Misplaced Aim: Drug Pricing Scrutiny

Targeted for its pricing practices, the pharmaceutical industry continues its level-headed drive toward efficiency.

By Karen Langhauser, Chief Content Director

You’ve probably heard mention of drug prices once or twice over the past year. From Hillary Clinton’s tweet heard ’round the biotech world that shot biotech stocks down 4.7 percent with just 111 characters, to President Trump’s press conference comment that cost the biotech market $24.6 billion in 20 minutes-time, like it or not, drug prices have become a high-profile item for the public and policymakers.

Industry trade groups are well aware of drug pricing concerns and have responded with attempts to rebrand and reposition pharma amid public scrutiny. The Generic Pharmaceutical Association (GPhA), the country’s largest trade group representing generic pharmaceutical and biosimilar companies, recently rebranded itself as the Association for Accessible Medicines in order to stress the cost savings associated with generics. The rebrand coincides with the association’s national campaign dedicated to containing the cost of prescription medicines. Pharmaceutical Research and Manufacturers of America (PhRMA), the pharmaceutical industry’s largest trade and lobbying group, has also launched a multi-year campaign titled “Go Boldly,” focusing on the industry’s role in developing new, innovative treatments.

Despite the high-profile nature of drug pricing concerns, according to the “Health, United States” report published by the Department of Health and Human Services in 2016, prescription drug spending represented only 11.6 percent of the $2.6 trillion spent on personal healthcare in 2014 (the bulk of expenditures came from hospital care and physician services). And climbing drug costs are only one factor contributing to our country’s rise in prescription drug spending. Population growth, increases in per-person prescriptions and economy-wide inflation also increase annual spend.

“While drug prices aren’t a huge piece of the overall healthcare cost, they are something that is very visible. Drug pricing pressures are real because that’s what people see and complain about. Because of this visibility, drug companies are under pressure to get pricing down,” says Bill Brydges, industry veteran and founder of Brydges Group, a consultancy focused on enhancing biopharmaceutical industry efficiency in order to produce higher quality, lower cost products.

At the time this article was written, the details of President Trump’s plan for the pharmaceutical industry remained ambiguous. PwC Health Research Institute’s annual report calls 2017 “a year of uncertainty and opportunity,” and perhaps no industry understands that as well as the pharmaceutical sector. Regardless of potential policy changes coming from Washington, pharma continues its steady drive toward increased efficiency and lower costs — neither of which are new concepts to the industry — while pursuing innovation that can contain costs and ultimately, help save lives.

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TRUMP CARD
“I think every president has his own personality and his own way of working,” Pfizer CEO Ian Read diplomatically told NPR “Here & Now” host Jeremy Hobson in a recent interview. Quickly developing a reputation for his shifting tone and somewhat unconventional decision-making process, President Trump has been quite vocal about the drug pricing issue. He opened his January meeting with high-ranking pharma execs by saying, “The U.S. drug companies have produced extraordinary results for our country, but the pricing has been astronomical for our country. We have to do better.”

But with the granularity of Trump’s plans not yet clear, the industry is merely speculating on the possible effects — if any — that Trump’s proposals will have on pharmaceutical manufacturing. While the general consensus within the industry is that it’s unlikely that Trump’s proposals will turn into policy, the state of uncertainty warrants a discussion of possible “what ifs.”

Corporate Tax Reform

With the U.S corporate tax rate being the highest in the industrial world, tax inversion deals are not new to the pharma industry. Put simply, these deals involve a U.S. pharmaceutical company buying a smaller foreign competitor in a lower-tax nation and shifting the company’s headquarters overseas to reduce taxes. While many policymakers view this practice as tax-dodging, most pharma execs simply see it as a way to level the playing field.

No matter how you view it, the fact remains that U.S. pharma companies have money overseas that cannot economically be brought back into the U.S. According to data from U.S. non-profit research and advocacy group Citizens for Tax Justice, Pfizer, Merck, J&J, Amgen and Eli Lilly collectively have $250 billion in overseas funds. A Trump tax reform, could, in theory, enable pharma companies to invest that money in the United States.

But in what form? During his January meeting with pharma execs, Trump said, “I want you to move your companies back to the United States. I want you to manufacture in the United States.” Yet the global nature of the pharmaceutical industry leads to uncertainty in terms of the feasibility of moving drug manufacturing back to the United States, and even if it does happen, it remains to be seen if this would have any bearing on drug pricing.

Jim Miller, president of business development service PharmSource, said in a recent blog post, “Realistically, moving biopharma manufacturing back to the U.S. in a meaningful way will be a seven- to 10-year process.” Miller went on to explain that manufacturing capacity is already tight in the U.S. We don’t have enough modern facilities to manufacture drugs in-country, especially as drugs become more and more sophisticated. The alternative — designing and building new facilities (which also involves sourcing key equipment) — takes years and billions of dollars.

FDA Reform
Similar to drug prices, the FDA (and its drug approval backlog) is very visible and thus bears the brunt of criticism from public and political leaders regarding the often-misunderstood drug approval process. Additionally, Trump’s executive order calling for a government-wide federal hiring freeze comes at a bad time for the FDA, which is reportedly already short staffed by close to 1,000 employees — although the freeze includes exemptions for public safety, which could potentially include public health.

