The overlooked justification for high branded drug prices?
“The Biotech Social Contract is based on the premise that innovative drugs are worth the high prices biopharma companies charge while on-patent. Eventually, they’ll be practically free for society, forever. [It’s] a delicate balance between innovation and affordability.”
These provocative sentiments are shared by Peter Kolchinsky, the author of “The Great American Drug Deal”, PhD Virologist, and co-founder of RA Capital and the advocacy group No Patient Left Behind. Genericization is a key element in making the biotech social contract work for society.
Genericization is a crucial market event in pharmaceuticals. Innovators, payers, and clinicians plan for the “patent cliff” - the threshold whereby an existing drug loses market exclusivity and the price drops - of leading therapies. Both groups understand that following the patent cliff, standard-of-care therapies will continue to be utilized by broad swaths of society but at a substantial discount to current prices.
In a glaring omission of current pharmaceutical value assessment, traditional cost-effectiveness analysis does not account for the patent cliff of a product, instead carrying forward a branded price in the horizon of the analysis.
To calculate the true value of a drug, both the benefits today (as a branded drug) and the benefits tomorrow (as a cheap generic) must be considered.
Generalised cost-effectiveness analysis (GCEA) is a more comprehensive cost-effectiveness methodology that is gaining increased traction and asks more audacious questions of societal value assessment:
The patent cliff that a product reaches is reflected in an additional value petal which incorporates drug life cycle pricing. You can read more about GCEA in the FIECON newsletter “The Road to GCEA” and the No Patient Left Behind website.
In consideration of the patent cliff, high drug prices for innovative therapeutics should be evaluated more like a mortgage for society vs rent: the initially high prices are justified by the drive to recoup research and development costs and incentivize innovation, but once the mortgage is paid, society reaps the benefits indefinitely in the form of cheap generics for pervasive use ad infinitum (for as long as the active substance serves society).
领英推荐
What threatens the biotech social contract and the patent cliff? Undue delays in genericization. There are some instances where a drug can’t easily go generic, either because of molecular or delivery characterises, patent law, or even clinical trial enrolment. A hypothetical example of a clinical trial enrolment issue would be a curative one-time gene therapy administered at birth. Once on the market, it would be unlikely that any parent would be willing to enrol their child in a clinical trial for an untested alternative treatment (if such an in-vivo equivalency study was required for a generic or biosimilar therapy).
The stakes are big to get this right - non-generalizable drugs lead to societal deadweight loss as the manufacturer has a ‘forever monopoly’, resulting in indefinite high prices and reduced incentive to innovate. It’s estimated that 2% of the Centers for Medicare & Medicaid Services (CMS) drug budget is spent on drugs that may fall into these forever monopolies.
One solution to regulate situations where forever monopolies arise would be to implement a contractual mechanism that applies after a fair monopoly phase (7-10 years).
For example, a drug could be synthetically genericized through contractual agreements that mandate the biopharmaceutical company to reduce its price to an index after some time if prices weren’t naturally falling because of a lack of generics or other competition. This keeps intellectual property in the hands of the innovator.
Alternatively, a contractual agreement requiring a manufacturer to share its proprietary knowledge with competitors could be mandated, inducing price competition. Similar policies already exist in biodefence, that ensure manufacturers collaborate and produce vaccines at reasonable prices.
The biotech social contract is a special implicit agreement because it acknowledges that today's high-priced branded drug prices fuel the continued discovery of tomorrow’s medical advances, eventually leading to high-value, affordable generics that will benefit everyone in the long run.
References: