A trio of biopharma observers recently published in STAT an analysis relevant to the ongoing drug pricing debate in Washington. The response has not been pretty. In short, the authors suggest that since two reviewed pharmaceutical companies provided relatively little innovation in drug development and were not responsible for the original invention of some of their products, current proposals to lambaste the industry are warranted — with no side effects on innovation.
This follows a report from researchers at West Health Policy Center and Johns Hopkins Bloomberg School of Public Health which suggested that removing $1 trillion from the pharmaceutical industry would not negatively affect current research investments. That flawed study was soon dismissed by many, and notably debunked by a leading venture capitalist.
Both of these analyses suffer from the same misconception: that “big pharma” lives in a vacuum. It doesn’t. The entire drug development process is an ecosystem.
If policymakers want to exchange fundamental damage to the life science community for short-term savings on certain drugs — with consequences for both patients and the American economy — that’s a perfectly valid opinion.
What isn’t fair, and what many health policy commentators are guilty of, is promoting straw-man arguments to suggest we can have it both ways: unprecedented innovation and radical cuts to pharmaceutical revenues. Why? Because when it comes to drug development, you cannot separate the early-stage life science system that most everyone lauds from the large companies confronted by anger about the growing costs of health care.
Because policymakers consume “studies” so widely, it is important to address these authors for an article whose premise Kellogg professor Craig Garthwaite called “either deliberately deceptive or reflects a shocking lack of economic knowledge.”
The context for the analysis in STAT by Emily Jung, Alfred Engelberg, and Aaron Kesselheim is the current policy landscape — most notably the Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3) — which the authors suggest only large pharma companies oppose. They are wrong about that. The entire ecosystem seems unified in its concern: academics, biotech CEOs, venture capitalists, incubators, and more. Some moderate Democrats even think the proposal misses the mark, and there’s certainly no need to mention Republican and presidential loathing for it.
If we are going to have a productive conversation about health care policy, let us not falsely suggest anyone is alone in their objection to some pretty extreme ideas.
But the failures of the article only begin there.
The methodology was simple. The researchers looked at two companies, Pfizer and Johnson & Johnson, the very large pharmaceutical and biotechnology companies. Similar to the West Health/Hopkins report, there is a strong survivorship bias in looking at the largest of any industry and extracting trends. Small sample size aside, the trio looked only at the best-selling drugs and completely excluded the failures (which the companies don’t necessarily love to talk about).
The analysis showed that only a minority of “innovation” occurred at the actual company that markets the drug. Instead, the authors suggest that mom-and-pop biotechs and academics are the only ones to thank. Like Wyeth, Bayer, and Warner-Lambert.
Wait, what?
That’s right. Their issue is that a big company is using innovation discovered at another big company that was subsequently acquired. (Interestingly, Warner-Lambert was acquired by Pfizer only after a three year partnership for Lipitor helped put it on the map, while its headquarters eventually housed a J&J subsidiary — there’s that darn ecosystem again). If the authors are opposed to the general merger-acquisition environment, I suggest they examine the tech community and write a follow up: “Apple didn’t invent every component in the iPhone.”
The most unsettling part of the analysis — even if you grant all of its premises — is the conclusion: Because innovation or invention did not happen at those companies, the entire industry should have no problem with a massive extraction of hundreds of billions of dollars in revenue.
That argument is akin to saying there should be price controls on the products supermarkets sell because they didn’t farm the food themselves. The consequence of price controls at the supermarket would be an immediate decimation of farms (the biotechs of this analogy).
I found it strange that the authors embarked on this analysis in the first place. No one is contesting the incredible role that small, unknown biotechs play in developing breakthrough drugs, devices, and technologies. As has been well described by early-stage investors and incubators, the process is more of a relay race, with entrepreneurs and early-stage investors commercializing basic research and ultimately relying on large pharma or biotech companies to carry promising science through clinical trials to marketing and distribution (and of course pricing and reimbursement). A great breakdown of the development process comes from Dr. Michael Rosenblatt at Flagship Pioneering.
A final point is that the authors never bother to mention the role of corporate venture capital at both Pfizer and J&J. Pfizer Ventures is a leading investor at the earliest stage of research and development for many companies. Through its SpringWorks initiative, innovators can work with previously unused Pfizer investments and molecules to develop new science. Johnson & Johnson has developed JJDC and JLabs to incubate discovery in myriad ways.
If we are going to identify solutions that truly benefit patients, we must begin by recognizing that drug development occurs in a vibrant but fragile environment made up of entrepreneurs, investors, academics, government, patients, and yes, companies large and small. You cannot fundamentally alter one, without affecting all the others.
It’s an ecosystem.
John Stanford is the executive director of Incubate, a coalition of life science venture capitalists based in Washington, D.C.
This is an excellent rebuttal to the prior column. I struggle to understand how little interest in the public there is to get the facts right on these matters. I
I always enjoy when authors gleefully point out other people’s strawmen, but then turn around and introduce their own. The analogy of price controls at a supermarket is a very poorly constructed strawman that completely elides the main point of the current debate: there is widespread perception among consumers and policy makers that drug prices are completely decoupled from actual health outcomes. Infighting about innovation ecosystems and supporting disingenuous lobbying from PHRMA to muddy the facts represent failures of the biotech personnel ecosystem. Our leaders have been warning for decades that the industry must self-regulate pricing or else crappy regulation will be imposed upon us. Well, folks, we failed to self-regulate, so here we are, bitterly reaping the fruits of our inaction. Hope you got a sweet year-end performance bonus, though!
“It’s an ecosystem” isn’t much of an argument, it’s more of a sound bite and tautology. OF COURSE IT’S AN ECOSYSTEM. Everything is. Perhaps we could say something interesting about the components of that ecosystem, the misaligned incentives in its interactions, and highlight cases in which bad actors have engaged in usurious price gouging (we’re allowed to disown and excoriate them, you know). We could highlight how the explosion in healthcare services and administration are driving the steep overall price increases (not drugs), but instead, we seem determined to trot out the tired old line that drug price controls will kill innovation, which just reinforces pharma as an easy target for public ire and engenders widespread distrust and resentment against an industry broadly perceived as fabulously profitable. We’re doing a spectacular job shooting ourselves in the foot here, so thank you, John, for not helping at all.
Let’s go with the grocery store analogy: Kroger purchases a company that has the global exclusive right to milk. Only Kroger now is allowed to produce and sell milk. You cannot make soy milk or other substitutes for 7 years. Kroger can charge what it wants for a gallon of milk, which is a lot, because they rightly say that milk is important for healthy bones. Every chain has an exclusive for some food stuff. Is that a good analogy? We cannot have a productive discussion about our industry if we are not addressing what offends people about the current ecosystem.