A quantum of innovation and the incentives to match

What’s the smallest increment of medical innovation that is worth its cost to society?

That question underpins some of the controversy surrounding drug pricing. Is it innovative to turn a twice-daily pill into a once-daily pill or an intravenously administered drug into a simpler injection, or to combine two generic drugs into a single pill? Each of these represents a patent-protected upgrade that was launched at typical branded-drug prices.

Some experts argue that society should absolutely not pay for improvements like these with new patents or by lengthening existing patent exclusivity periods. Those arguments ignore three important facts.

First, every medical advance will serve humankind long after its patent ends. That means small advances can have genuine and substantial value over time, even if they initially come with high prices. This is the crux of the biotech social contract.

Second, many upgrades dismissed as “merely incremental” represent real and compelling advances for patients.

Third, today’s upgrades become tomorrow’s standards. By providing incentives to make small improvements to existing therapies, we expand the menu of features that companies eventually incorporate into the 1.0 versions of the next generation of drugs.

For anyone who thinks that limiting incremental upgrades is the key to making drugs affordable for patients, I would point out that we could cut all drug prices in half, thereby wiping out profits and decimating the drug industry, yet many Americans still wouldn’t be able to afford Medicare’s 20 percent copayments. Therefore, the key to people being able to afford what their physicians prescribe lies with comprehensive insurance coverage and capping out-of-pocket costs — that is society’s end of the biotech social contract, and the U.S. needs to do better at honoring it. It’s up to society to balance the cost and value of a medical innovation on behalf of individual patients.

What may look like small advances can make big differences for patients, including but not limited to improvements related to convenience. The more often people have to take pills, the less likely they are to remember to take all of them. This problem has real-world consequences. Moving from a twice-daily pill to a once-daily pill improves outcomes.

Some pills must be taken with food, others on an empty stomach. Taking multiple pills for multiple conditions risks drug-drug interactions that preclude some medications from being taken with others. It’s easy to see how these restrictions can overwhelm some people. Making it easier for people to properly take the medicines their physicians prescribe can improve adherence, mitigate avoidable side effects, and allow real-world outcomes to better approximate the benefits seen in clinical trials.

Converting a medicine into its most convenient form represents a real, valuable upgrade. Twice-a-day pills should be once-a-day pills. Drugs that must be taken with food (or without) should be able to be taken either way. Moving from a pill one swallows to something that dissolves in the mouth benefits individuals who have difficulty swallowing, such as those with a neurodegenerative condition or nausea due to a migraine or chemotherapy.

Drug treatment for HIV/AIDS offers a good example of how “incremental” innovation stacks up to a meaningful upgrade. The first generation of HIV antivirals were typically taken several times a day, had drug-drug interactions with many commonly prescribed medications, caused a lot of side effects, and were prescribed and taken separately. That was challenging, to say the least, for many individuals, and poor adherence contributed to viral resistance and disease progression.

Today, most people who are HIV-positive take single-tablet regimens consisting of two or three co-formulated agents that are themselves second- or third-generation molecules. These new agents are more effective than the first ones launched in their respective classes and have fewer side effects and drug-drug interactions. Making it easier for people to stick with and tolerate HIV medications makes it less likely they will develop resistance to the drugs and reduces transmission of the virus. These drugs will eventually go generic, leaving us far better equipped to inexpensively combat HIV over the long run than if we had just stuck with the first-generation drugs.

Beyond improving older drugs, incremental innovations once rolled out as one-off upgrades are increasingly incorporated into the first versions of novel drugs. It’s the same thing that happens in the automotive industry: try buying a new car without modern safety features like ABS brakes or a rear-view camera. Once-unique formulation technologies, such as extended-release oral formulations and injected depots, are now commodities. Competition within drug classes to launch best-in-class products means companies try to bring to market the best possible products as quickly as possible, no longer waiting until their first versions’ patents are nearing expiration before launching upgrades. For example, Eli Lilly’s diabetes drug, Trulicity, was the fifth to market in the GLP-1 (glucagon-like peptide 1) family, but it came out of the gate formulated as a room-temperature stable, once-weekly, thin-needle, pre-filled, ready-to-administer auto-injector.

