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JC Scott, President & CEO of the Pharmaceutical Care Management Association, discusses the latest trends, public policy developments, and political challenges impacting drug pricing and healthcare.
You'll hear the nation's top thought leaders, policy experts, and political analysts on topics like how employers, unions, and others use Pharmacy Benefit Managers (PBMs) to drive value for their members in the face of growing healthcare costs. You'll also learn about advancements in gene therapy, biologics, other cutting edge therapies, and the patient benefits and cost challenges that come with them.
The Pharmacy Benefit will also analyze the latest news from inside the industry and give you an educated perspective on where things currently stand and where we think they're headed.
Angela Banks (00:09):
Welcome to the Pharmacy Benefit, a podcast that highlights how pharmacy benefit companies are working every day to secure savings, enable better health outcomes, and support access to quality prescription drug coverage for patients. I'm Angela Banks.
(00:23):
In January, PCMA released our new policy platform, Unlocking An Affordable Future designed to provide policymakers a roadmap to prioritize patients with public policy solutions and promote competition in the prescription drug market, lower costs and support better health outcomes. Policy solutions proposed in the platform include promoting an affordable, competitive, and sustainable prescription drug market by stopping patent abuse at big drug companies, specifically ending anti-competitive practices such as patent thickets, evergreening and product copying that prevent competing products like generics and biosimilars from entering the marketplace and providing more affordable alternatives for patients. Supporting a robust biosimilar market and encouraging investment in these critical alternatives to the highest cost brand name treatments, reserving market exclusivities for true innovation and protecting pharmacy networks as they are critical to securing lower costs for patients.
(01:21):
Today, we're going to focus on competition in the marketplace and why this is the best way to drive down prescription drug costs. We will discuss recent reports on big drug companies gaining the patent system to drive prescription drug prices higher for American patients and families, including the Initiative for Medicines, Access, & Knowledge, better known as I-MAK's Overpatented, Overpriced and the Coalition for Affordable Prescription Drugs report from Matrix Global Advisors titled Patent Thickets and Lost Drug Savings, as well as what can be done to encourage more competition in the prescription drug marketplace.
(01:56):
Joining me on the show is founder of Matrix Global Advisors, Alex Brill. Matrix Global Advisors, better known as MGA, is an economic consulting firm in Washington DC specializing in healthcare, tax, and fiscal policy. Alex is also a senior fellow at the American Enterprise Institute where he studies the impact of tax policy on the US economy as well as the fiscal, economic and political consequences of tax, budget, healthcare, retirement, security, and trade policies. He also works on healthcare reform, pharmaceutical spending, and drug innovation and unemployment insurance reform. Alex brings decades of experience as an economist in the healthcare space and brings a wealth of knowledge here today.
(02:43):
Alex, welcome and thank you for joining me today. Let's start by letting our listeners learn a little more about you. How did you get your start and how did you begin in this field?
Alex Brill (02:52):
I've been in Washington for over two decades working on a variety of healthcare and broader fiscal policies, as you mentioned in your introduction. I actually got my start doing debt and deficit work and issues around tax policy. It became pretty obvious to me early in this process the large impact that the healthcare system has on our overall budget, both at the federal level and state level as well as for employers. Healthcare spending is a significant part of our economy and it's growing very rapidly. Medicare is a large part of the federal budget. So I started from that point to be interested in what policies can help curtail some of that rapid expansion in healthcare costs and healthcare spending. Competition is one of those powerful tools, allowing the market compete product to product to help bring down prices. My interest in this goes back for a while and includes both drug competition but a broader set of policies to help curb overall growth in healthcare, both for the benefit of the patient but also from a broader fiscal benefit as well.
Angela Banks (04:04):
Let's discuss your recent report on patent thickets. How do big drug companies use patent thickets and other anti-competitive practices such as evergreening and product hopping to prevent competitors from entering the marketplace?
Alex Brill (04:16):
Patent thickets is a strategy that's pursued by innovative drug manufacturers to protect their intellectual property, to extend their monopoly or a drug well beyond the period of time that was intended by patent law and drug competition policies in general. It's a strategy that involves creating multiple layers of patents, so both multiple patents on what were called secondary patents, not on the core molecule of the drug, but on related aspects of a drug. Multiple patents that are very similar to one another on each one of these particular matters, and then staggering the timing of these patents. Most of the patents are on large drugs or high cost drugs for which there is concern have been issued after the drug launched into the market.
