In response to growing bipartisan outrage over prescription drug prices, Sens. Cory Booker (D-N.J.), Bernie Sanders (I-Vt.) and Kamala Harris (D-Cal.) introduced a bill on Friday proposing the creation of a new federal agency: the Bureau of Prescription Drug Affordability and Access.
Under the bill’s current stipulations, when a new drug enters the market, this new bureau would weigh the costs of its research and development against the costs of comparable therapies and any federal money that contributed to its discovery to determine an appropriate list price.
It should go without saying that allowing the government to engage in price-setting for America’s most innovative industry would decimate the early-stage biotech ecosystem that allows us to lead the world in biomedical innovation. In an environment where 9 out of 10 drugs in development don’t make it to the market, drug developers already assume a massive amount of risk.
If investors then had to worry about the government slashing the price of any successful product, they would have to abandon entire portfolios of early-stage drugs with uncertain outcomes. It is precisely the few big winners that make a whole portfolio worthwhile — the successes, exorbitant though they may seem, pay for countless failed attempts and for many modest drugs that help patients but fail to generate enough revenues to justify the cost of their own development.
It’s impossible to tell a priori which project will be a big winner, a modest contributor, or an outright failure. And without the draw of the big wins, society can’t attract the investments that let us find out.
But Booker, Sanders, and Harris aren’t completely off-base. A Bureau of Prescription Drug Affordability and Access could be exactly what we need. Instead of outright price setting, this bureau could provide vital regulatory oversight over certain complex drugs that are so hard to make they are immune to competition and, even when their patents expire, can’t ever “go generic.”
Generic drugs are an invaluable social resource. Biotech companies invest billions of dollars and decades of research to produce lifesaving medications that generate high profits for 10 to 15 years until their patent protections expire and drugs become generic. It’s as if society has paid off the mortgage on a home. Competition brings down costs, often by 80% to 95% within a few years, and the generic drug becomes a cheap public resource from then on. It’s a virtuous cycle, but the process doesn’t always work as designed.
The biotechnology industry is now developing an increasing number of promising medications that cannot be genericized, such as gene therapies, CAR-T cells, and complex biologics. Drugs that cannot go generic violate the social contract that this industry shares with the American public because their costs will remain high indefinitely. It is essential that we plan ahead for how to deal with these products before they become battlegrounds for patients, payers, and industry.
The proposed bureau could ensure that generic drugs remain available to patients and help preserve competition to keep prices low. It could also ensure that highly priced, non-genericizable drugs also drop in price after a reasonable period of profitability via a process we have proposed called “contractual genericization.”
Contractual genericization would require companies to lower drug prices to a reasonable margin above production cost if after a drug’s patents have expired — typically 10 to 15 years after FDA approval — the drug’s price has not been naturally reduced by competition.
Rather than collecting sky-high profits indefinitely on a non-genericizable drug — as Mallinckrodt does on Acthar, Sanofi does on Thymoglobulin, and all companies soon will that make gene therapies — contractual genericization of these products would put a ticking clock on these drugs’ high costs, bringing these companies and their products in line with the biotech social contract.
That should go a long way toward satisfying those who call for limits on pharmaceutical company profits and would motivate companies to generate profits by searching for new products rather than milking old ones. Drug development should be fueled and incentivized by finite mortgages, not indefinite rents, and the newly proposed Bureau of Prescription Drug Affordability and Access can ensure that this remains the case.
This bureau could also play a crucial watchdog role in the generics marketplace in three ways:
- protecting generic drug status by making samples of current drugs available to potential competitors for head-to-head studies;
- expediting extended patent challenges that delay the genericization of drugs with expiring protections;
- helping the FDA ensure the quality of all generics with random sample testing.
Ideally, the same legislation that brings the bureau into existence would also cap or eliminate out-of-pocket costs for patients and make strides toward ensuring that everyone has insurance. Nothing about our health care system was ever meant to be affordable to patients out of pocket. To live up to its name, a Bureau of Prescription Drug Affordability and Access would also be expected to help patients access medications by policing insurance plans that fail to deliver on promised coverage either by denying access or imposing unaffordable out-of-pocket costs (some patients can’t access treatments that even their insurance plans agree are appropriate).
Conservative members of Congress may feel an inherent revulsion to relying on a government solution to regulate a thriving private industry. However, the biomedical drug and device industry is already subject to intense regulation. For example, the FDA’s high safety standards for generic medicines typically make it too difficult for anyone to make a “good-enough” generic version of certain complex drugs, making them ungenericizable. If not for the strict regulations that give the FDA its mandate and powers, those drugs could be genericized, but patients could be harmed by inferior products. Adjusting our current strategy to address existing injustices in our system would rebalance the free market system, not replace it.
The effort by Booker, Sanders, and Harris to address rising health care costs is admirable and prescient. But we must not ignore the real driving force behind patient outrage: our system’s heartless use of high copayments and deductibles that make it difficult or impossible for some patients to receive treatment.
If America paid for water, sanitation, roads, and electricity the way it pays for drugs, tens of millions of Americans would be living in squalor. If that problem were as misdiagnosed as the problem of drug affordability, then America would blame all that suffering on the prices of water, electricity, and pavement instead of on the flawed ways those costs are spread across our society.
To fulfill the biotech social contract, we must ensure that drugs go generic in a timely fashion and then stay inexpensive so we can manage society’s overall health care spending. At the same time, we must make sure that individual patients can afford what their physicians prescribe. Only then will we progress toward a system that is equitable for all.
Jessica Sagers, Ph.D., and Peter Kolchinsky, Ph.D., are scientists and investors with RA Capital Management. Peter writes on the Biotech Social Contract and is the author of the “The Great American Drug Deal” (January 2020).