Here’s another example of an important upgrade. Many molecules used in medicine are chiral, which is to say they are natural mixtures of chemically identical but physically and physiologically different “mirror image” compounds known as enantiomers. Chiral drugs were once launched as mixtures of these enantiomers (think of a mixture of red and green M&Ms, of which only the green ones are therapeutically active and the red ones are useless and may even cause side effects). Today, medicines are likely to be purified, so only the best enantiomer (just the green M&Ms) is delivered.

While society paid dearly for years as many older drugs were relaunched in their purer forms to extend the branded life of a franchise (the exemplar being AstraZeneca’s blockbuster Prilosec/Nexium heartburn franchise, which featured the relaunch of the chiral, twice-daily Prilosec as the pure enantiomer Nexium, also formulated as a once-daily pill for added convenience), chiral drugs typically now come to market from the start as safer, pure enantiomers.

Patents and regulatory-based patent extensions are the tools society uses to incentivize these upgrades. We need to be careful about limiting the use of these tools and assuming that seemingly small increments of innovation can be incentivized with modest rewards, or no reward whatsoever. It was once difficult, risky, and expensive to extend the release of a drug with a short half-life so it could be taken once a day. Limiting the incentives for figuring that out might have resulted in our simply having to make do with many older drugs remaining as they were, eventually joining our inexpensive generic armamentarium in their suboptimal forms. So I think it’s fine that the once-daily versions of those drugs enjoyed patent-protected periods of exclusivity even after their twice-daily versions went generic.

Now that we stand on the shoulders of past innovators, maybe we can encourage companies to implement certain tweaks to their older drugs with lower but still meaningful financial incentives. For example, if AstraZeneca were still selling $5 billion a year of twice-daily Prilosec (green and red M&Ms), then it would probably be worth its while to convert that drug to a once-daily enantiomer (Nexium CR, just green M&Ms) for even six months of added exclusivity, allowing the company to generate an additional $2.5 billion of revenue before generics of Nexium CR were allowed on the market (and presumably no one would bother prescribing the twice-daily Prilosec chiral mixture, so those generics might not be needed).

Alexion has generated billions from the sale of its blockbuster drug Soliris, a monoclonal antibody that must be infused every two weeks for the treatment of serious but rare diseases like paroxysmal nocturnal hemoglobinuria. The company recently launched Ultomiris, a longer-acting treatment for PNH that stretches out the infusions to once every two months. That’s four times more convenient for patients and their caregivers, with four times lower infusion-related costs. Ultomiris, with a price tag of $458,000 per year (just shy of Soliris’s $500,000 annual cost), will indeed be an expensive branded drug for a long time to come. Meanwhile, Soliris biosimilars may potentially launch within several years.

Alexion will no doubt try to switch its Soliris patients to Ultomiris, and odds are they will want to switch. If Soliris biosimilars do eventually launch, at what would have to be a lower price than Ultomiris, physicians and payers will have to decide whether it is medically reasonable to revert patients to a Soliris biosimilar to save the system money. Payers could try to use copays to nudge patients toward the less-convenient biosimilars, but many patients are eligible for copay assistance, so that won’t work on its own if physicians and patients prefer Ultomiris, as they likely would.

Payers would essentially have to refuse to cover Ultomiris to force physicians to use Soliris biosimilars. They might consider it unconscionable to subject patients to four times as many infusions to save a few hundred thousand dollars a year. Or they might think, as a recent contributor to STAT seemed to, that fewer infusions aren’t such a big deal and deny coverage of Ultomiris. Not every payer will make the same decision.

