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How Drug Price Controls End Up Hurting Patients

I am BIO
September 28, 2021

They are not the household names, but the medications they are researching and developing could be the lifeline patients are waiting for. Today we explore how drug price controls—now making their way through Congress—could have unintended consequences for the small biotechs that are the engine of the drug development ecosystem. And even worse, for the patients who need them most.

Guests: Ahmed Mousa, Pieris Pharmaceuticals; Daphne Zohar, PureTech Health;  Peter Kolchinsky, RA Capital; Michele Oshman, BIO; Clare Thorpe, Library Services (AU)

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Joe Biden (00:07):

Let's give Medicare the power to save hundreds of billions out by negotiating lower drug prescription price.

Woman Speaker 1 (00:16):

These price hikes have caused Americans to choose between buying their prescriptions, paying rent, and buying food.

Peter Kolchinsky (00:24):

That is not what H.R. 3 proposes. They say, "Oh no, no. You go ahead, and you fund this portfolio of risky projects. And only after we find out which ones work ... when we find out which ones are your big sellers that make the entire portfolio worth funding, we will go after those. And we will Monday-morning-quarterback what we think you should get paid given what it took you to develop just those drugs." It's absurd, and it wouldn't work in any other sector.

Woman Speaker 2 (00:52):

We live in a world where a heart attack is now something that you can bounce back from. Where diabetes is something that patients live with every day. Where HIV is essentially a chronic condition. And that's the type of innovation that would not be possible without the biopharmaceutical industry.

Michelle McMurry-Heath (01:09):

President Biden and members of Congress are making government drug price controls a key provision of their ambitious agenda, which is currently moving through the reconciliation process. Today, we explore how price controls would work in practice, and how these well-intentioned initiatives will have unintended consequences. I'm Michelle McMurry-Heath, and you are listening to I AM BIO.

Michelle McMurry-Heath (01:44):

The media and progressive lawmakers often paint drug companies as greedy villains. Although this makes for good sound bites and easy clicks, it glosses over one critical fact: the U.S. market-driven approach has been the most successful framework globally for bringing medical breakthroughs to patients.

Man Speaker 1 (02:05):

The European market has gone effectively to a fraction of where it was because of the single payer in Europe. These governments, by putting these price controls in, have basically forced the European industry to flee. And they're all setting up shop in the U.S., which is the only major market that's driving global innovation.

Michelle McMurry-Heath (02:24):

In this episode, we'll take a deep dive into the economic framework that creates an ecosystem of researchers, companies, and investors all working together to develop life-saving medicines. We also talk about who has the most to lose with government price controls. And that is patients. Particularly, 30 million Americans suffering from rare diseases.

Woman Speaker 3 (02:50):

When Anthony was born, we noticed that about two months old that he was constantly staring at ... light, he would stare at lamps. He would stare directly into the sun. We weren't really sure what was going on.

Man Speaker 2 (03:05):

His eyes would kind of just roll back into his head, constantly staring at the light. Always searching. Definitely something different as far as the need for extremely bright light, willingness to stare directly into the sun. It was odd.

Clare Thorpe (03:21):

Took us about nine months to find an ophthalmologist who told us that this is really rare, but we believe your son has this condition called Leber's congenital amaurosis, or LCA. And we'd like you to see the genetic ophthalmics team of at the Children's Hospital of Philadelphia.

Woman Speaker 3 (03:43):

With Nicholas, we didn't know when he was born whether he would have it or not. He was about two to three months old. I went into his room to get him out of the bassinet. And he was staring out of the window, and had that same vertical nystagmus that Anthony had had almost out of nowhere. I remember backing away as if I didn't see it thinking, "I didn't just see that. This is not happening a second time."

Woman Speaker 3 (04:19):

At four years and six months old, we had two children diagnosed with LCA.