Unhappy with what he sees as a drug approval process that is too lengthy due to excessive “red tape,” Trump is looking to streamline the FDA through reduced regulation. The connection between this and drug costs is the thinking that an overly strict and risk-averse FDA contributes to the amount of clinical data needed to get drugs approved, thus contributing to the overall cost of drug development.

But what are the chances of Trump’s less robust FDA coming into fruition? According to Jim Shehan, head of Lowenstein Sandler’s FDA Regulatory Practice, it’s relatively unlikely. “Radical change is not something the majority of industry is behind. The industry needs a stable, predictable FDA. Larger pharmaceutical companies benefit from having a rigorous FDA approval process in several ways,” says Shehan.

While the main concern associated with a less robust FDA review process is patient safety, drugmakers also have concerns that a more relaxed process will make it harder to secure insurance coverage for new medications. Less government oversight is generally welcomed in most industries, but the drug industry relies on that oversight to prove the value of its products to those prescribing and paying for them. Payers need that third-party proof that a new drug is better than what is already available.

“There’s not a big groundswell of support for significantly loosening FDA approval standards. Of course, everyone would like things to go faster under the current system, but what a lot of people outside the industry don’t understand is that some of the ideas being proposed — accelerated drug approvals for example — are not radical ideas; they are already in place, and are used regularly,” says Shehan.

STEPS AHEAD
The post-blockbuster era pharmaceutical industry is no stranger to the need to increase efficiencies and reduce costs. From R&D to production facilities to its entire supply chain, the industry has been forced to re-evaluate efficiency levels in order to better control the cost of manufacturing drug products. A recent CapEx survey of Pharmaceutical Manufacturing readers revealed that the number-one, day-to-day operational goal in regards to manufacturing operations was in fact the drive to boost overall efficiency.

When it comes to designing and building manufacturing facilities, pharma has increased its emphasis on up-front cost savings. Different approaches to virtual plant construction now allow design teams to work out design problems and inefficiencies prior to actual construction. It is not uncommon for design to utilize building information modeling (BIM), a process that involves creating digital representations of the physical and functional characteristics of the facility, or 3-D design software that allows teams to visualize concepts and simulate how designs will perform.

Emerging design review services, such as IDEA2.0, review proposed designs of new or retrofit capital projects before construction begins, looking for ways to optimize efficiency. The service is offered at no cost, with IDEA2.0 instead taking a percentage of savings identified.

“This is an example of things done upfront — before the design is even solidified — that were never thought of in the past. Previously, the emphasis was on quality and speed to market. The cost aspect now has more weight. Quality and speed to market are a now considered a given, with an added concentration on getting the costs down,” says Brydges, who partners with IDEA2.0.

Another ongoing efficiency effort by the pharma industry surrounds the idea of continuous processing. Continuous Processing, though not without its challenges (specifically in terms of process monitoring and quality assurance), is now not only accepted but encouraged by regulatory agencies. If properly implemented, CP promises shorter processing times and increased efficiency. Smaller equipment and facilities would make for more flexible operations with lower capital costs. This could translate to safer, lower-cost drugs for patients. (For an in-depth discussion of true continuous manufacturing, see “Next Generation True Continuous Manufacturing” on page 32 of this issue.)

For plants that are up and running, data management — more specifically, data utilization — continues to expand potential cost savings. Pharma plants generate a huge amount of data, and savvy manufacturers are increasing their efforts to put this data in a format that makes sense and can be used to their advantage. Properly contextualizing data gives plants actionable insight into cost-saving areas such as machine downtime, quality issues and supply chain inefficiencies.

“The ability to make data useful is a critical capability as the industry continues to face strong pressure for lower prices and consistent quality. Pharmaceutical companies already have lots of raw data, but must first solve the data variety challenge to extract actionable intelligence. The leaders are driving operational efficiency and productivity through real-time visibility across their plants and CMOs. Additionally, as interest increases in distributed manufacturing for emerging markets and a stronger focus on continuous manufacturing, a standardized analytics layer is the key to ensuring continued high quality,” says Ryan Smith, vice president, product and engineering, Sight Machine.

With a focus on manufacturing analytics, Sight Machine can offer clients a contextualized dashboard along with advanced analytics that takes insight from every plant and every supplier and gives them immediate and actionable insight into cost-saving things such as machine downtime, quality issues and supply chain inefficiencies. Their platform is powered by the industry’s only Plant Digital Twin — essentially a software model that uses sensor data to mirror a series of manufacturing processes — generating insights for every machine, line batch and plant throughout an enterprise.

Facing scrutiny on its pricing practices and a wave of political uncertainty, overall pharmaceutical manufacturers are staying level-headed. Their focus remains largely inward, as they continue to increase manufacturing efficiencies in order to bring better quality products to market quickly and cost-effectively. 


 

REFERENCES

National Center for Health Statistics. Health, United States, 2015. Hyattsville, MD. 2016.

PwC Health Research Institute. Top health industry issues of 2017: A year of uncertainty and opportunity. 2017.

NPR: Here & Now. Pfizer CEO On Trump, Drug Prices and the FDA. February 2017.

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