(05:17):
So innovative drug companies are continuing to mine new patents in an attempt to extend the overall life of that product in the marketplace as a monopolist. Far beyond the 20 years that you would get for any individual patent. This strategy has been used for a number of products that are large top selling products and it makes it difficult or sometimes impossible for the competitors, the generic manufacturer, more often the biosimilar manufacturers, to pierce through that thicket and bring a competitive product to market.
Angela Banks (05:58):
What can lawmakers do to prevent this kind of abuse from happening in the prescription drug market?
Alex Brill (06:03):
It's actually a pretty hard question, I think, to answer. It starts with having a good understanding of the problem. So before we come up with any policy solutions, we need a good handle on the problem itself. So that involves understanding how these strategies are deployed, how often they're deployed, what types of products are most likely to be accompanied by a patent thicket. But then the second stage of actually finding the solutions I think has proven difficult. But the good news I would say is that there's interest in finding solutions in a number of realms. So certainly on the legislative front, on Capitol Hill, lawmakers are looking at bills to limit the number of patents that can be asserted on a drug with an exceptions process, but generally trying to limit the number of patents that can be asserted. I think there's questions about bringing this issue to the attention of the Federal Trade Commission or bringing efforts around the FTC to look at this practice as anti-competitive.
(07:08):
And there's a number of efforts on the regulatory front. There's an executive order from President Biden instructing the FDA and the US Patent Trade Office to coordinate and collaborate on some of these issues. So there are some issues that would require a legislative change, but there may also be opportunities for the patent office to be more rigorous in their patent review process. That might require more resources for the PTO. It might require more training for the staff that are reviewing these applications, and that's where this issue with cooperation coordination with the FDA comes in for the patent office to draw on some of the expertise that the FDA has with respect to some of these drugs.
Angela Banks (07:53):
Is there anything that the patent office could do to change their processes or incentive structure that might help as well?
Alex Brill (08:00):
I think so. So I mean there's a couple of ways to think about what kinds of changes might be appropriate at the PTO. So one question is just a resource question. Do they have enough examiners? Do those examiners have enough time and resources and training to adequately perform their job and review patent applications? But there are also other structural questions within PTO where we get to issues around incentives where we want to make sure that their incentives are aligned with the broader public's objectives here of high quality patents.
Angela Banks (08:41):
MGA's reporting the I-MAK's annual Overpatented, Overpriced report really showcase how flawed the prescription drug supply chain is and how unfairly big drug companies are able to game the patent system in their favor. What kind of impact does this have on patients and families?
Alex Brill (08:58):
I think there are really two important impacts to consider. The obvious one, and I think the one that we spend the most time talking about is a cost impact. The longer that we go without having competition and the longer we go where we have a very high price, a monopolist price for product. I should pause and just say that it is important to have a rigorous patent system that does provide adequate protection from innovation. We don't get the innovation without the ability of these innovators to earn back a return on their costly and risky investment. So I certainly wouldn't want to suggest or imply that we don't want to have these exclusivity periods. We absolutely do want to have these exclusivity periods. That is the carrot that draws in the resources for drug innovation.
(09:49):
The issue here is that at some point in time, some appropriate point after some period of time, we need to switch from a monopolist environment to a competitive environment and we need to have a robust competitive environment. We need to make sure that we don't have overly extended monopoly, and that when that monopoly comes to an end, that there's an opportunity for lots of competition to enter the market in a robust way. To your question, one of the benefits to families and patients, one of them is that the prices can come down a lot. In the generic and small molecule market, we see prices collapse rapidly. Generic market shares rise very quickly to sometimes 90% and dramatic amounts of savings. In the biologic and biosimilar market where drug prices are generally much higher, we also are seeing good competition from biosimilars. The savings as a percent is a bit more modest, but overall dollar terms can be much larger just given the fact that biologic drugs are often so expensive. So there's a lot of cost savings opportunities from this competition.
(11:02):
But I would also say that it's not only price savings, cost savings, that is a benefit here. There's also a benefit in the innovation framework. Nothing gets innovators to innovate, maybe not nothing, but one thing that gets innovators to innovate is the risk associated with losing the monopoly on the products that they have. So what we want to do is we want to have new drugs come to market. Those drugs need to be priced in a way to reward the innovators. Then we want to have those prices come down. We also want to have new products come into market after that. We want to have the next generation of innovation. We don't want anyone resting on their innovations. We want them constantly innovating for new products. There's a life cycle here where when their exclusivities end and competition enters the marketplace, that also creates opportunities for new products and new innovations and new clinical benefits for patients as well.