Michelle McMurry-Heath (04:36):

Nancy Pelosi calls it the Lower Drug Prices Now Act. But house resolution three, or H.R. 3, is a bill that would essentially freeze up funding sources for small biotechs nationwide. Among other things, the proposal gives Medicare the power to dictate the prices companies can charge for drugs, and would require drug manufacturers to accept prices that other countries pay. At BIO, the vast majority of our member companies are small resourceful biotechs, and they're at the front lines of life-changing innovations and life-saving medicines. They're not the household names, but their medications mean more to patients than we'll ever know.

Michelle McMurry-Heath (05:23):

We spoke to Pieris Pharmaceuticals, a small Boston biotech, which is bracing for the impact of these proposals. Their story is an example of the ongoing innovation in so many small biotech companies.

Ahmed Mousa (05:44):

I'm Ahmed Mousa, senior vice president and head of business development at Pieris Pharmaceuticals. Pieris is advancing a new class of medicines that we call Anticalin proteins to help some of the most serious diseases, including cancer and deadly respiratory disorders. One of the Anticalin protein's key advantages is their size. They're larger than small molecules, which is an older type of drug, while at the same time smaller than monoclonal antibodies. This allows us to treat diseases in ways that the other medicines can't. For example, Anticalin proteins can be more specific, and thus safer than small molecule therapies, while at the same time being cheaper to manufacture and more convenient for patients to use than monoclonal antibodies.

Michelle McMurry-Heath (06:30):

Ahmed described to us what it takes to bring a product to market.

Ahmed Mousa (06:33):

Like many other biotechnology companies, we don't have any drugs that we yet sell. All of the drugs that we're working on are either in clinical trials or in preclinical development, which means that we rely entirely on investors to help power our research and development activities.

Ahmed Mousa (06:55):

We're working in a disease area called idiopathic pulmonary fibrosis, or IPF. And IPF is a pretty terrible disease. It's a rare one. And it causes scarring in the lungs, making it increasingly difficult for the patients that are afflicted by it to breathe. It affects about 130,000 people in the United States. And even with the currently approved small molecule therapies, patients live for a median of two to five years before succumbing to the disease, and suffer from pretty high side effects due to the small molecule drugs. Our new drug candidate in IPF that we plan to take into clinical trials next year is intended to be both safer, and provide a high quality of life, and more effective than the current small molecule therapies, and extending lifespan. It's also more convenient for patients to take. It's an inhaled therapy that can be taken at home. This was just one example of the types of therapies that Pieris is trying to develop.

Michelle McMurry-Heath (07:52):

Pieris is not unlike the majority of companies that make up the biotechnology ecosystem. If it weren't for investors betting on these small companies, they would not be able to continue the long arduous path to a final product.

Ahmed Mousa (08:07):

Yeah. Before Pieris went public in 2014, we obtained most of our funding from biotechnology venture capital and life sciences investors. And the pitch that we made to them was the exciting potential of the Anticalin proteins to do something different from other therapies, like the small molecules and antibodies. But also, because biotechnology companies know that companies working in this space can often fail, we shared with the investors our view that if our programs were successful, they would get a good return on their investment. And drug prices that would reward them for taking the risk that these medicines might not ultimately get approved. We've never received any U.S. government funding for our research. We certainly respect and rely on the work that the NIH and other federal agencies do, whether that's directly or through grant funding.

Michelle McMurry-Heath (08:56):

And the smaller biotech companies are concerned with H.R. 3 proposals.

Ahmed Mousa (09:01):

We certainly agree with the diagnosis that drug prices are all too often way too high for patients. We develop drugs so that everyone who needs them can have it. High out-of-pocket costs or drug prices can make that impossible. We're supportive of some of the proposals that have come out of Congress to help address this issue. Others, however, are pretty concerning, including those that don't distinguish between a brand new drug that's highly innovative and those that have been on the market for a long time and effectively allow a cap to be placed on the price of even the newest and most breakthrough medicines.

Ahmed Mousa (09:35):

We really do believe that if some of these proposals coming from the administration in Congress, particularly those that might place a cap on even the newest and most innovative drugs, passed that there will be a significant impact on the life sciences industry.

