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Can Pharma Clean Up Its Act on Drug Pricing? Q&A With Alnylam CEO John Maraganore

This article is more than 8 years old.

[Note: This interview originally appeared on Timmerman Report, a subscription publication for biotech insiders.]

At an event I moderated last week in Boston, one company bailed out when I insisted on talking about drug pricing. This is not the time to hide. We need to talk.

Recent drug-pricing scandals are forcing the pharmaceutical industry into an identity crisis. The industry has angered every constituency—patients, doctors, hospitals, payers, politicians—through years of self-serving bad behavior. And now leaders need to ask:

Who are we? What are we really about?

Is this business all about ruthless profiteering by a bunch of amoral hedge fund artists with empty slogans about helping patients? Or does it balance its profit obligations with a larger human purpose: to apply the latest science to the reduction of human suffering, as former Merck CEO Roy Vagelos used to say?

If the industry plays its cards poorly at this turning point, the pricing environment for new drugs could be much more hostile than the one we have today.

I spoke with Alnylam Pharmaceuticals CEO John Maraganore, one of the more thoughtful leaders of the industry. We agree the industry needs to talk more about value. Long-term value. As in, value your children’s children get from today’s drugs. Price is what you pay; value is what you get. That’s a Business 101 saying attributed to Warren Buffett. Pharma needs to get a whole lot better at articulating its value—what we’re really getting.

Alnylam doesn't have any products yet on the market, but it hopes to. Alnylam is seeking to develop an oligonucleotide that lowers cholesterol, similar to but with less-frequent injections than today’s PCSK9-inhibiting antibodies from Amgen and Regeneron/Sanofi. So I started our conversation there.

Luke Timmerman: John, are you going to charge twice as much as Sanofi/Regeneron's Praluent and Amgen's Repatha?

John Maraganore: It’s not my decision. It’s The Medicines Company’s decision. They are licensee. But I think the value part of it is important. It’s not about the prices are of drugs, it’s about the value that it ultimately delivers. We have no idea what the price would be. It’s way too premature.

But I think any drug has to be supported by value. Any drug pricing has to be reasonable.

We should actually talk more about this.

LT: I’ve been wrestling with this a lot lately. I see tremendous capacity for good in the industry. That doesn’t mean I excuse all the bad behavior.

JM: I actually want to thank Martin Shkreli. I want to thank Martin Shkreli for doing something so outrageous, so heinous, that’s it’s caused the industry to check itself. To think long and hard about what we do, and why we do what we’re doing.

LT: Who ARE you, really, as an industry?

JM: Yes, who ARE we as an industry? Martin has got us all asking ourselves, ‘What is it all about?’ Oddly enough, I think it’s been good for the industry. I really do. What we are about as an industry is innovation, and patients. We’re about 21st century cures, not 1950s drugs. Most Americans, I think, appreciate that if you work really hard, and do something that is gigantic, you ought to get rewarded. Most Americans don’t like people that try to get rich quick, those who try to cheat the system. That’s why the distaste in people’s mouths with Turing, and maybe others like Valeant, is so appropriate. It doesn’t fit our work ethic. That’s the stuff we want to teach our children.

LT: This has all been building for some time. We’re not just talking about a couple outliers. We’ve seen this before with the company (QuestCor) that sold to Mallinckrodt. Same thing.

JM: It’s the same thing.

LT: The critics have also done themselves no favors at times, by barking about things like Sovaldi. It’s an interesting case, because you’ve got this price at $84,000 a patient, but you’re curing people. On an individual level, it makes sense. On a broad budgetary level, it's harder. The company doesn’t really explain how they arrived at it. They don’t justify it. They just say, “Here it is and basically we’re in a monopoly position.” Free-market economics would say ‘Yep, you can do that. What’s the insurer going to do, turn down a cure? That’s not a position they can really bargain from, at least until a viable alternative comes along (like AbbVie’s Viekira Pak).

JM: It’s an interesting example. I think any of us looking rationally at the value of Sovaldi and the value of a cure for hepatitis C would say that’s totally worth it.

LT: As an insurance-premium payer, and a taxpayer, I don’t have a problem with that. I can look down the road, and say I think we will save money by curing people. But (Gilead) is not proving it, not justifying it.

