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Love ‘Em? Hate ‘Em? No Matter. The Drug Industry Gets What It Wants.

Xconomy National — 

Anyone reading this column should be familiar with the fight over drug prices. Many of you would argue that drug makers are too easy a target in political debates and the media, getting little credit for developing lifesaving drugs. Others of you believe that prices have gotten out of hand, and that price gouger Martin Shkreli, now a target of federal fraud prosecution, is the tip of the iceberg. Many of you would say yes to both arguments, as well as to the gray area between.

At last week’s J.P. Morgan healthcare investment conference in San Francisco, and the events around it, many of these arguments were on full display. I highlighted on Twitter a panel discussion that included Ron Cohen, CEO of Acorda Therapeutics (NASDAQ: ACOR) and the chair of the Biotechnology Innovation Organization, the industry’s highest-profile trade group. Held at the Biotech Showcase satellite conference, it was billed as “The great pricing debate: Navigating through an industry sea change.”

There was little debate. Cohen and the others, fielding provocative questions from a moderator, punched back at a litany of persecutors—the media, the public, insurance companies, the government, and so on—but didn’t dwell much on the drug industry’s own shortcomings. (Cohen also took to Twitter afterwards to take issue with my numerous tweets, and those of other journalists.)

My point last week and now: Yes, drug makers have a hard job. Yes, drug makers attract a lot of criticism, much of it too facile. But it was disingenuous to hold an event like that with barely a nod to the industry’s own foibles.

There’s another piece of the puzzle in the drug-price debate that rarely gets mentioned. For years now, the drug industry has mostly gotten what it wants: favorable laws, millions more customers, and amenable regulation.

After we traded tweets last week, I reached out to Cohen to arrange a less harried phone call. I asked him if he agreed with my assessment. He did only to an extent, saying that biomedical science “has expanded broadly and deeply on so many fronts. I wouldn’t say that the industry is on a roll. I would say that science is on the biggest roll in the history of humanity.”

Cohen seems to have a penchant for big statements like that. (He also said during the panel last week that making drugs is “innovation at the very highest level human beings are capable of. It’s harder than sending people to Mars. That’s an engineering problem; math and physics tell you how to get there.”)

I’m not sure we’re ready to give up “rocket science” as the linguistic gold standard of professional complexity. But I accept the general point: Drug making is hard and unpredictable, yet the field has never been more promising. It’s also worth repeating, as I did in this column, that prescription drug costs accounted for only about 10 percent of the total of $3 trillion U.S. health spending in 2014, according to the Centers for Medicare and Medicaid Services. It’s a nontrivial slice—and the percentage is expected to grow in coming years—but other areas of healthcare spending, like hospital costs (nearly 30 percent), also matter at least as much, if not more.

Cohen complained during our call that he rarely sees articles focusing on those costs, or other complex parts of the healthcare system. “The finger pointing is almost 100 percent in the direction of the biopharma industry charging high prices,” he said.

Meanwhile, last year’s Gallup poll ranked drug makers near the bottom in public esteem, and even Republican presidential hopefuls have taken rhetorical jabs at them. On the phone, Cohen justified high prices, as he and the panelists did last week, by citing the industry’s huge R&D costs—tabbed now to be more than $2 billion per drug, factoring in all those that don’t make it to the finish line—but acknowledged not everyone is happy about the prices.

“It’s very clear there’s real anger and dismay on the part of the public with respect to their perceptions that drug prices are too high,” he said. “These are real issues, not just the fad of the day.”

If biomedical researchers and drug makers are some of the most innovative people on Earth, surely they could come up with creative solutions for the pricing mess? I asked Cohen that, too, and I’ll give you his answer later. But first, that point about the industry getting what it wants: Here’s a list of big wins for the industry since George W. Bush took office; it would suggest that the public’s thumbs-down and a few political slings and arrows are not what matters.

—In 2003, Bush signed into law the Medicare Modernization Act that added the prescription drug benefit to the national insurance program. Some people wanted a quid pro quo: In exchange for a huge new market for drug makers, Medicare should be able to negotiate prescription drug prices directly, not through a patchwork of private regional contractors. The MMA went in the other direction, explicitly forbidding direct negotiation for drugs covered under the “Part D” drug benefit that the MMA created. Four years later, another effort to allow Medicare negotiation was squashed in Congress.

Last summer, Democratic presidential hopeful Hillary Clinton made the issue part of her campaign, and Congressional Democrats will look into the issue again this year.

Drug companies and others contend allowing Medicare to negotiate with drug companies would be tantamount to letting the federal government set prices—and that would be a very bad thing. I won’t wade into that debate here. The point is, the drug industry has so far prevailed.

—The one-time tax holiday in 2004 known as the American Jobs Creation Act allowed U.S. companies to bring overseas profits home at a 5.25 percent tax rate. Those lobbying for it promised to reinvest the cash and create jobs, as the act’s title suggests.

How’d that work out? The top 15 repatriating companies, six of which were Big Pharma, shed nearly 21,000 jobs through 2007 while accelerating stock buybacks. Pfizer, at the top of the list, was the main culprit. It brought home $35.5 billion and cut nearly … Next Page »

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  • Walter White

    A very informative piece! I would just add to this the fact that Big Pharma paid $70B to the federal government and supported the ACA; in exchange, it received legal guarantees that the government couldn’t negotiate drug prices. Seems like good business, Suffering the slings and arrows of public outcry is an unfortunate, but not entirely unexpected “side effect.”