Ahmed Mousa (09:51):

First, we think there's just going to be less investors in the space and the look for other sectors where the risk reward profile is different. And this will lead to just simply fewer biotech companies, that the funding sources will dry up. And the ones that remain will have smaller budgets, allowing them to work on less programs.

Ahmed Mousa (10:10):

But a second and even maybe more unfortunate consequence of this is that the companies that do survive are probably going to be working on therapies that take lower levels of risk, meaning less breakthrough innovations and the smaller benefit for patients.

Michelle McMurry-Heath (10:26):

In the end, fewer families will experience that miraculous moment when they see the person they love getting better.

Woman Speaker 3 (10:38):

They told us when Anthony was diagnosed that they were already in animal trials with gene therapy. They had taken dogs with LCA and injected this DNA into their eyes and they were showing improvement.

Woman Speaker 3 (10:52):

It was actually in the middle of the night. I just happened to be laying in bed at night and scrolling through the phone. And it's funny, I read the article. FDA approves drug for gene therapy surgery. And I thought this isn't true. I'd say it was about two to three days after the second eye and he just sort of stopped and looked at me in this way that he had never really looked at me before. And I said, "Honey, what are you looking at?" And he said, "You."

Man Speaker 2 (11:24):

He was playing baseball with his cousins. He could never even see that the ball was coming in and he's just smacking it.

Woman Speaker 3 (11:34):

For Anthony to be able to have that improvement and be able to sort of open the door for his brother, I don't know that they have any idea of what they share.

Man Speaker 2 (11:47):

In one lifetime, they told me that my children would go blind and in the same lifetime, I seen that diagnosis erased.

Michelle McMurry-Heath (11:53):

When we come back from break, we'll meet life science entrepreneur and head of PureTech Bio, Daphne Zohar, and biotech investor and founder of RA Capital, Peter Kolchinsky. Both are passionate about maintaining a viable investment climate for developing medicines that treat the most challenging diseases.

Michelle McMurry-Heath (12:40):

Are you signed up for Good Day BIO? It's the daily five minute newsletter at the intersection of biotech, politics and policy. Become a subscriber today at bio.org/goodday. This month, a group of investors and biotech companies sounded the alarm about proposals moving through Congress that would allow government price controls for medicine. As they wrote in a public letter to Congress and the administration, and I quote, "Collectively, we come together to defeat disease. Each drug in development is a complex, time consuming and expensive scientific and medical undertaking. And most of the time we lose the battle. But we persist because the few projects that succeed will forever improve human health."

Michelle McMurry-Heath (13:43):

We spoke to two co-authors of the letter, Daphne Zohar of PureTech Bio, and Peter Kolchinsky of RA Capital. First up is Daphne.

Daphne Zohar (13:54):

We're a biotherapeutics company. And the history of the firm is really one that could only happen here in the U.S. My parents are immigrants who came to the United States with just their clothes and not much else. My father is a research scientist and my mother, a nursing home administrator. I founded PureTech with the mission of advancing breakthrough science from academic institutions. I was really struck by the fact that even though significant NIH funding can enable basic science to reach a point where a translational path is possible, there's a huge barrier in that initial translational space. So when we first formed PureTech, we had limited resources. PureTech has now invented and advanced 25 new therapeutics, including 15 that are in the clinic and two that have advanced from inception at PureTech to FDA or EU regulatory approvals.

Michelle McMurry-Heath (14:47):

So you recently co-wrote a letter that was signed by 300 executives of biotech and investment firms outlining your concerns over congressional and administration proposals that promise to lower drug costs for patients. Most of these proposals boil down to the government setting the price for drugs from your perspective, how would the passage of these proposals impact your decisions when it comes to pursuing compounds and your medical R&D?

Daphne Zohar (15:16):

Right. I've been concerned about some of the proposals being made by legislators, not because they aren't tackling the right problems. They are. But because their lack of understanding about how new medicines get developed leads them to support the wrong proposals that would do far more harm than good. In the case of H.R. 3, the idea that government is imposing controls on pricing and calling that negotiation is a dangerous precedent for a market-based economy and one that would be disastrous for our industry. As a CEO, one takes the responsibility for a team, for the patients and spends years of time in resources with the understanding that if you hit a key milestone, whether it be human proof of concept or approval, there will be the resources available to get to the next milestone or that a pharma acquisition will accelerate the capabilities and reward the team and investors. The entire biotech industry is based on these principles. And if the reward isn't there, the funding will dry up and CEOs like myself won't be able to effectively bring new medicines to patients.

Michelle McMurry-Heath (16:19):

Now you touched on this a little bit, and you talked about the importance of the market-based strategy for all of our companies and why it makes the U.S. such a competitive place for biotech. But how do more specifically market-based incentives result in more drugs being developed?

Daphne Zohar (16:36):

Well, I mentioned before the barriers to early translation of scientific breakthroughs. This space between NIH-funded research and actual therapeutic candidates is often referred to as the valley of death. The reason is that there's so many breakthroughs that don't get advanced that languish in the valley of death is because the market based incentives or risk/reward equation and is much weaker at the earliest stages. So by enacting price controls, legislators would essentially convert the entire productive biotech ecosystem to a sort of valley of death where innovation would cease to be rewarded. And as a result of that, it would cease to be advanced. You'd be seeing a lot more incremental approaches and less sort of big ideas.

Michelle McMurry-Heath (17:20):

BIO's been fighting for making sure we have the fewest number of hurdles between a physician making a recommendation and a patient following that recommendation, because that's really the direct path to better health.

Michelle McMurry-Heath (17:35):

Let's bring Peter into this conversation. He's a leader in early stage company formation and investing. He runs the Boston-based investment firm, RA Capital Management, and he's also an author and teacher. Welcome, Peter.

Peter Kolchinsky (17:51):

Hello. Thanks for having me.

Michelle McMurry-Heath (17:53):

So we have often heard you talk about investing in biotech companies despite the low probability of success, but you do it regardless because of the valuable science and outside potential for bending disease curves. Walk us through a typical investment evaluation. And we're particularly interested in understanding the risks involved in investing in early biotech programs, how you evaluate those risks, and still come to a decision to invest.

Peter Kolchinsky (18:22):

So we fund companies that develop products that we believe address an unconscionable condition, something that when you hear about it, your heart breaks and you say, "No, that's not right." And we hope that those drugs are so good that they are unconscionable to deny. Only then do we believe that it will have the ability to win that fight with payers and get reimbursed at a level that makes inventing it worthwhile. That's the calculus we do. It's a lot of work. Now you throw in there that...

Peter Kolchinsky (18:55):

Well, actually, if you're right and this becomes a really high-demand product and the government suddenly decides that it's one of the top-selling drugs out there, what we're seeing in H.R. 3 is that the government's saying, "Well, if we feel it in our pocketbook, we will then target it for what we call quote unquote 'negotiation.' It involves us telling you how little we're willing to pay. And if you don't like it, well, that's tough, because if you try to say no to us, we're going to hit you with a 95% tax." So who could possibly do the math to know whether or not there'd be a positive return from that? You wouldn't know what the government's going to be happy with, what price they're willing to pay. I'd have to say, "Well, how about before I fund this, you tell me what that price is and we enter into a contract? A forward contract, and you will at least guarantee me that you will pay me enough. And if that amount is not enough, I just won't invent this thing. I won't fund it."

Peter Kolchinsky (19:55):

That's what BARDA does for pandemic vaccines, for drugs for smallpox, but that is not what H. R. 3 proposes. They say, "Oh, no, no. You go ahead, and you fund this portfolio of risky projects. And only after we find out which ones work, when we find out which ones are your big sellers that make the entire portfolio worth funding, we will go after those. And we will Monday morning quarterback what we think you should get paid, given what it took you to develop just those drugs." It's absurd, and it wouldn't work in any other sector. And you're listening to this, and you're just thinking, "I can't believe I'm talking to somebody that runs America's government and influences its economy." That's absurd. You can't wait for me to fund the whole portfolio and then chop the winners down to a modest return unless you're planning on compensating me for all the losses I sustained on all the other stocks.