JM: There’s a challenge there, a legal challenge that many of us are trying to fix. We have a hard time communicating our value publicly, or even to payers, because it can be interpreted as off-label promotion. Companies have legitimate compliance issues with regard to articulating value based on an extrapolation of data. What the FDA would say is “You have four corners on your label, and everything you say has to be within the four corners. And if you, Gilead, start saying this is valuable because we’re going to lower the rates of hepatocellular carcinoma, and lower the rates of liver transplants, that’s not in your label.”

LT: OK, is this going to be part of the PDUFA negotiations?

JM: It is. It’s part of the 21st Century Cures Act. We’re hoping it gets in the Senate bill. We must, as an industry, and for everybody, we must have a safe way for us to communicate value based on extrapolation of evidence. I’ve had discussions with policymakers, and the FDA, and I think we’ll get to a good place.

LT: Is this really why the industry has done such a lousy job of explaining or justifying its prices?

JM: No, that would be an oversimplification.

LT: You’ve got all these talking points about how R&D takes a long time, costs a lot of money. Nobody cares. We’ve heard it all before.

JM: Nobody cares, that’s right. What we have not done adequately well as an industry is communicate the overall value of the medicines we bring forward. It’s across two dimensions. One is the pharmacoeconomic benefit of reducing the cost of disease burden. It’s real. You can quantify it. There are many examples of drugs that reduce hospitalization, reduce mortality, reduce other morbidities and the costs associated with that. There’s no question there’s a near-term value proposition that drugs bring to the table.

LT: You can crunch the numbers.

JM: You can. You can justify it. The second part of it, which we’ve done a terrible job articulating – and it’s the most simple-minded articulation – is the fact that the drugs we pay for today are free for our children. They are free for our children’s children. They’re free because of Hatch-Waxman. It’s a social contract we have with innovators.

LT: That’s right, it is a social contract.

JM: We’ve said we’re willing to have a limited period of exclusivity, whatever it is, 10 or 12 years, and in return for that, we lose exclusivity and generics come into the market and essentially make the innovations free. If we don’t pay for innovation today, we’re actually depriving our children of access. We don’t do a good job communicating that.

LT: This is why the Daraprim case is so unfair. We as a society paid for that. Previous generations did. You can’t just come along, obtain a monopoly for a lifesaving drug, and hold it out there like a ransom. You can in strict, rational, legal, free-market terms. You can do it. But it’s not moral. It’s breaking the social contract. This is why people are so upset.

JM: Again, I want to thank Martin for doing what he did so we as an industry can reflect on the importance of medicines we bring forward, not only for near-term benefit and near-term cost-reductions, but more importantly, for the long-term.

LT: But it’s not that black-and-white, either. There are examples of innovators that abuse the system. Look at Enbrel. It’s a great drug, phenomenal. But what are they getting, a 35-year patent life? Through clever lawyering, the lifetime earnings from that drug are way bigger, and the patent life is way longer, than the Hatch-Waxman architects envisioned.

JM: Yes, but biosimilars have now been dealt with. Part of it was an issue with biosimilars. There’s complexity with the product-by-process. That’s been addressed. The other side of it, and I think this is the case with Enbrel, there are pre-GATT (General Agreement on Tariffs and Trade) patented materials, and submarine patents that have gone away. When the patent system, now after GATT, was changed to be 20 years from filing, that whole issue has gone away.

LT: You can’t play games to get permanent patents. That’s not fair, either. That’s gaming the system.

JM: That’s gone away.

LT: There are also 10 percent, 12 percent, whatever, annual price increases on patented drugs. And after a few years of doing that, it really adds up. Same drug. Double the price. And these are the so-called “innovators”!

JM: I agree. There, I think we have to reflect back on an article that Roy Vagelos wrote in 1991. I don’t know if you’ve seen it. He wrote it in Science.

LT: I haven’t.

JM: Read it. It’s as relevant today in 2015 as it was in 1991.

LT: And it speaks to who you are an industry, and what you’re about?

JM: It speaks a bit to that. Roy, who always believed in a moral corporation, and I couldn’t agree with him more, basically said we as an industry need to be fair about our pricing. We shouldn’t raise prices above the rate of inflation. Merck did that for many years.

