MassBIO’s drug pricing concerns don’t add up

Big pharma should stop making threats about leaving

ONE OF THE MORE PUZZLING arguments the Massachusetts biopharma industry is putting forward during the Beacon Hill debate over Medicaid drug pricing is that innovative drugs won’t be developed and the state economy will suffer if the approach favored by Gov. Charlie Baker and the Senate becomes law.

The argument is simply poppycock.

The reality is that rising drug prices are on track to push our already unaffordable health care system over the edge. Just last month, Novartis received FDA approval for a new one-time gene therapy for spinal muscular dystrophy, Zolgensma, which the company is set to launch at a price of $2.1 million. Because of the incredible cost, Novartis has also announced its intention to allow insurers to pay the drug cost over a period of five years, and even pay back insurers if the drug does not work as planned.

Steven Pearson, the president of the Institute for Economic Review, which attempts to assess the value of drugs, said Zolgensma’s price “falls within the upper bound of ICER’s value-based price benchmark range,” which is $1.2 to $2.1 million.  Justification for even that price results in large part from the fact that the drug will prevent future medical care spending for those afflicted with spinal muscular dystrophy

If all that is true, then perhaps $2.1 million, at the top of the range of “fair value” per ICER analysis for this new breakthrough therapy, can be defended for some period of time as a necessary cost to support medical care discovery for breakthrough treatments for rare diseases. That’s something we should all care about.

Sadly, this Zolgensma example may be the exception rather than the rule.  If you apply the ICER methodology to many other drugs paid for by our state Medicaid agency and private insurers, the dollars being handed over to pharmaceutical companies for medicines are well beyond their value point.

That is what Gov. Charlie Baker is trying to reign-in with his proposal to allow direct price negotiations with drug manufacturers and, if those efforts fail, to require manufacturers of products that cost at least $25,000 a year to go through a public review process that could conclude with a referral to the attorney general’s office for violation of state consumer protection law. Think about it as a check on Novartis if it had decided to price Zolgensma above $2.1 million, perhaps closer to the initial $5 million price that the company had said it was considering.

The Senate, in its budget proposal, went along with the governor’s plan. But the House approved an amendment pushed by the Massachusetts Biotechnology Council that shielded some pricing information from public view and eliminated the attorney general referral.  The net effect of the watered down House approach would likely only increase the probability of our state having to pay prices well above fair value for some expensive medicines, and likely deny our state most of the estimated $70 million in total Medicaid savings the Baker administration had predicted for the next fiscal year from its proposal.

MassBIO CEO Robert Coughlin, a former House member, has framed the debate around undue state oversight that may lead to creating a hostile environment for biopharma companies to do research in Massachusetts. “In proposing this added tax, the governor should know that he risks stifling the innovation economy that has thrived in Massachusetts as a result of an enhanced partnership between industry, academia, and government,” he said. “Imagine what Massachusetts would look like without the successful and growing biotech hubs of Cambridge and Boston?”

Two things caught my attention in Coughlin’s statement.

First, he notes that the net effect of the governor’s proposal would be not a savings of $70 million, but rather a decrease in “MassHealth total spending by less than 0.005 percent.”  With $17.7 billion in total annual Medicaid spending projected for Massachusetts, that is slightly less than $1 million per year.

If Coughlin’s estimate about cost savings is closer to reality, why would an industry with billions of dollars of profits make such fuss over the possible loss of $1 million in revenue to claim that the effect of the legislation would be to “stifle the innovation economy”?

Even more puzzling is the image that Coughlin portrays of the biotech hubs of Cambridge and Boston. His argument seems to be that, if the Legislature moves forward with a proposal along the lines of the governor’s approach, we will be putting at risk our state’s ability to hold on to the local biopharma industry that employs around 70,000 people, about half of which are research and development jobs.

It’s as if the industry sits on a wagon, and if the wagon driver doesn’t like where he/she is currently parked, or gets upset because of a state or local law that is passed, they can simply say giddy-up and take their wagon elsewhere.

Coughlin wants to scare us into believing that, in some fit of anger, the wagon may just hitch up to Kendall Square and move it to North Dakota, if Massachusetts passes a law to try to restrain some of the untoward monopoly pricing that we all face.

Give me a break.

According to a trade industry article last year looking at the US biopharma industry, the cluster located in Boston/Cambridge ranks number-one in NIH funding (4,735 awards totaling $2.457 billion), venture capital funding ($6.162 billion in 156 deals), and lab space (26.8 million square feet). The major biopharma companies are here in the Boston/Cambridge area because of their ability to access capital and talent. Our scientific research universities, teaching hospitals, and all of the people they attract are not going anywhere. Is the biopharma industry going to hook up a wagon to our hospitals and universities and drag them elsewhere, too?

The San Francisco area, where the nation’s second largest biopharma cluster is located, doesn’t seem to be running scared that the industry is preparing to pick up and move away notwithstanding California’s passage in 2017 of a first-in-the-nation drug price increase notification and transparency law.  California remains number one as a state in terms of overall employment in the biopharma industry and retook number one from Massachusetts in biopharma research and development jobs this past year.

Trying to intimidate the Legislature and the public with dire scenarios is something well known to pharma industry lobbyists.  Witness what just happened in Maryland, where pharma lobbyists tried to scare that state’s legislature and public by saying that a law creating a state board that could cap payments for ultra-expensive prescription drugs could lead to scenarios which would leave cancer patients without cutting-edge treatments or cause a mass exodus of state employees.

So this notion that we are putting at risk the state’s economy and the research and development jobs that are here if we pass the Senate version of the budget is another one of those scare tactics.   Even if we could pass very aggressive price controls on all drugs sold in the state (we can’t, it would likely violate federal law and the US Constitution), the biopharma companies operating in our state and their research and development efforts would still remain here because they need access to our state’s capital and talent—the necessary inputs for future biopharma profits.

Yes, if federal laws were passed that drastically reduced the monopoly prices that biopharma companies could charge while under patent protection, it is possible that they could overshoot and, in so doing, affect future investment and innovation in the biopharma space.  But we have a long way to go before that worry is anywhere near to reality.

So whatever we can do at a state level in Massachusetts via legislative efforts to slightly reign-in Medicaid or commercial spending for a few expensive and overpriced drugs, there is no real risk to either the future of biopharma drug development, or the Massachusetts economy and jobs from such an important legislative effort.

Meet the Author

Paul A. Hattis

Associate professor, Tufts University Medical School
Let’s hope our House and Senate budget conferees don’t get distracted by fallacious industry arguments.

Paul A. Hattis is an associate professor at Tufts University Medical School.