Michelle McMurry-Heath (20:55):

Peter then touched on a glaring oversight in H.R. 3 as well. Most of the calculations in the bill are around the list price of medications. What it fails to recognize or calculate is the cost savings derived from breakthrough drugs.

Peter Kolchinsky (21:11):

Well, we got to make sure that the American people are alert to the fact that the math is incredibly nascent. It completely ignores all sorts of features of medicines. It ignores that medicines don't just help the patient, but they help the whole family, everybody who takes care of that patient. It alleviates them of some of the burden of caring for that person's disease. Factor that in, that counts. Because for the rest of the time, families will no longer be as burdened by that disease if one of them falls ill. It ignores that drugs go generic. That would be akin to a financial advisor telling you that you're paying too much for your apartment, but never asking you whether you're paying rent or a mortgage.

Peter Kolchinsky (21:52):

Because what we pay for drugs that are destined to go generic is a mortgage. It's a finite mortgage. So they're talking you out of paying a mortgage for a home that you could own and pass on to your kids and grandkids. And it's not like they're saving you money, because we are living in a very expensive crappy apartment called hospital care. The diseases we don't prevent, that we don't cure, are diseases that we're going to spend a fortune managing in hospitals. And those hospital rents... Hospitals don't go generic. Hospital rents only climb. If the American people understood how bad math was being wielded to deny them very worthwhile treatments, they would be outraged. But come on. When was the last time anybody was outraged by bad math?

Michelle McMurry-Heath (22:39):

At BIO, we stay connected to many patient groups fighting to ensure the patient voice is integral to the drug development process. We spoke with BIO's Michele Oshman about the challenges for patient groups as their quality of life is debated on Capitol Hill.

Michele Oshman (22:57):

Hi, my name is Michele M. Oshman. I am the vice president for external affairs and the executive director for the Council of State Bioscience Associations, and I work at BIO. Under the external affairs team here at BIO, I have the opportunity to lead two different teams, one of which is alliances, patient advocacy and alliances. So that work is all about how we engage the patient community. We work with over a hundred patient advocacy groups, and we work with them on policy issues, capacity-building programs, and maintain those relationships really to ensure that we are thoughtful in representing the patient voice in the work that we do.

Michelle McMurry-Heath (23:36):

According to the National Organization of Rare Diseases, or NORD, there are between 25 to 30 million Americans living with about 7,000 rare diseases. Each disease is considered rare or orphan because it affects fewer than 200,000 people in the United States. And although we talk about rare diseases as a group, under 1/10th of a percent of the population is affected by each disease. The market for drugs to treat these diseases is finite, and most countries around the world are not investing research dollars for such small groups of patients.

Michele Oshman (24:17):

There's also significant concern from patient communities, especially really in the neurodegenerative space, in the oncology space, that new medicines won't be developed to meet their needs. In particular, I think about people living with ALS, or any number of... Alzheimer's disease, any number of neurodegenerative conditions. Really, for ALS, there is absolutely no treatment. So what are we saying to people afflicted with this horrible disease if we aren't able to really meet the demand and create those treatments and continue to invest in the science? Those investments are necessary in order to, at the end of the day, develop treatments that can make a meaningful difference to patients. Patient groups by and large have significant concerns about affordability. If they cannot afford their medicines, they're looking to Congress to help them find answers.

Michele Oshman (25:16):

So these drug pricing proposals are theoretically aimed at making medicine more accessible. But in fact, at the end of the day, it may mean that patients will have fewer choices. So while cutting the innovator's ability to recoup R&D costs, and so limiting that reimbursement for medicines, is going to result in fewer medicines at the end of the day. So that's definitely something that patient advocates are concerned about. If any provision on the Hill is aimed at making medicine less expensive or more accessible to patients, then any savings realized as part of that process would have to go to patients, and that's just not something we're seeing.

Michele Oshman (26:02):

I think people with diseases for which there currently are no treatments, or for diseases that are rare and for which investment is... You have to create that ROI story on the investor side as well, but the people who are going to be impacted the most are people with chronic debilitating conditions that currently don't have treatments. So whether that's ALS or sickle cell disease, where there are very limited treatment options available, and especially in the orphan and rare disease area, we truly believe this would be devastating for them.