LT: I ask this exact question all the time of executives. What’s a fair price for your product? I get a lot of blank looks. Maybe it’s because they’re thinking about it, and they don’t quite have the answer yet. But we need a system where we can arrive at a fair price between the innovator, and the payer, and the society at large. How do we agree on what ‘value’ is?

JM: Part of it is really understanding and articulating the value. The fair price ought to be consistent with a value proposition. Let’s put it this way. What’s the price of not having drugs for Alzheimer’s? What’s the price of not addressing hepatitis B infection?

LT: If you ask people on the street, are drug prices too high, they’ll say yes, across all parties. But if you ask people, “Do you want incentives in place for companies to develop new drugs against these horrible diseases?” They’d say yes to that, too. We want both.

JM: Right. We want both, and we need both. But the discussion has to be around value, not price. If you buy something and the consequence of buying it is you don’t have disease, and your children don’t have the disease, and your children’s children don’t have the disease, that’s incredibly valuable. The price has to be consistent with the value. But you said it earlier – it’s the time period in which you measure that value. If you measure the value as a payer might on their annual budget for the year, you can become very short-sighted around the value of a given medicine. If you measure value around the long-term impact of that medicine, and decreased morbidity over time, like with Sovaldi’s impact on liver cancer and transplants, then it’s incredibly valuable. Interestingly, [the U.K’s] NICE had no trouble with reimbursing Sovaldi and Harvoni.

LT: It’s a different system. A single payer system.

JM: Right, but one that has a long-term view.

LT: Here in the U.S. we don’t have that. People move from place to place, health plan to health plan. Who’s responsible for the long-term cost? How do you do this with gene therapy, which might come in a single-shot? Do we pay for it all upfront, or spread it out over time if the drug continues to deliver the value we think it should?

JM: It should be the payer’s responsibility, because they pay for all the other things (hospitalizations) too. They ought to take a longer-term perspective, even though we’re not in a single-payer system. They ought to look at the cost of medicines as a way to structurally lower their overall costs.

LT: Yeah, but they’re not set up that way. They’re fragmented, and have their earnings needs too.

JM: They’re fragmented, but the consolidation of those payers has allowed them to do what everyone in the industry says is fine. We negotiate with them. Look at the PCSK9 example. Look at the rebates occurring. It’s a great example of how the system can work. You’ve got a situation where Express Scripts, and Harvard Pilgrim and other payers are talking to these two companies who have very similar drugs out there…

LT: That can work, but only when you have real competition. When you have real alternatives.

JM: In almost all cases where there’s important innovation coming forward, you have competition. It’s true as long as the system isn’t broken, as long as the innovation incentive isn’t taken away. Look at hepatitis C. Plenty of competition. Look at PCSK9. Plenty of competition.

LT: What about rare diseases?

JM: Rare diseases, yes, but rare diseases are almost a different discussion. Third party payers, for the most part, will say ‘You know, it’s a small number of people, I know I have to reward the innovator for going into that small population, and I’m not going to be bothered by that cost in my system.’ They get more concerned when they’re dealing with big volumes of drugs that are more expensive.

LT: You said earlier that the industry is going to ‘check itself’ because of Shkreli. I’ve seen a change, in PhRMA and BIO throwing a couple members under the bus. That never used to happen. They’re drawing a line between gamesmanship and innovation.

JM: I think that’s totally appropriate. We need to make sure the public understands what we do. We are not Shkreli or Valeant. That’s an important message we delivered to the outside world, about what we stand for as an industry.

LT: But “checking itself”? What does that mean? Does that mean some kind of self-restraint, or self-regulation?

JM: No, you can’t even begin to go there for lots of legal reasons. Many of us who are leaders in the industry realize that this is an important moment in time. An event has happened thanks to a few bad actors. We need to be responsible and thoughtful about what we do as an industry. We are always thinking about value, but focusing the dialogue to the value is what many of us believe we have to do.

LT: It’s better than the alternative, which are blunt legislative actions in the form of price controls. People are talking about that.

JM: Obviously we are dealing with a presidential election. [ARCH Venture Partners’] Bob Nelsen wrote a fantastic Forbes op-ed. I completely agree with everything Bob said in there. Politicians have to be really careful. To use the pulpit and sort of paint the whole industry with political demagoguery is a dangerous thing to do.