Angela Banks (12:01):
That's exactly right. We do want to encourage true innovation and continue to see patients thrive as new innovation comes to the market. In your recently released biosimilar report, you touched on how seeing the cost savings from a more robust biosimilar market will take time. Can you speak a little more on that and how the biosimilar market is different from the market for generic drugs?
Alex Brill (12:23):
There are certainly important differences between these two markets. First and foremost, the generic drug market is just very well established. So the Hatch-Waxman legislation that created the generic drug industry dates back to 1984. So we have a very mature generic drug market and a high acceptance of generic drugs, a high level of comfort with generic drugs and many generic players in the marketplace. The cost of manufacturing traditional small molecule drugs is also relatively low. The cost of inventing them, of discovering them is significant, but the marginal cost for the generic manufacturer [inaudible 00:13:06] relatively low. So we get rapid generic utilization because of the substitution policies that we have at the state level. We get rapid decreases in prices from generics as multiple generics will enter, and we very quickly reach a competitive equilibrium with significant savings.
(13:27):
In the biologic drug space with biosimilar competitors, the dynamics are a little bit different. For one, it's newer, so there's more education that needs still needs to happen in the marketplace for prescribers to be fully comfortable with these products. The products generally are not substitutable at the pharmacy level, and so there's a little bit more effort involved in getting people onto the lower cost biosimilars. And the costs are higher. The costs of developing a biosimilar is significant, and so there is a need for the biosimilar manufacturers to recoup those costs. We also have, I think, fewer biosimilar manufacturers in the marketplace today. The degree of competition is a little bit more modest for most biosimilars, which we're seeing one or two or three competitors. The acceptance or the willingness for prescribers to switch patients, it's a little bit slower than what we see in the traditional small molecule market. We're still seeing lots of savings in this new biosimilars market though. I mean we're seeing billions of dollars of savings and we will see many more times that in the next few years.
Angela Banks (14:38):
Agreed. What can policymakers do to clear barriers to broaden biosimilar adoption?
Alex Brill (14:45):
I think there are a couple of policy levers to consider, and many of them are in the works. So one is to align the incentives of the prescriber with the incentives of the payer. Congress recently enacted a policy that works in that direction. Policy is called ASP plus 8%. This is with respect to what are called part B drugs. So physician administered drugs or drugs that you would get infused generally in the hospital or in a doctor's office, not drugs that you would pick up but a CVS or a Walgreens. But those drugs, which most biologics are that type of a drug, the new policy creates a little bit more reimbursement for the physician that prescribes the lower cost biosimilar than compared to the reference product biologic. That should encourage a little bit more uptake, a little bit higher adoption rates for biosimilars. It's a new policy, so we don't have any evidence to speak of yet, but that's one way to align those incentives between prescribers and payers.
(15:47):
I think there's also an opportunity for education. What we've seen is a number of these biosimilars that have launched to date are, for example, in the oncology space, cancer related drugs. So oncologists are increasingly aware and knowledgeable and comfortable with biosimilar drugs because there are a number of them and they've been around for a few years. As biosimilars enter into new disease spaces, it's important that there's good and reliable education to those new doctors. So we see new biosimilars launching in ophthalmology last year. The ophthalmologists need the appropriate education and awareness and training about biosimilars that the oncologists have acquired over the last few years. I think there's an education component that's important as well. And it's sort of mixed in with this education and information issue. Some people have expressed concerns about what they refer to as misinformation, and so this is campaigns or information that's in the marketplace that's inaccurate about biosimilars, efforts to discourage biosimilar utilization by sowing seeds of concern or questions and things like that. I think that that's important to monitor, to be aware of and to combat any misinformation campaigns if they exist.
Angela Banks (17:11):
I think that's a great point. There's a lot of misunderstanding and misinformation about biosimilars. As you mentioned previously, biosimilars are large molecule drugs, which are different from the small molecule drugs that you can just simply duplicate. So because they're made from biological substances, you're not going to have an exact match, but any biosimilar is as similar to its reference product as the two batches of the reference product are to one another. So I hope that we can one day figure out how to say that in a way that is very plain and clear for people. But for now, I think that's the best we have. But I think the bottom line is focusing on encouraging competition in the marketplace is the most effective way to lower cost. Can you break down why competition is so important in the prescription drug supply chain?
