the upfront payment. Chicago, meanwhile, has used the upfront concession payment to repay outstanding debt on the road and pay down its general obligation debt.
The themes of growing demands and constrained public resources apply to health and life sciences too, which are facing a growing senior population, rising drug and health costs, and mounting public debt.
Under pressure in this environment, health and life sciences organizations — both public and private — are moving more toward value-based versus fee-for-service care models. They increasingly share the responsibilities of, and can realize the reimbursement benefits from, improving the quality of patient care and health outcomes, bringing down the costs of health care, and collaborating across and outside their traditional supply chains.
Public-private partnerships come with their own challenges. These include showing positive return on investment, navigating political intricacies such as a public-sector workforce afraid of being moved to the private sector, and making sure to set clear incentives and output-based performance requirements. But they support the innovative and high-value collaboration models needed to ensure a sustainable health ecosystem.
While details of the Warren-Schakowsky bill are still unclear, initiatives like it that support the idea of building more public-private partnerships in the health and life sciences sectors are worth exploring.
Su Linna is a managing director in BDO USA‘s industry specialty services and life sciences practices.