Over the past several months, President Trump has given the biotech industry a preview of the grand bargain he expects from it: It will accept more U.S.-based manufacturing and lower drug prices for government programs, in return for tax reform that would benefit the industry, tougher trade deals that would better protect U.S. biotech patents (in Canada, China, and elsewhere), improved market access in the U.K. and in Germany and other EU countries, and, most important, streamlined Food and Drug Administration regulations.
His broadsides against the industry, both during the 2016 campaign and after his November 8 victory, have left executives and investors nervous, and with good reason. His rhetoric on drug pricing is indistinguishable from that of Senator Bernie Sanders. In early January, in his first press conference as president-elect, Trump said that the industry was “getting away with murder” on drug pricing, adding that “pharma has a lot of lobbies, a lot of lobbyists, and a lot of power,” with “very little bidding on drugs.” He said that America, meaning the federal government, is through Medicare, Medicaid, and other entitlement programs the “largest buyer of drugs in the world, and yet we don’t bid properly.”
Three weeks later, at a White House meeting with the CEOs of six of the largest biopharma companies (representing a mix of biotech and traditional pharmaceutical firms), Trump struck a more conciliatory tone but kept his crosshairs on pricing. “For Medicare, for Medicaid, we have to get the prices way down.” But “we’re also going to be streamlining the process, so that, from your standpoint, when you have a drug, you can actually get it approved if it works, instead of waiting for many, many years.” He promised to change “a lot” of FDA rules.
Modernizing how the FDA regulates drug development at the cutting edge would give greater autonomy to patients and physicians, as medicine transitions from treating the signs and symptoms of disease to precision medicine, repairing breakdowns in health at the molecular or genetic level — the real causes of chronic diseases, including Alzheimer’s and cancer. This means combining large databases that routinely collect information on patients and potential treatments with reliable diagnostics (including genetic tests) that can help us match the right patient to the right treatment at the right time. Medicine improves as you and your doctor consult and interact with the new technology. Rather than issue approvals in a top-down, gatekeeper style, the FDA would gradually come to serve more as a curator of information and evidence, assuring the market that drugs and diagnostics perform as advertised but leaving more and more of the matchmaking between medicines and patients to expert physicians and computer programs that would be constantly scanning databases and making suggestions about what was likely to work for you.
Ironically, the United Kingdom, whose government-run National Health Service (NHS) is widely admired on the left, has announced plans for sweeping regulatory reforms to accelerate drug research and development and poach biotech investment from the U.S. The strategy hinges on using the massive amounts of data that the NHS collects on patients to help drug makers design, develop, and test new medicines on the patients who are most likely to respond. George Freeman, appointed as the U.K.’s first life-sciences minister in 2014 (he now chairs Prime Minister Theresa May’s policy board), has said that this is a natural evolution: The NHS’s hospitals are “the adopters, purchasers, and users of late-stage drugs” and so should become an even more “fundamental part of the development process.” In return for rapid-cycle drug development in targeted cohorts of patients, the industry will agree to be paid “different prices depending on how well drugs work for individual patients,” as Chris Smyth of the Times of London reports.
That’s the strategy that the Trump administration should embrace: faster development of precision medicines in return for “pay-for-performance” contracts. Streamlined drug development has to be matched by a market-based pricing system. Today, government regulations often prevent innovator companies and insurers from entering into pay-for-performance contracts that would link reimbursement to real-world outcomes.
Accelerating drug-development timelines and lowering costs for developers is the only way Trump can cut this Gordian knot, leaving drug companies to compete on price and performance and bid their products one against another. That’s what we’ve seen, for example, with Gilead’s Sovaldi, a high-priced drug for hepatitis C. In 2013, Sovaldi was launched at a price of $84,000 for a single twelve-week course of treatment. Gilead’s pricing “will break the country,” said Steve Miller, the chief medical officer for Express Scripts, which negotiates drug prices on behalf of public and private employers. “It will make pharmacy benefits no longer sustainable. Companies just aren’t going to be able to handle paying for this drug.”
But they did, especially after Gilead’s competitors Merck and AbbVie launched their own hepatitis C drugs. A price war broke out, lowering the cost of the drug by about 50 percent. Forty-two thousand dollars might still seem like a lot to pay for a drug, but remember that it’s a cure for a disease that can lead to liver cancer or liver failure, costing hundreds of thousands of dollars. In other words, the treatment is eminently “worth it,” and all the more so after its cost was halved.
Faster development of innovative medicines would be a boon for patients. A 2014 report from the Manhattan Institute found that advancing a single generation of medicines through the FDA just a year faster would deliver $4 trillion in value to patients in the form of longer life expectancy. A report from the Alzheimer’s Association suggested that a drug that delayed the onset of Alzheimer’s by five years would, if developed by 2025, save Medicare, Medicaid, and patients $220 billion by 2030.
As for addressing drug prices head-on, it’s tricky. High prices, for example, compensate innovators for the high risks they accept. The Tufts Center for the Study of Drug Development estimates that it costs $2.6 billion and takes about a decade for manufacturers to bring a single drug through clinical trials to FDA approval. Only about 11 percent of all medicines that enter human testing ever make it that far. Government-imposed price controls would send investment capital fleeing to less risky sectors, such as software or commercial real estate, that face fewer regulatory barriers and no profit caps.
Trump is right that the current method for purchasing new medicines, paying by the pill, discourages competition and efficiency. If we want to know which medicines deliver the best value, we need to track outcomes — and increasingly we can, through electronic medical records and other sources of real-world evidence.
Paying for those bottom-line outcomes — keeping cancer patients living longer than they would on chemotherapy, for example, or preventing heart attacks in high-risk patients — can also drive competition for delivering the best result at the best price. Under pay-for-performance contracts, drug companies would shoulder more of the financial risks, as insurers would not pay, or would pay much less, if their medicines didn’t work and treatment failed. The efficacy of drugs could also be compared with that of surgeries, non-medical interventions (e.g., exercise and diet), or even just doing nothing. That would encourage hospitals, doctors, insurers, and drug companies to use data to tailor treatment strategies to the needs of individual patients.
In early March, the Trump administration announced the president’s nominee for the position of FDA commissioner: Scott Gottlieb, a physician and former FDA deputy commissioner currently working as a senior fellow at the American Enterprise Institute and as a venture partner at New Enterprise Associates. Gottlieb is likely to come under fire from Democrats for his work with industry and investors, but his experience makes him well suited to lead the agency at a time of rapid technological change. He understands not only the brisk pace of innovation that is challenging medical practice and FDA regulators but also the need to update how we pay for medical miracles.
The sharp uptick in the number of transformative medicines reaching patients — not just drugs such as Sovaldi but also gene therapies and other curative treatments likely to be available in the next several years — can deliver tremendous benefits to patients relatively fast and reduce costs for years to come. These technologies, Gottlieb maintains, require “an investment mentality when it comes to reimbursement,” including new financial instruments (akin to state bond offerings for infrastructure investments) that could allow states, health plans, or even providers to finance large up-front purchases of one-shot cures that are paid off over time.
If approved by the Senate, Gottlieb will inherit an agency that already has a mandate from Congress to accelerate the development of data-driven precision medicines and diagnostics in accordance with the 21st Century Cures Act, passed with overwhelming bipartisan majorities and signed into law by President Obama in December. The act calls for, among other things, the FDA to develop additional tools for evaluating new medicines through a public-private consortium.
Since the height of the AIDS crisis in the late 1980s, Congress, patient groups, industry, and the FDA have worked to revise standards for drug development. While maintaining the traditional practice that new drugs are approved for marketing only after demonstrating “substantial” evidence of efficacy, the FDA has updated its protocols for evaluating medicines many times, tunneling holes through many of its own regulations. Congress added a “breakthrough therapy” designation in 2012 with the support of the FDA and cancer advocates, enabling the agency to approve medicines if they are shown to work in early-stage trials, sometimes after only a few dozen patients have been treated. Since 2012, cancer medicines with “breakthrough” designation have been approved two years faster than have medicines without it.