Alex Brill (17:59):
Competition, it's a market-based approach, so it's hard to know if you're not in the market what the competitive prices should be, but those who are in the market, those who are the competitors, they absolutely know. So that exchange in the marketplace between the buyers and the sellers and the competition that exists when there are multiple sources for a product, that competitive dynamic is the most likely mechanism to yield the most efficient price.
(18:33):
Other strategies where people who are sitting outside the market, say in government, for those individuals to say, "I know what the right price should be and this is what it's going to be," there's a high risk that the price picked by someone outside the market is not going to be the optimal price. It could be too high or it could be too low. I mean, it could be wrong in either direction, to be honest. There are consequences of being wrong in either direction. But if we have a process where the player's in the game, and I mean game in an economic sense because obviously it's a serious matter, they are the ones who have the most information. When competitors are working against each other to gain market share, they will do the best they can to bring the most value they can to their customers. In this market, that means bringing the lowest prices that are affordable.
Angela Banks (19:25):
You're reminding me of my econ days a million years ago, supply and demand, and when you have more supply, you can bring down prices. So this is helpful.
(19:38):
Since we're both policy people, let's talk about policy solutions that encourage competition in the prescription drug marketplace, like the Affordable Prescriptions for Patients Act, which prohibits product hopping. How would this legislation improve competition?
Alex Brill (19:53):
One of the strategies that we've seen in the marketplace is this idea of product hopping, where as a brand product reaches the end of its monopoly life. The manufacturer can pull that product off the market and replace it with a similar but different product, a new similar but different product, and move the existing patients from product A to product B, that hop over. And there's nuances here of hard hops and soft hops and whether the product is pulled entirely from the market or not. But the strategic idea from a product hop is for a brand company to preserve their monopoly by moving their customers to a new product that has new patent protections on it. In doing so, they avoid the benefits that consumers could enjoy from generic competition or biosimilar competition.
(20:55):
It's easy to describe that in general. It's sometimes hard to know exactly when it's an anti-competitive tactic, and when in fact there's actually a real improvement in the product and a desire to bring a better product to patients. Sometimes it can be difficult in practice to identify what's an anti-competitive product hop and what's a natural improvement that occurs as drugs and delivery systems and other things like that evolve over time. But there certainly are examples of anti-competitive product hopping and the legislation that you mentioned tries to bring awareness to this problem, I believe empowers the FTC to address these tactics when they see them in the marketplace.
Angela Banks (21:45):
I think you're right though. It can be difficult to kind of parse out what's a true innovative attempt at improving the lives of patients versus what is a very minor change that really doesn't bring additional value to patients. There'll be some challenges in drawing that distinction.
(22:02):
Are there other public policy solutions you think lawmakers should focus on to encourage competition?
Alex Brill (22:07):
When I think broadly about what would make this market more competitive in general, when I think about the biologic biosimilar market, I hope that in the future that the costs associated with developing biosimilars can come down. Those costs are high. It could be easily over a hundred million dollars to develop a biosimilar. Some of that is the cost associated with getting FDA approval and [inaudible 00:22:34] trials. So to the extent that as the science evolves and as technology evolves, it becomes easier to develop new biosimilars. Then we could have more competitors, that would be a benefit. Perhaps the FDA can be doing things as well to appropriately adjust what their requirements are of the biosimilar manufacturers to help bring down those costs.
(22:59):
That can have two benefits. One is it could result in more competitors for a given reference product. More competitors would help drive down prices. We're never going to have the same dynamics again. We're never going to have the same dynamics that we have in the small molecule space. We want to make sure we have adequate competition within each individual product. We should also remember that there are a lot of biologic drugs out there in the market today for which there is no competition on the horizon. These are products that are small. There aren't that many patients. So we've got some big blockbuster drugs and we know their names and we point fingers at them and we talk about them a lot. We have a lot of biologic drugs that are relatively small total sales. Ideally, those products would also have some amount of competition.
(23:46):
So we want to have a marketplace where we are not only competing with the top 10 or 20 biologic drugs, but that there's competition across the whole marketplace or a large swath of the marketplace. How do we get there? Well, one way to get there would be to bring down the approval costs and the development costs, and that could help bring cost savings to more patients as well.
Angela Banks (24:10):
Thank you, Alex, for this very informative conversation. I appreciate it. And thanks to all of you for listening. I encourage you to subscribe to the Pharmacy Benefit and download all of our podcast episodes. You can do that on Google Podcasts, Apple Podcasts, Spotify, or wherever you find your favorite podcasts. I'm Angela Banks. Thanks for joining.
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