Clare Thorpe (26:42):

As a mother, this medication probably means as much to me in different ways as it does to Izzy.

Michelle McMurry-Heath (26:55):

When Clare Thorpe's daughter Izzy was diagnosed with cystic fibrosis in infancy, Clare moved from Ireland to Maryland because knew the US was the best place in the world to get CF care. Here is what she shared with us about drug pricing.

Clare Thorpe (27:12):

And I've thought about that. I have often thought about what is the price of a life, and how much does it cost to save one? And it's not a trivial question, but if you didn't create the innovation, if you didn't have companies that spent years and years working to find that one molecule that can have the effect that it has on a life like Izzy's, then you might as well just decide you're go going to stay in the Dark Ages. You might as well decide that everything can be fixed with an aspirin or go to bed and sleep for five days. This is a constant journey.

Clare Thorpe (27:52):

And the other thing I know when you're talking about the price of a life is that the lifespan for cystic fibrosis used to be five and then it was nine. And then it took a jump when they came out with Izzy's pancreatic enzymes, and it went up to 18, and now it's gone up to almost 40. And that's because again, you've got all these new meds that are being innovated and are coming out. And these are biotech meds because this is a biological disease. And I'm a scientist. I have a PhD in science, and so, enzymes are made by a biological process and they have to be made with biotech [inaudible 00:28:30], the thing that thins the mucus in her chest, it's an enzyme, it has to be made using biotech. And so, it's important that we continue to look at this and develop these because the benefits and the knowledge that you learn spreads more broadly than just one disease. It spreads more widely into a greater understanding of many other things.

Michelle McMurry-Heath (28:52):

The US develops more innovative drugs than the rest of the world combined. Addressing patient costs requires more nuance than a bill that will eventually we dry up the investment well. As investors in small biotech companies have shared, there are better ways. Here's Ahmed again.

Ahmed Mousa (29:13):

Really do think that the outrage over out of pocket costs for patients is justified, and reform in our view is needed into areas. First, there need to be is to make sure that drugs go generic and are priced accordingly without undue delay. And second, for drugs that have not yet gone generic, the newest and most innovative drugs, reforms are needed to make sure that insurance companies can't charge high out of pocket costs for those drugs, which make it harder, sometimes impossible for patients to access the best medicines of the day.

Clare Thorpe (29:44):

If I was going to be completely blunt about it and not emotional, and I would look at this also from an economic perspective, which seems cold, and hard, and cruel, but that's what you're doing when you're talking about the price of a life. And because my daughter can live longer, my daughter can become a productive member of society. My daughter can go to college, Izzy can learn, and bring something to the world herself, and she can pay tax, and she can give money back, and she can have a life of service, rather than a life that's truncated by a disease when she's still a young person. And for me as a mother, Izzy's condition doesn't just affect Izzy, it affects all of us. It affects us emotionally, it affects us in terms of the time that we can spend. Knowing that my daughter is safe, allows me to go about my day, for me to keep doing my job, for me to keep contributing back to the society that has contributed to me. So it's bigger than Izzy, it's about all of us.

Michelle McMurry-Heath (31:02):

Thank you so much to all of our guests on today's episode and especially to the families that shared their stories with us. Make sure to subscribe rate and or review, this cast and follow us on Twitter, Facebook and LinkedIn @IMbiotech, and subscribe to Good Day Bio bio.org/goodday. This episode was developed by executive producer, [Theresa 00:31:37] Brady and producers, Connor McCoy, Cornelia [Poku 00:31:41], and Marilyn Sawyer. Sound design and mixing by Jess [Finton 00:31:45]. Theme music created by Luke Smith and Sam Brady.

Michelle McMurry-Heath (31:55):

Do you have food allergies? About 10% of American adults do. On the next episode, we will talk about the role of biotechnology in addressing and even eliminating certain food allergies. See you in two weeks.