Many payers denying coverage for Ultomiris would send a message to the pharmaceutical industry that such upgrades won’t be rewarded. This is where it would be preferable to just grant Alexion an exclusivity extension of its Soliris franchise, maybe of a year or two, allowing the company to harvest another few billion dollars, but then allow Ultomiris biosimilars to launch. This offers Alexion an incentive to create a drug like Ultomiris without having to resort to playing a commercial game of cat and mouse with payers to negate their nudging strategies and also spares payers from having to deny patients a better drug.

While I suggest that maybe one to two years of added exclusivity might have been enough incentive for Alexion to upgrade Soliris to Ultomiris, this may have been a technologically challenging upgrade and a risky development path. Soliris is already administered at exceptionally high doses to patients, and to figure out how to give it safely much less frequently may not have been as simple as it sounds. Alexion couldn’t just give a higher dose of Soliris. So if we want to eventually have a drug like Ultomiris in our generic (in this case, biosimilar) stockpile, it’s hard to say whether incentivizing that upgrade wouldn’t have taken a longer period of exclusivity.

It’s unreasonable to expect regulators to perfectly fine-tune the period of exclusivity to match the value of the innovation, but neither can we say that the periods of exclusivity now doled out by the patent system and regulators are tuned just right either. The point is that it’s not unreasonable to explore a different paradigm that demands at least a rationale for why longer periods of exclusivity are needed for certain upgrades.

Note that it’s precisely the threat of competition eroding existing revenues that drives companies to improve on their existing drugs and to launch new ones. So Alexion is responding to competitive forces, not just from companies making Soliris biosimilars but from competitors developing novel drugs with related mechanisms of action, including some that can be taken as oral pills. If there were no competitive threat to Soliris, Alexion could just milk its cash flow stream forever. That Alexion developed Ultomiris is evidence that the biotech social contract is intact and functioning, even if certain incentive structures can and should be refined.

I support reform of what is commonly called life-cycle management and propose trading long patents on straightforward upgrades for shorter, regulatory-based exclusivity extensions. But I don’t recommend cutting incentives for all upgrades, because some are harder than they may seem.

Companies are currently racing to develop technologies that would allow injectable biologic drugs to be administered as oral pills. That would make it easier for people to tolerate and follow their prescribed treatments. But oral delivery of biologics is a hard, complex, expensive upgrade. Scientists and engineers have been trying for decades to crack this problem.

Biologics given by injection reliably get into the bloodstream but, when taken orally, all sorts of variables can interfere with that process. If someone with diabetes takes an oral insulin and too much or too little gets into the bloodstream because of variable absorption in the gut, the consequences could include low blood sugar, insulin shock, and even death.

The FDA rightfully will make companies developing such products prove with extensive clinical trials that oral delivery is no worse than standard injections. Such a large, risky increment of innovation requires a large incentive, which is to say that society must be willing to pay more for these products when they first launch.

Yet, considering the way many people today think about innovation as being limited to the invention of a new molecule, there’s bound to be pushback on pricing from those who don’t appreciate the value of this upgrade or underestimate the challenges and cost of developing it. Hopefully, those who set drug-pricing policy don’t think this way. If there was any real concern that incentives for this innovation might disappear, then investment into this upgrade would stop and we would all lose out in the long run.

If researchers could bring about the oral delivery of currently injected biologics, consider the benefit to humankind of this seemingly incremental innovation becoming broadly incorporated across many drugs, both as post-launch upgrades and baked into the first versions of new drugs as a standard feature. Let’s incentivize that pursuit.

So let me get back to the original question: What is the smallest increment of medical innovation that is worth its cost to society? I’ll answer it like this: If a tweak seems modest, let’s consider whether it can be had for less, because the cost may not need to be as high as in the past. But let’s not overlook its value over the grand scheme of time, which is likely greater than it may seem.

Once we develop the mechanisms to match incentives to the complexity of the upgrade, we’ll be able to more prudently and systematically invest in the kind of incremental innovation that is too often disdained today.

Peter Kolchinsky is a managing partner of RA Capital Management LLC and author of the Biotech Social Contract series on Medium.