Evidence is growing that diseases whose clinical symptoms look the same are actually clusters of different diseases at the molecular level. Researchers agree that “cancer,” for example, is not one disease but hundreds. Some diseases, including cancer and HIV, mutate in response to drug treatment, complicating matters still further. One size doesn’t fit all.
Interpreting and applying the tsunami of data and new drug candidates (in the case of cancer, hundreds over the next several years) rushing at researchers and physicians is the biggest challenge we now face. If we make development smarter and faster, the FDA will approve drugs after reviewing preliminary evidence that they are reasonably likely to yield benefits for patients. It would then require companies to collect evidence on their real-world impact. Lives would be saved and drug-development timelines reduced.
The key is for regulators, companies, and researchers to set up “use cases” — standards that define, for instance, how data from electronic medical records, diagnostics (including genomic sequencing), and even patient surveys can be reliably used to approve new medicines, add new indications for recently approved medicines, capture data on drug side effects and their impact on patients’ quality of life, and match experimental medicines with patients who are likely to benefit from them.
Rather than running, at enormous cost, a few big trials to approve drugs based on pre-market tests, we’ll run lots of smaller trials and continue to collect data on the performance of drugs after they reach market, for as long as the drugs remain useful.
Under the 21st Century Cures Act, the FDA created an Oncology Center of Excellence (OCE), which brings together FDA staff who have experience in cancer drugs, biologics (therapies derived from biological sources), and diagnostics. The center integrates many skill sets that would otherwise be fragmented across the agency. Developing a national structure for rapid-cycle drug development should start with the OCE. Cancer research is where the science of precision treatments is the most advanced and where regulators are most comfortable with risk, tending to be flexible when confronted with new approaches. Moreover, cancer patients, whose remaining life can often be measured in weeks or months, are rightly demanding more breakthroughs in treatment.
Going forward, the FDA can use the OCE to help establish a national network of expert oncology groups and hospital systems. This would be helpful not only for the development of new drugs but also for cancer patients who stand most in need of new treatment options. (Of course, to ensure informed consent, patients in these settings would be advised of the provisional nature of the treatments, and poorly performing treatments should be discontinued as a matter of course.)
Researchers at the venture-capital firm Venrock write in The New England Journal of Medicine that conditional approval for drugs, when linked to post-marketing surveillance, meaning study and follow-up, could have a “profound effect” on drug development, “allowing smaller development programs to achieve greater success.” They estimate that development costs could be reduced by 90 percent and development time by 50 percent. Christopher McKenna, general manager at drug-development consultant Thomson Reuters, believes that “identifying targets for drug discovery and identifying patients for clinical studies early in the process will reduce drug development cost and cycle times sufficiently,” resulting in “biopharma portfolios . . . filled with hundreds of drugs that each generate $40 million to $50 million,” as opposed to a dozen or so blockbusters that generate $1 billion or more annually.
Drug companies can complain, but their best bet would be to embrace the grand bargain that Trump is offering. Pay-for-performance contracts and innovative new credit structures would reward innovative drug makers, big and small, and make them natural allies of tech companies that are eager to “disrupt” America’s $3 trillion health-care economy, which experts on both the left and the right agree is plagued by inefficiency and waste. These new ways of paying for medicines would also help providers and insurers take a much longer-term view of their effects on patient health.
The drug industry is facing a political backlash that Trump undoubtedly wants to use to his advantage in negotiations. But the administration should avoid top-down price controls, a bad fit for the kind of bottom-up innovation that requires a nimble biotech industry. Having Gottlieb at the FDA will help modernize FDA regulations to meet 21st-century challenges — delivering faster innovation, lower drug prices, and more options for patients.
Long-term investment in a healthier population over time is the right way to think about drug pricing in an era of rapid medical innovation. Medicines that deliver better health while reducing the need for medical labor from doctors, nursing homes, and hospitals can also boost productivity, by helping Americans stay healthy well into old age. And better health at lower cost is exactly what Republicans should be focused on.
– Mr. Howard is the director of health policy at the Manhattan Institute and the author of Unlocking Precision Medicine.