LT: Especially at a moment of so much possibility. The science is so much better than it was 10 years ago.

JM: There is so much possibility. Look at the innovators, young companies, many of whom may be thinking differently about their capital-raising possibilities, in light of over $150 billion getting erased from sector, in just one Tweet. I think politicians need to be responsible.

LT: I think the industry needs to listen, too. To people, and the politicians, too.

JM: Yes, we do.

LT: Let me tell you, you’re all very fortunate to be in an industry where your economic underpinnings are still strong. I live in an industry where the economic underpinnings have been knocked out. My industry has been systemically devalued. It’s happened my entire career, every single year. Last week, the New York Times has a story about ‘death rates increasing among middle-aged white people.’ And everyone is shocked, at least if they live in the islands of Manhattan or San Francisco. But guess what? That’s not news to a lot of people. A lot of people have lost the American dream. They are not as privileged as those in this industry. The economic underpinnings of manufacturing, music, journalism, publishing, etc, have been eroded. Whole industries are being hollowed out. You guys are in a great position. A little humility would go a long way. Think about who you’re selling to.

JM: The industry, completely, is listening. It’s listening to the public, it’s listening to payers, it’s listening to politicians. We’re listening to everybody. We fundamentally believe in the value we deliver. We all do.

LT: It’s the value, as you say. It’s about what you GET. I picked on Enbrel there for a second, but I was at Partnering for Cures last week. I saw Debra Lappin, a patient advocate. She told the story about having ankylosing spondylitis. A horrible autoimmune disease. No hope. Her life was going down the tubes. Then one day in 2000, she gets Enbrel. And it’s like Lazarus. She has a whole new lease on life. She’s 15 years out now, and says she’s a new wife, a new mother, a new lawyer. She’s on a holy war to help patients. You look at the human potential that’s been unleashed, and I don’t think you can put that exactly in an economic model. Look at Kathy Giusti at the Multiple Myeloma Research Foundation. It’s been 20 years since she got a death sentence with multiple myeloma. Look at what she’s done with her life in those 20 years. THAT’s value. You’re unleashing human potential.

JM: Exactly. On top of it, talking about value, those drugs are going to be free. Those drugs will be free for our children. When you think about the value side of it, and that these drugs will have patent protection and the innovator will get rewarded, and then it becomes free. Interestingly, there’s a conversation in Europe where branded drug prices are lower. In Europe, they have a different social contract. Generic prices aren’t as low as in the U.S. It’s a different social contract. In Japan, you get an initial price, and there are price decreases that systematically happen over time. That’s their social contract.

LT: I’m not sure that’s totally fair either. I think some of those countries should be paying more for innovation. It puts the responsibility for the burden of R&D on the back of the American consumer. They are kind of free-riding.

JM: They are. And there are a lot of people who don’t like that either. But at the end of the day, we have a system that fosters innovation. We have a system that’s really delivering. Our industry pipeline, if you take a consolidated look at the industry pipeline, it’s off-the-charts amazing. To imagine that we’re developing the types of medicines in the pipeline--you couldn’t have imagined it 10 years ago.

LT: I agree. It’s WAY better.

JM: It’s so much better. In part, because we’re delivering better medicines, the regulatory environment has gotten better. Industry has to reflect on that. We’re getting more innovative. We have better science. Regulatory reviews are happening in a different way than before. It’s more science-based, and less about happenstance. As a society, we have to make sure we do this right. We have to be careful. Politicians have to be careful. What they should say is that drug prices, if they’re not grounded in value, don’t make sense.

LT: Are you and your colleagues in industry leadership concerned that this is a moment in which you could really screw this all up? That you might be the ones to run the whole thing over a cliff and end up with price controls?

JM: I won’t speak for the industry, it wouldn’t be appropriate, but many of my colleagues, and I, are concerned. We want to make sure that what we do is the right thing for innovation. Do we think that somehow legislation will occur in the future that will ignore the voice of the innovator? No, that won’t happen. Our country is founded on innovation and great things, and we know how great this industry is. People want cures. The American people would never say ‘the drugs we have today are OK. We’ll just stop here, we don’t need new stuff.’ Maybe Zeke Emanuel would say that. But I think the vast majority in the rest of the country would emphatically say “We want new medicines.”

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